Estate of Otto v. Physicians Ins.

• Decision Date: 24 July 2007
• Docket Number: No. 2006AP1566.,2006AP1566.
• Citation: Estate of Otto v. Physicians Ins., 738 N.W.2d 599, 2007 WI App 192, 305 Wis.2d 198 (Wis. App. 2007)
• Parties: ESTATE OF Dale OTTO, by Personal Representative Shelley Otto, Shelley Otto, Ashley Otto and Amanda Otto, Plaintiffs-Respondents, v. PHYSICIANS INSURANCE COMPANY OF WISCONSIN, INC.,<SMALL><SUP>&#x2020;</SUP></SMALL> Defendant-Appellant, Charles L. Folkestad, M.D., Terrance J. Witt, M.D., Red Cedar Clinic &#x2014; Mayo Health System and Wisconsin Patients Compensation Fund, Defendants, Valley Health Plan, Inc. and Blue Cross & Blue Shield of Nebraska, Subrogated Defendants.
• Court: Wisconsin Court of Appeals

738 N.W.2d 599

2007 WI App 192

ESTATE OF Dale OTTO, by Personal Representative Shelley Otto, Shelley Otto, Ashley Otto and Amanda Otto, Plaintiffs-Respondents, v. PHYSICIANS INSURANCE COMPANY OF WISCONSIN, INC.,^† Defendant-Appellant Charles L. Folkestad, M.D., Terrance J. Witt, M.D., Red Cedar Clinic — Mayo Health System and Wisconsin Patients Compensation Fund, Defendants Valley Health Plan, Inc. and Blue Cross & Blue Shield of Nebraska, Subrogated Defendants.

No. 2006AP1566.

Court of Appeals of Wisconsin.

Submitted on Briefs May 8, 2007.

Opinion Filed July 24, 2007.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Michael B. Van Sicklen and Theresa A. Andre of Foley & Lardner LLP, Madison.

On behalf of the plaintiffs-respondents, the cause was submitted on the brief of John L. Cates, Michael J. Luebke and Heath P. Straka of Gingras, Cates & Luebke, S.C., Madison.

Before CANE, C.J., HOOVER, P.J., and PETERSON, J.

¶ 1 HOOVER, P.J

Physicians Insurance Company of Wisconsin, Inc. (PIC), appeals a default judgment against it totaling $972,469.81. PIC asserts that: (1) the interests of justice prohibit entry of the default because the plaintiffs suffered no prejudice; (2) if the default was appropriate, the court should have held that PIC was only precluded from challenging coverage, not the amount of damages; (3) the court failed to give PIC appropriate notice the other defendants were being dismissed; and (4) the court should have offset the damage award by the amount paid by subrogated insurer Blue Cross & Blue Shield of Nebraska. We reject PIC's first three arguments. However, because the statute of limitations has run on Blue Cross's potential subrogation claim, we conclude PIC is entitled to an offset of the subrogated amount. Accordingly, we affirm in part, reverse in part, and remand with directions.

Background

¶ 2 Dale Otto was a patient of Dr. Charles Folkestad beginning in the 1980s. Otto also began seeing Dr. Terrance Witt in 1999. Otto had been treated by both doctors for gastroesophageal reflux disease for this entire time period. Despite Otto's ongoing symptoms, the doctors allegedly failed to conduct any further testing to update or otherwise check that diagnosis. In September 2002, Otto was diagnosed with metastatic esophageal cancer.

¶ 3 On May 21, 2003, Otto, his wife Shelly, and their daughter Ashley filed a medical malpractice complaint against Folkestad, Witt, the Red Cedar Clinic where the doctors worked, the Wisconsin Patients Compensation Fund, and fictitious insurers. Otto died from cancer on September 28, 2003. On October 30, an amended complaint was filed, adding Otto's other daughter Amanda as a plaintiff, substituting Otto's estate for him personally,¹ naming PIC specifically as the insurer for the doctors and the clinic, and identifying Blue Cross's subrogation interest based on payments made on Otto's behalf.

¶ 4 Otto sought to serve attorney Guy DuBeau with the summons and complaint against PIC. DuBeau had been hired to defend the doctors, and believed he was representing PIC, but refused service on its behalf. On November 5, 2003, DuBeau filed an answer on behalf of the doctors and the clinic. He claims that the answer omitted PIC in its caption because of a typographical error. However, Otto had not yet served PIC at that time. Otto eventually served PIC personally through its vice-president of claims on November 20, 2003. On August 23, 2004, DuBeau filed and served an answer to the amended summons and complaint on PIC's behalf.

¶ 5 In late December 2004, more than a year after the answer was due, Otto moved for a default judgment against PIC and, shortly thereafter, moved to strike PIC's answer. PIC moved to enlarge the time for filing and serving its answer.

¶ 6 In June 2005, the court found there was no excusable neglect, struck PIC's answer, and held it in default for failure to timely serve an answer. Following the decision, PIC asserted that because the doctors and the clinic had answered and denied negligence, the default meant only that PIC could no longer contest coverage; Otto still had to prove negligence. The court disagreed and concluded PIC was liable to Otto for the entire amount of damages that had yet to be determined.

¶ 7 At the subsequent hearing on damages, DuBeau asked that any judgment against PIC be offset by the amount the subrogated insurers had paid, arguing the statute of limitations had expired on their claims. The court denied the motion and entered judgment for what it concluded were Otto's entire damages.

