Trinity Evangelical v. Tower Ins. Co.

Decision Date23 May 2003
Docket NumberNo. 01-1201.,01-1201.
Citation2003 WI 46,261 Wis.2d 333,661 N.W.2d 789
PartiesTRINITY EVANGELICAL LUTHERAN CHURCH AND SCHOOL-FREISTADT, Plaintiff-Respondent-Cross Petitioner, v. TOWER INSURANCE COMPANY, Defendant-Appellant-Petitioner.
CourtWisconsin Supreme Court

For the defendant-appellant-petitioner there were briefs by M. Christine Cowles, Barbara A. O'Brien, and Borgelt, Powell, Peterson & Frauen, S.C., Milwaukee, and Edward M. Crane, Charles F. Smith, and Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois, and oral argument by Charles F. Smith.

For the plaintiff-respondent-cross petitioner there were briefs by Merrick R. Domnitz, Robert L. Jaskulski, and Domnitz, Mawicke & Goisman, S.C., Milwaukee, and oral argument by Robert L. Jaskulski and Merrick R. Domnitz.

An amicus curiae brief was filed by William C. Gleisner, III, Madison, and R. George Burnett and Liebmann, Conway, Olejniczak & Jerry, S.C., Green Bay, on behalf of the Wisconsin Academy of Trial Lawyers.

An amicus curiae brief was filed by John W. Markson and Bell Gierhart & Moore, S.C., Madison, on behalf of the Civil Trial Counsel of Wisconsin.


This case involves an insurance action where, as a result of mistake, the insurance policy failed to provide hired and non-owned automobile coverage that the insured requested. After Tower Insurance Company (Tower) learned of the mistake, it failed in its duty to its insured, Trinity Evangelical Lutheran Church and School-Freistadt (Trinity) to investigate properly and evaluate reasonably. It initially refused to backdate coverage when the error was discovered after an accident occurred. The pivotal dispute in this case centers on what Tower should have done once it became aware of the mistake.

¶ 2. The circuit court, the Honorable Marianne E. Becker presiding, determined that Trinity was entitled to reformation of the insurance policy as a matter of law. The circuit court further concluded that Tower's conduct constituted bad faith under the standard set forth in Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 691, 271 N.W.2d 368 (1978), and accordingly granted summary judgment to Trinity pursuant to Wis. Stat. § 802.08(6) (1999-2000).2 A jury trial was then held on the issue of damages, and $3,500,000 in punitive damages were awarded to Trinity. Tower's motions after verdict were denied, and judgment was entered on the verdict on March 15, 2001.

¶ 3. The court of appeals upheld the punitive damages award of $3,500,000 by applying a de novo standard of review and a "gross excessiveness test." The decision by the court of appeals was made contingent on a trial with a finding of bad faith. The court of appeals found that there were genuine issues of material fact on the claim of bad faith, and therefore it reversed the circuit court's grant of summary judgment on that claim.

¶ 4. Two issues must be resolved. First, whether the court of appeals was correct in reversing summary judgment on the bad faith claim, and second, what standard of review should be applied when an appellate court reviews a jury's punitive damages award. We must also determine, applying the relevant factors, whether the jury award of $3,500,000 in punitive damages should be upheld.

¶ 5. We conclude that the circuit court properly granted summary judgment on the issue of bad faith. We also hold that the appropriate standard of review to be applied in reviewing a punitive damage award is de novo review, and that when the relevant factors are considered, the punitive damages award should be allowed to stand. Therefore, we reverse, in part, the court of appeals' decision on the grant of summary judgment, but we affirm its decision upholding the award of punitive damages.


¶ 6. Trinity Evangelical Church and School (Trinity) offers religious services as well as a grade school to approximately 234 grade school age children in Mequon, Wisconsin. In 1994, Trinity was interested in renewing its hired and non-owned automobile insurance coverage that it carried, because its teachers had occasion to transport students to and from certain functions in the course of their employment using their own vehicles.

¶ 7. Trinity sought renewal quotations from various carriers including Tower Insurance Company (Tower) who was represented by their agent Jim Rodrian (Rodrian). Trinity explained to Rodrian its need for hired and non-owned coverage. Rodrian then passed this information on to Harold Fischer (Fischer), an underwriter at Tower. Fischer gave Rodrian a quote, which Rodrian believed included the requested coverage, and Rodrian subsequently provided the quote to Trinity, who accepted it, believing it would be covered for hired and non-owned automobiles.

