Case Title: Fischer, Sr, et al. v. Steffen, et al.

Citation: 2011 WI 34

Docket Number: 2009AP001669

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2011-05-24T00:00:00Z

Document:
2011 WI 34 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2009AP1669 
COMPLETE TITLE: 
 
 
Roger H. Fischer, Sr. and Sandra J. Fischer, 
          Plaintiffs-Appellants-Petitioners, 
 
     v. 
 
Pamela A. Steffen and Wilson Mutual Insurance 
Co., 
          Defendants-Respondents, 
 
Kohler Company and Medicare Secondary Payer 
Recovery Contractor, 
 
          Subrogated Defendants. 
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2010 WI App 68 
325 Wis. 2d 382, 783 N.W 2d 889 
(Ct. App. 2010 – Published) 
 
 
OPINION FILED: 
May 24, 2011   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 6, 2011   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
CIRCUIT COURT 
 
COUNTY: 
SHEBOYGAN 
 
JUDGE: 
EDWARD L. STENGEL 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
BRADLEY, J. dissents (Opinion filed). 
PROSSER, J. dissents (Opinion filed).   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiffs-appellants-petitioners there were briefs 
and oral argument by Shawn Brock and Wurtz, Roth, Basler & 
Brock, S.C., Sheboygan.  
For the defendants-respondents there was a brief and oral 
argument by James O. Conway and Olsen, Kloet, Gunderson & 
Conway, Sheboygan. 
 
 
2
An amicus curiae brief was filed by Mark L. Thompson, 
Edward E. Robinson, Brett A. Eckstein and Cannon & Dunphy, S.C., 
Brookfield, for the Wisconsin Association for Justice. 
 
 
2011 WI 34
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2009AP1669 
(L.C. No. 
2007CV1001) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Roger H. Fischer, Sr. and Sandra J. Fischer, 
 
          Plaintiffs-Appellants-Petitioners, 
 
     v. 
 
Pamela A. Steffen and Wilson Mutual Insurance 
Co., 
 
          Defendants-Respondents, 
 
Kohler Company and Medicare Secondary Payer 
Recovery Contractor, 
 
          Subrogated Defendants. 
 
 
 
FILED 
 
MAY 24, 2011 
 
A. John Voelker 
Acting Clerk of Supreme 
Court 
 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
SHIRLEY S. ABRAHAMSON, C.J.   This is a review of a 
published decision of the court of appeals,1 which affirmed the 
judgment of the circuit court of Sheboygan County, L. Edward 
Stengel, Judge.   
                                                 
1 Fischer v. Steffen, 2010 WI App 68, 325 Wis. 2d 382, 783 
N.W.2d 889. 
No. 
2009AP1669   
 
2 
 
¶2 
This review arises from an automobile accident.  Roger 
H. Fischer, Sr. and Sandra J. Fischer, the injured plaintiffs, 
seek $10,000 from Pamela A. Steffen, the driver defendant; the 
defendant's insurer is Wilson Mutual Insurance Co.  The $10,000 
is the amount received by the plaintiffs from the plaintiffs' 
insurer, 
American 
Family 
Insurance 
Company, 
for 
medical 
expenses.  The policy maximum for no-fault medical expenses was 
$10,000.   
¶3 
The jury found the defendant 100% liable for the 
plaintiffs' injuries.  The jury awarded the plaintiffs $21,000 
for pain and suffering and loss of consortium from the 
defendant.  The parties stipulated that $12,157.14 was the 
reasonable value of past medical expenses; the circuit court 
entered this amount in the jury verdict.  
¶4 
The plaintiffs moved for judgment on the verdict, and 
the defendant filed a motion for partial judgment, asking the 
circuit court to reduce the award for medical expenses from 
$12,157.14 to $2,157.14 because the plaintiffs had already 
recovered $10,000 of the medical expenses from their insurer, 
American 
Family. 
 
