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NOTICE This opinion is subject to further editing and
modification. The final version will
appear in the bound volume of the official reports. |
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No.
93-3307
STATE OF WISCONSIN : IN SUPREME COURT
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Whirlpool Corporation, a foreign corporation, Plaintiff-Respondent-Petitioner, v. Sharon Ziebert, Defendant-Petitioner, Allstate Insurance Company, a foreign insurance company, Defendant-Third Party Plaintiff- Appellant, v. Jaclyn Ziebert, Third Party Defendant-Intervenor- Respondent, Kenneth Ziebert, Metropolitan Life Insurance Company and Blain Supply, Inc., Third Party Defendants. |
FILED NOV
16, 1995 \ Marilyn L. Graves Clerk of Supreme Court Madison, WI |
REVIEW of a decision of the Court of
Appeals. Affirmed.
DONALD
W. STEINMETZ, J. The issue before this court is whether a
family member exclusion clause in a homeowner's insurance policy can bar
coverage for a third party contribution action brought against an insured. We hold that family member exclusion
clauses which apply to contribution claims against an insured are not contrary
to public policy.
Jaclyn
Ziebert, at the age of three, injured her hand in a meat grinder allegedly
manufactured by Whirlpool Corporation (Whirlpool) and sold by Blain Supply,
Inc. (Blain). Jaclyn, along with her
parents, Kenneth and Sharon Ziebert, and their health insurer, Metropolitan
Life Insurance Company, filed an action against Whirlpool and Blain in
Milwaukee County Circuit Court to recover damages for Jaclyn's injuries. This appeal arises from a separate
contribution action filed by Whirlpool against Sharon Ziebert and her
homeowner's liability insurer, Allstate Insurance Company (Allstate), wherein
Whirlpool alleges that Jaclyn's injuries were caused by Sharon Ziebert's
negligent supervision.
Allstate
moved for summary judgment in the contribution action, arguing that the family
exclusion clause found in Sharon Ziebert's policy released it from any
obligation to provide coverage to Sharon.
The Milwaukee County Circuit Court, Louise M. Tesmer, Judge, denied the
motion, but the court of appeals reversed and granted summary judgment in
Allstate's favor. The court of appeals
found that the family exclusion clause in question unambiguously included
contribution claims such as the one brought by Whirlpool against Sharon. See Whirlpool Corp. v. Ziebert,
188 Wis. 2d 453, 456-57, 525 N.W.2d 128, 129-30 (1994). We find the conclusion reached by the court
of appeals correct and affirm its decision.
This
court will consider two questions in reaching this decision. The first, which has broader significance,
is whether family exclusion clauses which apply to indirect claims, such as a
contribution action, are contrary to public policy. Second, we must determine if the specific language of the family
exclusion clause in this case includes contribution claims.
The
first question involves issues of public policy and contract enforcement. When answering such questions, this court is
mindful that the freedom to contract has long been protected in this
state. See Journal/Sentinel,
Inc. v. Pleva, 155 Wis. 2d 704, 710, 456 N.W.2d 359, 362 (1990); Watts
v. Watts, 137 Wis. 2d 506, 521, 405 N.W.2d 305, 309 (1987). Although a court may question the validity
of a contract on the grounds of public policy, this measure is extreme and
should only be exercised in cases free from doubt. See Continental Ins. Co. v. Daily Express, Inc., 68
Wis. 2d 581, 589, 229 N.W.2d 617, 621 (1975).
It is under these standards that we determine whether or not family
exclusion clauses which relate to third party contribution claims are valid.
This
is not the first time a question regarding family exclusion clauses has been
before this court. In Shannon v.
Shannon, 150 Wis. 2d 434, 456, 442 N.W.2d 25, 35 (1989) we found that:
Homeowner's
insurance policies often cover liability for injury to third persons. These same policies frequently exclude
coverage for liability to 'residents' of the household ... . The purpose has been explained so 'as to
exempt the insurer from liability to those persons to whom the insured, on
account of close family ties, would be apt to be partial in case of injury.'
... Thus, the exclusion protects insurers from situations where an insured
might not completely cooperate and assist an insurance company's administration
of the case.
