Reid v. Benz

• Decision Date: 11 July 2001
• Docket Number: No. 00-0003.,00-0003.
• Citation: 629 N.W.2d 262,2001 WI 106,245 Wis.2d 658
• Parties: Darryn REID, Plaintiff, v. Leanna R. BENZ, Defendant-Respondent-Cross-Appellant, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Appellant-Cross-Respondent, TRANSPORTATION INSURANCE COMPANY, Defendant.
• Court: Wisconsin Supreme Court

245 Wis.2d 658

2001 WI 106

629 N.W.2d 262

Darryn REID, Plaintiff, v. Leanna R. BENZ, Defendant-Respondent-Cross-Appellant, AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Appellant-Cross-Respondent, TRANSPORTATION INSURANCE COMPANY, Defendant.

No. 00-0003.

Supreme Court of Wisconsin.

Oral argument May 29, 2001.

Decided July 11, 2001.

For the defendant-appellant-cross respondent there were briefs by Frederick J. Smith and Peterson, Johnson & Murray, S.C., Milwaukee, and oral argument by Frederick J. Smith.

For the defendant-respondent-cross appellant there was a brief by Tamara Hayes O'Brien and Whyte Hirschboeck Dudek S.C., Milwaukee, and oral argument by Tamara Hayes O'Brien.

An amicus curiae brief was filed by Matthew A. Biegert, Brian H. Sande and Doar, Drill & Skow, S.C., New Richmond, on behalf of the Wisconsin Academy of Trial Lawyers.

An amicus curiae brief was filed by Arnold P. Anderson and Mohr & Anderson, S.C., Madison, on behalf of the Wisconsin Insurance Alliance. An amicus curiae brief was filed by Arnold P. Anderson and Mohr & Anderson, S.C., Madison, on behalf of Civil Trial Counsel of Wisconsin.

¶ 1. N. PATRICK CROOKS, J

This case is before the court on certification by the court of appeals, pursuant to Wis. Stat. § (Rule) 809.61 (1999-2000). The court of appeals certified the following issue: Was the supreme court's award of attorney fees to an insured in Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992), premised upon the insurer's contractual breach of the duty to provide coverage or the duty to defend or both?

¶ 2. Before answering the court of appeals certified issue, we point out that Elliott made it clear that "[u]nder the well-established American Rule, parties to litigation are generally responsible for their own attorney fees incurred with respect to the litigation. Attorney fees are generally not awarded to the prevailing party in the absence of a statute or enforceable contract providing therefor." 169 Wis. 2d at 323. This case is not about consumer protection, contrary to the suggestion by the dissent. See dissenting op. at ¶ 39. The issue before us pertains to the basis of our award of attorney fees in Elliott, and the reasons for diverging from the deeply-rooted dictates of the American Rule in that case.

¶ 3. Our attorney fees award was premised on the equities of the situation in Elliott, which related to the insurer's contractual breach of the duty to defend. The award was inextricably connected to the facts and circumstances of that case; namely, that the insurer failed to comply with the dictates of Mowry v. Badger State Mutual Casualty Co., 129 Wis. 2d 496, 385 N.W.2d 171 (1986). In Mowry, we indicated that an insurer can avoid the risk of breaching the duty to defend by seeking bifurcation of the coverage and liability issues, and a stay of the liability phase until coverage has been decided. Id. at 528-29. Where an insurer fails to follow that procedure, as the insurer did in Elliott, the insurer does indirectly what it cannot do directly. The insurer breaches the duty to defend by requiring the insured to incur attorney fees to defend him or herself on the issue of liability and to litigate coverage simultaneously.

¶ 4. In this case, American Family Mutual Insurance Company (American Family) appealed that part of an order for judgment of the Ozaukee County Circuit Court, the Honorable Walter J. Swietlik presiding, which, based upon Elliott, awarded attorney fees to Leanna R. Benz (Benz), an insured of American Family. There is no dispute that American Family followed the procedure established in Mowry. Consequently, the basis for the attorney fees award in Elliott is absent here. Accordingly, that part of the circuit court's order for judgment that awarded attorney fees to Benz is reversed.

I

¶ 5. The pertinent facts are not in dispute. In October, 1998, Darryn Reid (Reid) brought the instant action against Benz, American Family, and Transportation Insurance Company.¹ Reid alleged that he slipped, fell, and injured himself on the driveway at Benz's home. Benz tendered her defense to American Family, which had issued a homeowner's policy to Benz, and which was in effect at the time of Reid's accident. American Family assigned counsel to defend Benz, subject to a reservation of rights.