American 
Family 
did 
not 
recover 
its 
subrogation claim for $10,000 against the defendant or her 
insurer because prior to the plaintiffs' lawsuit an arbitration 
panel found that the defendant was not negligent and need not 
pay American Family.  The circuit court granted the defendant's 
motion, ruling that the plaintiffs were not entitled to the 
disputed $10,000 from the defendant.     
No. 
2009AP1669   
 
3 
 
¶5 
The dispute before this court focuses on whether the 
circuit court erred in denying the plaintiffs a judgment of 
$10,000 against the defendant when the defendant did not pay the 
plaintiffs' insurer $10,000, a sum that represents the insurer's 
subrogation claim.     
¶6 
With regard to the plaintiffs' past medical expenses, 
the following are undisputed: 
• 
The reasonable value of plaintiffs' past medical expenses 
was $12,157.14.  
• 
The plaintiffs' insurer paid the plaintiffs $10,000 (the 
maximum under the policy) for no-fault medical expenses. 
• 
The plaintiffs' insurer acquired a subrogation claim for 
$10,000 against the tortfeasor under the subrogation 
provision in the automobile insurance policy. 
• 
Prior to trial, the plaintiffs' and the defendant's 
insurers arbitrated the plaintiffs' insurer's subrogation 
claim. 
 
The 
plaintiffs 
received 
no 
notice 
of 
the 
arbitration and did not participate in the arbitration. 
• 
The arbitration panel determined that the defendant was not 
causally negligent and that the plaintiffs' insurer had no 
subrogation claim against the defendant. 
• 
The jury determined that the defendant was 100% causally 
negligent. 
• 
After trial, the defendant, upon order of the circuit 
court, paid the plaintiffs $2,157.14 ($12,157.14-$10,000) 
as reimbursement for medical expenses. 
No. 
2009AP1669   
 
4 
 
• 
Neither the defendant nor her insurer reimbursed the 
plaintiffs' insurer or the plaintiffs $10,000, the sum the 
plaintiffs' insurer paid the plaintiffs as reimbursement 
for medical expenses.        
¶7 
The plaintiffs argue that the defendant has paid 
$10,000 less than the full damages the defendant caused.  The 
plaintiffs assert that the collateral source rule applies:  the 
defendant should not benefit from the plaintiffs' insurance 
policy. 
The 
plaintiffs 
contend 
that 
American 
Family's 
subrogation claim should revert to them, not the defendant, upon 
application of the collateral source rule.    
¶8 
In contrast, the defendant's position is that the 
plaintiffs should not obtain a double recovery, that is, the 
plaintiffs 
should 
not 
recover 
an 
additional 
$10,000 
to 
compensate them for $10,000 in medical expenses already paid to 
the plaintiffs by their insurer, American Family. 
¶9 
The circuit court denied the plaintiffs judgment for 
the $10,000 in question, relying on Paulson v. Allstate Ins. 
Co., 2003 WI 99, 263 Wis. 2d 520, 665 N.W.2d 744.  Similarly, 
the court of appeals, relying on Paulson, affirmed the circuit 
court's judgment that the plaintiff cannot recover the $10,000 
in question from the defendant. 
¶10 In Paulson, the court determined that under the facts 
of that case the injured party's recovery from the tortfeasor 
was not affected by the subrogated insurer's settlement of its 
No. 
2009AP1669   
 
5 
 
subrogation claim with the tortfeasor for 70% of the full value.2  
The injured party could not recover the subrogated insurer's 
claim for 30%, which the subrogated insurer did not recover from 
the tortfeasor.3   
¶11 The Paulson court evaluated the interaction of the 
made whole doctrine, the collateral source rule and subrogation 
rules.   
¶12 The Paulson court declared that the made whole 
doctrine was not applicable to the facts of the case inasmuch as 
no assertion was made that there was an insufficient pool of 
money to pay damages.4  "The specter of an insurer competing with 
the insured for a limited amount of funds is simply not raised 
by the facts of this case."5   
¶13 With 
regard 
to 
the 
collateral 
source 
rule 
and 
subrogation, the Paulson court concluded that subrogation 
trumped the collateral source rule under the facts of that case.6  
To reach this conclusion, the court balanced three equitable 
considerations 
at 
play 
in 
the 
case: 
placing 
the 
full 
responsibility of the loss on the tortfeasor; discouraging 
                                                 