¶ 8. On February 10, 1994, Rodrian sent Trinity's pre-application binder, which included information on this requested form of coverage. However, Rodrian inadvertently failed to check the hired and non-owned box on Trinity's insurance application. Tower issued the policy without any of the parties involved being aware of the omission of the requested coverage.

¶ 9. On January 24, 1995, Lorrie Erdman, a teacher at Trinity, while transporting students from the school in the course of her employment, using her own vehicle, ran a stop sign and collided with another vehicle. The collision resulted in serious injuries to the other vehicle's driver and passenger.

¶ 10. Trinity notified Rodrian of the potential claim. Upon review of the policy, Rodrian discovered his omission. Rodrian drafted a letter to Carol Blackwell (Blackwell), a district manager in Tower's underwriting department, dated January 31, 1995, informing Tower of the accident and of the fact that he mistakenly failed to request hired and non-owned automobile coverage on the application. Rodrian also requested that Tower backdate Trinity's coverage.

¶ 11. In response to Rodrian's letter, Blackwell drafted a memo to Gene Gallagher, the vice president and director of operations at Tower. Blackwell's memo summarized the circumstances surrounding Rodrian's error, and asked for direction as to how to handle Rodrian's request to backdate coverage. ¶ 12. Within twenty-four to forty-eight hours, Gallagher instructed Blackwell to inform Rodrian that Tower would not backdate Trinity's coverage.3

¶ 13. Gallagher sent a handwritten note to Blackwell, which describes his decision:

Carol—Your referral says that this is agency error and not ours. We didn't get request to provide [hired and non-owned coverage] didn't get copy of binder till now, so [we] don't have any reason to backdate. Suggest agent [Jim Rodrian] alert his E and O carrier if he hasn't already. I'm not going to put backdate and add with uncertainty as to possible exposure. We could be facing big dollars due to liab[ility]?? If you want to discuss further let me know. Gene

On February 2, 1995, Blackwell met with Rodrian to inform him of Tower's decision not to backdate coverage.

¶ 14. Thereafter, Tower was asked on several occasions to reconsider its position. One request for reconsideration came from Jim Reynolds, the adjuster for Rodrian's Errors and Omissions (E & O) carrier. This letter, mailed to Gallagher, included a citation to Trible v. Tower Insurance Co., 43 Wis. 2d 172, 168 N.W.2d 148 (1969).4 Gallagher did not read the case, and Tower did not change its decision.


¶ 15. A suit arising out of the accident was filed in 1998. On May 18, 1998, Tower filed a motion for summary judgment asking to be dismissed as a party in the case. This motion was based solely on language of the written policy, and the motion failed to bring to the court's attention that Tower had been informed by its agent that the written policy was in error. Specifically, Tower failed to inform the court in its motion that its agent had requested the policy to be backdated and that Tower had denied the agent's request.

¶ 16. In response to Tower's motion for summary judgment, Trinity hired an attorney to represent it on the question of insurance coverage, and filed a cross-claim for reformation and breach of contract. Shortly thereafter, Tower withdrew its motion for summary judgment.

¶ 17. On September 28, 1998, Trinity deposed Fischer, the Tower underwriter who dealt with the insurance agent, Rodrian, in regard to Trinity's policy. During Fischer's deposition, Trinity discovered that in June 1995, four months after Blackwell had met with Rodrian to inform him of Tower's decision, an investigator hired by Rodrian had tracked down Fischer and obtained a signed statement from him. The statement made it clear that Rodrian had indeed asked Fischer to include hired and non-owned automobile coverage in Trinity's policy.

¶ 18. Two days later, Tower stipulated to reform Trinity's policy to include non-owned and hired coverage at the time of the accident. Tower also paid approximately $490,000 to discharge Trinity's liability in its entirety in the underlying accident suit. Trinity subsequently amended its cross-claim to assert a bad faith cause of action against Tower.

¶ 19. In response, Tower filed a motion for summary judgment seeking dismissal of the bad faith claim. In a written decision, the Circuit Court of Waukesha County, Honorable Marianne E. Becker presiding, held that Trinity was entitled to reformation of the insurance policy as a matter of law. The circuit court additionally found that Tower's conduct constituted bad faith under the standard set forth in Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 691, 271 N.W.2d 368 (1978), and accordingly granted summary judgment for Trinity pursuant to Wis. Stat. § 802.08(6).

¶ 20. Following the circuit court's decision, the only factual issue left for determination by a jury was whether punitive damages should be awarded. After several days of testimony, including testimony from Gallagher that he had no knowledge of...

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