Farmers Auto. v. Union Pacific R. Co.

• Decision Date: 03 June 2008
• Docket Number: No. 2007AP1992.,2007AP1992.
• Citation: 2008 WI App 116,756 N.W.2d 461
• Parties: The FARMERS AUTOMOBILE INSURANCE ASSOCIATION, Plaintiff, v. UNION PACIFIC RAILWAY COMPANY, Defendant. Joseph P. Donaubauer, Plaintiff-Appellant† v. The Farmers Automobile Insurance Association, Defendant-Respondent, Union Pacific Railroad Company, Defendant.
• Court: Wisconsin Court of Appeals

756 N.W.2d 461

2008 WI App 116

The FARMERS AUTOMOBILE INSURANCE ASSOCIATION, Plaintiff, v. UNION PACIFIC RAILWAY COMPANY, Defendant.

Joseph P. Donaubauer, Plaintiff-Appellant† v. The Farmers Automobile Insurance Association, Defendant-Respondent, Union Pacific Railroad Company, Defendant.

No. 2007AP1992.

Court of Appeals of Wisconsin.

Submitted on Briefs May 6, 2008.

Opinion Filed June 3, 2008.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of John V. McCoy and Chad R. Levanetz of McCoy & Hofbauer, S.C., Waukesha.

On behalf of the defendant-respondent, the cause was submitted on the brief of Monte E. Weiss and Charles W. Kramer of Deutch & Weiss, LLC, Milwaukee.

Before CURLEY, P.J., WEDEMEYER and FINE, JJ.

¶ 1 FINE, J

Joseph P. Donaubauer appeals orders dismissing on summary judgment his claims against The Farmers Automobile Insurance Association, his home insurer. He contends that the circuit court erred in: (1) not relieving him from his agreement to submit his dispute with Farmers to the insurance policy's appraisal process; (2) not allowing him to depose the appraisers and a consultant hired by them; (3) refusing to vacate or modify the appraisal valuation; (4) dismissing his bad-faith claim against Farmers; and (5) dismissing his breach-of-contract claim against Farmers. He also argues that the circuit court's grant of summary judgment unlawfully deprived him of his right to a jury trial and that the circuit court denied him due process by not allowing him discovery on his bad-faith claim. We affirm.

I.

¶ 2 Donaubauer owned a house that was totally destroyed by a fire triggered by one of the Union Pacific Railroad Company's trains on April 15, 2003. The railroad is not a party to this appeal. Farmers paid some $530,000 in fire-loss claims to Donaubauer. Donaubauer's Farmers policy had a Home-Guard-replacement-value endorsement, and Donaubauer made an additional claim to cover what he asserted was his home's replacement cost. The endorsement reads, as material:

"Replacement value" means the current cost at time of loss, without deduction for depreciation, to replace the damaged, destroyed or stolen property with articles of like kind and quality.

....

We will not be liable for any loss under this endorsement until actual repair or replacement is completed.

When Farmers would not pay upfront what Donaubauer wanted, he started this lawsuit on April 12, 2004, alleging breach of contract, bad faith, as well as some claims that are not pursued on this appeal, because the insurance company would not pay what Donaubauer asserted was the "actual replacement value of the home," which the complaint alleged "exceeds $553,000." Subsequently, by letter dated March 22, 2005, Farmers purported to invoke the policy's appraisal process, which provides, as material:

If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire.... The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.

Farmers's March 22, 2005, letter was sent by its lawyer to Donaubauer's lawyer, and asserted that Donaubauer's lawsuit against Farmers "is in violation of the policy conditions." The letter quoted the policy's appraisal clause, and told Donaubauer's lawyer: "As I am sure your Client is aware, in the event that there is a dispute as to the amount of the loss, your Client has an obligation to seek resolution by appraisal." Farmers does not dispute that the appraisal clause did not require either it or Donaubauer to seek an appraisal-resolution of the dispute. The letter also said:

In the event that your Client disagrees with The Farmers Automobile Insurance Association's analysis of the amount of loss as set forth herein, then it hereby demands appraisal as the agreed upon mechanism to resolve the dispute.

....

If you or your Client disagrees with the analysis set forth herein, please let me know, in writing, the legal and factual basis for the disagreement.

Farmers's letter named its appraiser.

¶ 3 On March 25, 2005, Donaubauer's lawyer sent a facsimile letter to Farmers's counsel asking for a tolling of the appraisal clause's twenty-day response period because Donaubauer had just had "very serious heart surgery." Farmers agreed to the delay.

