Vogt v. Schroeder, No. 84-1117

• Court: United States State Supreme Court of Wisconsin
• Writing for the Court: HEFFERNAN; J. Tom Merriam; STEINMETZ
• Citation: 129 Wis.2d 3,383 N.W.2d 876
• Parties: Hubert W. VOGT, Plaintiff-Respondent and Co-Appellant, v. Douglas J. SCHROEDER, Progressive Casualty Insurance Company, a foreign insurance corporation, Defendants-Appellants, Wisconsin Employers Casualty Company, a domestic insurance corporation, Defendant-Respondent.
• Docket Number: No. 84-1117
• Decision Date: 02 April 1986

Page 876

383 N.W.2d 876 129 Wis.2d 3 Hubert W. VOGT, Plaintiff-Respondent and Co-Appellant,
v.
Douglas J. SCHROEDER, Progressive Casualty Insurance
Company, a foreign insurance corporation,
Defendants-Appellants,
Wisconsin Employers Casualty Company, a domestic insurance
corporation, Defendant-Respondent. No. 84-1117. Supreme Court of Wisconsin. Argued Oct. 28, 1985.
Opinion Filed April 2, 1986.

Page 877

[129 Wis.2d 6] Jeffrey A. Schmeckpeper, Milwaukee, argued, for defendants-appellants; Patti J. Kurth and Kasdorf, Dall, Lewis & Swietlik, S.C., on brief.

Phillip J. Eckert, West Bend, for plaintiff-respondent and co-appellant.

[129 Wis.2d 7] Robert L. Elliott, Milwaukee, argued, for defendant-respondent; Cook & Franke, S.C., on brief.

HEFFERNAN, Chief Justice.

This is an appeal from an order of the circuit court for Washington county accepted by this court upon the certification of the court of appeals.

The question in this case is whether an underinsurer has a right of subrogation against an underinsured tortfeasor when the underinsurer makes a partial payment of its insured's damages. We conclude that it has the right of subrogation; and therefore, with modification, we affirm the circuit court order.

The issue arises out of the following facts. The plaintiff, Hubert W. Vogt (the insured), a passenger in his own automobile, was injured when the vehicle, driven by his son, collided with a vehicle driven by the defendant, Douglas J. Schroeder. The case is in a pretrial stage, but it is implicit that Schroeder was primarily, perhaps wholly, liable, because it is conceded, for this appeal at least, that his vehicle invaded the lane of the Vogt vehicle when the collision occurred.

The Schroeder vehicle carried only a $15,000 liability coverage, and it is agreed that the personal injury damages sustained by Vogt exceed $15,000. There is nothing in the record to show the total amount of damages to which Vogt may be entitled.

The Vogt vehicle, in addition to the usual liability coverages, was covered by an underinsured motorist rider for a maximum sum of $50,000. The coverages on the Vogt automobile are afforded by a policy with Wisconsin Employers Casualty Company (WECC). The liability coverage on the Schroeder vehicle is afforded by [129 Wis.2d 8] a policy issued by Progressive Casualty Insurance Company. ¹

Page 878

Because the liability prediction in respect to Schroeder is highly unfavorable, Progressive has offered to pay its policy limits of $15,000 in exchange for its release and the release of tortfeasor Schroeder, its insured.

Inasmuch as Vogt has sustained serious injuries, it is apparent that some compensation will be afforded under his underinsured policy. Thus, although WECC does not object to the settlement in the sum of $15,000 offered by Progressive, it has refused to approve of the settlement unless it can be accomplished without impairing WECC's possible right of subrogation against the tortfeasor Schroeder.

The recitals contained in Vogt's WECC policy describe the nature and purpose of underinsured motorist coverage ² and also provide limitations on the insured's ability to settle with an underinsured motorist.

WECC's policy provides:

"We will pay damages for bodily injury which an insured person is legally entitled to recover from [129 Wis.2d 9] the owner or operator of an uninsured motor vehicle ... or an underinsured motor vehicle."

The policy defines an underinsured motor vehicle as:

"[A] motor vehicle which is insured by a liability bond or policy at the time of the accident which provides bodily injury liability limits less than the limit of liability for this coverage."

The settlement limitations appear in the WECC policy as a portion of its general provisions:

"In the event of any payment under this policy, we are entitled to all the rights of recovery of the person to whom payment was made against another. That person must sign and deliver to us any legal papers relating to that recovery, do whatever else is necessary to help us exercise those rights and do nothing after loss to prejudice our rights.

"When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment."

