Heyden v. Safeco Title Ins. Co.

• Decision Date: 02 March 1993
• Docket Number: No. 91-2617,91-2617
• Citation: 175 Wis.2d 508,498 N.W.2d 905
• Parties: James A. HEYDEN, Plaintiff-Appellant, I.W.S., Inc., a Wisconsin Corporation, Plaintiff-Co-Appellant, v. SAFECO TITLE INSURANCE COMPANY, a California Corporation, n/k/a Security Union Title Insurance Co., d Defendant-Respondent. . Oral Argument
• Court: Wisconsin Court of Appeals

Page 905

498 N.W.2d 905

175 Wis.2d 508

James A. HEYDEN, Plaintiff-Appellant I.W.S., Inc., a Wisconsin Corporation, Plaintiff-Co-Appellant, v. SAFECO TITLE INSURANCE COMPANY, a California Corporation n/k/a Security Union Title Insurance Co.,^d Defendant-Respondent.

No. 91-2617.

Court of Appeals of Wisconsin.

Oral Argument March 2, 1993.

Opinion Released March 30, 1993.

Opinion Filed March 30, 1993.

Before SULLIVAN, FINE and SCHUDSON, JJ.

FINE, Judge.

James A. Heyden appeals the trial court's judgment dismissing him from this action. I.W.S., Inc., and Heyden also appeal the trial court's grant of several of the defendant's motions in limine. ¹ We reverse on all issues.

I.

This is an insurance "bad faith" action brought against Safeco Title Insurance Company by I.W.S. and Heyden, I.W.S.'s sole shareholder. The operative pleading an amended complaint filed in May of 1988, alleged that Safeco breached a contract of title insurance and wrongfully refused to pay the insured-against loss. ² In dismissing Heyden from this action, the trial court held that I.W.S., and not Heyden, owned the property in question, a motel, the rights to which were received by Heyden in a complex exchange-of-property transaction and subsequently transferred by him to I.W.S. The trial court concluded that Heyden therefore lacked the requisite "insurable interest" to maintain a bad-faith claim. Thus, the trial court also barred I.W.S. from offering proof in connection with damages allegedly sustained by Heyden as a result of Safeco's failure to fulfill its contract of title insurance. Additionally, the trial court held that I.W.S. could not recover as damages money I.W.S. contends it would have earned from operating the motel had Safeco fulfilled its obligations, or punitive damages in connection therewith. Finally, the trial court ordered that I.W.S.'s proof at trial not refer to or mention Wis.Adm.Code sec. Ins. 6.11. We analyze these matters in turn.

II.

A. Heyden as a proper party to this lawsuit.

The nub of Heyden's and I.W.S.'s complaint against Safeco is that Safeco inadequately investigated their claim and that Safeco "wrongfully, and in breach of the [title] insurance terms and conditions, refused to pay [Heyden and I.W.S.] the benefits to which they were entitled" under the title policy, even though Safeco knew that such refusal was not warranted. This states a claim under Wisconsin law. See Anderson v. Continental Ins. Co., 85 Wis.2d 675, 685-686, 271 N.W.2d 368, 374 (1978) (An insured has a tort-claim against his or her insurer for its "failure to exercise good faith in settling the insured's own claim."). Indeed, Safeco does not argue to the contrary. ³ Rather, Safeco contends that Heyden is not a proper party plaintiff because, according to Safeco, as I.W.S.'s sole shareholder he has no insurable interest in the property. As noted, the trial court agreed with this contention.

A trial court's dismissal of a party-plaintiff from a lawsuit will only be sustained if "it appears to a certainty that no relief can be granted under any set of facts that plaintiff can prove in support of his allegations." Morgan v. Pennsylvania General Ins. Co., 87 Wis.2d 723, 732, 275 N.W.2d 660, 664 (1979). Where, as here, a trial court's dismissal is based on matters in addition to the complaint, the dismissal is, in effect, a grant of summary judgment as to the dismissed party, sec. 802.06(2), Stats., and our review is de novo. Dane County v. McCartney, 166 Wis.2d 956, 966, 480 N.W.2d 830, 834-835 (Ct.App.1992).

The rule in Wisconsin is clear: " 'one must have an insurable interest and a loss before one can collect on a policy of insurance.' " Stebane Nash Co. v. Campbellsport Mut. Ins. Co., 27 Wis.2d 112, 118, 133 N.W.2d 737, 742 (1965) (citation omitted); see sec. 631.07, Stats. (insurable interest required). Title to property, either legal or equitable, however, is not a prerequisite to having an "insurable interest" in that property. Id., 27 Wis.2d at 119, 133 N.W.2d at 742. Rather: A person has an insurable interest in property when the relationship between him and the property is such that he has a reasonable expectation, based upon a real or legal right, of benefit to be derived from the continued existence of the property and of loss or liability from its destruction.