Quoting A.G. v. Travelers Ins. Co., 112
Wis. 2d 18, 20-21, 331 N.W.2d 643, 644 (Ct. App. 1983) (citations
omitted). We then specifically held
that "such exclusions serve a legitimate purpose and are not contrary to
public policy." Id. Shannon, however, only dealt with a
direct suit against an insured family member.
The question of whether a family exclusion clause may also reach to
contribution claims by a third party was not before us. This is, therefore, a question of first
impression for this court.
The
underlying concern in Shannon was the possibility of family member
collusion in intra-family lawsuits.
Because of the gravity of this concern, we did not require in Shannon
that either party actually prove collusion on a case-by-case basis. Instead, this court assumed collusion in all
cases, thereby finding that family exclusion clauses covering direct actions
are not contrary to public policy.[1] The question is, then, whether such clauses
should be allowed to also encompass indirect actions such as contribution
claims. Most courts which have
addressed this question have concluded that they should. See Groff v. State Farm Fire and
Cas. Co., 646 F.Supp. 973, 975 (E.D. Pa. 1986); Chrysler Credit Corp. v.
United Services Auto Ass'n, 625 So.2d 69, 73 (Fla. App. 1993); Utley v.
Allstate Ins. Co., 24 Cal. Rptr. 2d 1, 4-5 (Cal. App. 1993); State Farm
Fire and Cas. Co. v. Ondracek, 527 N.E.2d 889, 891 (Ill. App. 1988); Parker
v. State Farm Mut. Auto Ins. Co., 282 A.2d 503, 508-09 (Md. Ct. App.
1971). We agree.
Ultimately,
the reasoning supporting Shannon, collusion in intra-family lawsuits, is
just as persuasive when applied to contribution claims. A real-world hypothetical demonstrates the
possibility of collusion in indirect claims quite clearly. If Whirlpool did not have the financial
resources to meet Jaclyn's judgment, a contribution claim against Sharon and
Allstate may be the only source of funds.
In such a situation, Sharon may be more concerned with her daughter
receiving compensation for her injuries than with cooperating fully with
Allstate. Furthermore, it is unlikely
that Sharon would defend herself with as much zeal as she would if her own
assets were at stake.[2] The Eastern District Court of Pennsylvania,
when faced with a similar question, correctly recognized that "[t]he
potential for collusion is virtually the same in either situation [direct suits
against family members or third party contribution claims against family
members]--at least in the sense that ... the parents would have no incentive to
defeat or reduce the claim." Groff,
646 F.Supp. at 975.
It
must be noted that our decision does not imply any wrongdoing on the part of
the Zieberts. In fact, the possibility
of collusion in this case seems quite low, if not nil.[3] However, although this court never ignores
the circumstances of a particular case, there are times when we must look
beyond the immediate facts to principles of public policy and the broader
ramifications that our decisions have on the people of this state as a
whole. We are persuaded that the
possibility of collusion is great enough to warrant allowing family exclusion
clauses to cover contribution actions.
Therefore, we hold that such clauses are not contrary to public policy,
even though there may be no collusion in this particular case.
The
next issue is whether or not the language of this specific family exclusion
clause encompasses contribution actions.
Construction of an insurance policy is a question of law which this
court reviews de novo. See
Lambert v. Wrensch, 135 Wis. 2d 105, 115, 399 N.W.2d 369, 373-74
(1987). Insurance contracts are subject
to the same rules of construction as other contracts. See Ehlers v. Colonial Penn. Ins. Co., 81 Wis. 2d
64, 74, 259 N.W.2d 718, 723
(1977).
The
first step in such analysis is, of course, to examine the language of the
policy itself. It is fundamental in
Wisconsin that "ambiguities in coverage are to be construed in favor of
coverage, while exclusions are narrowly construed against the
insurer." Smith v. Atlantic
Mut. Ins. Co., 155 Wis. 2d 808,
811, 456 N.W.2d 597, 598 (1990); see also Davison v. Wilson,
71 Wis. 2d 630, 635-36, 239 N.W.2d 38, 41 (1976). This rule of strict construction, however, is not applicable if
the policy is unambiguous. See, e.g.,
Bertler v. Employers Insurance of Wausau, 86 Wis. 2d 13, 17, 271 N.W.2d
603, 605 (1978); D'Angelo v. Cornell Paperboard Products Co., 59 Wis. 2d
46, 49, 207 N.W.2d 846, 848 (1973); Leatherman v. American Family Mut. Ins.
