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

• Decision Date: 02 March 1982
• Docket Number: No. 81-387,81-387
• Citation: 316 N.W.2d 348,106 Wis.2d 263
• Parties: Palmer H. RIMES and Patricia A. Rimes, Plaintiffs-Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 348

316 N.W.2d 348

106 Wis.2d 263

Palmer H. RIMES and Patricia A. Rimes, Plaintiffs-Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.

No. 81-387.

Supreme Court of Wisconsin.

Argued Nov. 30, 1981.

Decided March 2, 1982.

Kenneth W. Forbeck, Beloit, argued, for defendant-appellant; O'Neal, Noll, Elliott, Forbeck & Iglesias, S. C., Beloit, on brief.

Edward Grutzner, Beloit, argued, for plaintiffs-respondents; Grutzner, Byron & Holland, S. C., Beloit, on brief.

HEFFERNAN, Justice.

The question presented is whether an automobile insurer, State Farm Mutual Automobile Insurance Company, which, under a subrogation agreement signed by its insured, Palmer H. Rimes, has made payment under the medical-pay provisions of its policy, has the right to recover those payments out of the monies received by its insured in a settlement with negligent third-party tortfeasors and their liability insurers, when, according to the findings and judgment of the circuit court, the settlement figure was less than the total damages sustained by the insured as the result of an automobile accident.

The court found, after a post-settlement trial to the court, that Palmer and Patricia Rimes sustained damages in the amount of $300,433.54 and that the settlement with the tortfeasors was $125,000. Accordingly, the circuit court, relying upon the rule of Garrity v. Rural Mutual Insurance Company, 77 Wis.2d 537, 253 N.W.2d 512 (1977), concluded that an insurer was entitled to no recovery whatsoever in subrogation in circumstances where the insured was not made whole for his damages. The court summarized its findings and conclusions thus:

"In this case the plaintiff(s) settled their claims for $125,000.00. The Court has found that their damages far exceeded this sum. The settlement did not make the plaintiffs whole ....

"Since the plaintiffs have not been made whole by the settlement, the insurer may not share in the amount recovered through settlement from the tort-feasors."

The exact facts of the underlying automobile accident are of no particular importance at this stage of the proceedings. Suffice it to say that Palmer Rimes, who was traveling alone in his vehicle, insured with State Farm Mutual, came upon the scene of an accident in which a car driven by Peggy L. Stiles had rear-ended a vehicle driven by Roy A. Langdon. Because Rimes thought there might be injured persons in the vehicles in need of assistance, he was examining the Stiles vehicle when a car driven by Leonard A. Switzer struck the Stiles vehicle, causing severe injuries to Rimes.

The injured Rimes and his wife commenced an action in the circuit court for Rock County against the drivers of the three other vehicles involved in the accident and their insurers. Switzer was insured by Travelers Indemnity for the sum of $300,000. Stiles was insured by American Family Insurance Company in the amount of $50,000, as was Langdon. State Farm, Rimes' own liability insurance company, was joined as a defendant because of its possible subrogation rights as the result of payments under the medical-pay provisions of two separate automobile policies, one issued to Rimes and one issued to his wife. The total payments made under the medical-pay provisions of the two policies amounted to $9,649.90. The two policies afforded identical coverage of $5,000, and each contained a subrogation agreement providing:

"Upon payment ... the company shall be subrogated to the extent of such payment to the proceeds of any settlement or judgment that may result from the exercise of any rights of recovery which the injured person ... may have against any person ... and such person shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Such person shall do nothing after loss to prejudice such rights."

Upon payment under the medical-pay provisions, Palmer H. Rimes signed subrogation receipts covering the payment of $9,649.90. The receipts provided:

"It is further warranted that no settlement has been made by the undersigned with any person or corporation against whom a claim may lie, and no release has been given to any one responsible for the loss, and that no such settlement will be made nor release given by the undersigned without the written consent of the said insurer, and the undersigned covenants and agrees to cooperate fully with said insurer in the prosecution of such claims and to procure and furnish all papers and documents necessary in such proceedings and to attend court and testify if the insurer deems such to be necessary."

State Farm attempted to enter into stipulations with the alleged tortfeasor-defendants to protect its subrogation rights but was unsuccessful in that attempt, and it filed an answer alleging its subrogation rights and participated in the case.

