Cunningham v. Metropolitan Life Ins. Co., 83-445

• Decision Date: 03 January 1985
• Docket Number: No. 83-445,83-445
• Citation: 121 Wis.2d 437,360 N.W.2d 33
• Parties: Michael A. CUNNINGHAM, Plaintiff-Appellant-Petitioner, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 33

360 N.W.2d 33

121 Wis.2d 437

Michael A. CUNNINGHAM, Plaintiff-Appellant-Petitioner, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Respondent.

No. 83-445.

Supreme Court of Wisconsin.

Argued Sept. 5, 1984.

Decided Jan. 3, 1985.

F.M. Van Hecke, Milwaukee (argued), for plaintiff-appellant-petitioner; Van Hecke & Mank, S.C., Milwaukee, on briefs.

James O. Huber, Milwaukee (argued), for defendant-respondent; Richard M. Esenberg and Foley & Lardner, Milwaukee, on briefs.

D.J. Weis and Johnson, Weis & Paulson, Rhinelander, amicus curiae, for Wisconsin Academy of Trial Lawyers.

WILLIAM A. BABLITCH, Justice.

Michael Cunningham seeks review of a court of appeals' decision that Metropolitan Life Insurance Company (Metropolitan) was equitably subrogated to Cunningham's interest in the settlement proceeds of Cunningham's wrongful death action against third-party tortfeasors.

The court of appeals held that the applicable terms of Metropolitan's group policy which contained a "Group Hospitalization and Physicians' Services Benefits Insurance Rider" and a "Group Medical Expense Insurance-Extended Coverage" rider under which Cunningham received benefits for his daughter's care, constituted a contract of indemnity and not investment, and Metropolitan was therefore equitably subrogated to Cunningham's claims for that care. We hold that the specific language of Metropolitan's group medical expense insurance-extended coverage rendered that portion of the policy indemnity insurance and that an insurer who pays benefits under that portion of the policy is equitably subrogated to the insured's claims, notwithstanding the absence of an express subrogation clause. We further hold that the specific language of Metropolitan's group hospitalization and physicians' services insurance rendered that portion of the policy investment insurance, and in the absence of an express subrogation clause, the insurer who pays benefits under such an investment policy is not equitably subrogated to the insured's claims. Given that the record before this court fails to disclose what portion of Metropolitan's insurance proceeds were paid under each of the riders, and what portion of the settlement proceeds presently in trust were paid under each of the insurance categories, this court is unable to determine to what extent Metropolitan is equitably subrogated to Cunningham's claims against third-party tortfeasors. We therefore remand to the trial court for further proceedings consistent with this opinion.

Background

The parties stipulated to the facts. On September 11, 1978, Helene Cunningham, the plaintiff's minor daughter, was involved in an automobile accident. She sustained serious injuries, for which she was hospitalized, and which ultimately resulted in her death four months later.

At the time of the accident, Michael Cunningham was employed by the American Can Company. As an employee, he and his dependents were covered under Metropolitan's group insurance policy which contained two riders: 1) "Group Hospitalization and Physicians' Services Benefits Insurance Rider" and 2) "Group Medical Expense Insurance-Extended Coverage". Metropolitan paid Cunningham $80,069 in benefits, representing medical expenses incurred by Cunningham, as a result of his daughter's injuries. Section Q-1(d) of the medical expense portion stated that:

"If benefits have been paid hereunder on account of services received by the Employee or by a Dependent and thereafter it is established that the charges for such services were not paid by the Employee or the Dependent, or said Employee or Dependent was otherwise reimbursed therefore, the Insurance Company shall be entitled to a refund of the amount of the benefits paid which is an excess of the benefits that would have been payable based on the actual charges incurred and paid by the Employee or the Dependent."

Section 1. (A)(7) of the hospitalization and physicians' services portion of the group policy provided that:

"The hospitalization benefits otherwise provided for any hospital confinement of the Employee shall be reduced by any benefits paid or payable on account of hospital confinement for the same period or any part thereof from any fund, other insurance, or other arrangement, provided or established in conformity with any state or other governmental disability or cash sickness or hospital benefits law."

The parties stipulated that the policy contained no express subrogation clause.

Cunningham made and settled claims for the wrongful death of his minor daughter against third-party tortfeasors, including the liability insurer of the automobile in which Helene was riding. The parties agreed that $20,000 of the settlement proceeds from the liability insurer would be held in a trust account pending a judicial determination of Metropolitan's subrogation rights. If subrogation rights were found to exist, the parties agreed that the $20,000 plus interest, less certain disbursements, would fully satisfy Metropolitan's claim. The policy was appended in its entirety to the agreed statement of facts.

