Dufour v. Progressive Classic Ins. Co.

• Decision Date: 06 July 2016
• Docket Number: No. 2014AP157.,2014AP157.
• Citation: Dufour v. Progressive Classic Ins. Co., 370 Wis.2d 313, 881 N.W.2d 678 (Wis. 2016)
• Parties: Dennis D. DUFOUR, Plaintiff–Appellant–Cross–Respondent, v. PROGRESSIVE CLASSIC INSURANCE COMPANY and Milwaukee Painters Local Union 781 Health Fund, Defendants, Dairyland Insurance Company, Defendant–Respondent–Cross–Appellant–Petitioner.
• Court: Wisconsin Supreme Court

370 Wis.2d 313

881 N.W.2d 678

Dennis D. DUFOUR, Plaintiff–Appellant–Cross–Respondent,

v.PROGRESSIVE CLASSIC INSURANCE COMPANY and Milwaukee Painters Local Union 781 Health Fund, Defendants,Dairyland Insurance Company, Defendant–Respondent–Cross–Appellant–Petitioner.

No. 2014AP157.

Supreme Court of Wisconsin.

Argued April 5, 2016.

Decided July 6, 2016.

For the defendant-respondent-cross-appellant-petitioner, there were briefs by Robert F. Johnson, Douglas M. Raines, and von Briesen & Roper, S.C., Milwaukee and oral argument by Douglas M. Raines.

For the plaintiff-appellant-cross-respondent, there was a brief by Jason F. Abraham, Kyra K. Plier, and Hupy and Abraham, S.C., Milwaukee.Oral argument by Jason F. Abraham.

There was an amicus curiae brief by Jesse B. Blocher and Habush Habush & Rottier S.C., Waukesha, on behalf of the Wisconsin Association for Justice.Oral argument by Jesse B. Blocher.

There was an amicus curiae brief by James A. Friedman, Dustin B. Brown and Godfrey & Kahn, S.C., Madison on behalf of the Wisconsin Insurance Alliance and the Property Casualty Insurers Association of American.Oral argument by James A. Friedman.

PATIENCE DRAKE ROGGENSACK, Chief Justice.

¶ 1We review an unpublished decision of the court of appeals,¹ affirming in part and reversing in part the summary judgment granted by Dodge County Circuit Court relative to injuries Dennis D. Dufour(Dufour) suffered in an accident for which Dufour was not at fault.²

¶ 2 Dufour, the insured of Dairyland Insurance Company(Dairyland), sustained bodily injury and property damage while operating his motorcycle.The tortfeasor's insurer paid Dufour its bodily injury policy limit of $100,000, and Dairyland paid Dufour $100,000 as its underinsured bodily injury policy limit.The parties agree that Dufour's bodily injury damages were in excess of $200,000.Under another provision of Dairyland's policy, it also paid Dufour $15,589.86 for 100% of the property damage to his motorcycle.After paying Dufour all proceeds to which he was entitled under the Dairyland policy, and after Dufour had settled with the tortfeasor's insurer, Dairyland sought and obtained subrogation from the tortfeasor's insurer for the property damages that it previously paid to Dufour.Dufour demanded Dairyland pay him the funds it obtained on its subrogation claim, and Dairyland refused.Dufour then sued Dairyland for breach of contract and bad faith.

¶ 3 The central issue before us is whether Dairyland is entitled to retain funds it obtained from the tortfeasor's insurer for property damages Dairyland paid Dufour because Dufour's bodily injury damages exceed both policies' limits for bodily injury.More specifically, we must determine whether the made whole doctrine applies to preclude Dairyland from retaining its subrogation award in this instance.We also consider whether Dairyland acted in bad faith by refusing to turn over to Dufour the funds it obtained as a result of its subrogation claim.

¶ 4We conclude that the made whole doctrine does not apply to preclude Dairyland from retaining the funds it received from its subrogation claim because the equities favor Dairyland: (1) Dairyland fully paid Dufour all he bargained for under his Dairyland policy, which included the policy's limits for bodily injury and 100% of Dufour's property damage; (2) Dufour had priority in settling with the tortfeasor's insurer; and (3) if Dairyland had not proceeded on its subrogation claim, Dufour would have had no access to additional funds from the tortfeasor's insurer.We further conclude that Dairyland did not act in bad faith with respect to Dufour's demand for the funds Dairyland obtained as subrogation for the property damages it paid Dufour.Accordingly, we reverse the court of appeals decision in all respects.

I.BACKGROUND

¶ 5 On August 6, 2011, Dufour sustained bodily injury and property damage in a motorcycle accident for which an underinsured motorist was at fault.Dufour's Dairyland policy included a bodily injury limit of $100,000 for underinsured motorists and a separate property damage limit of $40,000.American Standard Insurance Company of Wisconsin (American Standard) insured the tortfeasor, with a bodily injury limit of $100,000.