¶ 4 By letter dated May 12, 2005, to Donaubauer's lawyer, Farmers's counsel recounted their telephone conversation that day, noting that Donaubauer "has agreed to the appraisal process." In a response the next day, Donaubauer's lawyer "confirm[ed] that Mr. Donaubauer is willing to fulfill his contractual obligations and participate in the appraisal that your client has requested." Donaubauer's lawyer repeated that in a letter to Farmers's counsel dated June 1, 2005: "Please be advised that Joe Donaubauer is able to participate in the appraisal process per your client's request." By letter dated June 27, 2005, Donaubauer's lawyer identified the appraiser Donaubauer had chosen.

¶ 5 Donaubauer later had a change of heart, and in a letter dated September 29, 2005, his lawyer wrote to Farmers's counsel that although Donaubauer "is willing to continue forward with the appraisal process," that willingness was now conditioned on it "not being conducted pursuant to the insurance contract," and only "as long as it is considered a part of the mediation process and is not binding in any way." The letter asked Farmers's counsel to "advise if your client agrees with the above conditions." Farmers did not agree.

¶ 6 Farmers asked the circuit court to enforce Donaubauer's agreement to use the appraisal process. During the hearing on that motion, Donaubauer's lawyer acknowledged that Donaubauer had agreed to use the appraisal process but that the lawyer later discovered a case, Lynch v. American Family Mut. Ins. Co., 163 Wis.2d 1003, 1008, 473 N.W.2d 515, 517 (Ct.App.1991) ("[A]bsent a policy provision to the contrary, an insurance company may not demand an appraisal of a loss after the commencement of an action by the insured on that loss when the insurance company failed to demand the appraisal prior to the lawsuit even though it had an opportunity to do so."), that he contended would have led Donaubauer to not agree to the appraisal process because Donaubauer had already sued Farmers.¹ The circuit court granted Farmers's motion to enforce the appraisal-process agreement.

¶ 7 On September 8, 2006, the appraisers unanimously determined both the "actual cash value" of Donaubauer's destroyed property at $248,579.68, and its "full replacement cost" at $396,260.75. (Initial capitalization omitted.) The circuit court denied Donaubauer's motion to modify or vacate the appraisal award, and prevented Donaubauer from deposing the appraisers and a consultant hired by the appraisers. The circuit court also granted summary judgment to Farmers dismissing Donaubauer's breach-of-contract and bad-faith claims.

II.

¶ 8 We review de novo a circuit court's grant of summary judgment. Green Spring Farms v. Kersten, 136 Wis.2d 304, 315-317, 401 N.W.2d 816, 820-821 (1987). We also ascertain de novo the meaning of insurance-contract clauses, as well as the meaning of contracts generally. Rebernick v. Wausau Gen. Ins. Co., 2005 WI App 15, ¶ 5, 278 Wis.2d 461, 466, 692 N.W.2d 348, 351, aff'd, 2006 WI 27, 289 Wis.2d 324, 711 N.W.2d 621; Teacher Ret. Sys. of Texas v. Badger XVI Ltd. P'ship, 205 Wis.2d 532, 555, 556 N.W.2d 415, 424 (Ct.App.1996).

¶ 9 Summary judgment must be granted if "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." WIS. STAT. RULE 802.08(2). Thus, we disregard facts about which there may be a dispute when those facts are not material to the issue. Further, the party opposing summary judgment "must set forth specific facts showing that there is a genuine issue for trial," RULE 802.08(3), and has the burden to show the facts that establish the elements on which that party has the burden of proof at trial, Transportation Ins. Co. v. Hunzinger Constr. Co., 179 Wis.2d 281, 290-291, 507 N.W.2d 136, 139 (Ct.App. 1993). We address the issues presented by this appeal in turn.

A. Appraisal.

¶ 10 Donaubauer makes essentially two arguments in connection with the appraisal issue. First, he argues that he never agreed to the appraisal process, and "[e]ven if" he did, he only agreed to "a non-binding appraisal." Second, he contends that there was a "mutual mistake of law" as to whether Farmers could in light of Lynch legitimately request an appraisal after Donaubauer filed this lawsuit.

¶ 11 As we have seen, Donaubauer not only initially agreed to the appraisal process requested by Farmers but also named his appraiser. It is traditional to say that an agreement is made when there is a "meeting of the minds." Management Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis.2d 158, 178, 557 N.W.2d 67, 75 (1996). "Yet, this does not mean that parties must subjectively agree to the same interpretation at the time of contracting. Instead, mutual assent is judged by an objective standard, looking to the express words the parties used in the contract." Ibid. As the circuit court recognized, the exchange of letters in connection with the appraisal process not only objectively reflects an agreement to use the process, but, indeed, the subjective intent by both parties is also revealed by the fact that they both named their respective appraisers. Further, as we have seen, Donaubauer's lawyer at the hearing on Farmers's motion to enforce the agreement conceded that there was,...