Decade's Monthly Income and Appreciation Fund by Keierleber v. Whyte & Hirschboeck, S.C.

• Decision Date: 02 September 1992
• Docket Number: No. 90-2793,90-2793
• Citation: 495 N.W.2d 335,173 Wis.2d 665
• Parties: DECADE'S MONTHLY INCOME AND APPRECIATION FUND, a limited partnership, by its general partners, Jeffrey KEIERLEBER and Harold Barian, d/b/a Decade Companies, Jeffrey Keierleber and Harold Barian, d/b/a Decade Companies, a Wisconsin partnership, Decade Securities Corporation and Decade Properties, Inc., Plaintiffs-Appellants, v. WHYTE & HIRSCHBOECK, S.C., Alvin Kriger and Attorneys' Liability Assurance Society, Inc., Defendants-Respondents-Petitioners. . Oral Argument
• Court: Wisconsin Supreme Court

Page 335

495 N.W.2d 335

173 Wis.2d 665

DECADE'S MONTHLY INCOME AND APPRECIATION FUND, a limited

partnership, by its general partners, Jeffrey KEIERLEBER and

Harold Barian, d/b/a Decade Companies, Jeffrey Keierleber

and Harold Barian, d/b/a Decade Companies, a Wisconsin

partnership, Decade Securities Corporation and Decade

Properties, Inc., Plaintiffs-Appellants, v. WHYTE & HIRSCHBOECK, S.C., Alvin Kriger and Attorneys'

Liability Assurance Society, Inc.,

Defendants-Respondents-Petitioners.

No. 90-2793.

Supreme Court of Wisconsin.

Oral Argument Sept. 2, 1992.

Decided Feb. 18, 1993.

For the defendants-respondents-petitioners there were briefs by Clay R. Williams, Robert L. Gegios, Stephen W. Pasholk and Gibbs, Roper, Loots & Williams, S.C., Milwaukee and oral argument by Clay R. Williams.

For the plaintiffs-appellants there was a brief by Matthew J. Flynn, Michael G. Carter, Coleen A. Scherkenbach and Quarles & Brady, Milwaukee and oral argument by Mr. Flynn.

HEFFERNAN, Chief Justice.

This is a review of a decision of the court of appeals, Decade's Monthly Fund v. Whyte & Hirschboeck, 164 Wis.2d 227, 474 N.W.2d 766 (Ct.App.1991), reversing a summary judgment of the circuit court for Milwaukee county, Gary A. Gerlach, Judge, that held that Decade's Monthly Income and Appreciation Fund (Decade's) could not maintain a direct action malpractice lawsuit against Attorneys' Liability Assurance Society, Inc. (ALAS), the malpractice insurer of the law firm of Whyte & Hirschboeck. The court of appeals held that Wisconsin's direct action statutes, sec. 632.24 and 803.04(2), Stats., authorized Decade's suit although Whyte & Hirschboeck's policy was one for indemnity, not liability.

Decade's brought a professional malpractice action against Whyte & Hirschboeck and Alvin Kriger (a former shareholder of the law firm) seeking damages for the alleged failure of the parties to take certain required actions in connection with a proposed public offering of a security issue. Decade's joined ALAS as a defendant alleging that ALAS was directly liable to the plaintiffs as the issuer of a policy of insurance covering any loss sustained by Whyte & Hirschboeck or its lawyers.

The circuit court granted summary judgment to ALAS pursuant to sec. 802.06(2), Stats., concluding that the policy was one of indemnity and not liability and thus did not fall within the permitted scope of secs. 632.24 and 803.04(2)(a), Stats.

The court of appeals reversed. Though the court agreed with the circuit court's determination that the insurance policy was one of indemnity, the court of appeals stated that Wisconsin's direct action statutes apply to both kinds of insurance policies. ALAS has petitioned for review in this court. We granted review and conclude that Decade's may maintain a direct action against ALAS. We therefore affirm the court of appeals.

This case was decided on summary judgment and there are no material facts in dispute. The sole question before this court is whether secs. 632.24 and 803.04(2)(a) permit a direct action to be maintained against an indemnity insurer. The construction of statutes and their application to insurance contracts are, in the absence of extrinsic evidence, questions of law which we review de novo. Pulsfus Poultry Farms v. Town of Leeds, 149 Wis.2d 797, 803-04, 440 N.W.2d 329 (1989); Martin v. Milwaukee Mut. Ins. Co., 146 Wis.2d 759, 766, 433 N.W.2d 1 (1988).

The circuit court and the court of appeals began their analysis with a determination whether the contract in dispute was one for indemnity or liability insurance. The nature of a particular insurance contract is frequently discernible by the parties' choice of contractual language. 6B Appleman, Insurance Law and Practice, sec. 4261 (1979). Wisconsin courts have long distinguished between indemnity policies that cover losses actually paid by the insured and liability policies that insure against losses arising from liability to a third party. Agnew v. American Family Mut. Ins. Co., 150 Wis.2d 341, 348, 441 N.W.2d 222 (1989) (citing cases).

