Orlowski v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 07 March 2012
• Docket Number: No. 2009AP2848.,2009AP2848.
• Citation: 810 N.W.2d 775,2012 WI 21,339 Wis.2d 1
• Parties: Lindy ORLOWSKI, Petitioner–Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent–Appellant.
• Court: Wisconsin Supreme Court

2012 WI 21

339 Wis.2d 1

810 N.W.2d 775

Lindy ORLOWSKI, Petitioner–Respondent,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent–Appellant.

No. 2009AP2848.

Supreme Court of Wisconsin.

Argued Jan. 10, 2012.Decided March 7, 2012.

For the petitioner-respondent there was a brief by Kevin J. Kukor, Keith R. Stachowiak, and M. Josef Zimmermann and Murphy & Prachthauser, S.C., Milwaukee and oral argument by Keith R. Stachowiak.

For the respondent-appellant there were briefs by Thomas E. Goss, Jr. and Mueller, Goss & Possi, S.C., Milwaukee and oral argument by Thomas E. Goss, Jr.

An amicus curiae brief was filed by Mark L. Thomsen, Edward E. Robinson, and Brett E. Eckstein, Cannon & Dunphy, S.C., Brookfield, for the Wisconsin Association for Justice, and oral argument by Edward E. Robinson.N. PATRICK CROOKS, J.

[339 Wis.2d 5] ¶ 1 This case is before this court on certification by the court of appeals, pursuant to Wis. Stat. § (Rule) 809.61 (2009–10). It concerns the proper measure of damages in an action to recover under an injured party's underinsured motorist (UIM) coverage. We resolve this question in the context of the limited scope of review of an arbitration panel's decision.

¶ 2 In this case, the injured party, Lindy Orlowski (Orlowski), submitted a claim to State Farm Mutual Automobile Insurance Company (State Farm) under her UIM coverage after exhausting the policy limits of the underinsured motorist. Pursuant to the arbitration provision in the UIM coverage portion of her policy, Orlowski and State Farm submitted the question of damages to an arbitration panel. The panel concluded that the court of appeals decision in Heritage Mutual Insurance Company v. Graser, 2002 WI App 125, 254 Wis.2d 851, 647 N.W.2d 385, precluded Orlowski from recovering under her UIM coverage the value of medical expenses that were written off by her medical provider.¹

¶ 3 Orlowski petitioned the circuit court for modification of the arbitration award pursuant to Wis. Stat. § 788.11 (2007–08),² arguing that the panel erroneously relied on Graser. The circuit court for Milwaukee County, the Honorable Dennis P. Moroney presiding, agreed and modified the arbitration award to include the value of the written-off medical expenses. The court of appeals certified the case to this court because it perceived an irreconcilable conflict between Graser's holding that the collateral source rule has no application in UIM cases and this court's precedent on the law of damages and the collateral source rule. Further, the court of appeals noted that Orlowski's policy required the arbitration panel to award the amount that she was “legally entitled to collect” from the underinsured motorist, which is controlled by this court's precedent on the collateral source rule and tort damages.

¶ 4 We reaffirm what our prior precedent has clearly established: an injured party is entitled to recover the reasonable value of medical services, which, under the operation of the collateral source rule, includes written-off medical expenses. We overrule Graser to the extent that it holds that the collateral source rule has no application in cases involving UIM coverage. The arbitration panel's decision in this case was properly modified by the circuit court pursuant to Wis. Stat. § 788.10 and § 788.11 because the arbitrators exceeded their authority by failing to fully review and apply this court's decisions on the collateral source rule and the law of damages. Such review and application was required by the questions submitted from the policy language directing the panel to award Orlowski the amount that she was “legally entitled to collect” from the underinsured motorist.

¶ 5 Therefore, we affirm the circuit court's decision modifying the arbitration panel's award to include the reasonable value of Orlowski's medical services.

I. BACKGROUND

¶ 6 On December 30, 2004, Orlowski was involved in a motor vehicle accident caused by an underinsured driver. Orlowski recovered damages up to the limits of the underinsured driver's insurance. Orlowski had health insurance coverage with United Healthcare, which paid a portion of Orlowski's medical expenses as a result of the accident. She also had an automobile insurance policy with State Farm including UIM coverage.