Co., 52 Wis. 2d 644, 650, 190 N.W.2d 904, 907 (1971). Furthermore, the principle of construing
exclusions narrowly does not allow a court to completely eviscerate an
exclusion which is clear from the face of the policy. Rules of construction cannot be used to rewrite the clear and
precise language of a contract. See
Gonzalez v. City of Franklin, 137 Wis. 2d 109, 122, 403 N.W.2d 747, 752
(1987); In re Marriage of Levy v. Levy, 130 Wis. 2d 523, 533, 388 N.W.2d
170, 174-75 (1986); Limpert v. Smith, 56 Wis. 2d 632, 640, 203 N.W.2d
29, 33-34 (1973); Meyer v. City of Amery, 185 Wis. 2d 537, 543, 518
N.W.2d 296, 298 (Ct. App. 1994).
In
this case the family exclusion clause in question, even when construed
narrowly, is unambiguous and clearly contemplates contribution claims. It states:
"We do not cover bodily injury to an insured person ... whenever
any benefit of this coverage would accrue directly or indirectly to an insured
person."[4]
A
close reading of the policy language reveals that the key phrase is: "whenever any benefit of this coverage
would accrue directly or indirectly to an insured person."
(emphasis added). The term
"direct" is defined as:
"[i]mmediate; proximate; by the shortest course; without circuity;
operating by an immediate connection or relation, instead of operating through
a medium; the opposite of indirect."
Black's Law Dictionary 459 (6th ed. 1990). A "direct" benefit, therefore, would accrue to Jaclyn
Ziebert by way of a "direct" claim against Sharon Ziebert and
Allstate. It is undisputed that
Allstate would not be required to cover this type of action. The term "indirect" is defined
as: "[n]ot direct in relation or
connection; not having an immediate bearing or application; not related in the
natural way." Black's Law
Dictionary 773. An indirect benefit
would incur to Jaclyn if Whirlpool won its contribution claim since the money
Whirlpool receives will, in all practical respects, be funneled through to
Jaclyn. Jaclyn would receive, in the
plainest sense of the word, an indirect benefit.
If
possible, a court should interpret a contract so that all parts are given
meaning. See Stanhope v.
Brown County, 90 Wis. 2d 823, 848-49, 280 N.W.2d 711 (1979). Only by interpreting the policy in the above
manner can this be accomplished. The
direct/indirect benefit language was obviously meant to differentiate between
two possible types of benefits and to clarify the policy language to ensure
that contribution claims were included in the scope of the clause. The California Court of Appeals confronted
identical language, albeit in a different context, and reached the same
conclusion. See State Farm
Mut. Auto. Ins. Co. v. Vaughn, 208 Cal. Rptr. 601 (Cal. App. 1984). In California, a statute had authorized
automobile insurers to exclude from coverage "liability for bodily injury
to an insured." Cal. Ins. Code
§11580.1(5)(c) (1982). The legislature
then amended this section to exclude from coverage "liability for bodily
injury to an insured ... whenever the ultimate benefits of that indemnification
accrue directly or indirectly to an insured." Cal. Ins. Code §11580.1(5)(c).
The California Court of Appeals specifically held that the additional
language clarified the scope of the original language so that it was
more clearly understood that contribution claims would be covered by the clause. It stated that the amendment was necessary
to make clear "that there is no duty to indemnify an insured named in a
cross-complaint where there would be no duty to indemnify if the insured were
sued directly." Vaughn, 208
Cal. Rptr. at 603. The reasoning of the
Vaughn court was sound.
We
are not persuaded by Whirlpool's argument that a contribution claim is not a
bodily injury and therefore not covered under the language of the exclusion
clause. Although Whirlpool is correct
in asserting that we have scrupulously found that a claim for contribution is
distinct from the underlying cause of action--State Farm Mut. Automobile
Ins. Co. v. Schara, 56 Wis. 2d 262, 266-67, 201 N.W.2d 758, 760 (1972); Johnson
v. Heintz, 73 Wis. 2d 286, 243 N.W.2d 815, 822-23 (1976); Schara and
its progeny stand for the principle that a contribution claim based in tort
should be treated no differently than one based in contract. See Schara, 56 Wis. 2d at
266-67. This in no way asserts or
implies that a claim for contribution is wholly separate from the underlying
claim. In fact, contribution claims
are dependent and stem from the original action; without it they would not
exist at all.
