Drinkwater v. American Family Mut. Ins. Co.
| Decision Date | 01 June 2006 |
| Docket Number | No. 2004AP1793.,2004AP1793. |
| Citation | 2006 WI 56,714 N.W.2d 568 |
| Parties | Shane T. DRINKWATER, Plaintiff-Respondent, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Jason R. Honshel and Additional Fictional Party # 1 and Additional Fictional Party # 2, Defendants, Medical Associates Health Plans, Subrogated Defendant-Appellant. |
| Court | Wisconsin Supreme Court |
For the plaintiff-respondent, there was a brief (in the court of appeals) by Mark H. Hoskins, Jr., and Hoskins, Kalnins, McNamara & Vogelsberg, Lancaster, and oral argument by Mark H. Hoskins, Jr.
An amicus curiae brief was filed (in the court of appeals) by William C. Gleisner, III and Law Offices of William C. Gleisner, III, Milwaukee; Rhonda L. Lanford and Habush Habush & Rottier, S.C., Madison, on behalf of the Wisconsin Academy of Trial Lawyers.
ON CERTIFICATION FROM THE COURT OF APPEALS
This case is before the court on certification by the court of appeals pursuant to Wis. Stat. § 809.61 (2003-04). Medical Associates Health Plan, Inc. ("the Plan"), an Iowa corporation, appeals a circuit court judgment that applied Wisconsin law and determined that Shane Drinkwater must be made whole before the Plan was entitled to subrogation against his recovery for personal injuries. Drinkwater, a Wisconsin resident, was injured in a motor vehicle accident in Wisconsin, and the Plan paid medical expenses on his behalf through his employer's health insurance plan.
¶ 2 The issue is whether Iowa law or Wisconsin law applies to the Plan's subrogation claim against Drinkwater. Applying choice-of-law principles, we determine that Wisconsin law applies. Accordingly, Drinkwater must be made whole under Wisconsin law before the Plan may recover for any of Drinkwater's medical expenses. We conclude that the Plan is not entitled to subrogation against Drinkwater's recovery because he was not made whole under Wisconsin law. Therefore, we affirm the circuit court judgment.
¶ 3 The background facts relevant to this appeal are undisputed. Drinkwater is a Wisconsin resident who works at a company located in Iowa. He sustained injuries that included a severe leg fracture when another motor vehicle struck his motorcycle in September 2002 in Wisconsin. The driver of the other vehicle was also a Wisconsin resident who was covered under an insurance policy issued by a Wisconsin insurance company. Both vehicles were registered in Wisconsin.
¶ 4 The Plan paid health care expenses on Drinkwater's behalf pursuant to a group health insurance contract it issued to Drinkwater's employer.1 The Plan is an Iowa non-profit corporation and its principal offices and place of business are located in Iowa, although it has clinics in Iowa, Illinois, and Wisconsin. The contract was issued to Drinkwater's employer in Iowa.
¶ 5 Drinkwater commenced an action for personal injuries, naming the other driver and the driver's insurer as defendants, and naming the Plan as a potentially subrogated party. The Plan counterclaimed and cross-claimed, alleging a subrogated interest in the damages Drinkwater sought.
¶ 6 More specifically, the Plan alleged that pursuant to Iowa law, it was entitled to "first dollar" reimbursement and payment in full for all of its subrogated expenses without deduction or offset. It alleged that its subrogation interest was not subject to the Wisconsin "made-whole" doctrine of Rimes v. State Farm Mutual Automobile Insurance Co., 106 Wis.2d 263, 316 N.W.2d 348 (1982), but rather that it was entitled to full reimbursement from any of Drinkwater's recovery based upon the terms of the Plan contract and Iowa law.
¶ 7 The Plan contract contained a clause providing that the contract "shall be governed by and interpreted in accordance with the laws of the State of Iowa." It also contained a subrogation clause, which provided as follows:
If a Member suffers an injury or condition, for which benefits are provided by [the Plan], through acts or omissions of a third party for which said third party (or any person or organization liable for such third party's conduct) is or may be legally liable, or if the Member recovers benefits from any person or organization by reason of such injury or condition, [the Plan] shall be subrogated, to the extent of the reasonable cash value of benefits, supplies, and services provided by [the Plan], to all the Member's rights of recovery against any person or organization . . . .
¶ 8 The other driver's negligence was conceded, as was the lack of any contributory negligence on Drinkwater's part. The insurer for the other driver paid its policy limit of $250,000.
¶ 9 Drinkwater and the Plan agreed to escrow $89,006.10 of the proceeds, the amount that the Plan had paid for his health care expenses. The Plan moved for a determination of its subrogation rights, requesting that the circuit court decide whether it was entitled to "overturn" Wisconsin's made-whole doctrine and whether Drinkwater was made whole.
