Hedtcke v. Sentry Ins. Co.
| Decision Date | 30 November 1982 |
| Docket Number | No. 81-552,81-552 |
| Parties | Judith A. HEDTCKE, Plaintiff-Appellant-Petitioner, v. SENTRY INSURANCE COMPANY, Defendant-Respondent. |
| Court | Wisconsin Supreme Court |
John M. Stoiber and Brenner, Brenner & Frame, Waukesha, for plaintiff-appellant-petitioner.
G. George Lawrence and Kluwin, Dunphy, Hankin & McNulty, Milwaukee, for defendant-respondent.
This is a review of an unpublished decision of the court of appeals filed December 9, 1981, affirming a judgment of the circuit court for Waukesha county, John P. Buckley, circuit judge. After a fire destroyed the home she owned jointly with her husband, Judith A. Hedtcke filed a complaint against Sentry Insurance Company to recover for loss or damage to the home under a fire insurance policy that Sentry had issued to Hedtcke and her husband as named insureds. Sentry failed to serve an answer to the complaint within the statutory time period, and Hedtcke refused to grant Sentry an extension of time. The circuit court entered an order granting Sentry's request for additional time to serve and file its answer. Sentry filed an answer. Thereafter Sentry moved to dismiss the complaint for failure to state a claim upon which relief may be granted, or alternatively, for summary judgment on the ground that Sentry was not liable under the policy because the property damage was caused by Hedtcke's husband, a named insured. The circuit court then entered a judgment dismissing the complaint on the merits. The court of appeals affirmed the judgment.
The same two issues posed in the court of appeals are presented to this court: (1) did the circuit court abuse its discretion in enlarging the time in which Sentry might serve and file an answer? (2) did the circuit court err in holding as a matter of law that an innocent insured is barred from recovering under a policy of fire insurance where another insured intentionally caused the damage giving rise to the claim?
We conclude that the circuit court abused its discretion in granting Sentry additional time to serve and file its answer and erred in dismissing the complaint on the merits. Accordingly we reverse the decision of the court of appeals, 105 Wis.2d 764, 318 N.W.2d 23.
The facts relevant to the review of both issues are not in dispute. On July 27, 1980, Judith A. Hedtcke commenced this action against Sentry to recover proceeds under a fire insurance policy. Her complaint alleges that, on December 13, 1976, Sentry issued a three-year policy covering any loss or damage resulting from a fire on the residential property owned jointly by Hedtcke and her husband. The language of the insurance policy is incorporated into the complaint by reference. The policy lists both Judith A. Hedtcke and her husband, Ronald E. Hedtcke, under the designation "named insured." The complaint further alleges that a fire destroyed the property on November 20, 1979, at which time her husband, not she, occupied the home. The complaint further alleges that, although Hedtcke had complied with all obligations established by the policy, she had not received the proceeds forthcoming under the insurance policy.
The summons and complaint were served on Sentry on August 14, 1980. When the time for serving an answer expired on September 3, 1980, Sentry had not yet served its answer upon Hedtcke. During a September 10, 1980, telephone conversation, Sentry's attorney asked Hedtcke's attorney for an extension of time to serve the answer. Hedtcke would not grant the extension of time.
Sentry filed its answer on September 15, 1980, denying coverage on the ground that the policy relieved Sentry of liability if an insured caused the damage and that Hedtcke's husband was wholly or partially responsible for the fire which caused the damage. 1
On September 15, 1980, Sentry served upon Hedtcke a notice of its motion to enlarge the time for serving an answer and to permit the answer previously served to stand as the answer. Accompanying the notice was an affidavit of Sentry's attorney setting forth the reasons for the late answer. Hedtcke moved to strike the answer and also moved for default judgment. The circuit court heard the motions of both parties on October 16, 1980. The transcript of the hearing is very brief and amounts to a statement of appearances. No testimony was taken, and the arguments of counsel were not transcribed.
The circuit court entered an order on October 27, 1980, permitting the extension of time requested by Sentry and accepting Sentry's answer filed on September 15, 1980. The order makes no mention of the court's reasons for its decision. The circuit court did not rule on Hedtcke's motions, and we assume these motions were denied.