2 Paulson v. Allstate Ins. Co, 2003 WI 99, ¶27, 263 Wis. 2d 
520, 665 N.W.2d 744. 
3 Id., ¶¶27, 32.  
4 Id., ¶¶27, 42. 
5 Id., ¶27. 
6 Id., ¶32.  
No. 
2009AP1669   
 
6 
 
double 
recovery 
for 
the 
injured 
party; 
and 
encouraging 
settlement agreements between parties.7     
¶14 The 
Paulson 
court 
declared 
that 
the 
settlement 
agreement relating to the subrogation claim did not reduce the 
recovery of the injured party.8   
¶15 The Paulson court rested its conclusion on the 
following:  
• 
The injured party's insurer was not competing with the 
injured party for the same funds.9  
• 
Settlement agreements are favored.  "Refusing to recognize 
the [settlement agreement] would inform insurers that there 
is no point to settlement negotiations, because if the 
subrogated insurer agrees to take less than the face value 
of its claim, the plaintiffs will simply get the rest from 
the tortfeasor's insurer."10   
• 
Allowing the injured party (who has already been fully 
compensated for the loss) to recover the subrogated claim 
would allow double recovery and discourage settlement 
negotiations.11    
¶16 The Paulson court concluded: "Where the plaintiff has 
recovered the reasonable value of his or her expenses and makes 
                                                 
7 Id., ¶34. 
8 Id., ¶42. 
9 Id. 
10 Id. 
11 Id., ¶43. 
No. 
2009AP1669   
 
7 
 
no allegation that the agreement [settling the subrogation 
claim] prevents such recovery, there is no reason to award the 
plaintiff the difference."12   
 
¶17 The holding in Paulson was carefully limited to the 
facts of that case.  "[W]e find that, under the limited 
circumstances presented by this case, Paulson is not entitled to 
the 30 percent difference between the amount Midwest paid for 
Paulson's car repairs and the amount it ultimately settled for 
in its agreement with Allstate."13  
¶18 After comparing Paulson and the instant case, we 
conclude that in all significant respects the present case is 
indistinguishable from Paulson and that therefore the present 
case is governed by Paulson.  Accordingly, we conclude that the 
collateral source rule does not, under the facts of the present 
case, entitle the plaintiffs to recover $10,000, the value of 
their insurer's subrogation claim.  For the reasons set forth, 
we affirm the decision of the court of appeals.    
I 
¶19 The underlying facts are undisputed, and we shall set 
them forth in greater detail at this point.  As we have stated, 
this case stems from a car accident.  The accident occurred when 
the defendant had an epileptic seizure.  
                                                 
12 Id. 
13 Paulson, 263 Wis. 2d 520, ¶45.  See also id., ¶46 
(Bradley, J., concurring) ("I write separately to underscore 
what the majority repeatedly notes: the holding of this case is 
limited to the facts of this case."). 
No. 
2009AP1669   
 
8 
 
¶20 American Family Insurance Company, the plaintiffs' 
insurer, paid the plaintiffs $10,000 for medical expenses under 
the plaintiffs' auto insurance policy with American Family.  
Thus, American Family acquired a $10,000 subrogation claim in 
the plaintiffs' recovery from the defendant.   
¶21 Prior to the commencement of the plaintiffs' personal 
injury action against the defendant, American Family entered 
into arbitration with the defendant's insurer in an attempt to 
collect its $10,000 subrogation claim.  American Family lost at 
arbitration. 
 
