Danner v. Auto-Owners Insurance
| Decision Date | 06 July 2001 |
| Docket Number | No. 99-1052.,99-1052. |
| Parties | Darci K. DANNER, Frederick Danner and Rita Danner, Plaintiffs-Respondents, v. AUTO-OWNERS INSURANCE, Defendant-Appellant-Petitioner. |
| Court | Wisconsin Supreme Court |
For the defendant-appellant-petitioner there were briefs by Douglas J. Klingberg, Mary Sue Anderson and Ruder, Ware & Michler, Wausau, and oral argument by Douglas J. Klingberg.
For the plaintiffs-respondents there was a brief by William A. Schroeder and Sommer, Olk, Schroeder & Payant, Rhinelander, and oral argument by Richard E. Sommer.
An amicus curiae brief was filed by Mark L. Thomsen, Edward E. Robinson and Cannon & Dunphy, S.C., Brookfield, on behalf of the Wisconsin Academy of Trial Lawyers.
An amicus curiae brief was filed by Eric Englund, Madison, on behalf of the Wisconsin Insurance Alliance.
¶ 1.
Darci, Frederick and Rita Danner (the Danners) brought a bad faith claim against their insurance carrier, Auto-Owners Insurance Co. (Auto-Owners). The bad faith claim arose out of the Danners' efforts to obtain the payment of benefits pursuant to the policy's under insured motorist clause. A trial was held on the Danners' bad faith claim. The jury issued a verdict that found in favor of the Danners.
¶ 2. On this review, we consider three issues. First, Auto-Owners argues that because of the basic adversarial relationship that exists between an insured and an insurer in an underinsured claim, a bad faith claim cannot be brought against a UIM carrier until a duty to pay arises which, it is argued, arose in this case after the arbitration hearing. The Danners argue that an underinsured motorist carrier has a duty to deal in good faith with its insured at all times, including during its investigation, evaluation, and process of a claim.
¶ 3. We agree with the Danners. Every insurance contract contains an implied covenant of good faith and fair dealing between the insured and the insurer. When this duty of good faith and fair dealing is breached, and the insured incurs damages as a result of that breach, a claim for bad faith will lie.
¶ 4. Second, Auto-Owners contends that there were several issues in the Danner claim that were fairly debatable and thus a finding of bad faith is precluded. Because we conclude that there is credible evidence to support the jury's verdict, we are unpersuaded by Auto-Owners' argument.
¶ 5. Third, Auto-Owners argues that the circuit court erred in granting the Danners' motion to change the answer to two special verdict questions. We find no merit in Auto-Owners' arguments. Accordingly, we affirm.
¶ 6. The genesis of this case was a traffic accident that occurred in April 1990 at the intersection of River Street and Lynne Street in Rhinelander, Wisconsin. Tod Kraus was traveling west on River Street. While attempting to negotiate a left turn onto Lynne Street the Kraus vehicle collided into a vehicle driven by Darci Danner (Ms. Danner), which had been proceeding east on River Street.
¶ 7. Kraus claimed that after he activated his turn signal, he stopped to avoid hitting several bicyclists. Despite Kraus' contention, other witnesses stated that he did not signal his turn, there were no bicyclists, and Kraus pulled directly in front of Ms. Danner's on-coming vehicle. Following the accident, Kraus was cited for failure to yield the right-of-way.
¶ 8. Kraus carried a $25,000 liability policy with Dairyland Insurance. At the time of the accident, Ms. Danner lived with her parents. Her father, Frederick Danner, insured the vehicle she was driving with a policy purchased from Auto-Owners Insurance. The Danner policy also insured two other Danner family vehicles, each with $100,000 of underinsured motorist coverage. Wisconsin law at that time permitted the policies to be stacked, thus affording total under insurance limits of $300,000 in this case.
¶ 9. Auto-Owners retained Crawford and Company Insurance Adjusters (Crawford) to investigate the accident. Crawford's investigation determined that the Kraus vehicle, without signaling, made a left turn directly into the path of the Danner vehicle. Crawford submitted written reports to Auto-Owners. On April 13, 1990, it reported the basic facts concerning how the accident occurred, and stated that there appeared to be no liability on the part of Ms. Danner. The April 13 report also noted that Danner had indicated that she was treated at St. Mary's Hospital emergency room for sore muscles, neck, and head. A Crawford supervisor, William Toivonen, testified at trial. Toivonen stated that Crawford's investigation established that Ms. Danner had sustained some soft tissue injuries. In addition, Crawford's report informed. Auto-Owners that an appraiser had assessed the Danner vehicle and reached a settlement with the insured on the loss of the vehicle. Crawford requested Auto-Owners to forward to it a draft in the amount of $4,400, payable to Frederick Danner, which Crawford would exchange for a Proof of Loss.
