Loosmore v. Parent

• Decision Date: 31 May 2000
• Docket Number: No. 00-0027-FT.,00-0027-FT.
• Citation: 613 N.W.2d 923,237 Wis.2d 679,2000 WI App 117
• Parties: Thomas W. LOOSMORE and Susanne Loosmore, Plaintiffs, v. James M. PARENT and Milwaukee Guardian Insurance, Inc., Defendants, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent, ALLSTATE INSURANCE COMPANY, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

237 Wis.2d 679

2000 WI App 117

613 N.W.2d 923

Thomas W. LOOSMORE and Susanne Loosmore, Plaintiffs, v. James M. PARENT and Milwaukee Guardian Insurance, Inc., Defendants, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Respondent, ALLSTATE INSURANCE COMPANY, Defendant-Appellant.

No. 00-0027-FT.

Court of Appeals of Wisconsin.

Submitted on briefs May 8, 2000.

Decided May 31, 2000.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Lawrence M. Rocheford and Mark D. Malloy and Jardine, Logan & O'Brien, P.L.L.P. of St. Paul, Mn.

On behalf of the defendant-respondent, the cause was submitted on the brief of David E. Richie and Danielson, Guettinger, Richie & Manydeeds, S.C. of Eau Claire.

Before Cane, C.J., Hoover, P.J., and Peterson, J.

¶ 1. HOOVER, P.J.

This case arises from American Family Mutual Insurance Company's breach of its duty to defend Allstate Insurance Company. Allstate appeals a judgment dismissing its claim for attorney fees from the date that it tendered its defense to American Family.¹ The attorney fees consist of three components: (1) those Allstate generated defending the liability action; (2) expenses incurred to prove coverage; and (3) fees for prosecuting a cross-claim against James Parent. Allstate contends that the circuit court erred by applying the incorrect law to deny it damages resulting from American Family's breach of its duty to defend.

¶ 2. We agree that American Family breached its duty to defend. Under Wisconsin law, Allstate is therefore entitled to the damages that naturally flow from that breach. Here, those damages include attorney fees incurred defending itself and pursuing coverage. They do not include the cost of prosecuting a cross-claim against Parent. Accordingly, the judgment is affirmed in part, reversed in part, and remanded. On remand, the circuit court shall determine the legal expenses recoverable by Allstate consistent with this opinion.

BACKGROUND

¶ 3. The Loosmores initiated this action against Parent and American Family, alleging that Parent negligently caused their injuries in an automobile accident. American Family, which provided automobile liability insurance to Parent, answered the complaint on behalf of Parent and itself, denying Parent was negligent.

¶ 4. Parent testified at his deposition that he was employed as a claims adjuster for Allstate. At the time of the accident, he was returning from the St. Croix County courthouse after picking up some salvage items in the course of his duties. The Loosmores subsequently amended their complaint to join Allstate as a defendant, alleging that Parent was in the course of his employment with Allstate at the time of the accident and that Allstate was therefore vicariously liable for Parent's negligence.

¶ 5. In September 1998, after the amended complaint was filed, Allstate's claims consultant contacted American Family's counsel by telephone and discussed tendering Allstate's defense to American Family.² He followed the phone call with a letter that stated in part:

As you may recall, we would like to make a formal request for defense and indemnification afforded under Mr. Parent's Personal Automobile insurance policy.

Unless you wish for this request to come from an official court order, please forward a copy of Mr. Parent's policy for our review. As further discussed in our telephone conversation, Mr. Lawrence Rocheford ... will be representing our insured in this matter.

American Family's counsel sent correspondence acknowledging the letter and indicated that he had forwarded it to American Family.

¶ 6. Shortly thereafter, Parent and American Family answered the amended complaint, denying both negligence and that Parent was in the course and scope of his employment with Allstate at the time of the accident. Allstate's, not American Family's, counsel answered on behalf of Allstate. The answer joined whether Parent was in the course and scope of his employment.³ ¶ 7. In early February 1999, Allstate filed a cross-claim against Parent alleging that Parent was not in the course of employment, but if he was, Allstate was entitled to "complete indemnification." In late February, Allstate also filed a cross-claim against American Family, alleging that Allstate was an insured under American Family's policy and, consequently, American Family was required to provide a defense and indemnification. Allstate specifically requested as relief "all attorney's fees and costs incurred in proving that tender should have been accepted by American Family, and all attorney's fees and costs incurred in defending itself." On March 8, 1999, Allstate filed an amended answer admitting that Parent was in the course of his employment with Allstate at the time of the accident.

