Teigen v. Jelco of Wisconsin, Inc.

• Decision Date: 15 May 1985
• Docket Number: No. 84-207,84-207
• Citation: 367 N.W.2d 806,124 Wis.2d 1
• Court: Wisconsin Supreme Court
• Parties: Michael J. TEIGEN, Claire A. Teigen and Marilyn Teigen, Plaintiffs-Respondents, v. JELCO OF WISCONSIN, INC., a domestic corporation and Blue Cross & Blue Shield United of Wisconsin, a domestic insurer, Defendants, Rural Mutual Insurance Company, a domestic insurer, Defendant-Respondent, Mission Insurance Company, a foreign insurer, Defendant-Appellant.

Page 806

367 N.W.2d 806

124 Wis.2d 1

Michael J. TEIGEN, Claire A. Teigen and Marilyn Teigen, Plaintiffs-Respondents, v. JELCO OF WISCONSIN, INC., a domestic corporation and Blue

Cross & Blue Shield United of Wisconsin, a

domestic insurer, Defendants,

Rural Mutual Insurance Company, a domestic insurer,

Defendant-Respondent,

Mission Insurance Company, a foreign insurer, Defendant-Appellant.

No. 84-207.

Supreme Court of Wisconsin.

Argued Feb. 27, 1985.

Decided May 15, 1985.

Jerome C. Johnson, Milwaukee (argued), for defendant-appellant; George W. Greene and Prosser, Wiedabach & Quale, S.C., Milwaukee, on briefs.

Jonathan A. Mulligan, Kenosha (argued), for plaintiffs-respondents; Ruetz, Lehner, Davison & Mulligan, S.C., Kenosha, on brief.

David W. Paulson, Racine (argued), for defendant-respondent; Edward J. Bruner, Jr. and Heft, Dye, Heft & Paulson, S.C., Racine, on brief.

CECI, Justice.

This appeal is before this court on certification from the court of appeals, 121 Wis.2d 710, 362 N.W.2d 428 (1985), pursuant to section (Rule) 809.61, Stats., ¹ and is from an order of the circuit court for Kenosha county, Earl D. Morton, circuit judge, granting a motion to dismiss Rural Mutual Insurance Company (Rural) from this action pursuant to a "Loy Release/Covenant Not to Sue" executed by the plaintiffs. We affirm the order of the circuit court.

This case arises from an accident involving a motorcycle driven by the plaintiff, Michael J. Teigen, and a school bus owned by the defendant, Jelco of Wisconsin, Inc. (Jelco). Michael Teigen suffered extensive personal injuries as a result of the accident, and, consequently, Michael and his parents commenced this action. The defendants include Jelco; Jelco's primary insurer, Rural; and Jelco's excess insurer, Mission Insurance Company (Mission). ² Rural's insurance policy with Jelco provides primary coverage up to $500,000. Mission's insurance policy with Jelco provides excess coverage of $2,000,000 over and above the primary coverage afforded by Rural. The amended complaint seeks damages on the cause of action for Michael Teigen in the sum of $1,800,000 and on the cause of action for Michael's parents, Claire and Marilyn Teigen, in the sum of $200,000.

The record discloses two documents entitled, "Structured Settlement Agreement" (signed by the plaintiffs; their attorney; and the attorney for Jelco, Rural and Patricia Schilling, the driver of the bus at the time of the accident) and "Loy Release/Covenant Not To Sue" (signed by the plaintiffs). In consideration for this release, the plaintiff is to receive a cash payment by Rural of $130,000, along with the structured settlement agreement, in the form of an annuity, that will cost Rural an additional $260,000. The total settlement will mean a cash outlay by Rural of approximately $390,000. Although this cash outlay is less than Rural's policy limit, it is undisputed that if Michael Teigen lives to his normal life expectancy, he will receive $1,160,250, of which more than $600,000 is guaranteed.

The "Loy Release/Covenant Not To Sue" was specifically based on this court's decision in Loy v. Bunderson, 107 Wis.2d 400, 320 N.W.2d 175 (1982). Briefly, the release in this case provides for the partial release of Jelco and Schilling up to $500,000 and for any amounts in excess of Mission's $2,000,000 coverage. Additionally, it provides for the release of Rural from all liability. Finally, although the release reserves any claims the plaintiffs may have against Mission up to the limit of Mission's policy, any potential recovery against Mission will be credited in the amount of $500,000--the limit of Jelco's primary coverage with Rural.