Sentry moved to dismiss the complaint for failure to state a claim upon which relief can be granted (sec. 802.06(2)(f), Stats. 1979-80) or for summary judgment pursuant to sec. 802.08, Stats. 1979-80. Hedtcke contends that the complaint states a cause of action and that the court should grant her summary judgment or, in the alternative, should deny both motions for summary judgment and proceed to trial on the merits. The motion was set for a hearing, but the record contains no transcript of the hearing. The circuit court issued a memorandum decision and entered judgment dismissing the complaint on its merits.
The court of appeals held that the circuit court had not abused its discretion in granting Sentry an extension of time in which to serve its answer. It also affirmed the judgment of the circuit court dismissing the complaint on the merits, believing that it was "bound by prior rulings" of this court. It acknowledged, however, Hedtcke's "persuasive arguments" for overruling prior decisional law in Wisconsin barring recovery by an insured under an insurance policy when another insured intentionally caused the damage.
The first issue we address is whether the circuit court abused its discretion in granting Sentry additional time to serve and file an answer. Sec. 802.06(1), Stats. 1979-80, requires a defendant to serve its answer upon the plaintiff within 20 days after service of the complaint upon the defendant, but sec. 801.15(2)(a) grants the circuit court power to enlarge the time for serving an answer. Sec. 801.15(2)(a) provides as follows:
The power conferred upon the circuit court by sec. 801.15(2)(a) is highly discretionary. 2 Nevertheless, an enlargement of time is "not a favor to be granted to a litigant as a matter of grace." Johnson v. Retzlaff, 200 Wis. 1, 3, 227 N.W. 236 (1929). The circuit court grants relief under sec. 801.15(2)(a) if it finds reasonable grounds for noncompliance with the statutory time period (which the statute and this court refer to as excusable neglect) and if the interests of justice would be served by the enlargement of time, e.g., that the party seeking an enlargement of time has acted in good faith and that the opposing party is not prejudiced by the time delay. Dugenske v. Dugenske, 80 Wis.2d 64, 68-69, 257 N.W.2d 865 (1977); 4 Wright and Miller, Federal Practice and Procedure, sec. 1165, pp. 624-25 (1969); 2 Moore's Federal Practice, pars. 6.07-6.08 (1982).
In determining whether to grant the dilatory party relief, the first step is to determine if there are reasonable grounds for the noncompliance with the statutory time period (excusable neglect). If the motion is made after the expiration of the specified time, an order enlarging the time for performing an act must be based on a finding of excusable neglect; when the circuit court determines that there is no excusable neglect, the motion must be denied. Jolitz v. Graff, 12 Wis.2d 52, 57, 106 N.W.2d 340 (1960). We have described excusable neglect as "that neglect which might have been the act of a reasonably prudent person under the same circumstances." It is "not synonymous with neglect, carelessness or inattentiveness." Giese v. Giese, 43 Wis.2d 456, 461, 168 N.W.2d 832 (1969).
But the circuit court must go further than considering the causes for the neglect. The interests of justice require the circuit court to be aware of the effects of an order denying or granting relief. The circuit court must be cognizant that denial of a motion for enlargement of time to answer may result in a default judgment in favor of the plaintiff. Sec. 806.02, Stats. 1979-80. The law views default judgments with disfavor and "prefers, whenever reasonably possible, to afford litigants a day in court and a trial on the issues." Dugenske v. Dugenske, 80 Wis.2d 64, 68, 257 N.W.2d 865 (1977). On the other hand, the circuit court should also be aware of the party's and society's interest in prompt adjudication and "the probability that a policy which excused or tolerated a lawyer's neglect would foster delay in litigation" and lower the quality of legal representation. Dugenske v. Dugenske, 80 Wis.2d at 70, 257 N.W.2d 865. See also Hollingsworth v. American Financial Corp., 86 Wis.2d 172, 184, 271 N.W.2d 872 (1978). The circuit court, considering these policies, must scrutinize the particular facts in the case before it and determine whether the interest of justice will best be served by granting or denying a motion to enlarge the time. 3
With these standards in mind, we turn to our consideration of the circuit court's order in the case at bar. The circuit court's decision under sec. 801.15(2)(a) will not be disturbed by an appellate court unless an...
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