Eau Claire County v. Employers Ins. of Wausau

• Decision Date: 19 July 1988
• Docket Number: No. 87-1954,87-1954
• Parties: EAU CLAIRE COUNTY, Ronald Wampler, David Duax, Hugh McMillan, Maurice Miller, Gary Bork, Hugh McNamara, and Dwayne Peterson, Plaintiffs-Respondents-Cross Appellants, * v. EMPLOYERS INSURANCE OF WAUSAU, Defendant-Appellant-Cross-Respondent, International Surplus Lines Insurance Company, Defendant-Respondent-Cross Appellant, ** Verna Pearson, Defendant.
• Court: Wisconsin Court of Appeals

Page 579

430 N.W.2d 579

146 Wis.2d 101

EAU CLAIRE COUNTY, Ronald Wampler, David Duax, Hugh

McMillan, Maurice Miller, Gary Bork, Hugh

McNamara, and Dwayne Peterson, Plaintiffs-Respondents-Cross Appellants, ^* v. EMPLOYERS INSURANCE OF WAUSAU, Defendant-Appellant-Cross-Respondent,

International Surplus Lines Insurance Company,

Defendant-Respondent-Cross Appellant,

^**

Verna Pearson, Defendant.

No. 87-1954.

Court of Appeals of Wisconsin.

Submitted on Briefs May 12, 1988.

Opinion Released July 19, 1988.

Opinion Filed July 19, 1988.

Curtis C. Swanson and Michael S. Anderson of Axley & Brynelson, Madison, on briefs, for defendant-appellant-cross-respondent, Employers Ins. of Wausau.

Arnold P. Anderson of Carroll, Parroni, Postlewaite, Anderson & Graham, S.C., Eau Claire, on briefs, for plaintiffs-respondents-cross-appellants, Eau Claire County, et al.

Richard F. Johnson, Hugh C. Griffin, and Paul Peralta, Chicago, Ill., of counsel; and Mark A. Peterson of Mulcahy & Wherry, S.C., Milwaukee, on briefs, for defendant-respondent-cross-appellant, Intern. Surplus Lines Ins. Co.

Before CANE, P.J., and LaROCQUE and MYSE, JJ.

CANE, Presiding Judge.

This appeal primarily concerns whether the trial court abused its discretion by granting a motion for relief from judgment under sec. 806.07(1)(h), Stats. The trial court vacated two separate judgments and reinstated a substantially identical consolidated judgment essentially for the purpose of extending the time for appeal. We conclude that the trial court, relying on an erroneous view of the law, abused its discretion in granting the sec. 806.07(1)(h) motion. We therefore reverse the consolidated judgment and reinstate the prior judgments. The cross- appeal concerns whether

insurance policy exclusions preclude coverage for certain claims Verna Pearson brought against Eau Claire County. We agree with the trial court that the insurance policy did not provide coverage for the Pearson claims.

BACKGROUND

In March, 1983, Verna Pearson brought a federal civil rights action pursuant to 42 U.S.C. secs. 1983 and 1985 against Eau Claire County, David Duax, Ronald Wampler, Hugh McMillan, Maurice Miller, Gary Bork, Hugh McNamara, Dwayne Peterson (collectively the county). Pearson sought damages under Wisconsin law for alleged wrongs arising during the course of her employment with the county, including defamation, infliction of emotional distress, violation of free speech, and wrongful discharge. These acts were allegedly in retaliation for reporting illegal or irregular conduct that Pearson discovered during the course of her employment.

Employers Insurance of Wausau had issued to the county two insurance policies: a combination casualty policy and an umbrella liability policy. In addition, International Surplus Lines Insurance Company (ISL) had issued the county a public officials and employees liability policy.

The county tendered defense of Pearson's federal civil rights actions to Employers and ISL. The insurers informed the county that they would not defend the actions because the policies did not provide coverage for Pearson's claims. However, pursuant to an agreement entered in August, 1984, ISL, Employers, and the county eventually agreed that a pragmatic solution would be for the insurers to split the county's defense costs in the underlying action while expressly reserving the right to litigate the issue of insurance coverage in state court. On March 21, 1985, the county filed a declaratory judgment action against Employers and ISL seeking a declaration of the respective rights and liability of all parties under the insurance policies.

In January, 1985, Pearson offered to settle her underlying claim against the county for $165,000. The county attorneys determined that settlement was appropriate, and advised both ISL and Employers of its desire to settle the case for that amount on a reservations of rights basis. Employers failed on numerous occasions to respond to the county's correspondence. In December, 1985, Verna Pearson increased her settlement demand to $250,000.