The 
arbitration 
panel 
determined 
that 
the 
defendant's seizure was sudden and unexpected and therefore the 
defendant was not causally negligent.  As a result of the 
binding arbitration, American Family could not recover its 
subrogation claim against the defendant. 
¶22 The plaintiffs sued the defendant (and her insurer) 
for 
damages, 
including 
medical 
expenses, 
caused 
by 
the 
defendant's negligence.  The plaintiffs correctly joined their 
insurer, 
American 
Family, 
as 
a 
party 
under 
Wis. 
Stat. 
§ 803.03(2) (2009-10)14 inasmuch as American Family had a 
subrogation 
claim 
in 
the 
plaintiffs' 
recovery 
from 
the 
                                                 
14 All references to the Wisconsin Statutes are to the 2009-
10 version unless otherwise noted. 
Wisconsin Stat. § 803.03(2) "is intended to foster economy 
of judicial effort by requiring that all 'parts' of a single 
cause of action whether arising by subrogation, derivation, or 
assignment, be brought before the court in one action."  
Judicial Council Committee's Note, 1974, Wis. Stat. § 803.03. 
No. 
2009AP1669   
 
9 
 
defendant.  American Family filed an answer and a cross-
complaint asserting its subrogation claim.   
¶23 The defendant notified American Family that American 
Family had divested its subrogation claim as a result of the 
arbitration proceedings.  American Family agreed.  American 
Family and the defendant stipulated to dismissing American 
Family and the circuit court dismissed American Family's 
subrogation claim. The plaintiffs were not a party to this 
stipulation dismissing American Family's subrogation claim. 
¶24 The plaintiffs proceeded to trial.  A jury determined 
that the defendant was 100% causally negligent.  The jury 
awarded the plaintiffs $21,000 for pain and suffering and for 
loss of consortium, and $12,157.14, the value of past medical 
expenses to which the parties stipulated. 
¶25 Notwithstanding the verdict, the defendant filed a 
motion for a partial judgment asking the court to reduce the 
award for past medical expenses by $10,000.  This $10,000 was 
the amount that American Family had previously paid the 
plaintiffs for their medical expenses; it was the amount of 
American Family's subrogation claim; and it was the amount that 
had been the subject of arbitration between American Family and 
the defendant.   
¶26 In response to the defendant's motion for a partial 
judgment, the circuit court reduced the judgment for past 
medical expenses by the $10,000 that American Family previously 
had paid to the plaintiffs.   
No. 
2009AP1669   
 
10 
 
¶27 Relying on Paulson v. Allstate Ins. Co, 2003 WI 99, 
263 Wis. 2d 520, 665 N.W.2d 744, the circuit court ruled that 
the collateral source rule was not applicable.  Also relying 
upon the reasoning in Paulson, the court of appeals affirmed the 
judgment of the circuit court.15   
II 
¶28 The present case involves the interaction of three 
rules of law: the collateral source rule, rules of subrogation, 
and the made whole doctrine.  The application of each of these 
rules to undisputed facts is a question of law that this court 
determines independently of the circuit court and court of 
appeals but benefiting from their analyses.16      
III 
¶29 The three rules, the collateral source rule, rules of 
subrogation, and the made whole doctrine, have been discussed in 
numerous cases.  We begin by briefly summarizing each rule.  
¶30 In general, the collateral source rule provides that a 
tortfeasor's liability to an injured person is not reduced 
because the injured person receives funds from other sources.17  
The collateral source rule prevents payments made by the injured 
                                                 
15 Fischer v. Steffen, 2010 WI App 68, 325 Wis. 2d 382, 783 
N.W.2d 889. 
16 See, e.g., Paulson, 263 Wis. 2d 520, ¶19 (subrogation and 
collateral source rule); Ruckel v. Gassner, 2002 WI 67, ¶13, 253 
Wis. 2d 280, 646 N.W.2d 11 (made whole doctrine). 
17 See, e.g., Koffman v. Leichtfuss, 2001 WI 111, ¶29, 246 
Wis. 2d 31, 630 N.W.2d 201; Ellsworth v. Schelbrock, 2000 WI 63, 
¶7, 235 Wis. 2d 678, 611 N.W.2d 764. 
No. 
2009AP1669   
 
