Iowa Nat. Mut. Ins. Co. v. Liberty Mut. Ins. Co.

Decision Date27 June 1969
Docket NumberNo. 352,352
PartiesIOWA NATIONAL MUTUAL INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, a foreign corporation, and Ann Byerly, Executrix of the Estate of Oliver M. Byerly, Deceased, d/b/a Economy Products Corp., Defendants-Respondents.
CourtWisconsin Supreme Court

The plaintiff Iowa National Mutual Insurance Company (Iowa) commenced this action under s. 269.56, Stats., against the defendant Liberty Mutual Insurance Company (Liberty) and its insured Oliver M. Byerly (Byerly) for a judgment declaratory of its rights under its liability policy. Mr. Byerly died during the pendency of this action and Ann Byerly, the executrix of his estate, was substituted for him. Liberty answered the complaint but Byerly demurred on the ground the complaint failed to state facts sufficient to constitute a cause of action, i.e., that no justiciable issue was presented. From the complaint it appears that Byerly, who was engaged in selling jack stands, sold a jack stand to Weaver Manufacturing Company (Weaver), a distributor in Illinois who sold it to Duncan-Hunter Corporation (Duncan), a distributor in California who sold it to Gardena Bus Lines, Inc. (Gardena) in California. Gardena used the jack stand and its employee Marshall was injured while working under a bus when the jack stand allegedly collapsed. On April 8, 1963, Marshall brought a suit against Weaver, Duncan, and others, in California, to recover damages for his injuries.

Between July 5 and July 13, 1963, and before the trial, Weaver notified Byerly of the Marshall accident and the suit. At that time Byerly informed Weaver that he was insured by Iowa but Byerly did not notify Iowa of the accident until August 25, 1965, approximately two years later, when he forwarded to Iowa's agent Weaver's recent letter of August 18, 1965, demanding he defend the Marshall suit and pay any judgment which might be obtained against Weaver. On December 30, 1965, Marshall recovered judgment against Weaver for $68,000, which judgment the liability insurer of Weaver, the Liberty Mutual Insurance Company (defendant in this case) paid. Thereafter, on August 24, 1966, Liberty, pursuant to subrogation rights, sued Byerly in the federal district court for the Eastern District of Wisconsin for indemnification and for the cost of defending the California action. The defense was tendered by Byerly to Iowa. On September 7, 1966, Iowa and Byerly executed a reversation of rights agreement in which Iowa agreed to defend the federal court action but reserved its right to assert its policy defense against Byerly and the right to withdraw from the defense upon giving a 10-days' notice. Previously, on September 15, 1965, after Iowa was first notified of Weaver's letter, it executed with Byerly a nonwaiver of rights agreement.

Iowa undertook the defense of the federal case on behalf of Byerly under its reservation of rights agreement and on November 7, 1966, brought this suit to determine its rights under its policy. The trial court treated Byerly's demurrer as a plea in abatement and decided it would make no declaration of the rights of the parties until Iowa had withdrawn its defense in the federal court action or until the liability of Byerly had been determined in that action. From this order, Iowa appeals.

Block & Summers, Janesville, for appellant; Richard E. Rosenberg, Janesville, of counsel.

Kenney, Korf & Pfeil, East Troy, for respondents.

HALLOWS, Chief Justice.

A demurrer to a complaint for declaratory relief is a proper pleading to raise the question of whether there exists a justiciable issue. Boerschinger v. Elkay Enterprises, Inc. (1965), 26 Wis.2d 102, 132 N.W.2d 258, 133 N.W.2d 333. The admission of facts by the demurrer is to test the sufficiency of the complaint not to settle facts as a verity or as a basis for a judgment declaring rights. An action for declaratory judgment is not open to an objection on the ground that a declaratory judgment or decree is sought. However, in s. 269.56(6), Stats., the trial court is given the discretion to 'refuse to render or enter a declaratory judgment or decree where such judgment or decree, if rendered or entered, would not terminate the uncertainty or controversy giving rise to the proceeding.' This discretionary power is not concerned with entertaining the action or considering the merits of the case but with entering or declining to enter the judgment or decree. In Miller v. Currie (1932), 208 Wis. 199, 242 N.W.2d 570, we stated in reference to this discretionary power, 'The discretion conferred by subsection (6) may therefore be exercised only upon the record as it exists when the entry of a judgment would be appropriate.'

Consequently, the trial court was in error in treating the demurrer as a plea in abatement. When a justiciable issue is presented, a demurrer should be overruled and an answer put in and the rights declared. 1 Anderson, Declaratory Judgments (2d ed., 1951), p. 740, s. 318. Incidentally, in the past in some actions for declaratory relief the rights have been declared in the opinion and the complaint dismissed, presumably on the theory that if the declaration is against the contentions of the plaintiff, the complaint should be dismissed. A suit for declaratory relief decided on the merits calls for a declaratory adjudication in the judgment whether the adjudication is in favor of or adverse to the plaintiff and the dismissal of the complaint is improper. State ex rel. Brill v. Spieker (1955), 271 Wis. 237, 72 N.W.2d 906; Liddicoat v. Kenosha City Board of Education (1962), 17 Wis.2d 400, 117 N.W.2d 369; City of Milwaukee v. Milwaukee County (1965), 27 Wis.2d 53, 133 N.W.2d 393.

Likewise, in the instant case the demurrer should have been decided as such. For the purpose of this appeal, we must view the trial court's order as one sustaining the demurrer on the ground on justiciable issue was then presented and therefore it is appealable. Lounsbury v. Eberlein (1957), 2 Wis.2d 112, 86 N.W.2d 12; State v. Chippewa Cable Co. (1963), 21 Wis.2d 598, 124 N.W.2d 616.

The issue presented is whether an insurer under a liability policy may have a declaration of it rights in respect to defending a pending lawsuit against its insured. Iowa argues that Byerly, its insured, breached the liability policy by failing to give notice of the accident 'as soon as practical' and therefore it has no duty to defend the liability suit brought by Liberty against Byerly in federal court. Byerly contends Iowa is not entitled to declaratory relief because the question of its duty to defend does not create a justiciable controversy and the defense of the late notice goes only to liability under the policy, not the duty to defend, and to maintain a declaratory judgment action at this time would compound a conflict of interests between Iowa and Byerly which would be against public policy.

Iowa, by defending the federal case under a nonwaiver of rights agreement and reservation of rights agreement, should not be foreclosed from bringing a suit for declaratory relief to determine its liability to defend under its policy. To do so would destroy the purpose and effectiveness of the nonwaiver agreement and the reservation of rights agreement. Such agreements are in the public interest and furnish temporary protection to the insured even though it may turn out he was not entitled to such protection. Without such an agreement, an insurer would be forced to deny liability in order to protect itself and its defenses. Such agreement granted no new rights to the insured and does not require Iowa to withdraw its defense or to wait until its liability is determined in federal court before it can have determined its duty to defend the...

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