Newhouse by Skow v. Citizens Sec. Mut. Ins. Co., 91-1802
| Decision Date | 15 June 1993 |
| Docket Number | No. 91-1802,91-1802 |
| Citation | 176 Wis.2d 824,501 N.W.2d 1 |
| Parties | Robert C. NEWHOUSE, by his Guardian ad Litem, Ardell W. SKOW, Charles E. Newhouse and Bonnie L. Newhouse, Plaintiffs-Respondents-Cross Appellants-Petitioners, v. CITIZENS SECURITY MUTUAL INSURANCE COMPANY, Defendant-Third Party Plaintiff-Appellant-Cross Respondent-Cross Petitioner, d v. Floyd OMANN, Don Paul Novitzke and XYZ Insurance Company, Third Party Defendants. |
| Court | Wisconsin Supreme Court |
Amicus Curiae brief was filed by Linda M. Clifford, Noreen J. Parrett and LaFollette & Sinykin, Madison for The Nat. Ass'n of Independent Insurers and The Wisconsin Ins. Alliance.
This is a review of a published court of appeals' decision 1 that affirmed in part and reversed in part, a summary judgment by circuit court Judge Gregory A. Peterson. The circuit court found that Citizen's Security Mutual Insurance Company (Citizens) breached its duty to defend its insured, Floyd Omann. The judgment awards Floyd's assignees, Robert C. Newhouse and his parents, over $724,000, representing the amount of an excess judgment against Floyd Omann in an underlying personal injury action.
The Newhouses now seek review of that portion of the court of appeals' decision which reversed the circuit court's judgment awarding them the full amount of the excess judgment against Floyd Omann. The court of appeals held that the measure of damages for breach of the insurer's duty to defend is the policy limits plus interest together with costs and attorney fees in defending the suit. The Newhouses also seek review of the portion of the court of appeals' decision affirming the circuit court's summary judgment dismissing their tort claims, including a claim of bad faith, against Citizens. Citizens seeks cross review of that part of the court of appeals' decision affirming the circuit court's conclusion that Citizens breached its duty to defend its insured. Citizens also seeks cross review of the court of appeals' decision affirming the award of costs and attorney fees to Floyd Omann and his attorney, Don Paul Novitzke, for Citizens' frivolous third-party claim against them for contribution and indemnity.
The parties raise the following issues for our review:
(1) Did Citizens Security Mutual Insurance Company breach a contractual duty to defend its insured, Floyd Omann?
(2) What is the proper measure of damages for breach of an insurer's duty to defend?
(3) Did the circuit court properly dismiss the Newhouses' tort claims against Citizens?
(4) Were Floyd Omann and attorney Don Paul Novitzke properly awarded costs and attorney fees under sec. 814.025, Stats., for Citizens' third party claim seeking contribution and indemnity from them?
We conclude that: (1) Citizens breached its duty to defend its insured, Floyd Omann; (2) a party aggrieved by an insurer's breach of its duty to defend is entitled to recover all damages naturally flowing from the breach; (3) Newhouses' tort claims against Citizens were properly dismissed on summary judgment; and (4) Citizens' claims for contribution were frivolous and costs were properly imposed under sec. 814.025, Stats.
It is an understatement to describe the facts and procedural history of this case as complex. Fortunately, the facts are undisputed. The present lawsuit is the aftermath of a negligence action brought by Robert Newhouse for injuries he sustained in a tragic farm accident. On October 14, 1983, four-year-old Robert Newhouse was seriously injured when he became entangled in a silo unloader while under the care of his uncles, Timothy and Floyd Omann. The silo and silo unloader were owned by Timothy Omann who rented the farm from his parents. Floyd Omann, Timothy's brother, lived with his parents some distance from the farm. Floyd was at the farm helping Timothy with farm chores on the day of the accident. Floyd was insured under a homeowner's policy issued to his parents carrying a liability limit of $50,000.
At the time of the accident, Robert Newhouse was with Timothy and Floyd who were cleaning out the remaining corn in the bottom of the silo. A clog developed in the silo unloader which required work outside the silo. Timothy and Floyd left Robert in the silo while attending to the problem. The unloader was left running and Robert became entangled in the machinery, resulting in the loss of one leg and serious injury to the other.