11 
 
party, such as premiums paid for an insurance policy, from 
inuring to the benefit of the tortfeasor.18  The collateral 
source rule is grounded in two policies:  (1) to deter negligent 
conduct by placing the full cost of the wrongful conduct on the 
tortfeasor,19 and (2) to allow the injured party, not the 
tortfeasor, to benefit from a windfall that may arise as a 
consequence of an outside payment.20 
¶31 The rules of subrogation provide for the substitution 
of one party, the subrogee, for another, the subrogor.  In the 
insurance context, subrogation is a derivative right that 
permits an insurer to step into the shoes of the insured and to 
pursue recovery from the tortfeasor to the extent of the 
insurer's payments to the subrogor (the insured).21   Subrogation 
ensures that the loss is ultimately placed upon the tortfeasor 
and prevents the subrogor (the injured party) from being 
unjustly enriched through double recovery.22      
¶32 The made whole doctrine prevents competition between 
the injured party and the subrogated party (the insurer) when 
                                                 
18 Koffman, 246 Wis. 2d 31, ¶40. 
19 Ellsworth, 235 Wis. 2d 678, ¶7. 
20 Koffman, 246 Wis. 2d 31, ¶29. 
21 Muller v. Society Ins., 2008 WI 50, ¶¶22-25, 309 
Wis. 2d 410, 750 N.W.2d 1; Paulson, 263 Wis. 2d 520, ¶29; 
Koffman, 246 Wis. 2d 31, ¶33; Wilmot v. Racine County, 136 
Wis. 2d 57, 63, 400 N.W.2d 917 (1987). 
22 See, e.g., Muller, 309 Wis. 2d 410, ¶¶23-24; Ruckel, 253 
Wis. 2d 280, ¶¶14-15; Koffman, 246 Wis. 2d 31, ¶¶33, 40. 
No. 
2009AP1669   
 
12 
 
the injured party's damages exceed a limited pool of funds from 
which recovery may be had.  Under the made whole doctrine, the 
injured party should be the first to tap into the limited pool 
of funds and recover on any loss.  When someone can not be fully 
paid, the loss should be borne by the subrogee (the insurer).23   
¶33 In sum, the three rules ordinarily work in tandem.  
The collateral source rule prevents tortfeasors from being 
relieved of their obligations by payments to an injured party 
from an outside source.  The rules of subrogation likewise 
ensure that the loss ultimately falls on the tortfeasor and also 
prevent an injured party from receiving a double recovery.24  
Finally, the made whole doctrine ensures that in a situation 
when there are not sufficient funds to make the injured party 
whole, the injured party has priority over the subrogee (the 
insurer) in recovering from the limited pool of funds. 
¶34 These 
three 
rules 
are 
equitable 
doctrines 
and 
ordinarily work together to further the goals of ensuring that 
injured people recover for their loss and that tortfeasors pay 
for the damages they inflict.  These equitable doctrines do not, 
however, lend themselves to the application of black-letter 
rules.25  The interaction and the application of the collateral 
                                                 
23 Muller, 309 Wis. 2d 410, ¶¶27-47; Garrity v. Rural Mut. 
Ins. Co., 77 Wis. 2d 537, 542, 253 N.W.2d 512 (1977); Rimes v. 
State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 275-76, 316 
N.W.2d 348 (1982). 
24 Koffman, 246 Wis. 2d 31, ¶40. 
25 Muller, 309 Wis. 2d 410, ¶26; Schulte v. Frazin, 176 
Wis. 2d 622, 628, 500 N.W.2d 305 (1993). 
No. 
2009AP1669   
 
13 
 
source rule, rules of subrogation, and the made whole doctrine 
are heavily influenced by the facts.26  
¶35 Paulson, the case relied upon by both the circuit 
court and the court of appeals in deciding the present case, 
involved the interplay of these three rules.27  We turn to 
Paulson to determine whether Paulson and the present case are 
significantly similar and whether the present case should be 
governed by Paulson. 
IV 
¶36 Paulson similarly arose out of a car accident.  
Paulson suffered personal injury and property damage.28  Paulson 
presented a claim to her insurer for the cost of repairing her 
vehicle, and her insurer paid the full cost of repair (less the 
policy's deductible).29   
¶37 Paulson, along with her husband and daughter, filed 
suit against the tortfeasor, claiming property damage; medical 
expenses; lost wages; pain and suffering; and loss of society, 
companionship, services, and consortium.30  Paulson appropriately 
joined her insurer as a party based on its subrogation claim.31   
                                                 
