COURT OF
APPEALS DECISION DATED AND
RELEASED February
8, 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. 92-1748
STATE OF WISCONSIN IN
COURT OF APPEALS
DISTRICT IV
NATIONAL
BROKERAGE SERVICES OF WISCONSIN, INC.,
Plaintiff-Respondent-Cross Appellant,
v.
UNITED
WISCONSIN INSURANCE COMPANY,
UNITED
WISCONSIN LIFE INSURANCE COMPANY,
Defendants-Appellants-Cross Respondents.
APPEALS
from a judgment of the circuit court for Dane County: SUSAN R. STEINGASS, Judge.
Affirmed in part; reversed in part and cause remanded with directions.
Before
Gartzke, P.J., Dykman and Sundby, JJ.
SUNDBY,
J. This is a breach of contract case in which the circuit
court submitted to the jury the question whether defendants United Wisconsin
Insurance Company and United Wisconsin Life Insurance Company (collectively
UWIC) breached their contract with National Brokerage Services of Wisconsin,
Inc. (NBS) to establish the NuMed Benefit Trust, a group of employers providing
health insurance coverage for their employees.
The jury answered that UWIC breached the contract and determined that
NBS's damages were $500,000. We affirm
the judgment entered on the jury's verdict.
However, we reverse the judgment on NBS's cross-appeal denying taxation
of NBS's photocopy costs and remand to allow the trial court to exercise its
discretion under § 814.036, Stats.,
whether to award such costs.
THE
APPEAL
NBS
does not administer health insurance plans; it is a broker. It and L.K. Lloyd & Assoc. (Lloyd), also
an insurance broker, put together a group of employers who wished to
self-insure their health insurance obligations to their employees. They recruited UWIC, wholly owned
subsidiaries of Blue Cross & Blue Shield, to provide "stop-loss"
coverage for any single benefit exceeding $30,000.
On
March 17, 1989, the parties signed a Letter of Intent to establish a trust to
administer the plan. The Letter was
drafted by UWIC and provided that:
"It is the intent of the parties that the trust be provided
stop-loss coverage through an appropriate corporate entity decided upon by UWIC
and UWLIC." UWIC included a
condition that: "It is a
precondition of this business arrangement that all parties be assured of the
legality of the Trust ...." Prior
to executing the necessary contracts, Lloyd provided UWIC with opinions that
the Trust was legal. Plainly, UWIC was
concerned that the Trust, which would do business wherever allowed by law,
would either be protected by the federal Employee Retirement Income Security
Act (ERISA) or would meet the requirements of the laws of the states in which
the Trust would do business. This
concern was addressed in Articles 18 and 24 of the Administrative Services
Agreement (ASA), in provisions of the Professional Administrative Services
Agreement (PASA), and in the Stop-Loss Insurance Agreement.
Articles
18 and 24 of the ASA provide:
18. In
the event that a court, regulator, or administrative judge of competent
jurisdiction declares any provision of this Agreement to be invalid or
unenforceable, such declaration shall have no effect on the validity or
enforceability of the remainder of this Agreement.
....
24. Notwithstanding anything contained in
this Agreement, the Professional Administrative Services Agreement and the Stop
Loss Insurance Agreement, the parties intend that said agreements conform with
all applicable state and federal laws and regulations including ERISA. If, at any time, it is determined that
any of said agreements are not in conformity with said laws and regulations,
the parties shall act promptly to conform said agreements with said laws and
regulations.
(Emphasis added.)
The
PASA provides in part:
If any provision of this AGREEMENT is found to be
invalid, such provision shall be deemed modified to comply with applicable law and the remaining provisions of this AGREEMENT shall
remain in full force and effect according to their terms.
(Emphasis added.)
The
Stop-Loss Agreement contains a virtually identical provision.
UWIC's
concerns proved valid; on May 2, 1989, the Wisconsin Office of the Commissioner
of Insurance (OCI) issued an order requiring the principals of NBS to
immediately "cease and desist" from collecting premiums from
Wisconsin insureds because the "plan [was] presently not insured."[1] On May 3,
William Hanson, Lloyd's representative, arranged a second meeting of the
parties with OCI's Deputy Commissioner, Stanley DuRose. DuRose agreed that OCI would not enforce the
cease-and-desist order for six months, to allow the trust to become fully
insured. DuRose testified: "[W]e gave a six-month period for
transition to full coverage. So we
would have accepted [the Trust] for the first six months."
DuRose
gave the parties several options to fully insure the Trust, including that NBS
contract with an insurance carrier to insure the Trust, with UWIC continuing to
provide stop-loss coverage. In fact,
within six months, NBS contracted with Community National Insurance Co. to
insure primary coverage and provide underwriting and administrative services. However, by then, UWIC had withdrawn and
refused to provide stop-loss coverage.
UWIC claims that because OCI ruled that the Trust was illegal, the
"previously-signed documents [were] void." May 12, 1989, letter from Robert I. Wertheimer, UWIC staff
attorney, to Michael Collins, NBS's counsel.
