Erickson by Wightman v. Gundersen

• Decision Date: 10 March 1994
• Docket Number: No. 93-1015,93-1015
• Citation: 183 Wis.2d 106,515 N.W.2d 293
• Parties: Chad ERICKSON, a minor, by his guardian ad litem, Arnold J. WIGHTMAN, Barbara Erickson, and David Erickson, Plaintiffs, v. A. Erik GUNDERSEN, M.D., Robert G. Shurtleff, M.D., Defendants, The Gundersen Clinic, Ltd., Defendant-Respondent, Wisconsin Patients Compensation Fund, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

Page 293

515 N.W.2d 293

183 Wis.2d 106

Chad ERICKSON, a minor, by his guardian ad litem, Arnold J WIGHTMAN, Barbara Erickson, and David Erickson, Plaintiffs, v. A. Erik GUNDERSEN, M.D., Robert G. Shurtleff, M.D., Defendants The Gundersen Clinic, Ltd., Defendant-Respondent Wisconsin Patients Compensation Fund, Defendant-Appellant.

No. 93-1015.

Court of Appeals of Wisconsin.

Submitted on Briefs Feb. 2, 1994.

Opinion Released March 10, 1994.

Opinion Filed March 10, 1994.

Before EICH, C.J., GARTZKE, P.J., and DYKMAN, J.

EICH, Chief Judge.

We are asked in this case to decide several issues arising out of a cross-claim filed by the Gundersen Clinic against the Wisconsin Patients Compensation Fund, both of whom were parties to a medical malpractice action commenced on behalf of Chad Erickson, who was severely injured while undergoing surgery at the Clinic.

I. Issues and Decision

Some background is necessary. Section 655.23(4), STATS., requires health care providers to carry primary liability coverage of at least $400,000 for each occurrence, or to be responsible for that amount under a self-insurance plan. Under the statutory scheme, the Patients Compensation Fund, to which all providers pay annual assessments, provides excess coverage over $400,000. If a malpractice claim arises in which it appears reasonably probable that the provider may be liable for an amount exceeding $400,000, the Fund is authorized to negotiate an agreement with the provider or its insurer to assume defense of the action and pay all excess liability, in exchange for a tender of the underlying policy limits, or $400,000, whichever is greater. See Continental Casualty Co. v. Wisconsin Patients Compensation Fund, 164 Wis.2d 110, 114, 473 N.W.2d 584, 585 (Ct.App.1991).

The dispute in this case concerns such an agreement between the Gundersen Clinic and the Fund with respect to Chad Erickson's malpractice claim against two physicians and certain nonphysician medical technicians, all of whom were employed by the Clinic. When it became apparent that Erickson's damages would exceed $400,000, the Clinic tendered $400,000 to the Fund in exchange for the Fund's agreement to assume the defense of the Clinic and its employees.

The Fund, however, claims that it was unaware at the time that the two physicians were Clinic employees. It asserts that it mistakenly entered into the agreement, believing that it would be indemnifying only the Clinic's nonphysician employees and that, if the agreement is held to cover the physicians as well, the Fund should have received an additional $800,000 from the Clinic. It seeks to rescind the agreement for that reason.

The trial court granted summary judgment to the Clinic, ruling that the Fund accepted the $400,000 as an accord and satisfaction of the parties' dispute over the extent of the Clinic's responsibilities and rejecting the Fund's argument that the agreement should be rescinded on grounds of "mistake."

The Fund challenges these rulings on appeal. It also argues that the court improperly "stacked" its award of interest to the Clinic by adding the twelve percent interest provided by statute in cases where an offer of settlement is rejected (and the prevailing party recovers judgment in an equal or greater amount) to the common-law interest of five percent applicable in cases where damages are either liquidated or readily determinable prior to trial.

While we disagree with the trial court's ruling that the Clinic's payment to the Fund was an accord and satisfaction, we conclude: the parties' letters constituted their agreement; the Fund is not entitled to rescission of that agreement on grounds of mistake; and the trial court properly granted summary judgment to the Clinic. We also conclude, however, that the court erroneously calculated prejudgment interest. We therefore affirm in part, reverse in part and remand to the circuit court to recalculate the interest.

II. Facts

In 1989, Chad Erickson, a minor, underwent heart surgery at Lutheran Hospital in La Crosse. The surgeons performing the operation, Dr. A. Erik Gundersen, a thoracic surgeon, and Dr. Robert Shurtleff, an anesthesiologist, were both employees of the Gundersen Clinic.