On January 17, 1986, Pearson lowered her settlement demand to $225,000. The case was subsequently settled for this amount, with Employers and ISL each agreeing to contribute one-half, contingent upon reimbursement in the event the trial court determined the policies did not provide coverage.

On January 20, 1986, the county filed a "First Amended Complaint" against Employers and ISL in the declaratory judgment action, claiming that the insurers in bad faith failed to take affirmative steps to settle the claims against the county for $165,000. Employers and ISL filed answers denying that they had any obligation to take affirmative steps to attempt to settle the claims, and counterclaimed against the county for reimbursement of the $112,500 each paid toward the settlement of the Pearson claim. At the same time, ISL cross-claimed against Employers alleging that if the court determined that ISL's policy covered the Pearson claim, then Employers was also liable to ISL for refusing in bad faith to participate in the $165,000 settlement offer, thereby increasing ISL's exposure by an additional $30,000 as reflected in the final settlement agreement of $225,000.

Each party moved for summary judgment on the coverage issues. On May 1, 1987, the trial court conducted a hearing on the motions. The court determined that the insurers had no duty to participate in the settlement and, therefore, the county could not proceed on the bad faith claims. The court also determined that both the comprehensive general liability and the personal injury liability coverages of Employers' policy excluded coverage for claims related to employment. The court reserved ruling on Employers' umbrella policy and ISL's coverage.

On June 15, 1987, the trial court issued a written decision that Employers' umbrella policy afforded no coverage to the county. The court also specifically held that the ISL policy did not cover any of Pearson's claims against the county since the policy contained express exclusions precluding claims based upon "personal injury," "defamation," and "termination of employment." Accordingly, the court granted the insurers' summary judgment motions and ordered the county's claims dismissed. The trial court also dismissed ISL's cross-claim against Employers.

On June 25, 1987, judgment was entered in favor of Employers dismissing the county's claims, dismissing ISL's cross-claim, and awarding Employers reimbursement. On July 8, Employers notified the county and ISL of the entry of judgment. The county received Employers' notice of entry of judgment on July 9.

On July 20, the court entered a separate judgment in favor of ISL dismissing the county's claims against ISL and awarding reimbursement. ISL served Employers and the county with notice of entry of judgment on August 4.

On August 14, the county filed a notice of appeal from both the June 25 judgment in favor of Employers and the July 20 judgment in favor of ISL. On August 21, ISL also filed a notice of appeal from that portion of the June 25 judgment dismissing its cross-claim against Employers.

On August 31, Employers filed a motion requesting dismissal of the appeals on the basis that they were not timely filed within the required forty-five days of the June 25 judgment.

On August 31, the county filed a "Motion to Vacate and/or Reconsider Summary Judgment and for Rehearing." In his supporting affidavit, the county's attorney for the first time objected to the form of the June 25 and July 20 judgments stating in part:

3. All issues between International and Employers with regard to insurance coverage were inter-related both in terms of briefs and filings with the Court and also with regard to the settlement agreement entered into between International and Employers wherein it was agreed that International and Employers were to pay Verna Pearson and reserve any and all rights in the underlying action. It was my opinion that there could be no recovery over against Eau Claire County by either International or Employers until such time that it was finally determined that there was no insurance coverage available for the claims of Verna Pearson under either the International or Employers policy. It was further my opinion that there could be no recovery over against Eau Claire County until all claims had been finally determined on appeal if necessary so that in the event recovery was afforded on appeal over against one insurance company but not the other there would be no right of recovery against Eau Claire County pending a final determination of any of the rights of Eau Claire County over against any individual insurance company, i.e. either Employers or International.

4. It was my opinion that there should be a single appeal because of the nature and extent of the issues raised in the trial court. I therefore waited until I had the Notice of Entry of Judgment by International prior to commencing any appeal and wanted to include in the appeal both Judgments. I assumed that both Judgments should be on the same appeal and that I should not be appealing either Judgment independently without the other.

On September 9, a hearing was had on the county's motion to vacate. At this hearing, the court denied the county's motion to reconsider on the grounds that the attorney's affidavit failed to establish facts demonstrating mistake, inadvertence, surprise, or excusable neglect as required for relief under sec. 806.07(1)(a). However, the trial court granted the county's request for relief from judgment based upon sec. 806.07(1)(h): "Any other reasons justifying relief from the operation of the judgment."

Therefore, on September 11, the court entered an order vacating all judgments entered prior to September 9, and ordered Employers now appeals that portion of the judgment that vacated the June 25 judgment and requests reinstatement of the previous judgments....