Muller v. Society Ins.

Decision Date30 May 2008
Docket NumberNo. 2006AP976.,2006AP976.
Citation2008 WI 50,750 N.W.2d 1
PartiesBruce MULLER and Karen Muller d/b/a B & K Sports and Liquors, Plaintiffs-Respondents-Cross-Appellants-Petitioners, v. SOCIETY INSURANCE, Defendant-Appellant-Cross-Respondent, George Jerrick, United Fire and Casualty and Robert Sorenson d/b/a Community Insurance, Defendants.
CourtWisconsin Supreme Court

For the plaintiffs-respondents-cross appellants-petitioners there were briefs by William L. Norine and Norine Law Firm, Grantsburg, and oral argument by William L. Norine.

For the defendant-appellant-cross-respondent there was a brief by Joe Thrasher and Thrasher, Doyle, Pelish & Franti, Ltd., Rice Lake, and oral argument by Joe Thrasher.

An amicus curiae brief was filed on behalf of the Wisconsin Insurance Alliance, Property Casualty Insurers Association of America, Civil Trial Council of Wisconsin and National Association of Subrogation Professionals by James A. Friedman and Godfrey & Kahn, S.C., Madison.

An amicus curiae brief was filed on behalf of The Wisconsin Academy of Trial Lawyers by Mark L. Thomsen, Edward E. Robinson, Brett A. Eckstein, and Cannon & Dunphy, S.C., Brookfield.


This is a review of a published decision of the court of appeals, Muller v. Society Ins., 2007 WI App 44, 300 Wis.2d 463, 730 N.W.2d 668, reversing a judgment of the circuit court for Polk County, Robert H. Rasmussen, Judge.

¶ 2 The question presented is whether an insurer may retain in full a subrogation settlement with a tortfeasor and a tortfeasor's insurer after its insureds have settled with the tortfeasor and the tortfeasor's insurer for an amount less than necessary to make the insureds "whole," even though the tortfeasor's insurance policy limits were sufficient to cover all claims, including those of both the insureds and the insurer.

¶ 3 The plaintiff insureds, Bruce and Karen Muller (the Mullers), claim that their property insurer, Society Insurance (Society), may not retain its subrogation settlement with a tortfeasor, George Jerrick (Jerrick), and his insurer, United Fire and Casualty (United), because the Mullers have not been "made whole" under the rule of Garrity v. Rural Mutual Insurance Company, 77 Wis.2d 537, 253 N.W.2d 512 (1977), Rimes v. State Farm Mutual Automobile Insurance Company, 106 Wis.2d 263, 316 N.W.2d 348 (1982), and their progeny. To resolve this case, we must evaluate our subrogation and "made whole" jurisprudence in light of the equitable considerations surrounding settlements.

¶ 4 We hold that the made whole doctrine is not implicated in this case. Specifically, the doctrine does not apply when an insurer has fully satisfied its obligations under an insurance contract, given its insureds the opportunity to settle their claim with the tortfeasor and the tortfeasor's insurer, the pool of settlement funds available to the insureds exceeds the total claims of both the insureds and the insurer, and the insureds settle their claim, even though the insureds' settlement, together with the insurer's policy payments does not satisfy the insureds' total claim. In these circumstances, the inequitable prospect of an insurer competing with its insureds for an inadequate pool of funds is not present, and the equities favor the insurer. Thus, we conclude that Society is entitled to retain its entire subrogation settlement with United and Jerrick and that the Mullers have no right to a portion of Society's subrogation settlement. Accordingly, we affirm the court of appeals.


¶ 5 Bruce and Karen Muller owned a sporting goods store in Milltown, Wisconsin. On August 11, 2001, a fire destroyed the store, resulting in a claimed total loss of $697,981.58. The Mullers believed and alleged that the fire was caused by the negligence of George Jerrick, an electrical contractor hired to install wiring during a remodeling project at the store. Jerrick carried liability insurance with United Fire and Casualty, with policy limits of $1,000,000.

¶ 6 The Mullers carried property insurance with Society Insurance, but their coverage did not equal their total loss. Society paid the Mullers their policy limits ($407,378.88), but this payment left the Mullers with a claimed uninsured loss of $290,602.70.

¶ 7 On December 17, 2001, the Mullers sued Jerrick and United to recover their uninsured loss.1 The Mullers named Society as a defendant, claiming additional business interruption coverage. This issue later dropped out of the case. The Mullers did not name Society as a subrogated party pursuant to Wis. Stat. § 803.03(2),2 but Society cross-claimed against Jerrick and United for subrogation.

