Prosser v. Leuck

• Decision Date: 21 April 1999
• Docket Number: No. 97-0686,97-0686
• Court: Wisconsin Supreme Court
• Parties: Robert PROSSER, Plaintiff-Appellant-Cross-Respondent-Petitioner, v. Richard A. LEUCK and Cedarburg Mutual Insurance Company, Defendants-Respondents-Cross-Appellants.

Page 178

592 N.W.2d 178

225 Wis.2d 126

Robert PROSSER, Plaintiff-Appellant-Cross-Respondent-Petitioner, v. Richard A. LEUCK and Cedarburg Mutual Insurance Company,

Defendants-Respondents-Cross-Appellants.

No. 97-0686.

Supreme Court of Wisconsin.

Argued Oct. 13, 1998.

Decided April 21, 1999.

For the plaintiff-appellant-cross respondent-petitioner there were briefs by Jason W. Whitley and Novitzke, Gust Sempf, Amery and oral argument by Jason W. Whitley.

For the defendants-respondents-cross-appellants there was a brief by Timothy M. Doyle and Thrasher, Doyle, Pelish Franti, Ltd., Rice Lake and oral argument by Timothy M. Doyle.

¶1 WILLIAM A. BABLITCH, J

Petitioner, Robert Prosser (Prosser), requests that this court reverse the court of appeals' decision which determined that Prosser's settlement offer to respondent Cedarburg Mutual Insurance Company (Cedarburg) was ambiguous and therefore invalid. Accordingly, the court of appeals also determined that Prosser was not entitled to double costs and interest from Cedarburg. The ambiguity arose from the lack of clarity as to whether the offer of settlement was extended only to Cedarburg or to both Cedarburg and its insured, Richard A. Leuck (Leuck). We hold that an insurer, as part of its fiduciary duty to its insured, has a duty to clarify an offer of settlement that is ambiguous with respect to whether the offer applies to only the insurer or both the insurer and the insured. Failure to clarify the ambiguity results in a valid offer pursuant to Wis. Stat. § 807.01. We also hold, based on the plain language of § 807.01(3) and (4), that Prosser is entitled to double costs, including costs associated with determining coverage, and interest from the date of the settlement offer throughout the trial on determining coverage.

¶2 The history underlying this case is not in dispute. In 1992 defendant Leuck, a minor, started a fire which destroyed a warehouse owned by Prosser. On March 25, 1993, Prosser sued Leuck and his parents' insurance company, Cedarburg, for the damages to his warehouse and its contents.

¶3 On October 13, 1993, Prosser served Cedarburg with an offer of settlement for $99,750 "plus the actual costs of this action." The offer was addressed only to Cedarburg and its attorneys. Prosser offered to dismiss "this pending litigation and the entirety of defendant's liability attendant to said litigation ... in exchange for the defendant's payment" of $99,750 "cash, plus the actual costs of this action." Cedarburg's insurance policy limit in this case was $100,000.

¶4 Cedarburg made no response to Prosser's settlement offer. Rather, because there was some evidence that Leuck intentionally started the fire, Cedarburg challenged coverage under its policy which provided an exclusion for intentional acts. On June 30, 1994, Cedarburg filed a motion to bifurcate the coverage issue from the liability and damages issues and to stay the underlying proceedings pending resolution of the coverage issue. The Barron County Circuit Court, Judge James C. Eaton presiding, ¹ granted this motion on August 22, 1994.

¶5 After a trial and appeal, the court of appeals determined that the Cedarburg policy did provide coverage to Leuck for the claim. Prosser v. Leuck, 196 Wis.2d 780, 788, 539 N.W.2d 466 (Ct.App.1995). The court of appeals remanded the case to the circuit court for entry of judgment in favor of Prosser in such amount as ultimately determined. Cedarburg filed a petition for review but this court denied review of the court of appeals' decision on November 14, 1995.

¶6 On November 30, 1995, Cedarburg tendered its policy limit of $100,000 to Prosser. Prosser did not accept this tender and on January 2, 1996, filed a motion for summary judgment and for double costs and interest pursuant to Wis. Stat. § 807.01(3) and (4) ² for Cedarburg's failing to accept its settlement offer of October 13, 1993. At a hearing on December 19, 1996, the parties stipulated that judgment would be entered against Cedarburg in the amount of its policy limit, $100,000, and that the issue of double costs and interest pursuant to § 807.01(3) and (4) would be determined by the circuit court.

¶7 The circuit court granted Prosser's motion for interest pursuant to Wis. Stat. § 807.01(4) but determined that the accrual of interest was tolled, along with the stay of the liability and damages issues, pending resolution of the coverage issue. Accordingly, the circuit court awarded Prosser interest from the date of the settlement offer, October 13, 1993, through the date the circuit court stayed the underlying action, and from the date this court denied review of the court of appeals' decision regarding coverage, November 14, 1995, through the date Cedarburg tendered its policy limits, November 30, 1995. The circuit court denied Prosser's motion for double costs pursuant to § 807.01(3), reasoning that most of Prosser's costs were associated with litigating the coverage issue.

