PUBLISHED OPINION
Case No.: 96-0319
†Petition for
review filed.
Complete
Title
of
Case:JOSHUA SCHEIDELER,
JASON SCHEIDELER, ANDREA SCHEIDELER AND DUSTIN SCHEIDELER, BY THEIR GUARDIAN AD
LITEM, JEROME P. TLUSTY, AND DANIEL SCHEIDELER AND REBECCA SCHEIDELER,
Plaintiffs,
v.
SMITH & ASSOCIATES, INC., EDWARD
J. SMITH, SMITH INSURANCE CENTER, INC., AND EMPLOYERS REINSURANCE CORPORATION,
Defendant-Respondents,
GENERAL CASUALTY COMPANY OF
WISCONSIN,
Defendant-Appellant.†
Oral
Argument: October 16, 1996
COURT COURT OF
APPEALS OF WISCONSIN
Opinion
Released: November 14, 1996
Opinion
Filed: November
14, 1996
Source
of APPEAL Appeal from a judgment
Full
Name JUDGE COURT: Circuit
Lower
Court. COUNTY: Wood
(If
"Special" JUDGE: James
M. Mason
so
indicate)
JUDGES: Eich,
C.J., Vergeront and Roggensack, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYSFor the defendant-appellant the
cause was submitted on the briefs of Douglas J. Klingberg and Matthew
E. Yde of Ruder, Ware & Michler, S.C. of Wausau.
Respondent
ATTORNEYSFor the defendants-respondents the
cause was submitted on the brief of Bruce A. Olson of Olson &
Nesemann of Appleton.
COURT OF
APPEALS DECISION DATED AND
RELEASED November
14, 1996 |
NOTICE |
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 96-0319
STATE OF WISCONSIN IN
COURT OF APPEALS
JOSHUA
SCHEIDELER, JASON SCHEIDELER, ANDREA
SCHEIDELER
AND DUSTIN SCHEIDELER, BY THEIR
GUARDIAN
AD LITEM, JEROME P. TLUSTY, AND
DANIEL
SCHEIDELER AND REBECCA SCHEIDELER,
Plaintiffs,
v.
SMITH
& ASSOCIATES, INC., EDWARD J. SMITH,
SMITH
INSURANCE CENTER, INC., AND EMPLOYERS
REINSURANCE
CORPORATION,
Defendant-Respondents,
GENERAL
CASUALTY COMPANY OF WISCONSIN,
Defendant-Appellant.
APPEAL
from a judgment of the circuit court for Wood County: JAMES M. MASON, Judge. Affirmed.
Before
Eich, C.J., Vergeront and Roggensack, JJ.
VERGERONT,
J. This appeal concerns the effect of
a partial settlement agreement between insureds and their automobile insurance
carrier on the insureds' claims against the insurance agent. The Scheideler family had underinsured
motorist (UIM) coverage under their policy with General Casualty Company of
Wisconsin until their agent, the Smith Agency, mistakenly deleted that
coverage. When General Casualty denied
the Scheidelers' claim for UIM benefits, the Scheidelers sued General Casualty
and the Smith Agency.[1] General Casualty then entered into a partial
settlement agreement with the Scheidelers paying them $200,000 in exchange for
a dismissal of all claims against General Casualty except a bad faith claim, a
covenant not to sue except on the bad faith claim, and an assignment to General
Casualty of the Scheidelers' claims against the Smith Agency.
The
trial court held that the assignment provided General Casualty with no claims
against the Smith Agency and granted summary judgment to the Smith Agency. We affirm.
We conclude that upon the Scheidelers' receipt of $200,000--the most
they would have been entitled to had their policy not been mistakenly
modified--they no longer had any claims for relief against the Smith Agency and
therefore had nothing to assign to General Casualty.
BACKGROUND
The Scheidelers' 1984
Nissan Sentra and another vehicle were insured with General Casualty through
the Smith Agency. Both vehicles had
liability, property damage, medical payments, uninsured motorist and UIM
coverage. On September 30, 1990, the
Scheidelers' contacted an employee of the Smith Agency and asked that the
comprehensive and collision coverage be removed for the 1984 Nissan
Sentra. The Smith Agency employee who
processed that information mistakenly requested just the opposite, forwarding a
change notice to General Casualty requesting that all coverage be deleted under
the policy except comprehensive and collision. General Casualty changed the policy accordingly. The Smith Agency had an agency agreement
with General Casualty.
Rebecca
Scheideler and her four children were involved in a serious accident on March
3, 1992, when she was driving the 1984 Nissan Sentra. Because the insurance of the other driver was not sufficient to
cover all the damages, the Scheidelers made a claim for UIM benefits under
their General Casualty policy. General
Casualty denied the claim, stating that the policy did not provide UIM coverage
for the 1984 Nissan Sentra.