¶ 8 During the damages hearing, the court apparently called current appellate counsel for PIC and asked if PIC would stipulate to a dismissal of the other defendants. While the attorney's law firm is generally PIC's choice for appellate work, no one from the firm had yet appeared in this case because procedurally, the case was still in the trial court. Accordingly, the attorney was perplexed by and reluctant to answer the court's inquiry. Nevertheless, the doctors and the clinic were eventually dismissed from the case. PIC appeals.

Discussion

¶ 9 PIC alleges four errors on appeal. First, it asserts the default judgment was improper. It claims there is no prejudice to Otto and, further, asserts that Otto waived the right to seek a default because more than a year had passed between the answer's due date and the motion for default. Second, PIC asserts the court erred when it declined to limit the default to a finding of coverage only. Third, PIC challenges the court's decision to call appellate counsel prior to dismissing the doctors and clinic, and contends the notice of their dismissal was inadequate. Finally, PIC contends the court erred when it failed to offset the damage award by the amounts paid by the subrogated insurer. We address each argument in turn.

I. The Default Judgment

¶ 10 The circuit court decisions whether to grant a default judgment and whether to a grant a motion to enlarge time are reviewed under an erroneous exercise of discretion. Binsfeld v. Conrad, 2004 WI App 77, ¶ 20, 272 Wis.2d 341, 679 N.W.2d 851 (default judgment); Rutan v. Miller, 213 Wis.2d 94, 101, 570 N.W.2d 54 (Ct.App.1997) (enlargement of time). We affirm discretionary decisions provided they are based on the facts of record, the appropriate law, and the court's reasoned application of the correct law to the relevant facts. Binsfeld, 272 Wis.2d 341, ¶ 20, 679 N.W.2d 851.

¶ 11 WISCONSIN STAT. § 802.06(1)² requires a defendant to serve an answer within forty-five days of being served with the complaint. Time periods set by statute may be enlarged upon motion. WIS. STAT. § 801.15(2)(a). However, "[i]f a motion is made after the expiration of the specified time, it shall not be granted unless the court finds that the failure to act was the result of excusable neglect." Id.

¶ 12 Excusable neglect "is conduct that `might have been the act of a reasonably prudent person under the same circumstances.'" Binsfeld, 272 Wis.2d 341, ¶ 23, 679 N.W.2d 851 (citation omitted). It is not the same as neglect, carelessness, or inattentiveness. Connor v. Connor, 2001 WI 49, ¶ 16, 243 Wis.2d 279, 627 N.W.2d 182. The burden of establishing excusable neglect is on the party moving for the extension. Split Rock Hardwoods, Inc. v. Lumber Liquidators, Inc., 2002 WI 66, ¶ 50, 253 Wis.2d 238, 646 N.W.2d 19.

¶ 13 PIC's fundamental complaint is that "the court's entry of default judgment, without finding, or even considering, whether Plaintiffs were prejudiced constitutes clear reversible error." PIC cites four cases for its proposition that the court must find prejudice to enter a default judgment. We are not persuaded.

¶ 14 First, we note that the principal case on excusable neglect states that "when the circuit court determines that there is no excusable neglect, the motion [to enlarge] must be denied." Williams Corner Investors, LLC v. Areawide Cellular, LLC, 2004 WI App 27, ¶ 19, 269 Wis.2d 682, 676 N.W.2d 168 (citing Hedtcke v. Sentry Ins. Co., 109 Wis.2d 461, 468, 326 N.W.2d 727 (1982)). This is in line with the statutory declaration that a motion to extend time "shall not be granted unless the court finds ... excusable neglect." WIS. STAT. § 801.15(2). Nothing in PIC's citations convinces us that prejudice is to be considered absent a finding of excusable neglect.

¶ 15 PIC first cites Split Rock, 253 Wis.2d 238, ¶ 33, 646 N.W.2d 19, to argue "prejudice must be considered and found before the court weighs default judgment as a sanction for failure to file promptly." However, Split Rock addressed the sanction for failure to comply with the filing requirement of WIS. STAT. § 801.14(4), which states filing of papers must be accomplished within a "reasonable time" after serving them. Id., ¶ 30, 646 N.W.2d 19. Here, however, the question is about PIC's failure to timely serve an answer under WIS. STAT. § 802.06(1). In fact, the Split Rock court recognized a difference between service and filing requirements, commenting, "Courts ought to have authority to impose a serious sanction for failure to timely `serve,' and an appropriate sanction, however modest, for failure to file, `within a reasonable time after service.'" Split Rock, 253 Wis.2d 238, ¶ 29, 646 N.W.2d 19 (emphasis added).

¶ 16 PIC next cites Meier v. Champ's Sport Bar & Grill, Inc., 2001 WI 20, ¶ 43, 241 Wis.2d 605, 623 N.W.2d 94. PIC's parenthetical argues the supreme court upheld the trial court, which "applied proper standard and appropriately considered the harsh consequences of default judgment and the lack of prejudice to the plaintiff." However, the trial court in Meier found, and the supreme court agreed, that there was excusable neglect for one defendant's failure to individually answer the complaint against him. Id., ¶ 44, 623 N.W.2d 94. That is, the court made the threshold finding required by Hedtcke and the statute. See Meier, 241 Wis.2d 605, ¶ 41, 623 N.W.2d...