Fire Ins. Exchange v. Basten, 94-3377-FT

Citation549 N.W.2d 690,202 Wis.2d 74
Decision Date20 June 1996
Docket NumberNo. 94-3377-FT,94-3377-FT
PartiesFIRE INSURANCE EXCHANGE, Plaintiff-Respondent, v. Dale M. BASTEN, Defendant-Appellant-Petitioner.
CourtUnited States State Supreme Court of Wisconsin

For the defendant-appellant-petitioner there were briefs by Avram D. Berk, Mary Taylor Lokensgard and Robinson, Robinson, Peterson, Berk & Cross, Appleton and oral argument by Avram D. Berk.

For the plaintiff-respondent there was a brief by Robert N. Duimstra, Joseph J. Beisenstein and Menn, Nelson, Sharratt, Teetaert & Beisenstein, Ltd., Appleton and oral argument by Joseph J. Beisenstein.

JON P. WILCOX, Justice.

The defendant-appellant-petitioner, Dale M. Basten (Basten), comes before this court seeking review of a published decision of the court of appeals, Fire Ins. Exchange v. Basten, 195 Wis.2d 260, 536 N.W.2d 150 (Ct.App.1995), which affirmed a declaratory judgment finding that the plaintiff-respondent, Fire Insurance Exchange (Fire Insurance), had no duty to defend or indemnify Basten in a wrongful death lawsuit brought against him. The court of appeals concluded that because of its status as a non-party to the underlying personal injury action, Fire Insurance's filing of a declaratory judgment action was not improper procedure. Id. at 266, 536 N.W.2d 150.

The case before us involves an insurer's use of the declaratory judgment proceeding to construe a liability policy where there are legitimate questions of coverage arising under the policy issued for the protection of the insured. On review before this court, Basten raises two issues for our consideration. First, in seeking a determination of coverage under a liability insurance policy, may a non-party insurer bring a separate declaratory judgment action against its insured pursuant to Wis.Stat. § 806.04 1 (1993-94) 2, rather than pursuing resolution of the coverage dispute through intervention in the underlying action to which its insured is a party defendant? We conclude, as did the court of appeals, that intervention in the underlying lawsuit followed by a request for a bifurcated trial, pursuant to Wis.Stat. § 803.04(2)(b), 3 is not the exclusive means by which to seek a coverage determination. If the insurance coverage involves a party not named in the underlying lawsuit, coverage may be determined by utilization of either a bifurcated trial or a separate declaratory judgment action. We therefore agree with the court of appeals' resolution of this issue.

The second issue on this review requires us to consider whether declaratory relief was proper when neither the plaintiffs nor any of the other defendants in the underlying personal injury action were joined as parties, under Wis.Stat. § 806.04(11) 4, to the declaratory judgment proceeding. We conclude that although the declaratory judgment action was a proper procedure for contesting coverage, the Monfils plaintiffs were required to be joined in the separate declaratory judgment proceeding as an interested party under Wis.Stat. § 806.04(11). In the event that the joining of multiple parties to the action will result in duplicate proceedings, the circuit court judge, in the exercise of his or her discretion, should order that the actions be consolidated in accordance with Wis.Stat. § 805.05. Because all interested parties were not joined in the declaratory relief action, the decision of the court of appeals is reversed.

I.

For purposes of this review, the facts are not in dispute. On May 26, 1993, a wrongful death lawsuit was commenced against Basten and six other men in Brown County Circuit Court by the Estate of Thomas Monfils and his surviving spouse and children. Fire Insurance was not a named party in the lawsuit. The Monfils' action sought compensatory and punitive damages against the defendants, jointly and severally. The case was assigned to the Honorable Richard Greenwood, Branch I.

In June 1993, Basten tendered the defense of this suit to his homeowner's insurance carrier, Fire Insurance. The insurer refused to defend Basten under a reservation of rights or in any other manner, and similarly rejected his request to pay for the costs of his defense. Instead, Fire Insurance initiated a separate declaratory judgment action against Basten to seek judicial resolution of the insurance coverage issue, which was assigned to another branch of the Brown County Circuit Court. 5

A hearing was held on September 16, 1994, during which time the Honorable William Atkinson considered the briefs of the parties as well as oral arguments. The circuit court found that the declaratory judgment procedure was appropriate in this case and held that Fire Insurance had no duty to defend or indemnify Basten in the Monfils case. The circuit court found that the declarations in the complaint and the amended complaint alleged intentional torts, and that the allegations made in the amended complaint did not constitute "occurrences" within the meaning of Fire Insurance's policy. The court also concluded that the policy contained an exclusion for intentional acts and for punitive or exemplary damages or the cost of defense related to such damages, and that no reasonable person would expect the subject insurance policy to provide coverage for the damages resulting from the intentional acts alleged in the amended complaint. Judgment was entered in accordance with the bench decision on November 9, 1994, and Basten appealed.