On the basis of these stipulated facts, Cunningham moved for summary judgment. The court denied this motion on December 2, 1981, finding that the group policy was one of indemnity. The parties subsequently stipulated to a supplementary statement of facts in light of the trial court's determination that the policy was an indemnity contract and that Metropolitan had subrogation rights. It was agreed that Cunningham had been made whole by Metropolitan's payments, the settlement proceeds of the wrongful death claim, and further settlement proceeds from another contributing tortfeasor. An additional $5,248.75, representing 40 percent of another settlement from a contributing tortfeasor, was placed in the trust account. The trial court then ordered judgment for Metropolitan.

On Cunningham's appeal, the court of appeals affirmed the trial court's judgment. Relying on this court's decision in Rixmann v. Somerset Public Schools, 83 Wis.2d 571, 266 N.W.2d 326 (1978), the court determined that the applicable provisions of the policy provided coverage "for the actual medical expenses incurred", rather than for a "fixed sum upon the occurrence of a specified event." Cunningham v. Metropolitan Life Ins. Co., 116 Wis.2d 331, 336, 342 N.W.2d 60 (Ct.App.1983). Therefore, the court said, the policy was an indemnity contract, not an investment contract, and Metropolitan was equitably subrogated to the proceeds of Cunningham's tort recovery. Id. at 339, 342 N.W.2d 60.

Cunningham subsequently filed a petition for review, which was granted. The sole issue for review is:

Under the specific language in the group medical and the group hospitalization riders under which Metropolitan reimbursed Cunningham for his daughter's medical expenses, is Metropolitan subrogated to Cunningham's recovery of expenses from third party tortfeasors in the absence of an express subrogation clause? We hold that the medical expense rider of the policy was one of indemnity and that Metropolitan was equitably subrogated to the medical expense portion of Cunningham's recovery. We find, however, that the hospitalization rider of the policy was one of investment, and that Metropolitan has no subrogation rights as to this portion of Cunningham's recovery. The record before this court is devoid of any accounting which reveals how much Metropolitan paid under each of the insurance riders, and how much of the settlement proceeds were paid under each of the insurance categories. Therefore, we remand to the trial court for further proceedings consistent with this opinion.

Subrogation is an equitable remedy which operates when a victim of loss is entitled to recover from two sources, one of whom bears a primary legal responsibility. If the secondary source pays the obligation, it succeeds to the rights of the party it has paid, against the third party, who was the primarily responsible party. See 1 G.E. Palmer, Law of Restitution section 1.5(b) (1978).

The doctrine of subrogation, when applied in the insurance context, deals with the right of the insurer to be put in the position of the insured in order to pursue recovery from third parties, legally responsible to the insured, for a loss paid by the insurer to the insured. 16 G. Couch, Couch on Insurance 2d (Rev. ed.) section 61:1 (1983). If the insured has been compensated in full by the insurer for the loss sustained, and subsequently receives recovery from a third party, the insurer's right becomes a right to the proceeds if subrogation is found to apply. 16 G. Couch, section 61:29.

The purpose of subrogation is to place the loss ultimately on the wrongdoers. 3 J.A. Appleman, Insurance Law and Practice, § 1675 (1967, Supp.1984); First Nat. Bank of Columbus v. Hansen, 84 Wis.2d 422, 428-29, 267 N.W.2d 367 (1978). It also prevents the insured from recouping a windfall double recovery. 3 J.A. Appleman, section 1675. This court has acknowledged this purpose and has stated:

" '.... in the absence of this doctrine the insured might often recover more than a full indemnity, and to prevent such result the courts have adopted the rule that the insured shall be entitled to only one full indemnity for the injury sustained, and from this the doctrine of subrogation has arisen. As a general rule, therefore, applicable to insurance and indemnity contracts of all kinds, the insurer, on paying to the insured the amount of the loss on the property insured, is subrogated in a corresponding amount to the insured's right of action against any other person responsible for the loss. Likewise, where the tortious conduct of a third person is the cause of a loss covered by an insurance policy, the insurer, upon payment of the loss, becomes subrogated pro tanto by operation of law to whatever right the insured may have against the wrongdoer. The theory is that to permit the insured to receive payment from both the...