¶ 10. In a letter dated April 19, 1990, Crawford advised Kraus that it had determined that the Danner vehicle was totaled out as a result of the accident for a loss of $4,600. This amount included the Danners' $200 deductible. The letter also stated: "Our investigation revealed that the accident was a result of your negligence, therefore we will be looking to you for reimbursement of the amounts paid out." Toivonen testified that Crawford later negotiated a settlement on the subrogation with Dairyland. This was settled on an 80/20 basis: 80 percent liability on Kraus and 20 percent on Danner. Dairyland forwarded to Crawford a draft for $3,264.80.
¶ 11. In a subsequent report dated May 25, 1990, Crawford reported to Auto-Owners that a witness had indicated that Kraus' vehicle did not have its signal lights on and that the Danner vehicle was traveling at a proper speed. The report also noted that Kraus had indicated that his turn signal was on and that he believed that the Danner vehicle was exceeding the posted speed limit of 25 m.p.h.
¶ 12. In a report dated September 12, 1990, Crawford stated that it was forwarding to Auto-Owners medical records obtained from the emergency room at Sacred Heart-St. Mary's Hospital, where Ms. Danner had been taken after the accident, and a copy of a record from her chiropractor.
¶ 13. On November 8, 1990, Crawford informed Auto-Owners that it had been advised by Rita Danner, Ms. Danner's mother, that Darci was continuing to have back and leg pain and was consulting a chiropractor. Subsequently, in January 1991 Auto-Owners asked Crawford to close the file in the Danner case because the only item left in the file was medical payments for Ms. Danner.
¶ 14. In a letter dated May 13, 1991, counsel for the Danners notified Auto-Owners that the underinsured motorist coverage under the Auto-Owners' policy may be applicable. In its written reply, Auto-Owners asked counsel to advise Auto-Owners as to the underlying limits under Tod Kraus' policy and requested any medical information or reports counsel had concerning Danner. In December 1991 medical reports were forwarded to Auto-Owners. Additional medical information was forwarded to Auto-Owners on January 23, 1992. As to Auto-Owners' request of the Danners for a copy of Kraus' liability policy, in a letter dated April 1992 counsel for Danner informed Auto-Owners that although it had twice requested that information, Kraus' insurer refused to provide it.
¶ 15. In May 1992 Ms. Danner, who was diagnosed with a herniated disc, underwent fusion surgery on her back. Her physician believed that because she was neurologically intact before the accident and had a disc herniation subsequent thereto, that the accident caused this back problem.
¶ 16. In September 1992 counsel for the Danners forwarded additional medical reports to Auto-Owners. This letter notified Auto-Owners that a demand had been made of Dairyland Insurance Co., Kraus' insurer, for the full policy limits of $25,000. The letter stated that Dairyland had rejected a similar demand made in May on the grounds that Ms. Danner's current medical status was in part caused by pre-existing medical conditions.
¶ 17. In November 1992 Danner filed an action in Oneida County Circuit Court against Kraus, Dairyland, and Auto-Owners. In response, Auto-Owners retained attorney Todd McEldowney (McEldowney).
¶ 18. In May 1993 McEldowney filed a report with Auto-Owners. McEldowney described the elements of the accident just as Crawford had previously done: Kraus made a left turn in front of the Danner vehicle and was struck by Ms. Danner; Ms. Danner contended that Kraus did not have his blinker on; Kraus claimed that he had stopped to yield to a bicycle and then proceeded after illuminating the vehicle's left blinker. McEldowney's report noted that three witnesses indicated that the Kraus vehicle did not have its left turn signal on, and that the Danner vehicle was operating at a prudent rate of speed. McEldowney also reported that the witnesses agreed that Danner did not have enough time to avoid hitting the truck, and that the accident was caused by Kraus. On the issue of liability, McEldowney advised Auto-Owners that a 90-10 split of negligence would not be inconceivable and that a jury would likely believe that the accident caused her physical complaints and award Danner over $22,000 in medical specials. In his damage evaluation, McEldowney reported that prior to the accident Danner had been in several prior motor vehicle accidents, including a roll-over accident in 1989, and had complained of low back pain and occasional pain in her left leg.
¶ 19. At the same time, Dairyland was evaluating Danner's pre-1990 medical records. Dairyland determined that in 1986 Danner had complained of back pain after water skiing and after participating in a gymnastic activity. Dairyland also was aware that after the 1989...
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