The
Scheidelers filed suit, asserting a claim of negligence against the Smith
Agency and claims of negligence, breach of contract, reformation and bad faith
against General Casualty. General
Casualty and the Smith Agency filed cross-claims against each other for
contribution or indemnification. The
Scheidelers moved for summary judgment on their claim of reformation and a
hearing was set for June 20, 1995. The
Smith Agency also moved for summary judgment.
It contended that reformation of the insurance policy was appropriate
and, therefore, General Casualty was not entitled to indemnification or
contribution from the Smith Agency except for $324 in lost premiums. The Smith Agency also argued that, with
reformation of the contract, the Scheidelers had no claims against the Smith
Agency. The hearing on the Smith
Agency's motion was also set for June 20, 1995.
After
the Smith Agency filed its motion for summary judgment but before the June 20
hearing, General Casualty entered into an agreement with the Scheidelers
entitled "Partial Settlement Agreement."[2] This agreement stated that it was a settlement
of the negligence, breach of contract, and reformation claims against General
Casualty, "recognizing the expense and uncertainty inherent in
litigation." The Scheidelers
agreed to dismiss these three claims without prejudice and not to sue General
Casualty for any claims arising out of the accident of March 3, 1992, except
that they specifically retained the right to proceed on their claim for bad
faith. The Scheidelers assigned to
General Casualty all claims they had against the Smith Agency. General Casualty agreed to pay the
Scheidelers $200,000 upon the court's approval of the settlement. Based on the assignment, General Casualty
moved for summary judgment on two claims against the Smith Agency--the negligence
claim already alleged in the Scheidelers' amended complaint and a breach of
contract claim which General Casualty sought permission to add.
In
its written decision, the trial court determined that there was no dispute that
the Smith Agency was acting as General Casualty's agent. The court reasoned that the Scheidelers had
obtained full relief from General Casualty upon receipt of $200,000 and
therefore had no claim for relief against the Smith Agency to assign to General
Casualty.[3] The trial court therefore denied General
Casualty's request to add a contract claim against the Smith Agency and denied
General Casualty's motion for summary judgment against the agency, except as to
lost premiums. The court granted the
Smith Agency's motion for summary judgment, except for premiums owed to General
Casualty, and dismissed the negligence claim against the agency--the only claim
against the Smith Agency in the Scheidelers' amended complaint. Based on the settlement agreement, the court
dismissed all of the Scheidelers' claims against General Casualty except the
bad faith claim.
The
court did not address the issue of reformation because that claim against
General Casualty had been dismissed by agreement. The court was aware that the issue of reformation was pertinent
to the bad faith claim, still to be tried, but considered that an opinion on
reformation at that stage of the proceedings would be advisory only and not
appropriate.
DISCUSSION
Before setting out the
parties' positions, we begin with a discussion of the claims for relief
available to an insured when an insurance agent makes a mistake such as that
made by the Smith Agency. The insured
may seek reformation of the policy to correct a mistake. Trible v. Tower Ins. Co., 43
Wis.2d 172, 182, 168 N.W.2d 148, 154 (1969).
Reformation is allowed based on mutual mistake. Id. In the insurance context, a mistake is considered mutual when the
insured makes statements to an agent concerning coverage and the agent
understands but by mistake causes a policy to be issued that does not contain
the requested coverage. Id. Even though the agent made the mistake, if
the agent is an authorized agent of the insurer, the mistake is attributable to
the insurer for purposes of reforming the policy. Id. at 181, 168 N.W.2d at 153. See also § 628.40, Stats.
A claim for reformation is a claim against the insurer, and, once the
policy is reformed, the insurer must provide the coverage under the reformed
policy.[4] See Id. at 184, 168
N.W.2d at 155.
Alternatively,
an insured may sue the insurance agent for negligence and for breach of
contract for failing to obtain the insurance requested. Estate of Ensz, 66 Wis.2d 193,
199, 223 N.W.2d 903, 907 (1974).
Although an insured may initially pursue both a reformation claim
against the insurer and claims against the agent as alternate theories of
recovery, the insured may not recover against the agent if the insured obtains
a judgment against the insurer under the reformed policy. Trible, 43 Wis.2d at 184-85,
168 N.W.2d at 155. Similarly, if the
insured recovers for the agent's failure to procure the coverage requested, the
insured cannot also recover from the insurance company under the reformed
policy. See Hause v. Schesel,
42 Wis.2d 628, 636, 167 N.W.2d 421, 425 (1969).
Against
this background, General Casualty argues that because the policy was not reformed
by the court, the Scheidelers still had alternative remedies available to them
and were free to settle their claims against General Casualty and assign their
claims against the Smith Agency.