On May 18, 1989, Wertheimer again wrote Collins informing him that
UWIC's position was that "changing the Trust from a self-funded status
(with stop-loss insurance) to a fully-insured status totally changed
substantive, fundamental and material terms of the business arrangement which
the parties had sought to put in place."
We
agree with UWIC that OCI's requirement that the Trust be fully insured changed
the nature of the Trust. The original
intent of the parties was to create a self-insured Trust. However, UWIC has not shown that OCI's
requirement that the Trust be fully insured affected its responsibilities under
the contracts. While one of OCI's
options was that UWIC provide the insurance, UWIC informed the parties and OCI
at the May 1 meeting that it was unwilling to fully insure the Trust. Thereafter, NBS and Lloyd explored other
options.
Further,
the jury heard overwhelming evidence that UWIC's true reason for withdrawing
from the consortium was that it did not wish to be involved in any business
transaction with NBS. UWIC's counsel,
Robert Wertheimer, testified that during negotiations and the course of
business dealings, "there had developed at UWIC very serious concerns
about NBS." He further testified: "[T]he more we got to know the NBS
people and the NBS people['s] practices, the more our concerns grew."
William
Hanson, Lloyd's representative, testified that shortly after the meeting with
OCI, he had several telephone conversations with John Scheibel, UWIC's
representative. Scheibel told Hanson
that UWIC would consider a continuation with Lloyd, "basically a new
transaction," but that NBS "had to be out." Scheibel testified that in a telephone
conversation with Hanson on May 4, 1989, he told Hanson: "NBS has to be legally cut out. If there's no way to do it, we should let
the block go, but we should start over.
It won't be 3,000 people, but it may be something the market
needs." Hanson testified that on
May 5, he received a telephone call from Scheibel and Wertheimer who told him
that if Lloyd could buy NBS's accounts, it was possible that UWIC would proceed
with Lloyd, but NBS had to be completely removed from the contract.
UWIC
correctly points out that OCI ruled that the Trust they agreed to did not
comply with Wisconsin insurance law.
However, UWIC's conclusion that they were thereby free to withdraw from
their contractual commitments does not follow.
Each agreement contemplated that it would be modified to comply with all
applicable state and federal laws. The
ASA specifically required the parties to promptly conform all agreements to
such laws. UWIC's counsel's assertion
in his letter of May 18, 1989, to NBS's counsel that the proposal to fully
insure the Trust "totally changed [the] substantive, fundamental and
material terms of the [parties'] business arrangement" is not
supportable. The severability and
conformity clauses of the contracts required UWIC to cooperate with its
associates to make the Trust conform to Wisconsin's insurance laws which
require that health insurance coverage be insured. We further conclude that the jury could infer from the evidence
that UWIC's claim that the illegality of the Trust was their reason for
withdrawing from the consortium was pretextual and that their real reason was
to terminate any contractual relationship with NBS. This evidence negates UWIC's argument that it acted in good faith
when it withdrew from the consortium.
The jury's finding that UWIC breached the contracts with NBS is
supported by the evidence.
THE CROSS-APPEAL
The
trial court denied NBS's claim for photocopy costs pursuant to
§ 814.04(2), Stats. In Ramsey v. Ellis, 163 Wis.2d
378, 384-86, 471 N.W.2d 289, 292-93 (Ct. App. May 16, 1991), aff'd, 168
Wis.2d 779, 484 N.W.2d 331 (1992), we held that photocopy costs were not
allowable under § 814.04(2), Stats. However, in Zintek v. Perchik,
163 Wis.2d 439, 475-77, 471 N.W.2d 522, 536-37 (Ct. App. May 29, 1991), overruled
in part on other grounds, Steinberg v. Jensen, 194 Wis.2d
440, 534 N.W.2d 361 (1995), another panel of the court held that the "catch-all"
provision--"[a]ll the necessary disbursements and fees allowed by
law," § 814.04(2)--allowed the trial court to award photocopy costs
under § 814.036, Stats.,
which provides: "If a situation
arises in which the allowance of costs is not covered by ss. 814.01 to 814.035,
the allowance shall be in the discretion of the court."
In
Wausau Medical Center v. Asplund, 182 Wis.2d 274, 297-98, 514
N.W.2d 34, 44-45 (Ct. App. 1994), we allowed the trial court to award
photocopying expenses, relying on Zintek. We did not consider Ramsey.
On
November 14, 1995, the Wisconsin Supreme Court accepted our certification of Kleinke
v. Farmers Cooperative Supply & Shipping, No. 95-0856, to resolve
the possible conflict between Ramsey, Zintek and Wausau Medical Center. We reverse the judgment insofar as it denied
NBS's motion for an award of photocopy costs and remand for further proceedings
to allow the trial court to exercise its discretion under § 814.036, Stats.
By
the Court.—Judgment affirmed
in part; reversed in part and cause remanded with directions.
Not
recommended for publication in the official reports.