26 Paulson, 263 Wis. 2d 520, ¶17; Muller, 309 Wis. 2d 410, 
¶26.  
27 Paulson, 263 Wis. 2d 520, ¶17. 
28 Id., ¶4. 
29 Id. 
30 Id., ¶5. 
31 Id. 
No. 
2009AP1669   
 
14 
 
¶38 Prior to the filing of the suit, however, Paulson's 
insurer negotiated a settlement agreement with the tortfeasor's 
insurer for its subrogation claim arising from its payment to 
Paulson 
for 
property 
damage.32 
 
Calculating 
comparative 
negligence, Paulson's insurer accepted a reduced payment of 70% 
of the property damage to settle its subrogation claim.33  On the 
basis of this settlement agreement, Paulson's insurer moved to 
be dismissed from Paulson's lawsuit against the tortfeasor, 
thereby giving up its subrogation claim.  The circuit court 
granted Paulson's insurer's motion for dismissal.34   
¶39 The tortfeasor in Paulson failed to answer the 
complaint timely, and the circuit court entered a default 
judgment in favor of Paulson.35  By the time the case was 
presented for review in this court, further settlements between 
the parties had occurred.  The only remaining issue before the 
supreme court was whether Paulson was entitled to recover 
$2,112.73 from the tortfeasor, the 30% difference between the 
amount Paulson's insurer paid Paulson ($7,542.44) and the amount 
the tortfeasor paid Paulson's insurer for the subrogation claim 
($4,929.71).36   
                                                 
32 Id., ¶6.   
33 Id. 
34 Id., ¶7. 
35 Id., ¶8. 
36 Id., ¶13. 
No. 
2009AP1669   
 
15 
 
¶40 The Paulson court analyzed the interplay of the 
collateral source rule, the rules of subrogation, and the made 
whole doctrine in light of the facts of that case.  As we 
explained previously, the Paulson court concluded that the made 
whole doctrine did not apply; that Paulson's insurer settled its 
subrogation claim for less than the full amount; that the 
collateral source rule was trumped by subrogation; and that 
Paulson could not recover from the defendant that part of the 
subrogation claim that the subrogated insurer did not recover.37   
¶41 The Paulson court concluded:  "Where the plaintiff has 
recovered the reasonable value of his or her expenses and makes 
no allegation that the agreement prevents such recovery, there 
is no reason to award the plaintiff the difference."38  Awarding 
the injured party the difference between the amount its insurer 
paid her and the amount for which the insurer settled its 
subrogation claim would allow the injured party a double 
recovery and would discourage settlement negotiations.39  The 
Paulson 
court 
determined 
that 
the 
policy 
underlying 
the 
collateral source rule——placing the full responsibility of the 
loss on the tortfeasor——was not harmed under the facts of that 
case.  Therefore, the Paulson court favored a result that 
                                                 
37 Id., ¶¶27, 32. 
38 Id., ¶43. 
39 Id. 
No. 
2009AP1669   
 
16 
 
supported 
the 
long-standing 
policy 
encouraging 
settlement 
between the parties and the policy disfavoring double recovery.40   
¶42 The facts and circumstances of the litigation in 
Paulson were complex, but the ultimate facts before the Paulson 
court in determining the amount the tortfeasor owed Paulson by 
reason 
of 
the 
insurers' 
negotiated 
settlement 
appear 
straightforward and are comparable to the facts of the present 
case.   
¶43 If Paulson governs the present case, the decision of 
the court of appeals would be affirmed.                    
V 
¶44 The plaintiffs allege that significant differences 
exist between the instant case and the Paulson case.   
¶45 First, the plaintiffs and the amicus, Wisconsin 
Association for Justice, assert that the plaintiffs' personal 
injury claim in the present case (in contrast to the property 
damage claim in Paulson) was indivisible and was the plaintiffs' 
alone to advance, and that American Family had no right to 
settle its subrogation claim until the plaintiffs had resolved 
their claims.   
¶46 We agree with the plaintiffs that this court has 
stated that subrogation does not create a new cause of action 
                                                 