On April 1, 1985, Robert Newhouse and his parents commenced a lawsuit against the Omann brothers and others for their alleged negligence in the farm accident. Citizens was not initially named as a defendant. Attorney Don Paul Novitzke filed an answer for Floyd Omann denying liability and then tendered the defense to Citizens.
On January 24, 1986, Citizens commenced an action against its insured, Floyd Omann, seeking a declaratory judgment that its homeowner's policy excluded coverage because the accident did not occur on the insured's premises. Before the circuit court could rule, Robert Newhouse joined Citizens in his negligence lawsuit and Citizens raised the issue of coverage as a defense in that lawsuit as well. Circuit court Judge John G. Bartholomew presided over both actions. On January 12, 1987, Judge Bartholomew issued a declaratory judgment that Citizens' policy did not provide coverage for this accident. There was no appeal from the declaratory judgment. On June 4, 1987, Judge Bartholomew issued an identical no coverage ruling in Robert Newhouse's personal injury action and dismissed Citizens from the lawsuit. The Newhouses and other defendants, except Floyd Omann, appealed the no coverage ruling in the personal injury action.
While the coverage appeal was pending in the court of appeals, Robert's personal injury action proceeded to trial on the merits. Prior to trial, the trial court inquired of Citizens whether it wanted a continuance pending resolution of the coverage appeal and was advised in the negative. The trial began on September 14, 1987. Neither Floyd Omann nor Citizens participated in the personal injury trial. During the course of the trial, each of the defendants settled separately with the Newhouses except Floyd Omann. The trial court dismissed the jury and the case against Floyd Omann was tried without participation by Floyd or Citizens. The trial court apportioned negligence 35% to Floyd Omann, 35% to Timothy Omann and 30% to various machinery manufacturers. Total damages were assessed at $1,281,743.17. On October 15, 1987, judgment was entered against Floyd Omann in the amount of $588,003.70.
On May 17, 1988, the court of appeals decided Newhouse I, which held that Citizens' policy provided coverage to Floyd Omann for the negligence alleged in the lawsuit. After the Newhouse I decision, Citizens paid its policy limits of $50,000 together with $77,000 interest and costs into the St. Croix county clerks office pending resolution of its petition for review to us which was eventually denied. Citizens also paid Floyd's attorney fees to that point.
Floyd Omann assigned any claims he may have against Citizens to the Newhouses. On August 24, 1989, pursuant to that assignment, the Newhouses commenced the present lawsuit against Citizens. The Newhouses' complaint alleged several causes of action including bad faith, negligence, intentional infliction of emotional stress, and breach of the contractual duty to defend. Citizens filed a third-party claim for contribution against Floyd Omann and his attorney Don Paul Novitzke alleging that their negligence in failing to defend in the personal injury lawsuit increased the damages against Floyd.
The trial court granted summary judgment to the Newhouses on the breach of contract claim and awarded damages in the sum of $724,003.92, representing the full amount of the judgment against Floyd Omann in the underlying personal injury action together with interest and costs. The trial court dismissed the Newhouses' other causes of action. The trial court also found that Citizens' contribution claims against Floyd Omann and Novitzke were frivolous and awarded actual costs and attorney fees.
The court of appeals in Newhouse II affirmed the trial court's judgment on all issues except it reversed that part of the summary judgment awarding damages for the full amount of the personal injury judgment against Floyd Omann. The court of appeals concluded that the proper measure of damages for an insurer's breach of its duty to defend is limited to the policy limits plus interest together with costs and the aggrieved party's attorney fees in defending the suit. We granted the Newhouses' petition for review and Citizens' cross-petition for review.
The first issue is whether Citizens breached a contractual duty to defend its insured, Floyd Omann. Whether an insurer has breached a contractual provision of an insurance policy is a question of law. Elliott v. Donahue, 169 Wis.2d 310, 316, 485 N.W.2d 403 (1992). This court decides questions of law without deference to the lower courts. Id.
The liability coverage portion of the insurance policy issued by Citizens specifically provided:
If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage to which this coverage applies, we will:
a. pay up to our limit of liability for the damages for which the insured is legally liable: and
b. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any claim or suit ends when the amount we pay for damages resulting from the occurrence equals our limit of liability. (emphasis in original).
The nature of the insurance contract as well as the language of Citizens' policy contemplated that indemnification and a defense were to be provided to the insured in exchange for the insured's premium payments. Elliott, 169 Wis.2d at 321, 485...
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