Gurney v. Heritage Mut. Ins. Co., 92-3157

• Decision Date: 20 September 1993
• Docket Number: No. 92-3157,92-3157
• Parties: Evelyn J. GURNEY, and James Gurney, Plaintiffs-Respondents, dd ]] v. HERITAGE MUTUAL INSURANCE COMPANY, Defendant-Respondent-Co-Appellant, d ]] Wisconsin Physicians Service, Defendant-Appellant. . Oral Argument
• Court: Wisconsin Court of Appeals

Page 526

515 N.W.2d 526

183 Wis.2d 270

Evelyn J. GURNEY, and James Gurney, Plaintiffs-Respondents, ^dd]] v. HERITAGE MUTUAL INSURANCE COMPANY,

Defendant-Respondent-Co-Appellant, ^d]]

Wisconsin Physicians Service, Defendant-Appellant.

No. 92-3157.

Court of Appeals of Wisconsin.

Oral Argument Sept. 20, 1993.

Opinion Released March 24, 1994.

Opinion Filed March 24, 1994.

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

GARTZKE, Presiding Judge.

Wisconsin Physicians Service (WPS) appeals from an order dismissing its subrogation claim against Heritage Mutual Insurance Company. Heritage appeals that part of the same order requiring it to pay plaintiffs Evelyn and James Gurney $54,444.33, the cost of Evelyn's medical and hospital treatment. The issues are (1) whether WPS's policy provides a right of subrogation for its payment of Evelyn's medical expenses, entitling it to recover on Evelyn's underinsured motorist coverage with Heritage, and (2) whether the Gurneys may recover on Heritage's underinsured motorist coverage for the amount of Evelyn's medical expenses, even though WPS paid those expenses.

We conclude (1) WPS is subrogated to Evelyn's rights against Heritage and may recover from Heritage the amount WPS paid in medical expenses on Evelyn's behalf, and (2) the Gurneys cannot recover against Heritage for the amount that WPS paid in medical expenses on Evelyn's behalf. We reverse the order before us on appeal.

I. FACTS

On October 22, 1988, Evelyn was driving her car with her husband, James, as her passenger, when a car driven by Vicki Mentzel hit Evelyn's car. Mentzel's automobile insurance policy with Midwestern National Insurance Corporation had liability limits of $50,000 per person and $100,000 per accident. Midwestern paid $50,000 to Evelyn and $22,545 to James for their releases. WPS, Evelyn's health insurer, paid $54,444.33 of medical expenses on her behalf. The WPS policy includes a subrogation clause. At the time of the accident Evelyn's two cars were insured by Heritage under a single policy providing underinsured motorist coverage (UIM) on each car. The UIM coverage is $100,000 per person. ¹

Evelyn suffered $177,954.59 of damages, in addition to the medical expenses paid by WPS. After deducting the $50,000 paid by Midwestern, the trial court entered a judgment in favor of Evelyn against Heritage for $127,954.59. Heritage paid Evelyn that amount and also paid James $3,750 on his claim for lost society and companionship, for a total of $131,704.59.

WPS and the Gurneys assert additional claims against Heritage on its UIM coverage. WPS bases its claim on its payment of $54,444.33 in medical expenses on Evelyn's behalf. The Gurneys claim the right to recover the same $54,444.33 from Heritage on its UIM coverage, notwithstanding WPS's payment of Evelyn's medical expenses. Arbitration resolved the factual issues with respect to both claims. Only issues of law remain: whether WPS and the Gurneys may recover from Heritage on its UIM coverage. The circuit court ruled that WPS cannot recover from Heritage, but the Gurneys may. We conclude that WPS can recover, but the Gurneys cannot.

Because the appeal presents only issues of law, the circuit court's conclusions do not bind us. We review the issues de novo. West Bend Mut. Ins. Co. v. Playman, 171 Wis.2d 37, 40, 489 N.W.2d 915, 916 (1992).

II. WPS SUBROGATION CLAIM

When, as here, an insurer seeks "to impose subrogation under an express contractual provision, the [burden of] proof is presumably [to show] the existence ... and also applicability of the provision." Jindra v. Diederich Flooring, 181 Wis.2d 579, 601, 511 N.W.2d 855, 862 (1994). WPS has met its burden.

The WPS policy issued to Evelyn contains a clause which provides in pertinent part:

Each participant agrees that [WPS] shall be subrogated to the participant's rights to damages, to the extent of the benefits we provide under the policy, for illness or injury a third party caused or is liable for; that such rights shall be, and they are hereby, assigned to us to such extent; and that our subrogation rights shall not be prejudiced by any participant.