Tragically, the cardiopulmonary bypass machine that was to provide oxygenated blood to Chad's body during the surgery was improperly attached, resulting in insufficient oxygen reaching his brain for a substantial period of time. As a result, he suffered severe and irreversible brain damage. The machine was set up and operated by two nonphysician medical technicians who were also employees of the Clinic.

After the nature of the incident became known to the Clinic, its attorney contacted the Fund about the possibility of tendering the defense of the anticipated malpractice action to the Fund. The Clinic's attorney spoke with John Nenarella, a claims specialist assigned to investigate the Erickson matter. A second conversation on the subject took place approximately two months later between the Clinic's attorney and Gerald Peura, Nenarella's supervisor. Three days after this conversation, Peura spoke to the Clinic's comptroller, Daryl Applebury, regarding the tender of the defense. Immediately following that conversation, Peura wrote to Applebury, stating:

You indicated that your Board ... would issue a draft in the amount of $400,000 to the ... Fund in exchange for the ... Fund providing all future defense costs and investigative steps to bring this case to a conclusion. We agree with you and the purpose of this letter is to confirm that understanding.

....

The Fund will assume all expenses, investigative costs and efforts from the point [of] receipt [of a draft for $400,000] until this case is closed.

Upon receiving the letter, Applebury immediately responded by facsimile:

Thank you for the quick response to our request for a letter explaining the ... Fund's acceptance of all expenses including further defense costs, investigative costs and final settlement costs related to this case in return for our check ... in the amount of $400,000....

It is our understanding that the $400,000 is the only payment that will be required to be made from the Gundersen Clinic ... in connection with current and future claims arising out of the Chad Erickson incident.

(Emphasis in original Applebury sent the Fund a check for $400,000 on the same day.

Other than a "confirming" letter from Nenarella to Applebury approximately two weeks later, ¹ there were no further dealings between the Clinic and the Fund over the next several months.

Then, after Chad Erickson and his parents commenced an action against the Clinic and Drs. Gundersen and Shurtleff (and other Lutheran Hospital physicians and the Fund), the Clinic's attorney tendered the defense of the Clinic and the physicians to the Fund. Nenarella accepted the tender of the Clinic's defense, but not that of the physicians.

The Clinic then cross-claimed against the Fund, asserting that the Fund was bound by its agreement to accept the defense of all Clinic employees, including the two physicians. The cross-claim alleged that a "dispute arose" regarding "the clinic's liability exposure" under ch. 655, STATS., prior to Applebury's and Peura's exchange of correspondence and the tender of $400,000, and that the Fund's acceptance of the check amounted to an accord and satisfaction, thus binding the Fund to its agreement. According to the Clinic, the "dispute" centered on whether its payment covered the defense of all Clinic employees--physicians and nonphysicians alike--or whether it applied only to the nonphysician employees, thus requiring an additional payment of $400,000 for each of the two doctors. ² The Clinic claimed that because the Fund accepted the $400,000, the Clinic owed nothing more and the Fund was obligated to defend the Clinic as well as the physicians.

The Ericksons eventually settled with all defendants and the court dismissed their claims, leaving for resolution only the Clinic's cross-claim against the Fund for refusing the tender of the physicians' defenses.

The Clinic and the Fund then entered into a stipulation that the Clinic would contribute an additional $1,000,000 to the Ericksons' settlement and that, if the Clinic were to prevail on its cross-claim against the Fund, it would recover no more than $800,000 from the Fund. The Clinic then sent an offer of settlement to the Fund, offering to settle its cross-claim for $799,999. The Fund rejected the offer, and the Clinic moved for summary judgment on the cross-claim.

The Fund, opposing the motion, argued that there could be no accord and satisfaction because there was no disputed claim between the parties at the time the $400,000 was paid. The Fund also asserted that there were disputed factual issues as to the parties' intent in entering into the "agreement," and that even if the payment could be considered as covering all employees, physician and nonphysician alike, it was entitled to rescind because of its mistaken assumption that only the nonphysicians were covered.

The trial court ruled first that there had been an accord and satisfaction, concluding: (1) that a "dispute" had existed between the parties when the agreement was struck because the extent of Chad Erickson's injuries, and the nature and degree of the Clinic employees' negligence, were uncertain at that time; and (2) that the exchange of letters constituted their agreement to resolve that dispute. The court went on to reject the Fund's claim of mistake and entered judgment for the Clinic in the amount of $800,000.

Because the Clinic's damages were "liquidated," the court awarded prejudgment interest at the statutory rate of five percent. It then added interest at twelve percent under § 807.01(4), STATS., because the amount recovered by the Clinic equaled or exceeded its offer of settlement. Adding the interest, costs, and $49,382 in attorney fees, the total judgment entered...