¶ 10 The circuit court determined that Wisconsin law applied. It conducted a Rimes "made-whole" hearing in order to calculate Drinkwater's damages. The court found that his total damages were $424,000 as follows:
Medical expenses: $132,000
Past loss of earnings: $ 7,000
Future loss of earning capacity: $ 10,000
Past pain, suffering, and disability: $125,000
Future pain, suffering, and disability: $150,000
¶ 11 Accordingly, the circuit court concluded that Drinkwater would not be made whole by receipt of the $250,000 in proceeds from the tortfeasor's insurance. Applying Wisconsin's made-whole doctrine, it determined that Drinkwater was entitled to the escrowed funds. The court entered judgment in favor of Drinkwater, and the Plan appealed.
¶ 12 The parties agree that under Wisconsin subrogation law, including Rimes, the Plan would not be entitled to subrogation against Drinkwater. The circuit court calculated his damages to be $424,000, which included $132,000 in medical expense, but he received only $250,000 from the tortfeasor. As the circuit court determined, Drinkwater was therefore not made whole. He would be further short-changed for every dollar that the Plan was able to recover. The Plan admits that if Wisconsin's made-whole doctrine applies, then Drinkwater prevails.
¶ 13 Conversely, Iowa has rejected Wisconsin's made-whole doctrine. Ludwig v. Farm Bureau Mutual Insurance Co., 393 N.W.2d 143, 146 (Iowa 1986) (). The parties agree that under Iowa law the Plan would be entitled to invade Drinkwater's recovery of $250,000 to obtain reimbursement of medical expenses it paid on his behalf. Consequently, the question of whether Wisconsin law or Iowa law applies will determine the outcome of this case.
¶ 14 In order to resolve this question, we must employ a choice-of-law analysis in order to determine whether Iowa law or Wisconsin law applies. This choice-of-law determination is a question of law subject to independent appellate review. American Family Mut. Ins. Co. v. Powell, 169 Wis.2d 605, 609, 486 N.W.2d 537 (Ct. App.1992).
¶ 15 We begin with a review of the development and status of the made-whole doctrine in Wisconsin. The made-whole doctrine in Wisconsin has deep and firm roots. It traces back at least 75 years to Hamill v. Kuchler, 203 Wis. 414, 232 N.W. 877 (1931), and is based largely on the equitable nature of subrogation.
¶ 16 In Hamill, a property case involving mortgage and lien rights, the court explained that "subrogation does not arise until the debt has been fully paid." Hamill, 203 Wis. at 425, 232 N.W. 877. "Until that is done the right of subrogation is a mere inchoate right and cannot be enforced." Id. (quoting Defiance Mach. Works v. Gill, 170 Wis. 477, 483, 175 N.W. 940 (1920)). Subrogation "is a creation of the law whereby the substantial ends of justice may be accomplished regardless of contract relations." Id. (quoting Poluckie v. Wegenke, 137 Wis. 433, 437, 119 N.W. 188 (1909)).
¶ 17 These concepts from Hamill were reinforced and applied in the insurance context in Garrity v. Rural Mutual Insurance Co., 77 Wis.2d 537, 541-46, 253 N.W.2d 512 (1977). In Garrity the court concluded that a subrogation clause in a standard fire insurance policy "did not change the substantive common law rights of the insured." Garrity, 77 Wis.2d at 541, 253 N.W.2d 512. The court cited "the general rule that there is no subrogation until the insured is made whole." Id. at 542, 253 N.W.2d 512. "[T]he insurer has no right as against the insured where the compensation received by the insured is less than his loss." Id. at 543, 253 N.W.2d 512 (quoting Couch on Insurance, § 61.61 (2d ed. 1968)).
¶ 18 Subsequently, in Rimes, this court again reinforced the centrality of the equitable nature of subrogation, concluding that "only where an injured party has received an award . . . which pays all of his elements of damages . . . is there any occasion for subrogation." Rimes, 106 Wis.2d at 275, 316 N.W.2d 348. This time, the court was addressing whether an automobile insurer that made payments to an insured under the medical-pay provisions of its policy could enforce a subrogation agreement when the insured received in settlement less than the total damages incurred. Id. at 264, 316 N.W.2d 348.
¶ 19 The court in Rimes looked to Garrity as its guide, explaining that "one who claims subrogation rights, whether under the aegis of either legal or conventional [contractual] subrogation, is barred from any recovery unless the insured is made whole." Id. at 272, 316 N.W.2d 348. It said that the purpose of subrogation is to prevent a double recovery. Id. Thus, only when an insured has received...
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