According to General Casualty, the amount paid to the Scheidelers for
the assignment--in particular, the fact that it is the maximum the Scheidelers
could recover from either General Casualty or the Smith Agency or the two
combined--is of no significance and should not, in effect, reduce the amount
General Casualty can recover on the assigned claims. The Smith Agency responds that the effect of General Casualty's
position is to permit a double recovery, precisely what Trible
says may not happen. Because the
pertinent facts are undisputed, the legal effect of the partial settlement
agreement presents a question of law, which we review de novo. See Unigard Ins. Co. v.
Insurance Co. of North America, 184 Wis.2d 78, 82, 516 N.W.2d 762, 764
(Ct. App. 1994).
General
Casualty relies on Appleton Chinese Foods v. Murken Ins., Inc.,
185 Wis.2d 791, 519 N.W.2d 674 (Ct. App. 1994). In that case we rejected an insurance agent's argument that,
because the insured had already settled with and released the insurer, the
agent could not be found independently liable in contract and tort for failing
to procure the requested insurance coverage.
Id. at 803-04, 519 N.W.2d at 677-78. The insured had received $2,000 in
settlement with the insurer. Id.
at 807, 519 N.W.2d at 679. In a trial
to the bench on the claims against the agent, the court determined that the
damages, measured by the difference in the replacement cost coverage requested
by the insured and the actual cash value coverage the agent mistakenly
obtained, was in excess of $100,000. Id. The agent argued that settlement with the
insurer constituted an election of remedies and the insured could not then
recover against the agent.
We
rejected the agent's argument because we concluded there was no chance that the
insured would be unjustly enriched by a double recovery, given the difference
between the damages and the amount of the settlement with the insurer. We said in a footnote:
Other courts have
suggested that a plaintiff's settlement with an insurer will only be an
election of remedies bar in a subsequent action against the agent where the
plaintiffs recovered most or more than their claim in the settlement. (Cite
omitted.)
Id. at 807 n.7, 519 N.W.2d at 679.
In
our view, Appleton Chinese Foods supports the position of the
Smith Agency and the trial court, not that of General Casualty. Under Appleton Chinese Foods,
the amount the insured receives in settlement with the insurer is pertinent to
whether the settlement constitutes an election of remedies. Applying our reasoning in Appleton
Chinese Foods to this case, we hold that the Scheidelers' receipt in
their settlement with General Casualty of the maximum amount they were entitled
to recover constitutes an election of remedies that bars them from pursuing
their claims against the Smith Agency.
Were the Scheidelers permitted to pursue their claims against the Smith
Agency, the result would clearly be a double recovery to the Scheidelers.
General
Casualty considers it significant that in this case the Scheidelers will not
have a double recovery because they have assigned their claims against the
Smith Agency to General Casualty.
General Casualty reasons that if it recovers $200,000 against the Smith
Agency, the effect on the Scheidelers is no different than if the Smith Agency,
rather than General Casualty, had paid the $200,000 to the Scheidelers
directly. The Scheidelers still only
receive one full recovery. That is
true, but it ignores the threshold question:
if the receipt by Scheidelers of the full amount of recovery from
General Casualty constitutes an election of remedies by them and bars them from
pursuing their claims against the Smith Agency, how can those barred claims
become viable simply by assigning them to another?
General
Casualty does not answer this question directly but instead argues that, for
equitable reasons, it ought to be subrogated to the rights of the Scheidelers
against the Smith Agency because of its payment to the Scheidelers. According to General Casualty, equity favors
placing the loss on the Smith Agency, the party that made the mistake. This argument is not persuasive because it
is inconsistent with the established principles of liability applicable among
the insurer, the agent and the insured in a situation such as this.
As
we stated above, the Scheidelers could have chosen to pursue their reformation
claim against General Casualty without seeking any recovery from the Smith
Agency. Had the court decided the
Scheidelers' motion for summary judgment on reformation in their favor, General
Casualty would have had to pay the UIM benefits due under the reformed
policy. In that situation, General
Casualty could not have recovered its payment to the Scheidelers from the Smith
Agency. This is clear from Peterman
v. Midwestern Nat'l Ins. Co., 177 Wis.2d 682, 705-06, 503 N.W.2d 312,
321-22 (Ct. App. 1993). In Peterman
we held that where the insurer would have provided the coverage requested by
the insured had the agent not made a mistake, the insurer is not entitled to
indemnification from the agent for that amount. We reasoned that in this situation the agent's negligence is not
the cause of any "loss" to the insurer because the insurer would have
had to pay the same amount to the insured had the agent properly handled the
insured's request for coverage.[5] Id.
General
Casualty concedes that it would have provided UIM coverage to the Scheidelers
had the agency not requested deletion and had they paid the premium. General Casualty therefore would not have
been entitled to recovery from the Smith Agency for UIM coverage had the policy
been reformed. That being so, we fail
to see why equity favors General Casualty's recovery from the agency simply
because General Casualty chose to settle the reformation claim with the
Scheidelers before the court ruled on it.