¶ 8 On March 4, 2003, the parties attended a mediation session in Eau Claire.3 Prior to this session, the Mullers and Society had been working together to prepare for a May 19, 2003, trial. At the session, the Mullers and Society met separately with Jerrick and United. Society reached a tentative settlement with Jerrick and United on Society's subrogation claim. It did not sign a formal agreement. Society's tentative settlement for $190,000 was conditioned upon the Mullers settling with Jerrick and United or resolving the case at trial.

¶ 9 The Mullers, however, did not reach a settlement with Jerrick and United and were disheartened by the prospect of going to trial against Jerrick and United without Society's assistance.

¶ 10 Almost immediately, the Mullers' attorney called Judge Rasmussen's office to seek the court's direct help in additional mediation. In a March 28, 2003, letter to the court, the Mullers' attorney made a formal request for additional mediation, explaining that there had been a "settlement, the amount and terms of which remain undisclosed," and that Society would be withdrawing from the case. The letter stated that "there were unfortunately some basic miscommunications at the mediation held on March 4, 2003, which may have prevented a global settlement at that time." The letter raised the prospect of the Mullers pursuing "any claims they might have against Society under the Rimes doctrine." The letter was copied to all parties.

¶ 11 On May 19, 2003, a second mediation session was conducted, this time with Judge Rasmussen. Only the Mullers, Jerrick, and United were involved in the Rasmussen mediation. At this session, the Mullers voluntarily settled their claim against Jerrick and United for $120,000, which was $170,602.70 less than their claimed uninsured loss. As stated, Jerrick's liability insurance policy had a limit of $1,000,000.

¶ 12 The Mullers' settlement did not include an agreement to indemnify Jerrick or United from the subrogation claim by Society. Thus, Society later settled with Jerrick and United for $190,000.

¶ 13 Following these two settlements, the Mullers and Society briefed the issue of whether the Rimes made whole doctrine applied to allow the Mullers to recover the remainder of their claimed uninsured loss from Society's subrogation settlement with Jerrick and United.

¶ 14 On September 30, 2004, the circuit court issued a written decision that concluded that the combination of the Mullers' $120,000 settlement with Jerrick and United and the $407,378.88 indemnity payment the Mullers received from Society did not make the Mullers whole for their fire casualty loss. Focusing on the "longstanding legal, equitable and public policy principles which [underlie] the decision in Rimes and its progeny," the circuit court determined that "United defined what constituted the `limited pool'" of funds available to pay both Society's and the Mullers' claims. The court said that because Society and the Mullers were in competition for this limited pool of $310,000,4 Society was "not entitled to retain any of those funds unless and until the plaintiffs have been `made whole.'" The circuit court determined that the Mullers were entitled to a hearing regarding the amount that would make them whole, and that amount was to be recovered from Society's $190,000 subrogation settlement with Jerrick and United.

¶ 15 Before such a hearing took place, the Mullers and Society held a third mediation session. After this session, the Mullers and Society signed a written stipulation that the Mullers' "total unreimbursed loss" for their fire casualty was $59,725.60.

¶ 16 With this amount ascertained, the circuit court entered judgment in favor of the Mullers and against Society for $59,725.60.

¶ 17 Society appealed, and the Mullers cross-appealed, seeking to recover the entire amount ($190,000) of Society's subrogation settlement with Jerrick and United.

¶ 18 On February 20, 2007, the court of appeals reversed the circuit court, holding that Society was entitled to retain its entire subrogation settlement with Jerrick and United. The court of appeals noted the general rule that "an insurer is not allowed to recover its subrogation interest until its insured has been made whole." Muller, 300 Wis.2d 463, ¶ 14, 730 N.W.2d 668 (citing Garrity, 77 Wis.2d at 541-42, 253 N.W.2d 512). However, the court of appeals observed that: (1) the $1,000,000 limit of Jerrick's policy with United was "far more than adequate to cover all the claims"; and (2) the amount to be recovered was not limited by either Society or the Mullers. Muller, 300 Wis.2d 463, ¶¶ 16-17, 730 N.W.2d 668. The court of appeals reasoned that, given these facts "the Mullers made a conscious choice to accept less than their losses ... [that] ... cannot plausibly be tied to any limited funds." Id., ¶ 18. Therefore, the court of appeals determined that the Mullers had the first opportunity to recover their losses and failed to do so, and it reversed in favor of Society. Id.

¶ 19 The Mullers petitioned this court for review, which we granted on June 12, 2007.


¶ 20 This case focuses on the respective rights of an insurer and its insureds when: (1) the insureds have settled with a tortfeasor...

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