Both courts construed the instant contract to be one of indemnity; the parties' consistent reference to the contract as one of indemnity and the plain language of paragraph IV. 8 of the policy support such a conclusion. Decade's Monthly Fund, 164 Wis.2d at 231, 474 N.W.2d 766. Specifically, paragraph IV. 8 reads as follows:

Any payments by the Company to the ASSUREDS shall be made in Chicago, Illinois in U.S. Dollars, except that if the loss is incurred by the ASSUREDS in a currency other than U.S. Dollars, the amount payable to the ASSUREDS in U.S. Dollars shall be determined by the opening dollar buying rate for such currency in London, England on the date or dates on which the loss is actually paid by the ASSUREDS.

(Emphasis added.)

Although we agree that the instant policy was one of indemnity, we do not find that aspect of an insurance contract to be determinative of whether a third party may maintain a direct action against an insurer. We focus our attention instead on the scope of secs. 632.24 and 803.04(2)(a), Stats. We conclude from the legislative history of these statutes that the legislature intended sec. 632.24, permitting direct action against insurers, to apply to both indemnity and liability insurance contracts if they provide insurance for damages caused by negligence.

ALAS argues that the plain language of sec. 632.24, Stats. requires this court to distinguish between negligence arising under liability and indemnity policies. The statute provides:

Direct action against insurer. Any bond or policy of insurance covering liability to others for negligence makes the insurer liable ... to the persons entitled to recover against the insured ... irrespective of whether the liability is presently established or is contingent and to become fixed or certain by final judgment against the insured.

Accordingly, ALAS contends that the statute applies only to those actions involving policies that "cover[ ] liability to others." ¹

ALAS points to the positioning of sec. 632.24, Stats. under subchapter III which is titled "LIABILITY INSURANCE IN GENERAL" ² as further evidence of the legislature's intent to limit the application of the section to liability policies. Construing other sections that are in pari materia with sec. 632.24, ALAS asserts that the legislature expressly limited the meaning of the term "liability" as used in subchapter III to distinguish it from indemnity policies. ³

Decade's, to the contrary, urges us to consider two different phrases in the statute. First, the statute expressly includes all insurance policies covering liability to others for negligence. Second, Decade's points to the statute's concluding sentence which extends the scope of application to all forms of liability "irrespective of whether the liability is presently established or is contingent and to become fixed or certain by final judgment against the insured." (Emphasis added.)

Our aim in construing statutes is to determine the intent of the legislature. State v. Duychak, 133 Wis.2d 307, 316, 395 N.W.2d 795 (Ct.App.1986). After reviewing the legislative history of sec. 632.24, Stats., we conclude that the weight of the available evidence supports Decade's proposed construction.

Section 632.24's statutory roots can be found in the Chapter 341, Laws of 1925, creating sec. 85.25, Stats., which applied to "any bond or policy of insurance covering liability to others" but only as to injuries arising out of "the operation of a motor vehicle." ⁴ The statute was enacted following this court's decision in Glatz v. General Accident, Fire & Life Assurance Corporation, 175 Wis. 42, 183 N.W. 683 (1921), in which an injured third party, left with an insolvent defendant, was prohibited from seeking damages from the defendant's indemnity policy insurer. Glatz, 175 Wis. at 45, 183 N.W. 683. ⁵

Despite what ALAS asserts to be the plain meaning of the phrase "liability to others," Wisconsin courts have consistently applied sec. 85.25, and its successor statutes, to both liability and indemnity insurance contracts. ⁶ In Fanslau v. Federal Mutual A. Ins. Co., 194 Wis. 8, 215 N.W. 589 (1927), the court stated that it was not "the legislative purpose to deprive insurance companies of the right to limit their coverage or to issue such contracts of insurance or indemnity as they may choose." Fanslau, 194 Wis. at 10, 215 N.W. 589. Rather, the court continued, the purpose or effect of sec. 85.25 was "to permit persons who sustain injuries as the result of automobile accidents to join as a defendant the insurance company which has issued a policy of insurance to the owner of the automobile insuring or indemnifying the owner from loss as a result of the particular accident." (Emphasis added.) Id. at 11, 215 N.W. 589. In other words, "[t]he fact that the policy is limited to indemnity only does not take it out of the provisions of sec. 85.25." Ducommun v. Inter-State Exchange, 193 Wis. 179, 186, 212 N.W. 289, reh. den., 193 Wis. 185, 214 N.W. 616 (1927). Thus from the very inception of the legislation, Wisconsin courts have refused to distinguish between liability and indemnity contracts where automobile accidents were concerned.

Just four years after the statute's enactment, the legislature amended sec. 85.25, renumbered sec. 85.93, Stats., to guarantee the imposition of liability on insurers "irrespective of whether such liability be in praesenti or contingent and to become fixed or certain by final judgment against the insured...." The amendment explicitly overturned Morgan v. Hunt, 196 Wis. 298, 220 N.W. 224 (1928), in which the court upheld a policy provision that fixed the time when liability under sec. 85.25 might be imposed. ⁷ Morgan, 196 Wis. at 301, 220 N.W. 224. In prohibiting these so-called "no-action" clauses, the legislature reaffirmed its commitment to impose liability directly on insurance companies for injuries...