Miller v. Hanover Ins. Co.

Decision Date13 July 2010
Docket NumberNo. 2008AP1494.,2008AP1494.
Citation2010 WI 75,326 Wis.2d 640,785 N.W.2d 493
PartiesVearl MILLER, Wanda Miller and Ross, Dayne and Wade Miller, by Guardian ad Litem Robert Mubarak, Plaintiffs-Appellants-Cross-Respondents-Cross Petitioners, v. The HANOVER INSURANCE COMPANY and Massachusetts Bay Insurance Company, Defendants, Zurich American Insurance Company, Defendant-Respondent-Cross-Appellant-Petitioner.
CourtWisconsin Supreme Court

For the defendant-respondent-cross-appellant-petitioner there were briefs by Craig W. Nelson and Nelson, Connell, Conrad, Tallmadge & Slein, S.C., Waukesha, and Lester A. Pines, Kira E. Loehr, and Cullen Weston Pines & Bach LLP, Madison, and oral argument by Lester A. Pines.

For the plaintiffs-appellants-cross-respondents-cross petitioners there were briefs by Jay A. Urban, Jennifer M. Wilson, and Urban & Taylor S.C., Milwaukee; Kent A. Tess-Mattner and Schmidt, Rupke, Tess-Mattner & Fox, S.C., Brookfield; and Robert J. Mubarak and Mubarak, Radcliffe & Berry SC, Tomah, and oral argument by Jay A. Urban.

An amicus curiae brief was filed by James A. Friedman, Katherine Stadler, and Godfrey & Kahn, S.C., Madison, on behalf of the Wisconsin Insurance Alliance.

PATIENCE DRAKE ROGGENSACK, J.

¶ 1 We review a decision of the court of appeals 1 affirming the circuit court's order 2 denying Zurich American Insurance Company's (Zurich) motion for relief from a defaultjudgment and limiting Vearl Miller, Wanda Miller and Ross, Dayne and Wade Miller's (collectively, Miller) damages to $2 million. The following issues are presented for our review: (1) whether the circuit court properly entered a default judgment against Zurich for its failure to timely answer Miller's amended complaint; (2) whether the circuit court erroneously exercised its discretion in denying Zurich's motion for relief from the default judgment, pursuant to Wis. Stat. § 806.07(1)(h) (2007-08); 3 and (3) whether the circuit court properly limited Miller's damages to $2 million.

¶ 2 We conclude that the circuit court erroneously exercised its discretion in denying Zurich's motion for relief from the $2 million default judgment. Because we so conclude, we need not decide whether the circuit court properly entered the default judgment against Zurich or whether the circuit court properly limited Miller's damages to $2 million. Accordingly, we reverse the court of appeals decision affirming the circuit court's denial of Zurich's motion for relief from judgment and remand to the circuit court to vacate the default judgment.

I. BACKGROUND

¶ 3 The facts of this case are lengthy and complicated. On August 11, 2003, Vearl Miller (Vearl) was injured in a car accident in the course of his employment. While operating a vehicle owned by General Parts, Inc. (General Parts), the parent company of Vearl's employer, Car Quest, Vearl was struck by another vehicle. James Smith, Jr. (Smith) was the driver of that vehicle. As a result of the accident, Vearlsuffered traumatic injuries, including permanent paralysis from the waist down.

¶ 4 On June 23, 2004, Vearl and his wife, Wanda Miller (Wanda), filed a complaint, alleging Smith's negligence. The complaint claimed damages for Vearl's injuries and for Wanda's loss of consortium and society and companionship. The complaint named four defendants: (1) Smith; (2) Smith's insurer, Acuity Insurance (Acuity); (3) Zurich, as General Parts' worker's compensation insurer; and (4) the Hanover Insurance Company (Hanover), as Vearl's personal underinsured motorist insurer. Zurich was named as a defendant because it had a statutory subrogation interest in any tort recovery.

¶ 5 On July 19, 2004, Zurich timely answered the complaint, by and through its attorney, James Ratzel (Ratzel). Zurich affirmatively asserted a subrogation interest "to the full extent of any worker's compensation benefits that have been paid or will be paid to or on behalf of the plaintiff Vearl Miller."

¶ 6 On November 11, 2004, Miller's counsel wrote a letter to Ratzel, which stated in part:

My understanding is that you are representing Zurich in a subrogation capacity, but are you also counsel on the potential [underinsured motorist] claim? If so, kindly provide me with any and allcertified policies of possible [underinsured motorist] coverage, including umbrella and [commercial general liability] policies, in effect for Vearl Miller through Car Quest or General Parts, Inc. at the time of this accident. If not, please forward this to the appropriate counsel for Zurich. Actually, we are most interested in all [underinsured motorist] policies in effect for Mr. Miller as an employee driver.