Immediately prior to the commencement of trial to a jury on January 21, 1980, the defendant Langdon and his insurance company, American Family, were dismissed with prejudice by a stipulation of all parties. On that day also the remaining parties entered into a stipulation:

"That the defendant, State Farm Mutual Automobile Insurance Company, has a subrogation interest in recovery of those medical bills and expenses as a result of the payments made under the medical pay provisions of certain insurance policies ...."

The stipulation further provided:

"That should a judgment be rendered or a settlement be agreed upon between the parties which grants recovery of those medical bills and expenses, that the defendant, State Farm Mutual Automobile Insurance Company, shall recover the amounts paid under the medical pay provisions of its insurance policies as evidenced by the subrogation receipts ... to the extent that such amounts are recovered by the plaintiff, Palmer A. Rimes."

On the second day of the trial, Rimes and his wife settled all of their claims with the remaining defendants for the sum of $125,000. American Family paid $50,000, its policy limits, on behalf of Stiles; and Travelers paid $75,000 of its $300,000 policy limit on behalf of Switzer. The stipulation provided that of the $75,000 paid by Travelers, $65,350.10 was paid directly to the plaintiffs and their attorneys, and $9,649.90 was paid into court to be held in escrow pending the outcome of a "trial" to the court concerning State Farm's claimed subrogation rights for the medical payments theretofore made on behalf of Rimes. The stipulation and order was signed by all parties, including State Farm. Included in its recitations was the provision:

"This action is fully settled as to all claims for relief and all cross claims by all parties, except as specifically otherwise provided by this order."

The stipulation and the order entered by the court contained the further provision:

"This action shall remain pending only insofar as a dispute exists between the plaintiffs, Palmer H. Rimes and Patricia A. Rimes, and defendant, State Farm Automobile Insurance Company, regarding the claims of State Farm Automobile Insurance Company and Palmer H. Rimes and Patricia A. Rimes to the sum of Nine Thousand, Six Hundred Forty-nine dollars and Ninety Cents ($9,649.90) to be paid into the court by Travelers Indemnity Company."

Subsequently, pursuant to the stipulation, the plaintiffs executed general releases of the defendants. By agreement of the remaining parties, the plaintiffs Rimes and State Farm, a two-day trial to the court was held. It was State Farm's position that the only issue to be determined was the amount that State Farm should recover under its subrogation rights and the only factual issue that needed to be determined was the percentage of negligence, if any, that was to be attributed to its insured, Rimes. The plaintiffs took the position that the principal issue was whether or not they had been made whole by the settlement for the injuries and damages sustained in the accident. The position of Rimes was that State Farm was to be allowed no subrogation recovery whatsoever if the court found that the damages in fact sustained by the plaintiffs exceeded the total of the settlement.

The trial court took testimony for two days in respect to the damages sustained as the result of injuries to Palmer Rimes and in respect to the negligence aspects of the accident. It concluded that Rimes and Langdon, both of whose vehicles had been rear-ended, were not negligent at all, that Stiles was 70 percent causally negligent, and Switzer was 30 percent causally negligent. In its findings of damages, it concluded that past medical and hospital expenses were in the amount stipulated by the parties-$26,560.70, that the plaintiff's past loss of earnings was in the amount of $65,855.34, that the damages for past physical disability, pain, and suffering to the time of trial were in the amount of $35,000, that future medical expenses were reasonably computed to be in the amount of $20,517.50, that there was a loss of future earning capacity in the amount of $82,500, and damages for future physical disability, pain and suffering, inconvenience, humiliation and mental anguish were in the amount of $45,000. It also assessed damages to Patricia Rimes for the loss of consortium in the amount of $25,000. These damages totaled the sum of $300,433.54.

The trial court, relying upon Garrity, supra, concluded that, under this state of the record, only the amount of damages as found in the trial to the court would have been sufficient to make the plaintiffs whole and that, because the settlement fell short by over $175,000, the insurance company had no right of subrogation. Accordingly, it denied any subrogation payments to State Farm and ordered the escrowed amount of $9,649.90 delivered to the plaintiffs.

Appeal was taken by State Farm to the Court of Appeals. The Court of Appeals requested that this court accept the appeal on certification pursuant to Rule 809.61, Stats. Paraphrasing the...