In accordance with the settlement agreement, Rural moved for dismissal on the basis that it had met its obligation to its insured, Jelco, by obligating itself to extensive payments to the plaintiff under the structured settlement agreement. Based upon our decision in Loy, 107 Wis.2d 400, 320 N.W.2d 175, the trial court granted the dismissal, holding that Rural's policy limit had been exhausted by the settlement with the plaintiff, that the obligation of good faith owed by Rural to Jelco had been fulfilled, and that Rural had no further obligation to any excess insurer such as Mission. Hence, the issue in this case is whether the trial court correctly relied on this court's holding in Loy when it dismissed Rural from this action. This issue involves a question of law, and, therefore, we need not give special deference to the determination of the trial court. Gross v. Lloyds of London Ins. Co., 121 Wis.2d 78, 84, 358 N.W.2d 266 (1984), citing with approval LePoidevin v. Wilson, 111 Wis.2d 116, 121, 330 N.W.2d 555 (1983).

A necessary starting point is a review of our holding in Loy, 107 Wis.2d 400, 320 N.W.2d 175. In Loy, co-defendant Truesdill was insured with General Casualty Company (General) with a policy limit of $50,000. Additionally, Truesdill's employer was named as a co-defendant and was insured with Travelers Insurance Company (Travelers) with a limit of $500,000. Travelers' policy with the employer specifically provided that coverage would be " 'excess insurance over any other valid and collectible insurance available to the Insured.' " Id. at 404, 320 N.W.2d 175 (emphasis in original).

Despite the wording in Travelers' policy, we noted in Loy that Travelers was not a "true excess carrier." We reasoned,

"[T]his is not a situation in which a particular named insured purchased basic coverage and then purchased additional coverage in excess of its primary contract. Here, the fact of excess coverage is a mere coincidence. Truesdill contracted for his own insurance with General Casualty with limits to $50,000, while [the employer] separately contracted with Travelers for coverage with limits of $500,000. It is only because of the recital in Travelers' policy that its coverage is claimed to be excess over the limits afforded by the General Casualty policy. In the absence of General Casualty's policy, Travelers' coverage would commence at 'dollar-one.' It is clear, then, that Travelers is not a true excess carrier, because the policy was not written under circumstances where rates were ascertained after giving due consideration to known existing and underlying basic or primary policies. Nothing in the record shows that [the employer] was in any way benefitted in its premium structure by reason of the existence of Truesdill's General Casualty policy." Id. at 404-05, 320 N.W.2d 175 (emphasis added).

A settlement agreement was reached in Loy whereby General paid $20,000 to the plaintiff and obtained a release of both General and its insured, Truesdill, up to General's policy limit of $50,000. Additionally, Truesdill was released for any amounts in excess of Travelers' policy limit of $500,000, while reserving the plaintiff's claim against Travelers for any amount over $50,000 and under $500,000. Based on this settlement agreement, the trial court approved a "special release" that had the effect of releasing General and Truesdill. Travelers objected to the trial court's order which held that the plaintiff could pursue his cause of action against Travelers, that Travelers had a duty to defend Truesdill, and, if Truesdill was found to have been liable, that Travelers had a duty to pay any judgment based on Truesdill's negligence in excess of $50,000.

In upholding the trial court's order, we concluded that Travelers was not aggrieved by the settlement. In fact, Travelers benefited by the agreement because any potential judgment against Travelers would be credited with $50,000--the limit of General's policy with Truesdill. Additionally, by the terms of the settlement, any possibility of a verdict in excess of Travelers' policy limit was obviated, therefore eliminating any possibility of a bad faith claim against Travelers by any insured. We concluded,

"Thus, we see no fundamental unfairness in this agreement. General Casualty has discharged its duty under its policy and has a right to be exonerated from further liability. It has satisfied the claim of the plaintiff to the extent of its policy limits. Its insured Truesdill is not exposed to any excess liability by any conduct of General Casualty." Id. at 418, 320 N.W.2d 175.

Returning to the case at hand, Mission argues that Loy is inapplicable here because, unlike Travelers' policy in Loy, Mission's policy with Jelco is a true excess insurance policy. Mission contends that Jelco's premium was set and its policy was written based on the coverage afforded to Jelco by Rural. Mission maintains that the premium was calculated with the expectation that the cost of defense of any claim would be borne by Rural, the primary carrier. This being the case, Mission believes that it would be grossly unfair to allow Rural to pay less than its policy limit of $500,000, thus forcing Mission to take over the defense of this action.

After a review of our reasoning in Loy, we conclude that Mission's argument is without merit and that the distinction between Travelers' policy in Loy and Mission's policy in this case is a distinction without a significant difference. We, therefore, hold that the trial court correctly applied our decision in Loy in dismissing Rural from this action.

If the issue of the existence of a true primary/excess insurance situation had been fundamental to our reasoning behind the Loy principle, then our holding in Loy would not control in the present suit. However, that is not the case. The rationale behind our affirmance of the "Loy Release- /Covenant Not To Sue" is not anchored to the issue of whether a true primary/excess insurance situation exists. The desirability of Loy-type agreements lies in the encouragement of partial settlements in future cases, thereby fostering effective and expeditious resolution of lawsuits. Partial settlements not only benefit the parties involved, but the justice system as a whole. Further, we...