When WECC was informed of Progressive's settlement offer, it responded to Vogt's attorney by referring to the above provisions of Vogt's policy and stating:

"We can only cite the policy language and let you determine if our rights have been prejudiced should you acquire a full and final release. Certainly, we have no objection to your consummating a settlement, provided our rights to subrogation are not prejudiced." ³

[129 Wis.2d 10] As the result of WECC's response, Vogt commenced an action against Schroeder. Subsequently, as a part of that underlying action, Progressive Casualty Insurance Company and Schroeder filed a motion for a declaration of the right of Progressive to pay the policy limits to Vogt and the right of Vogt to release Schroeder and Progressive from any further liability. They also asked for a declaration that Vogt's rights under his own policy would not be prejudiced by reason of giving those releases. ⁴

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Progressive and Schroeder also asked that, in the event such releases were authorized and policy limits paid, they be dismissed as defendants in the action brought by Vogt.

Circuit Judge J. Tom Merriam stated the question:

"[C]an the insured [of an underinsured motorist's policy] settle with the tort feasor, and receive additional payments from the under-insured motorist's carrier and prevent the underinsured motorist's carrier from exercising subrogation rights of reimbursement against the tort feasor?"

[129 Wis.2d 11] The circuit court order deciding the motion held that:

"[Vogt] can accept the $15,000.00 ... offer by the Progressive Casualty Insurance Company with the understanding that the same would be accepted without prejudice to Wisconsin Employers Casualty Company maintaining its subrogated rights against the defendant, Schroeder ...."

It is from this nonfinal order that Progressive has appealed. Leave to file the appeal was granted by the court of appeals, whose certification this court subsequently accepted.

Although Progressive was the partial victor on the motion in that it was decided that Vogt could accept that company's $15,000, nevertheless it was explicit that WECC had the right of subrogation against the defendant Schroeder. Hence, the payment of $15,000 under the circuit court's formulation did not release Progressive's insured. Because Progressive's basic position is that no underinsurer can ever have any subrogation rights, appeal was taken.

The appellant's argument rests upon the single premise that "[S]ubrogation exists for the sole purpose of preventing double recovery." Language used by this court in both Garrity v. Rural Mutual Insurance Co., 77 Wis.2d 537, 253 N.W.2d 512 (1977), and Rimes v. State Farm Mutual Automobile Insurance Co., 106 Wis.2d 263, 272, 316 N.W.2d 348 (1982), gives superficial support to this proposition.

Garrity states:

"Thus it has been held that the conventionally subrogated or contractual insurer has no share in the recovery from the tort-feasor if the total amount recovered by the insured from the insurer does not cover his loss." 77 Wis.2d at 544, 253 N.W.2d 512.

[129 Wis.2d 12] Rimes states:

"The purpose of subrogation is to prevent a double recovery by the insured. Under circumstances where an insured has received full damages from the tortfeasor and has also been paid for a portion of those damages by the insurer, he receives double payment--he has been made more than whole. Only under those circumstances is the insurer, under principles of equity entitled to subrogation." (Emphasis supplied.) 106 Wis.2d at 272, 316 N.W.2d 348.

Progressive argues the order should have provided that WECC could not recover in subrogation because, by the very coverage, its insured could not be made more than whole. Progressive reasons that an underinsurer is a last resort payee and, under its policy, after other insurance payments, will pay its insured only enough to fully compensate its insured for damages, i.e., its responsibility stops at one hundred percent, and in the event other sources, including the tortfeasor's insurance policy, fully compensate the insured, then the underinsurer pays nothing. Progressive asserts there can be no triggering of the Garrity-Rimes principle of subrogation that seeks to prevent a double recovery.

This argument has a surface plausibility, but it overlooks the fact that subrogation is an equitable doctrine and depends upon a just resolution of a dispute under a particular set of facts. 6A Appleman, Insurance Law and Practice, sec. 4051, p. 110. Equity does not lend itself to the application of black letter rules. Hence, only under fact

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situations where an equitable result will follow should the statements quoted above be applied literally.

[129 Wis.2d 13] Both Garrity and Rimes rest upon equitable principles. Both eschewed universal answers to disparate situations. Garrity stated:

"Subrogation rests upon the equitable principle that one, other than a volunteer, who pays for the wrong of another should be permitted to look to the wrongdoer to the extent he has paid and be subject to the defenses of the wrongdoer." (Emphasis supplied.) 77 Wis.2d at 541, 253 N.W.2d 512.

Accordingly, Garrity recognizes that there are equitable principles to support subrogation other than those concerned with whether the injured or indemnified party is made whole or unjustly enriched. There is a distinct and separate equitable policy--that the wrongdoer should be responsible for his conduct and not be allowed to go scot-free by failing to respond in damages while another, an indemnitor for the injured party, is required to do so.

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