¶8 Prosser appealed the circuit court's decision that interest did not accrue while the underlying action was stayed pending resolution of the coverage issue. Prosser also argued that the circuit court erred in denying him double costs pursuant to Wis. Stat. § 807.01(3). Cedarburg cross-appealed, arguing that Prosser's settlement offer was ambiguous and therefore invalid and that Prosser accordingly was not entitled to recover interest or double costs.

¶9 In an unpublished decision, ³ the court of appeals held that Prosser's settlement offer was ambiguous because it did not enable Cedarburg "to determine the amount required to settle the case and determine whether its duty to defend [Leuck] would survive the proferred settlement." Accordingly, the court of appeals determined that the offer was invalid and Prosser was not entitled to double costs or interest under Wis. Stat. § 807.01(3) and (4).

¶10 This court accepted Prosser's petition for review pursuant to Wis. Stat. § (Rule) 809.62(1). This case presents two issues for our determination. First, does an insurance company have a duty to clarify an ambiguous settlement offer? We hold that an insurer, as part of its fiduciary duty to its insured, has a duty to clarify an offer of settlement that is ambiguous with respect to whether the offer applies to only the insurer or both the insurer and the insured. Failure to clarify the ambiguity results in a valid offer pursuant to Wis. Stat. § 807.01. The second issue presented is whether, given the circumstances of this case, Prosser is entitled to double costs and interest pursuant to § 807.01(3) and (4) and if so, to what extent. We hold that Prosser is entitled to double costs, even for costs associated with determining coverage, and interest from the date of the settlement offer, throughout the trial on determining coverage.

I.

¶11 We now turn to the first issue: whether an insurer has a duty to clarify an offer of settlement that is ambiguous with respect to whether the offer of settlement applies to only the insurer or both the insurer and the insured. Whether an offer is unambiguous and therefore valid for purposes of Wis. Stat. § 807.01 is a question of law that appellate courts review de novo. Testa v. Farmers Ins. Exchange, 164 Wis.2d 296, 300, 474 N.W.2d 776 (Ct.App.1991).

¶12 Cedarburg argues that the offer it received from Prosser was ambiguous and we agree. As the court of appeals aptly stated:

... Cedarburg was unable to determine from the offer the amount necessary to settle the case.... The offer's ambiguity as to whether the entire litigation would be dismissed also prevented an evaluation of Cedarburg's collateral exposure. Specifically, Cedarburg could not determine from the offer whether it would still owe a duty to defend its insured.

Prosser v. Leuck, 216 Wis.2d 115, 573 N.W.2d 900 (Ct.App.1997).

¶13 Generally, a plaintiff or offeror has the burden to make an offer of settlement clear and unambiguous. DeMars v. LaPour, 123 Wis.2d 366, 375, 366 N.W.2d 891 (1985). "The defendant's only duty is to accept the offer in writing within ten days after its receipt, if so desired." Id. The offer must allow the defendant to fully and fairly evaluate his or her own exposure to liability. Testa, 164 Wis.2d at 302, 474 N.W.2d 776. This general rule works well and is appropriate when the defendant or offeree is concerned with, and responsible for, only his or her own interests.

¶14 This general rule does not work well, however, when the offeree must be concerned with and is responsible for not only its own interests and exposure to liability, but also the interests and liability of another. Such is the case with Cedarburg.

[I]n the standard liability insurance contract the insured surrenders completely the right to control the settlement or litigation of the victim's claim within the limits of the insurer's exposure. The threat to the insured is obvious: If the insurer fails to settle a third-party claim within the limits of the policy and chooses instead to litigate the matter, the insured will be exposed to that portion of any judgment which exceeds the policy limits.

Kranzush v. Badger State Mut. Cas. Co., 103 Wis.2d 56, 60, 307 N.W.2d 256 (1981). By entering into an insurance contract and taking control of settlement or litigation the insurer assumes a fiduciary duty on behalf of the insured. "Because the insured has given up something of value to the insurer--namely, the right to defend and settle a claim--the insurer has been said to be in the position of a fiduciary with respect to an insured's interest in settlement of a claim." Mowry v. Badger State Mut. Cas., 129 Wis.2d 496, 511, 385 N.W.2d 171 (1986) (citing Alt v. American Family Mut. Ins. Co., 71 Wis.2d 340, 348, 237 N.W.2d 706 (1976)).

¶15 The fiduciary duty "carries with it the duty to act on behalf of the insured and to exercise the same standard of care that the insurance company would exercise were it exercising ordinary diligence in...