¶ 6. In January, 1999, American Family moved to bifurcate the issue of liability from the issue of whether Benz was covered by its policy, claiming that the business pursuits exclusion in the policy applied and, on that basis, Benz was not covered. American Family also requested a stay of any liability proceedings until the coverage issue had been resolved. At the initial pretrial conference, Benz was represented by counsel retained by American Family on the merits, and by separate counsel on the coverage issue. There, the parties, and the circuit court judge, agreed that the coverage issue would be bifurcated and that a motion regarding coverage would be heard in April, 1999.

¶ 7. In March, 1999, American Family moved for summary judgment dismissing Reid's complaint against it, and moved for a declaration that American Family had no further duty to defend or indemnify Benz. In response, Benz filed a brief in opposition to American Family's motion for summary judgment, and a motion for a declaration that American Family was obligated to continue to defend and indemnify her. Benz also sought a declaration that American Family was "obligated to reimburse her for all costs and attorney fees incurred in defending and establishing American Family's duties of defense and indemnification." (R. at 22:1.) This motion was set to be heard at the same time as American Family's motion for summary judgment.

¶ 8. On April 23, 1999, the circuit court heard American Family's summary judgment motion and Benz's declaratory judgment motion. The circuit court found that an exception to the business exclusion applied, and, correspondingly, that American Family had a duty to defend and indemnify Benz. The court also found that Benz was entitled to recover the reasonable costs and attorney fees incurred, with respect to American Family's motion for summary judgment and her motion for declaratory judgment.

¶ 9. American Family moved for reconsideration of the circuit court's order regarding attorney fees and costs. In response, Benz requested an additional award of fees incurred in connection with American Family's motion for reconsideration. While these motions were pending, American Family petitioned the court of appeals for leave to appeal the circuit court's order denying American Family's motion for summary judgment. The court of appeals denied the petition for interlocutory appeal, and Benz moved the circuit court for an additional award of attorney fees incurred in responding to American Family's petition for leave to appeal.

¶ 10. The circuit court denied American Family's motion for reconsideration, and found that Benz was entitled to recover attorney fees incurred in responding to American Family's motion for reconsideration. The court also denied Benz's motion for attorney fees for opposing American Family's petition for leave to appeal.

¶ 11. Reid, American Family, and Benz settled the underlying action, and judgment was entered in favor of Benz and against American Family for attorney fees and costs.² American Family appealed the judgment, and Benz cross-appealed the circuit court's denial of her request for attorney fees and costs, incurred in opposing American Family's petition for leave to appeal. The court of appeals certified the issue of attorney fees in American Family's appeal for our review and determination, and we accepted the appeal.³

II

[1-3]

¶ 12. We review the circuit court's decision to award Benz attorney fees de novo. "Whether an insured can recover attorney's fees as damages is a question of law which this court decides independently and without deference to the lower courts." DeChant v. Monarch Life Ins. Co., 200 Wis. 2d 559, 568, 547 N.W.2d 592 (1996) (citing Newhouse v. Citizens Security Mut. Ins. Co., 176 Wis. 2d 824, 501 N.W.2d 1 (1993)). In addition, the question before us concerns our rationale for the award of attorney fees in Elliott, 169 Wis. 2d 310. This necessarily involves a question of law that we review, or determine, independently of a lower court's decision, but benefiting from the analysis of the court. See Mowry, 129 Wis. 2d at 527; see also Smith v. General Cas. Ins. Co., 2000 WI 127, ¶ 7, 239 Wis. 2d 646, 619 N.W.2d 882.

¶ 13. We begin, as we must, with Elliott. The facts and circumstances that gave rise to our decision in Elliott are particularly significant, because our reasoning therein is inextricably connected to those facts and circumstances. Karen Elliott had brought an action against Michael Donahue, among others, to recover for her injuries caused by an automobile accident in which Donahue was involved. Donahue had been driving an uninsured car owned by David Mikrut. Donahue tendered his defense to Heritage Mutual Insurance Company (Heritage), based upon an insurance policy his stepmother had from Heritage which covered Donahue while he was operating another's car, so long as he had the reasonable belief that he had permission to do so. Heritage responded that it was denying coverage, based upon a non-permissive use exclusion in the policy, because Donahue did not have Mikrut's permission to be driving the car. Heritage advised Donahue to retain counsel at his own expense, which he did. Heritage then requested a bifurcated trial to determine the coverage issue separate from the issues of liability and damages, and bifurcation was subsequently ordered. "However, proceedings on the claim for damages were not suspended pending resolution of the coverage issue. Donahue's counsel represented him on both the claims for damages as well as in the coverage dispute." Elliott, 169 Wis. 2d at 315.

¶ 14. At the...