Two precedents are pertinent: Employers Health Ins. v. General Casualty Co., 161 Wis.2d 937, 469 N.W.2d 172 (1991), and Dailey v. Secura Ins. Co., 164 Wis.2d 624, 476 N.W.2d 299 (Ct.App.1991). In Employers, the health insurer paid medical benefits to its insured on a health policy. Its policy provided that Employers was subrogated to the insured's "right to recover damages from a responsible third party." Employers, 161 Wis.2d at 943, 469 N.W.2d at 174. The insured had been injured in a car accident with an uninsured motorist and had uninsured coverage with General Casualty. Employers asserted a subrogation claim to recover its medical payments from General Casualty on the latter's uninsured coverage. The Employers court held that Employers was not entitled to subrogation. The court read "responsible third party" in the subrogation clause as "clearly refer[ring] to a party responsible for the insured's injury and not to an insurer providing uninsured motorist coverage to the insured." Id. at 950, 469 N.W.2d at 177. Because General Casualty was not the tortfeasor, Employer's subrogation clause did not apply. Id.

In Dailey, an uninsured motorist injured the Dailey family. Dailey's policy with Secura included uninsured motorist coverage. Dailey's health insurer sued Secura to recover payments the health insurer had made for the Dailey family's medical expenses. The health insurer's policy provided that it

shall be subrogated to the rights, claims, interests and causes of action which the Covered Participant may have against any party who may be liable for injury, illness or other loss of the Covered Participant, to the extent that the Company has provided Benefits for such injury, illness or other loss under the Policy.

Dailey, 164 Wis.2d at 628-29, 476 N.W.2d at 301 (alteration in original). We held that the health insurer could recover. We concluded that " 'any party who may be liable' is not limited to wrongdoers. Rather, this phrase includes insurers, who by their contracts are liable to their insureds for their insureds' injuries or losses." Id. at 629, 476 N.W.2d at 301.

Heritage contends that because it is not a tortfeasor and the WPS subrogation clause is "fault based," Employers controls the result. We disagree. The phrase in Employers--"damages from a responsible third party"--identified the parties from whom recovery could be obtained and was fault based. The WPS clause is not fault based. The WPS clause entitling it to subrogation "to the participant's rights to damages ... for ... injury a third party caused or is liable for," identifies the type of loss for which damages can be recovered and not the parties from whom recovery is sought. A person "liable for" damages includes an insurer who is contractually liable.

Heritage asserts that WPS is not an "insured person" under the Heritage policy and therefore cannot recover on the Heritage policy. The insuring clause of the Heritage UIM coverage provides in relevant part:

We will pay damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle.

(Emphasis omitted The Heritage policy further provides:

"Insured person" means:

a. You or a relative.

b. Any other person while occupying your insured car.

c. Any person for damages that person is entitled to recover because of bodily injury to you, a relative or another occupant of your insured car.

(Emphasis omitted

WPS is an insured person under Heritage's policy. Heritage's UIM coverage defines "an insured person" to include "[a]ny person for damages that person is entitled to recover because of bodily injury to you...." In its UIM coverage, Heritage agrees to pay the "damages" which an insured person is entitled to recover from an underinsured motorist. Heritage has therefore agreed to pay what WPS claims it is entitled to recover. Because Heritage defines an insured person to include a person entitled to recover damages because of bodily injury to the named insured, WPS is an insured person.

Heritage contends that even if WPS is an insured person, it cannot recover on its subrogation claim from Heritage. Heritage argues that because it paid the Gurneys $131,704.59, its limit of liability for UIM coverage has been exhausted as to WPS. It asserts that, unlike the Gurneys, ² WPS cannot stack UIM coverage, and therefore the limit of liability is $100,000 rather than $200,000. Heritage contends that the stacking doctrine exists to protect only insureds, such as the Gurneys, and stacking should not be allowed between adverse insurance companies.

Heritage cites Heritage Mut. Ins. Co. v. St. Paul Mercury Ins. Co., 141 Wis.2d 141, 144-45, 413 N.W.2d 664, 666 (Ct.App.1987), for the proposition that stacking is not permitted between adverse insurers. We have rejected that reading of Heritage. In State Farm Mut. Auto. Ins. Co. v. Continental Casualty Co., 174 Wis.2d 434, 438-40, 498 N.W.2d 247, 249 (Ct.App.1993), we concluded that Heritage does not stand for the proposition advanced here, and we allowed stacking when prorating liability between two insurers. The argument that stacking exists to benefit only individuals was not made in State Farm, but our holding in that case cannot be reconciled with the proposition Heritage advances.

Finally, Heritage contends that even if WPS enjoys the right to stack, the $50,000 Mentzel's liability carrier, Midwestern, paid to Evelyn reduces Heritage's UIM coverage to $150,000. Heritage relies on the limits of liability provision under its UIM coverage. That paragraph provides in pertinent part, "Amounts payable under this coverage to or for an injured person will be reduced by: 1. A payment made to or for that person by or on behalf of the owner or operator of the underinsured motor vehicle or organization which...