Davis v. Allied Processors, Inc.
| Decision Date | 21 October 1997 |
| Docket Number | No. 97-0478,97-0478 |
| Parties | Douglas E. DAVIS, Plaintiff-Respondent, Integrity Mutual Insurance Company, Plaintiff, v. ALLIED PROCESSORS, INC., Defendant-Respondent, d Western National Mutual Insurance Company, Defendant-Appellant. |
| Court | Wisconsin Court of Appeals |
On behalf of the defendant-appellant, the cause was submitted on the briefs of John E. Varpness of Gislason, Martin & Varpness, P.A. of Edina, MN.
On behalf of the plaintiff-respondent, the cause was submitted on the brief of Michael P. Wagner of Wagner & Todryk, S.C. of Menomonie.
On behalf of defendant-respondent, the cause was submitted on the brief of Chris A. Gramstrup of Superior.
Before CANE, P.J., and MYSE and NOLAN, 1 JJ.
Western National Mutual Insurance Company appeals an order that permits the punitive damage award to be satisfied from its underlying (primary) policy of insurance and allows the compensatory damages award to be satisfied from its excess (umbrella) policy. Western contends that the trial court erroneously permitted the plaintiff, Douglas Davis, to elect which policy would be used to satisfy the judgment for both punitive and compensatory damages. It contends that the compensatory damages must first be satisfied from the underlying policy, which provided primary coverage and, because the excess policy contained a provision excluding coverage for punitive damages, the punitive damages could not be satisfied from it.
Contrary to the trial court's determination, we find no ambiguity in the excess policy's terms. Because the trial court forced Western to assume a risk it had not contracted for, we reverse the order and remand for further proceedings consistent with this opinion.
After a jury trial for personal injuries, the jury awarded Davis $585,000 in compensatory damages. It found Western's insured, Allied Processors, Inc., 90% at fault and Davis 10% at fault. The jury also awarded $500,000 in punitive damages against Allied.
Western had issued Allied two liability policies. The first provided primary coverage for liability in the amount of $500,000. A second excess or umbrella policy provided $2,000,000 in coverage. 2 Because the underlying policy was silent on the subject of punitive damages, in accordance with the Wisconsin Supreme Court's decision in Brown v. Maxey, 124 Wis.2d 426, 369 N.W.2d 677 (1985), it permitted the payment of both compensatory and punitive damages. This conclusion is not disputed. In contrast, the umbrella policy contained a punitive damage exclusion, stating: "It is agreed that this policy shall not apply to any liability for punitive or exemplary damages."
After the verdict, Davis requested the trial court to find that, as a matter of the law, the two policies covered the entire judgment. The trial court, finding that there is no language in the umbrella policy that makes an exception when underlying insurance is exhausted by a punitive damage claim, ordered that Western "shall satisfy the punitive damage portion of Plaintiff Davis's judgment from the primary policy and shall satisfy the compensatory damage portion of the judgment out of the coverage afforded by the excess/umbrella policy ...."
The trial court found that Western had included an endorsement excluding punitive damages in the excess policy but did not do so in the underlying policy when it presumably could have. The trial court also found that a reasonable insured would expect the excess policy to pay compensatory damages when the aggregate limits of the underlying policy had been exhausted as a result of an accident or occurrence for which coverage was provided. The trial court concluded that the definition of "ultimate net loss" in the umbrella policy does not exclude payment of compensatory damages where the underlying insurance is exhausted by payment of a punitive damage claim. It also found that the policy's definition of "ultimate net loss" is not determinative "because contradictory provisions of the same policy ... apply where the underlying insurance is exhausted by virtue of an occurrence or accident."
The precise issue before us has not yet been addressed in this state, and the parties have not been able to provide us with any case on all fours from another jurisdiction. We resolve the issue by resorting to well-known principles of contract construction.
The interpretation of an insurance contract presents a question of law we review de novo. Oaks v. American Family Mut. Ins. Co., 195 Wis.2d 42, 47, 535 N.W.2d 120, 122 (Ct.App.1995). Insurance policies are construed like other contracts. Sprangers v. Greatway Ins. Co., 182 Wis.2d 521, 536, 514 N.W.2d 1, 6 (1994). The objective is to ascertain and carry out the intentions of the parties. Id. The test is what a reasonable person in the position of the insured would have understood the words to mean. Garriguenc v. Love, 67 Wis.2d 130, 134-35, 226 N.W.2d 414, 417 (1975). Whether an ambiguity exists is a question of law. Brown, 124 Wis.2d at 442, 369 N.W.2d at 686. Absent an ambiguity, the plain language of the contract controls. Id. It is our task to "examine the overall pattern of insurance and to construe each policy as a whole." Oelhafen v. Tower Ins. Co., 171 Wis.2d 532, 538, 492 N.W.2d 321, 323 (Ct.App.1992).
Western contends that because its punitive damage exclusion in the umbrella policy states that the policy "shall not apply" to liability for punitive damages, the policy definition of the term "ultimate net loss" prohibits the umbrella policy from covering where the underlying policy is exhausted by the payment of punitive damages. We disagree with Western's interpretation. The policy states that the term
"Ultimate net loss" means the total of the following sums with respect to each occurrence:
(1) all sums which the insured, or any company as its insurer, or both, is legally obligated to pay as damages, whether by reason of adjudication or settlement, because of personal injury, property damage or advertising liability to which this Policy applies . .... (Emphasis added.)
Western argues that the term "to which this Policy applies" as used in this definition modifies the term "damages" and should be read as stating that ultimate net loss means damages to which this policy applies. It therefore argues that...
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