Ibid. (citation omitted). Stated another way: " 'It is sufficient if a person's relationship to the property is such he would reasonably be expected to suffer a loss by the destruction of the property or to derive a benefit from its continued existence.' " Ibid. (citation omitted). Thus, "[i]t is generally held that although a stockholder has neither legal nor equitable title to the property of the corporation, he does have an insurable interest in such property because its destruction would subject him to pecuniary loss." Annotation, Insurable Interest of Stockholder in Corporation's Property, 39 A.L.R.2d 723, 724 (1955). Accordingly, Heyden had an insurable interest in the property, and is, therefore, a proper party. The trial court's dismissal of Heyden from this lawsuit is reversed.

B. Heyden's damages.

An insured who proves that an insurance company is guilty of tortious bad faith in fulfilling its obligations under an insurance contract may recover both compensatory damages sustained as a result of the tort, and punitive damages. See Davis v. Allstate Ins. Co., 101 Wis.2d 1, 10, 303 N.W.2d 596, 601 (1981); Anderson, 85 Wis.2d at 697, 271 N.W.2d at 379. The trial court's order granting Safeco's motion in limine barring proof of, or reference to, Heyden's claimed panoply of damages purportedly flowing from Safeco's alleged bad faith was predicated on Heyden's dismissal from the action. That order must, therefore, as with the judgment dismissing Heyden's claim, be reversed. We express no view, however, as to what portion of Heyden's claimed damages, if any, would have been recoverable in the breach-of-contract action as consequential damages, see 15A Rhodes, COUCH ON INSURANCE 2D (REV ED 1983) § 57:175 (title insurer liable for consequential damages sustained by insured as a result of insurer's breach of contract for title insurance), and which, therefore, may be barred by the res judicata principles explicated in our order of November 20, 1989, and what portion of his claimed damages, if any, are recoverable in this tort action for bad faith, see Poling v. Wisconsin Physicians Service, 120 Wis.2d 603, 609-610, 357 N.W.2d 293, 297 (Ct.App.1984) ("bad faith" compensatory damages must be "other than those attributable to the breach of contract"). This is a matter that will have to await proof at trial, and, if the evidence is close, a jury verdict, see James v. Heintz, 165 Wis.2d 572, 577 n. 4, 478 N.W.2d 31, 34 n. 4 (Ct.App.1991) (trial court should generally reserve a decision on a defendant's motion to dismiss at the end of plaintiff's case to avoid the necessity for a new trial).

C. I.W.S.'s damages.

I.W.S. sought as damages profits it contends it would have earned by operating the motel. The trial court barred I.W.S. from asserting this claim based on its view that seeking damages for lost investment opportunity in this "bad faith" action was inconsistent with I.W.S.'s election to recover the motel's value in the earlier breach-of-contract action. ⁴ Similarly, Safeco argues that the "election of remedies" doctrine bars I.W.S. from seeking consequential damages because the prior breach-of-contract action was based on a rescission theory in connection with the exchange-of-property agreement. As we have already noted, however, an insured may recover compensatory damages sustained as a consequence of the insurance company's tort of "bad faith," and these damages are of a different species than those that may be recovered for breach of the insurance contract. Thus, contrary to the trial court's implication to the contrary, as set out in note 4, supra, our November 20, 1989, order, which is the law of this case, made it clear that I.W.S.'s "bad faith" action against Safeco is not barred by the earlier breach-of-contract action. I.W.S.'s "bad faith" action against Safeco is also not barred by the "election of remedies" doctrine: neither rescission of the exchange-of-property agreement nor recovery of compensatory damages in the breach-of-contract action is inconsistent with recovery of damages in this "bad faith" tort action, and would not result in a double recovery for the same wrong. See Bank of Commerce v. Paine, Webber, Jackson & Curtis, 39 Wis.2d 30, 38-39, 158 N.W.2d 350, 353-354 (1968) ("election of remedies" doctrine applies only when there is "a true inconsistency" in the remedies sought " 'either because one remedy must allege as fact what the other denies, or because the theory of one must necessarily be repugnant to the other' " (citation omitted)). As with Heyden's claim for damages discussed in part B, supra, we express no view as to what portion, if any, of I.W.S.'s damages claimed in connection with the motel investment are damages that would have been recoverable in the breach-of-contract action, and which, therefore, may be barred by res judicata principles, and what portion of those damages, if any, are recoverable in this tort action for bad faith. This is a matter that, too, must await proof at trial.

D. Wis.Adm.Code sec. Ins. 6.11.

The final issue on this appeal is whether the trial court properly granted Safeco's motion in limine to bar all reference in the trial to Wis.Adm.Code sec. Ins. 6.11, a lengthy provision that, by its terms, "defin[es] certain claim adjustment practices which are considered to be unfair methods and practices in the business of insurance." Wis.Adm.Code sec. Ins. 6.11(1). The trial court gave two reasons in support of its decision. First, the trial court ruled that it would instruct the jury in conformity the pattern jury instruction on insurance company "bad faith," Wis J I-Civil 2761, and that...