40 Id., ¶41. 
No. 
2009AP1669   
 
17 
 
separate 
from 
the 
injured 
party's 
cause 
of 
action.41  
Nevertheless, this court has acknowledged that although there is 
one indivisible claim, subrogation creates an interest in the 
subrogee (the insurer) that is not wholly intertwined with that 
of the insured.   
¶47 In Lambert v. Wrensch, 135 Wis. 2d 105, 107, 399 
N.W.2d 369 (1987), for example, the insurer paid the injured 
party's medical expenses, but the insurer was barred by 
operation of the statute of limitations from pursuing its 
subrogation claim arising from those payments.42  The injured 
party, however, was still able to maintain its action against 
the tortfeasor for damages, although reduced by the amount 
previously received for medical expenses.43  Lambert has been 
interpreted as holding that "where the insurer is barred from 
pursuing a claim [of subrogation], the tortfeasor is entitled to 
a reduction in judgment for the amount of that claim."44 
                                                 
41 Wilmot, 136 Wis. 2d at 63; Muller v. Society Ins., 2008 
WI 50, ¶53, 309 Wis. 2d 410, 750 N.W.2d 1 ("[A]n insurer whose 
policy with an insured includes a right to subrogation possesses 
an independent 'cause of action against the tortfeasor and the 
tortfeasor's 
insurer 
for 
its 
subrogated 
interest.' 
 
The 
interests of the insurer and insured exist as 'each owning 
separately a part of the claim against the tortfeasor'" 
(citations omitted).). 
42 Lambert v. Wrensch, 135 Wis. 2d 105, 107, 399 N.W.2d 369 
(1987) 
43 Id. at 118-20. 
44 Voge v. Anderson, 181 Wis. 2d 726, 732, 512 N.W.2d 749 
(1994), quoted with approval in Koffman, 246 Wis. 2d 31, ¶39. 
No. 
2009AP1669   
 
18 
 
¶48 In the present case, the insurer, American Family, is 
barred by binding arbitration from pursuing its subrogation 
claim.  If Lambert is applied, the defendant is entitled to a 
reduction 
in 
judgment 
for 
the 
amount 
of 
the 
insurer's 
subrogation claim.  
¶49 Thus, we are not persuaded that characterizing the 
plaintiffs' 
personal 
injury 
claim 
as 
indivisible 
and 
characterizing the subrogation claim as inseparable from the 
plaintiffs' elements of loss distinguish the present case from 
Paulson or justify a different result. 
¶50 Second, relying on the made whole doctrine and the 
concept that personal injury claims are indivisible, the 
plaintiffs contend that a subrogated insurer cannot settle its 
subrogation claim until the plaintiffs are made whole.  The 
plaintiffs assert that the court of appeals allowed American 
Family to step ahead of the plaintiffs' claims.   
¶51 This argument also fails to justify a different result 
than that reached in Paulson.  Nowhere do the plaintiffs show 
that they were not made whole.  In the present case, the 
plaintiffs stipulated to the reasonable value of the medical 
services.  It is clear from the record that the defendant's 
insurance policy was more than sufficient to cover all of the 
damages suffered by the plaintiffs.  The made whole doctrine is 
No. 
2009AP1669   
 