¶ 7 Ratzel responded to the letter from Miller's counsel on November 15, 2004. The letter stated:

I understand that you are appearing as co-counsel for the plaintiffs in this matter. In response to your letter of November 11, 2004, I only represent Zurich to the extent of the worker's compensation interest. I don't know if the issue of [underinsured motorist] coverage has ever been explored. In my discussions, I am not aware of anyone raising that issue and as such, I cannot state one way or another whether there is [underinsured motorist] coverage. As to the position of Acuity, they have offered their policy limits from day one and I believe that the only thing that is taking place right now is obtaining some additional proceeds from the tortfeasor Smith.
Please contact me with any questions or comments. As you are aware, my worker's compensation interest attaches to the policy limits of Acuity but would not come into play as it pertains to any [underinsured motorist] claim. Thank you.

¶ 8 Miller's counsel corresponded with GAB Robins Risk Management Services, Inc. (GAB Robins), a third-party claims administrator for General Parts, on December 13, 2004, and December 27, 2004, regarding obtaining certified copies of any insurance policies containing underinsured motorist coverage Zurich had issued to Car Quest or General Parts. On January 6, 2005, Attorney Timothy Lyons (Lyons) sent a letter to Miller's counsel informing him, among other things, that his "law firm [had] been retained by GAB Robins Risk Management Services, Inc., with regard to [Vearl Miller's] claim." Lyons again corresponded with Miller's counsel on February 1, 2005. This letter was to inform Miller's counsel that while Zurich had issued General Parts a commercial automobile insurance policy, it wasGAB Robin's position that "there is no [underinsured motorist] coverage" in the commercial automobile policy covering Miller because General Parts rejected Zurich's offer of such coverage. Enclosed with the letter was "the form signed by the representative of General Parts, Inc. rejecting [underinsured motorist] coverage." 4

¶ 9 Acuity agreed to pay its policy limit of $100,000, and Smith contributed $2,000 to a settlement fund. A dispute arose over how the funds were to be distributed. On January 18, 2005, Zurich, through Ratzel, filed a motion for approval of third party settlement proposing a distribution.

¶ 10 Eventually, the parties stipulated to an agreed on distribution of the settlement proceeds. Miller's counsel filed a letter in the circuit court, dated February 10, 2005, copying all counsel of record, including Ratzel, asking the court to sign and approve a stipulation and order for disbursement of the settlement proceeds and a stipulation and order for partial dismissal of parties. All counsel of record, including Ratzel for Zurich, signed the stipulations. On February 11, 2005, the court entered both orders.

¶ 11 The order for partial dismissal stated "that only the defendants James L. Smith, Jr. and Acuity Insurance are hereby dismissed as defendants in the above matter with prejudice and without costs." With respect to Zurich and Hanover as the remaining defendants, Miller's February 10, 2005 letter to the court explained:

We are keeping this case open as to all other named defendants. There are potentially other claims involving these defendants and other issues of [underinsured motorist insurance], insurance agent errors and omissions and/or medical malpractice. Thank you.

¶ 12 In November 2005, the circuit court issued a notice of hearing setting a scheduling conference for January 10, 2006. The notice was distributed to Miller's counsel, Hanover's counsel and to Zurich. The notice was not distributed to Ratzel, and he did not attend the scheduling conference.

¶ 13 On January 10, 2006, the day of the scheduling conference, Miller's counsel sent a letter to the circuit court informing the court of the status of the case. The letter stated: "Kindly keep this case open for future proceedings, and we will expect to have additional motions and/or pleadings in the case within the next couple of months." A copy of this letter was sent to Miller's co-counsel and Hanover's counsel. Neither Zurich nor Ratzel received this letter. The judge made the following handwritten notations on a copy of the January 10, 2006 letter: "request approved," which was circled, "please advise" and "please file." A copy of the letter with the judge's notations was sent to Miller's co-counsel and Hanover's counsel; neither Zurich nor Ratzel received a copy.

¶ 14 Miller's counsel filed with the circuit court a letter dated June 5, 2006, enclosing an amended summons and complaint, which were filed on June 7, 2006. The letter informed the court of the following:

Enclosed is our Amended Summons and Complaint making claims for additional coverage and/or reducing clause issues on those, as well as other contractual and extra-contractual claims for damages, including bad faith. Two of these insurers are new parties to this action, and all will be served via their respective registered agents.

The amended complaint named Massachusetts Bay Insurance Company (Massachusetts Bay), Zurich and Hanover as defendants and claimed, inter alia, that Zurich's commercial automobile insurance policy provided Miller,...

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