The
liability being asserted in Whirlpool's contribution claim against Sharon
Ziebert is based on the claim for damages suffered by Jaclyn Ziebert. That liability is identical whether there is
a direct claim against Sharon Ziebert by her daughter or whether the claim is
indirectly asserted through a contribution claim by Whirlpool. To say that Jaclyn Ziebert is not receiving
a benefit because her recovery comes from a contribution claim rather than a
direct claim for personal injuries is the ultimate tribute to form over
substance. Such a conclusion defies
both logic and common sense.
The
decision of the court of appeals enforces the public policy of avoiding
potential collusion between family household members. See Shannon, 150 Wis. 2d at 456. Furthermore, the language of the policy is
clear and unambiguous and clearly encompasses contribution claims, and, as
such, legitimately precludes coverage to Sharon Ziebert.
By
the Court.—The decision of the court of appeals is affirmed.
SUPREME COURT OF WISCONSIN
Case No.: 93-3307
Complete Title
of Case: Whirlpool Corporation, a foreign corporation,
Plaintiff-Respondent-Petitioner,
v.
Sharon Ziebert,
Defendant-Petitioner,
Allstate Insurance Company, a foreign
insurance company,
Defendant-Third
Party Plaintiff-Appellant,
v.
Jaclyn Ziebert,
Third
Party Defendant-Intervenor-Respondent,
Kenneth Ziebert, Metropolitan Life
Insurance
Company and Blain Supply, Inc.,
Third
Party Defendants.
__________________________________________
REVIEW OF A DECISION OF THE COURT OF
APPEALS
Reported at: 188 Wis. 2d 453, 525 N.W.2d 128
(Ct. App. 1994)
PUBLISHED
Opinion Filed: November 16, 1995
Submitted on Briefs:
Oral Argument: October 5,
1995
Source of APPEAL
COURT: Circuit
COUNTY: Milwaukee
JUDGE: LOUISE TESMER
JUSTICES:
Concurred:
Dissented:
Not Participating:
93-3307 Whirlpool Corporation
v. Ziebert
ATTORNEYS: For the plaintiff-respondent-petitioner
there were briefs by J. Ric Gass, Mark M. Leitner and Kravit Gass
& Weber, S.C., Milwaukee and oral argument by Mark M. Leitner.
For the defendant-petitioner there were
briefs by Diane Loftus and F. William Russo & Associates,
Milwaukee and oral argument by Gordon K. Aaron of Alex, Aaron &
Goldman, S.C., Milwaukee.
For the defendant-third party
plaintiff-appellant, there was a brief by Robert J. Lauer, Christine M.
Benson and Kasdorf, Lewis & Swietlik, S.C., Milwaukee and oral
argument by Robert J. Lauer.
Amicus curiae brief was filed by Timothy
J. Strattner, Linda Vogt Meagher and Schellinger & Doyle, S.C.,
Brookfield for the Civil Trial Counsel of Wisconsin and the Wisconsin Insurance
Alliance.
Amicus curiae brief was filed by D. J.
Weiss and Habush, Habush, Davis & Rottier, S.C., Rhinelander for
the Wisconsin Academy of Trial Lawyers.
[1] We do not
find convincing Whirlpool's argument that the standard "cooperation
clause" in most insurance policies adequately protects insurance companies
from collusion. This argument was
implicitly rejected in Shannon where the policy in question also
contained such a cooperation clause.
Furthermore, it is certainly not contrary to public policy for a party
to bargain for multiple contractual protections.
[2] The insured's defense of his or her actions,
of course, would be central to the determination of any such contribution
claim.
[3] There are a
number of factors which support Sharon's claim that there is no collusion in
this case. These include: Sharon has her own claim against Whirlpool
which would be diminished by any finding of negligence on her part; her policy
limit may be quite low in relation to the injuries suffered by Jaclyn; and
Sharon has retained her own counsel throughout these proceedings to represent
her interests.