¶ 7 After exhausting the underinsured motorist's coverage, Orlowski submitted a claim to State Farm to recover under her UIM coverage. Pursuant to the UIM coverage portion of her policy, an arbitration panel was selected to decide two questions: “1. Is the insured legally entitled to collect damages from the owner or driver of the uninsured motor vehicle or underinsured motor vehicle; and 2. If so, in what amount?” ³

¶ 8 The arbitration panel awarded Orlowski $11,498.55 for medical services provided to her as a result of the accident: $9,498.55 for the medical lien claimed by United Healthcare and $2,000 for Orlowski's out-of-pocket medical expenses.⁴ The arbitration panel did not include in its award the amount of Orlowski's medical expenses that had been written off by her medical provider because of discounts through her health insurance coverage with United Healthcare.⁵ The panel did not include these written-off medical expenses in its award because it concluded that the court of appeals decision in Graser, 254 Wis.2d 851, 647 N.W.2d 385, provided that the collateral source rule did not apply to UIM claims and thus did not allow Orlowski to recover these expenses. At Orlowski's request, the arbitration panel submitted a supplemental decision concluding “that the necessary and reasonable value of the medical services provided to Mrs. Orlowski as a result of the accident is [$72,985.94].” The dispute in this case is over the $61,487.39 in medical expenses that were written off by Orlowski's medical provider—the difference between the reasonable value of medical expenses and the $11,498.55 in medical expenses that the panel awarded to Orlowski.

¶ 9 Orlowski petitioned the Milwaukee County Circuit Court for modification of the arbitration award pursuant to Wis. Stat. § 788.11.⁶ Orlowski argued that the arbitration award must be modified because the arbitration panel improperly interpreted and relied on Graser, 254 Wis.2d 851, 647 N.W.2d 385. State Farm argued that Orlowski had not provided any basis upon which the circuit court could modify the award in accordance with Wis. Stat. § 788.10 and § 788.11. Further, State Farm asserted that the arbitration panel properly applied Graser.

¶ 10 The circuit court, the Honorable Dennis P. Moroney presiding, modified the arbitration decision to award Orlowski the full reasonable value of medical expenses, $72,985.94.⁷ The circuit court stated that the court of appeals decision in Graser failed to give appropriate weight to the “concept of people buying [UIM insurance] for their own protection” to be “made whole” after being injured in an accident caused by an underinsured driver. The circuit court emphasized that allowing Orlowski to recover the full reasonable value of medical services, including written-off medical expenses, is less about the collateral source rule and more about giving her the benefit of what she contracted for. The circuit court stated that under Wisconsin law, insureds “have a right to at least be covered to the extent of what they bargained for.” The circuit court limited Graser's applicability to only those cases involving recovery based on a waived subrogation right. The circuit court concluded that the arbitration panel's interpretation of Graser improperly limits the collateral source rule. The circuit court concluded that the arbitration panel's decision represented a manifest disregard of the law.

¶ 11 State Farm appealed and the court of appeals certified the case to this court for review. The court of appeals was concerned that the way in which the arbitration panel applied Graser was in conflict with this court's precedent and the questions asked of the panel from the UIM coverage portion of Orlowski's policy with State Farm. The court of appeals specifically asked this court to resolve “how Wisconsin Supreme Court law in collateral source cases such as Koffman v. Leichtfuss, 2001 WI 111, 246 Wis.2d 31, 630 N.W.2d 201, and Leitinger v. DBart, Inc., 2007 WI 84, 302 Wis.2d 110, 736 N.W.2d 1, [affects] our holding in Heritage Mut. Ins. Co. v. Graser, 2002 WI App 125, 254 Wis.2d 851, 647 N.W.2d 385, where we held that collateral source law is inapplicable to any UIM policy.” We accepted the certification.

II. ANALYSIS

A. Issues and Standard of Review

¶ 12 This court must address two issues to resolve this case. The first is whether the collateral source rule allows the recovery of written-off medical expenses in a claim under an insured's UIM coverage. This presents a question of law that this court reviews de novo. See Leitinger, 302 Wis.2d 110, ¶ 20, 736 N.W.2d 1.

¶ 13 The second question we must answer is whether the arbitration panel's award must be modified in this case. The scope of judicial review of an arbitration decision is very limited. Racine Cnty. v. Int'l Ass'n of Machinists and Aerospace Workers Dist. 10, AFL–CIO, 2008 WI 70, ¶ 11, 310 Wis.2d 508, 751 N.W.2d 312. “The role of the court in reviewing an arbitration award is essentially supervisory in nature. We are to ensure that the parties received what they bargained for when they agreed to resolve their disputes through final and binding arbitration. Courts are guided by the statutory standards in Wis. Stat. §§ 788.10 ⁸ ... and 788.11 ⁹ and by the standards developed at common law.” Baldwin–Woodville Area Sch. Dist. v. W. Cent. Educ. Ass'n–Baldwin Woodville Unit, 2009 WI 51, ¶ 20, 317 Wis.2d 691, 766 N.W.2d 591 (citations and footnotes omitted). The common law standards for overturning an arbitration award have been developed in our case law based on the standards in both Wis. Stat. § 788.10 and § 788.11, and in this case are applied to...