¶ 8. On April 6, 1999, American Family accepted Allstate's tender. Shortly thereafter, American Family settled the Loosmores' claims. Allstate then moved to have all its attorney fees and costs reimbursed by American Family since the date of its tender in September 1998. Although concluding that American Family had breached its duty to defend Allstate, the circuit court decided that attorney fees were not warranted under the facts of the case. The court reasoned that Allstate's position that Parent was not within the course of his employment prevented American Family from defending Allstate. The circuit court denied the motion.⁴

ANALYSIS

¶ 9. Allstate claims that governing Wisconsin law entitles it to those damages naturally flowing from American Family's breach of its duty to defend. Those damages, it contends, include all the legal expenses it has incurred in this litigation. American Family disputes that it breached a duty to defend. American Family further asserts that the circuit court's decision to deny attorney fees was supported by the facts of the case.

[1]

¶ 10. The relevant facts are not in dispute. "Whether a party to a contract has breached a contractual provision is a question of law." Elliott v. Donahue, 169 Wis. 2d 310, 316, 485 N.W.2d 403 (1992). The proper measure of damages for an insurer's breach of its contractual duty to defend is also a legal question. See Newhouse v. Citizens Security Mut. Ins. Co., 176 Wis. 2d 824, 837, 501 N.W.2d 1 (1993). We decide questions of law without deference to the circuit court. See id.

1. Duty to Defend

¶ 11. American Family does not directly challenge the trial court's conclusion that it had a duty to defend Allstate, but acknowledges only that it "may have had a duty to defend Allstate in the underlying action." American Family contends that: (1) Allstate's "curious and confusing" communication was inadequate to tender its defense to American Family; (2) Allstate is not an average insured and should have been able to clearly articulate what it desired American Family to do; (3) Allstate prevented American Family from taking over its defense by positions it took in the litigation; and (4) its defense of Parent discharged its obligation because that defense benefited Allstate's interests. We are unconvinced.

¶ 12. We conclude that Allstate's correspondence to American Family constituted a tender of defense. In Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis. 2d 260, 267, 548 N.W.2d 64 (1996), our supreme court stated, as a matter of law, that "[a] tender of defense occurs once an insurer has been put on notice of a claim against the insured." American Family does not dispute that Allstate put it on notice of the claim, or that Allstate qualified as an insured under its policy. It claims that Allstate never clearly tendered the claim to American Family. The Zurich court stated:

[I]f it is unclear or ambiguous whether the insured wishes the insurer to defend the suit, it becomes the responsibility of the insurer to communicate with the insured before the insurer unilaterally forgoes the defense. This places the "burden of ensuring clear communication between the insurer and insured on the insurer, who is better positioned, in terms of expertise and resources, to manage such a task." Despite Zurich's protestations, this holding should not create an onerous duty for insurers: a simple letter requesting clarification of the insured's position should suffice.

Id. at 269 (citations and footnotes omitted). If American Family found Allstate's communication to be ambiguous, its duty was to ask Allstate to clarify its position.

[2]

¶ 13. American Family contends that Zurich's rule does not apply to a sophisticated insured like Allstate. It relies on Zurich's language that "insurers are usually more sophisticated and knowledgeable than insureds regarding the insurer's duty to defend and insurers are in a better position than insureds to facilitate clear communication between the parties." Id. at 268. That Allstate is an insurer and presumably as sophisticated and knowledgeable regarding the duty to defend as American Family is irrelevant. The supreme court intended that its rule apply to all insureds, regardless of their sophistication. Footnote two of the Zurich opinion states:

The insurer fulfills its duty once it requests the insured for clarification of its position. If the insured is uncooperative or unresponsive, the insurer need not pursue the matter further. This will prevent a sophisticated insured from intentionally vacillating on whether it wants the insurance company to defend the action and, then, after significant legal expenses have accumulated, demanding indemnification.

Id. at 269-70 (emphasis added).

¶ 14. Moreover, even assuming Zurich permits an exception for sophisticated insureds, we would not apply it here. American Family issued Parent the policy affording coverage to Allstate as an additional insured. At the time of its letter, Allstate had the benefit of neither a copy of the policy nor American Family's position on coverage for Allstate. Under the Zurich rationale, American Family was in the better position to facilitate clear...