Whether General Casualty pays before or after the court makes a
determination on reformation, the Smith Agency's mistake did not cause General
Casualty to provide more coverage to the Scheidelers than it would have
provided had the agency not made a mistake.
Our reasoning in Peterman compels the conclusion that
equity does not require permitting General Casualty to recover the equivalent
of the UIM coverage from the Smith Agency.[6]
General
Casualty also argues that the trial court's decision, in effect, reduces the
amount it can recover on the assigned claims by the amount it paid for the
assignment. This is error, General
Casualty contends, pointing to cases involving assignments of claims in other
contexts where the amount paid for the assignment did not reduce the amount the
assignee could recover on the assigned claims.
See, e.g., Newhouse v. Citizens Sec. Mut. Ins. Co.,
170 Wis.2d 456, 489 N.W.2d 639, aff'd in part, rev'd in part, 176 Wis.2d
824, 501 N.W.2d 1 (1993) (alleged tortfeasor assigned to injured party claims
against tortfeasor's insurer for bad faith and breach of duty to defend; amount
paid for assignment apparently not deducted from injured party's
recovery). At most, General Casualty
contends, the amount paid for the assignment is a cap on what General Casualty
can recover on the assigned claims, citing D'Angelo v. Cornell Paperboard
Products Co., 19 Wis.2d 390, 399, 120 N.W.2d 70, 75 (1963) (assignment
to alleged tortfeasor's general liability carrier of claims belonging to
injured party is limited on public policy grounds to recovery of no more than
assignee paid for assignment).
These
cases are not helpful. They do not
address assignment in an election-of-remedies context and therefore shed no
light on the critical issue here:
whether the Scheidelers had any claims against the Smith Agency to
assign upon receipt of $200,000 from General Casualty. General Casualty's characterization of the
$200,000 as consideration for the assignment, having nothing to do with the
Scheidelers' reformation claim against General Casualty, is not
convincing. The stated purpose of the
agreement was to settle the Scheidelers' claims against General Casualty,
except for the bad faith claim.
In
summary, we hold that the Scheidelers' receipt from General Casualty of the
maximum amount they could recover on all their claims for relief (except bad
faith) constituted an election of remedies and barred the Scheidelers from
pursuing their claims against the Smith Agency. Because the Scheidelers were barred from pursing their claims
against the agency, they had no claims against the agency to assign to General
Casualty. And because General Casualty
would have provided the UIM coverage had the agency not made a mistake, General
Casualty is not entitled to recover from the agency the amount it paid the
Scheidelers. The trial court properly
denied General Casualty's motion to add a claim against the Smith Agency based
on the assignment and properly granted summary judgment to the agency.
By
the Court.—Judgment affirmed.
[1] The Scheidelers sued Smith & Associates,
Inc.; Edward Smith; Smith Insurance Center, Inc.; and their errors and
omissions carrier, Employers Reinsurance Corporation. These defendants are collectively referred to as "the Smith
Agency."
[2] This document is not contained in the record
but a copy is in the appendix to General Casualty's brief. It is clear the trial court had this
agreement before it. The Smith Agency
discusses the agreement in its responsive brief without objecting to its
absence in the record. We therefore choose
to consider the agreement.
[3] The court also stated that a covenant not to
sue the principal--General Casualty--is a covenant not to sue its agent--the
Smith Agency. General Casualty argues
that this is error. It is not necessary
to address this issue because we affirm the trial court's decision for other
reasons.
[4] Although the complaint contained two other
claims against General Casualty (besides the reformation claim and the bad
faith claim), those two claims do not add anything of significance for purposes
of this discussion. The breach of
contract claim against General Casualty assumes the coverage that the
Scheidelers requested and so is an alternative to the reformation claim. The negligence claim against General
Casualty appears to be based solely on its liability for the negligence of the
Smith Agency and not on any independent negligent conduct of General Casualty.
[5] The Smith Agency does not challenge the trial
court's determination that it is liable to General Casualty for lost
premiums--i.e., the difference between the premiums the Scheidelers would have
paid had the agency correctly conveyed their request for a change in coverage
and the premiums they actually paid.
That "loss" to General Casualty is not an issue on this
appeal.
[6] General Casualty argues that an Iowa case, Israel
v. Farmers Mut. Ins. Ass'n of Iowa, 339 N.W.2d 143 (Iowa 1983),
provides support for its equitable argument.
The court in Israel expressly rejected the agent's
argument that, since the insurer would have provided the coverage requested had
there been no mistake, the insurer did not sustain a loss (except for the
difference in premiums) due to the agent's negligence. Israel is in direct conflict
with Peterman, which is binding.
See In re Court of Appeals, 82 Wis.2d 369, 371, 263
N.W.2d 149, 149-50 (1978).