¶ 6 As a result of the accident, Dairyland paid Dufour $100,000 as its underinsured motorist bodily injury policy limit.American Standard also paid Dufour $100,000 pursuant to its bodily injury policy limit.It is undisputed that Dufour's bodily injuries arising out of the accident were in excess of $200,000.In addition to bodily injury proceeds, Dairyland paid Dufour $15,589.86, which was agreed upon as the full amount of property damage Dufour sustained.³

¶ 7 After Dairyland and American Standard paid Dufour, Dairyland sought subrogation from American Standard for the property damages it paid to Dufour.Dufour's Dairyland policy included a subrogation clause that provided, “[a]fter we have made payment under this policy and, where allowed by law, we have the right to recover the payment from anyone who may be held responsible.”American Standard paid Dairyland $15,559.86 on this subrogation claim.⁴

¶ 8 Dufour contacted Dairyland, requesting payment of the funds it received on its subrogation claim, based on Wisconsin's made whole doctrine.His request stated in relevant part:

Dennis Dufour[ ] is entitled to the full amount recovered for property damage by Dairyland Insurance from American [Standard].Valley Forge Insurance Co. v. Home Mutual Insurance Co.,133 Wis.2d 364, 396 N.W.2d 348( [Ct.App.]1986) held that an insurer of an automobile accident victim was not entitled to subrogation for property damage paid to victim, when the insured is not fully compensated for his damages.This ruling follows longstanding law in Wisconsin regarding subrogation, seeGarrity v. Rural Mutual Insurance Co.,77 Wis.2d 537, 253 N.W.2d 512(1977)andRimes v. State Farm Mutual Automobile Insurance Co.,106 Wis.2d 263, 316 N.W.2d 348(1982).Subrogation is to be allowed only when the insured is compensated in full by recovery from the tortfeasor.

Dufour's December 2, 2011 letter to Dairyland.Dairyland responded to Dufour's request, disputing that he was entitled to further payments from Dairyland:

Mr. Dufour has been paid all limits to which he is entitled.Mr. Dufour has no right to Dairyland Insurance's claim for subrogation related to property damage.Accordingly, we are denying your claim.

Dairyland's March 13, 2012 letter to Dufour.

¶ 9 Based on Dairyland's refusal, Dufour amended his complaint, alleging that Dairyland breached its insurance contract and acted in bad faith by unreasonably failing to turn over the funds it received in subrogation.Relying on Valley Forge,the circuit court granted Dufour's motion for summary judgment with respect to turnover of the funds from Dairyland's subrogation claim.However, the circuit court agreed with Dairyland with respect to bad faith, concluding that Dairyland did not unreasonably withhold the funds.

¶ 10 Both parties appealed, and the court of appeals affirmed the circuit court's grant of Dufour's motion for summary judgment because it concluded that Dufour had not been made whole for his bodily injuries and, therefore, Dairyland was not entitled to retain the funds it obtained as subrogation.⁵Further, the court of appeals held that Dairyland acted in bad faith in light of its obligations under the made whole doctrine and remanded for a determination of damages for Dufour's bad faith claim.⁶

¶ 11We granted Dairyland's petition for review.

II.DISCUSSION

A.Standard of Review

¶ 12We review grants of summary judgment independently, applying the same methodology as the circuit court and the court of appeals, while benefitting from their analyses.Preisler v. Gen. Cas. Ins. Co.,2014 WI 135, ¶ 16, 360 Wis.2d 129, 857 N.W.2d 136.“The standards set forth in Wis. Stat. § 802.08 are our guides.”Id.Summary judgment “shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”Wis. Stat. § 802.08(2)(2013–14).

¶ 13 Our review requires us to determine the applicability of the made whole doctrine to funds Dairyland recovered in subrogation from American Standard.This is a question of law that we review independently.Muller v. Society Ins.,2008 WI 50, ¶ 20, 309 Wis.2d 410, 750 N.W.2d 1.

B. Subrogation

¶ 14 Dairyland's insurance policy expressly provides: “[a]fter we have made payment under this policy and, where allowed by law, we have the right to recover the payment from anyone who may be held responsible.”Accordingly, we determine whether, because Dufour was not made whole for his bodily injury, Dairyland is precluded by law from retaining funds American Standard paid to it as subrogation for the property damages Dairyland paid to Dufour.Prior to undertaking our discussion of the made whole doctrine's applicability to Dufour's claim, we first address the law of subrogation, generally.

1.General subrogation principles

¶ 15 Subrogation is the “substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor.”Black's Law Dictionary 1563–64 (9th ed.2009).Contractual subrogation and equitable subrogation both exist under Wisconsin law.⁷

Jindra v. Diederich Flooring,181 Wis.2d 579, 601, 511 N.W.2d 855(1994).With either type of subrogation, equities affect the asserted right to subrogation when it is presented by an insurance company.Garrity v. Rural Mut. Ins. Co.,77 Wis.2d 537, 540–41, 253 N.W.2d 512(1977).Recently, we summarized subrogation in an insurance context where we applied equitable principles to a contractual right of subrogation:

[S]ubrogation is a purely derivative right that permits

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