In June 1995, the court of appeals issued its decision affirming the judgment in favor of Fire Insurance. The issue before the court was whether Fire Insurance had followed proper procedure by filing a separate declaratory judgment action on the question of coverage, or whether they should have moved to intervene and seek a bifurcated trial under the permissive joinder of parties statute, Wis.Stat. § 803.04(2)(b). Fire Ins. Exchange, 195 Wis.2d at 264, 536 N.W.2d 150. The court of appeals rejected Basten's contention that the declaratory judgment action brought by Fire Insurance was improper procedure. Basten had argued that Fire Insurance's only proper course of action to resolve the issue of insurance coverage was to intervene in the underlying lawsuit and request a bifurcated trial. Id. at 265, 536 N.W.2d 150.

The court of appeals held otherwise, noting that the proper procedural approach in each case would be determined by the status of the parties. Id. The court agreed that if the party seeking a determination of coverage is a named party in the underlying lawsuit a bifurcated trial is the proper procedure to be incorporated. Id.; see Newhouse v. Citizens Sec. Mut. Ins. Co., 176 Wis.2d 824, 836, 501 N.W.2d 1 (1993). However, the court further held that bifurcating the trial pursuant to Wis.Stat. § 803.04 was not the exclusive means by which to seek coverage determinations, stating: "[i]f the insurance coverage involves a party not named in the underlying lawsuit, coverage may be determined by either a bifurcated trial or a separate declaratory judgment action." Fire Ins. Exchange, 195 Wis.2d at 265, 536 N.W.2d 150 (citing Elliott v. Donahue, 163 Wis.2d 1059, 1066 n. 3, 473 N.W.2d 155 (Ct.App.1991), rev'd on other grounds, 169 Wis.2d 310, 485 N.W.2d 403 (1992)). Due to the fact that Fire Insurance was not a named party in the Monfils' underlying tort action involving Basten and the others, the appellate court concluded that the filing of a declaratory judgment action remained an accepted procedure. Id. at 266, 536 N.W.2d 150.

This case requires the court to interpret the declaratory judgment statute, Wis.Stat. § 806.04, as well as the permissive joinder of parties statute, Wis.Stat. § 803.04(2)(b), and apply them to a set of undisputed facts. As such, a question of law is presented, and these issues are reviewed independently by this court without deference to the decisions of the circuit or appellate courts. Millers Nat'l Ins. Co. v. City of Milwaukee, 184 Wis.2d 155, 164, 516 N.W.2d 376 (1994); State v. Williams, 104 Wis.2d 15, 21-22, 310 N.W.2d 601 (1981).

II.

The first issue that we address is whether Fire Insurance followed proper procedure by filing a separate declaratory judgment action on the coverage issue. Basten renews his argument before this court that a declaratory judgment action separate from an underlying civil suit is an inappropriate method of determining coverage under an insurance policy. He claims that Fire Insurance's only proper course of action to resolve the issue of insurance coverage is to intervene in the underlying lawsuit and then request a bifurcated trial pursuant to Wis.Stat. § 803.04(2)(b). We disagree.

Basten contends that Wisconsin courts have established a clear line of precedent requiring an insurance carrier to seek a bifurcated trial in the underlying lawsuit when the issue of coverage is contested. He directs this court to our decision in Newhouse, as representative of one of the more recent discussions involving an insurer's role when this issue arises. In Newhouse, a case involving an insurer's alleged breach of its duty to defend its insured, we recalled that:

In [Elliott v. Donahue, 169 Wis.2d 310, 485 N.W.2d 403 (1992) ], we clearly stated that the proper procedure for an insurance company to follow when coverage is disputed is to request a bifurcated trial on the issues of coverage and liability and move to stay any proceedings on liability until the issue of coverage is resolved. Id. When this procedure is followed, the insurance company runs no risk of breaching its duty to defend.

Newhouse, 176 Wis.2d at 836, 501 N.W.2d 1. Focusing on the conduct of the named insurer in the Newhouse case, we concluded that Citizen's Security Mutual had failed to follow the proper procedure when it declined to accept the circuit court's offer to stay the liability trial until the appeal on the coverage issue was final, noting that "[i]n cases where a coverage decision is not final before the trial on liability and...

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