19 
 
therefore not applicable in the present case, just as the made 
whole doctrine was not applicable in Paulson.45          
¶52 Third, the plaintiffs suggest that the present case 
and Paulson differ because here the two insurers settled the 
subrogation claim by entering into binding arbitration, while in 
Paulson 
the 
insurers 
settled 
the 
subrogation 
claim 
by 
negotiation.  Settlement through negotiation versus settlement 
through arbitration is a distinction without a difference for 
purposes of applying the teachings of Paulson.        
¶53 Fourth, the plaintiffs attempt to distinguish Paulson 
and the instant case because here American Family received 
nothing for its subrogated claim, while in Paulson, the 
subrogated insurer settled for 70% of the value of its 
subrogation claim.   
¶54 In Paulson, the insurers agreed that the injured party 
was contributorily negligent.  The Paulson court concluded that 
"[i]n the context of contributory negligence, the tortfeasor has 
paid the full amount of the damage caused and the plaintiff, by 
fully recovering for the repair costs, has received whatever 
'windfall' is created by the settlement."46 
¶55 In the present case, the arbitration panel found (and 
the insurers agreed) that the defendant was not causally 
                                                 
45 The made whole doctrine was not applicable in Paulson.  
Paulson made no assertion that there was an insufficient pool of 
money.  The competition between the insured and insurer for a 
limited amount of funds was not raised by the facts.  Paulson, 
263 Wis. 2d 520, ¶27. 
46 Paulson, 263 Wis. 2d 520, ¶44. 
No. 
2009AP1669   
 
20 
 
negligent, and in the context of that finding the tortfeasor did 
not have to pay the subrogated insurer anything.  Nevertheless, 
a jury found the defendant 100% causally negligent.  The 
plaintiffs in the instant case fully recovered their medical 
expenses through payment by their insurer ($10,000) and payment 
by the defendant ($2,517.14).        
¶56 Nothing in Paulson leads to the conclusion that the 
result in Paulson depends on the percentage the subrogated 
insurer recovers or fails to recover for its subrogation claim. 
¶57 Fifth and finally, the plaintiffs argue that in the 
instant case they did not agree to American Family's dismissal 
from the action, whereas in Paulson the injured party agreed to 
allow its insurer to be dismissed from the lawsuit.  The 
plaintiffs seem to be arguing that American Family has waived 
its subrogation claim and that under the collateral source rule 
a windfall created by a waived subrogation claim should inure to 
the plaintiffs, not to the defendant.47   
¶58 Relying on Radloff v. General Casualty Co., 147 
Wis. 2d 14, 432 N.W.2d 597 (Ct. App. 1988), the plaintiffs 
assert that American Family lost its subrogation claim when it 
agreed to be dismissed from the case with prejudice.  We 
disagree with the plaintiffs' reading of Radloff, and conclude 
that Radloff is inapposite.     
                                                 
47 If a subrogee waives a subrogation claim the collateral 
source rule applies to allow the injured party to recover and 
get a windfall.  See Voge, 181 Wis. 2d at 728, 730-33. 
No. 
2009AP1669   
 
21 
 
¶59 In Radloff, the subrogated insurer (who was a party to 
the lawsuit) played no role in the lawsuit and exercised no 
option under Wis. Stat. § 803.03(2).48  The Radloff court held 
that the insurer lost its subrogation claim. 
¶60 Unlike the subrogated insurer in Radloff, American 
Family assiduously pursued its subrogation claim.     
¶61 American Family arbitrated its subrogation claim.  
Furthermore, when the plaintiffs joined American Family in the 
lawsuit pursuant to Wis. Stat. § 803.03(2), American Family 
filed an answer and cross-complaint in the plaintiffs' lawsuit 
asserting its subrogation claim.  Only after these active 
assertions did American Family seek dismissal of its subrogated 
claim.49  At every step, American Family pressed its subrogation 
                                                 
48 Once joined, a subrogated party has the following options 
under Wis. Stat. § 803.03(2):  
a. Participate in the litigation. 
b. Agree to have his or her interest represented by 
the party who caused the joinder. 
c. Move for dismissal with or without prejudice. 
49 See, e.g., Ryan v. Sigmund, 191 Wis. 2d 178, 182-83, 528 
N.W.2d 43 (Ct. App. 1995) (determining Radloff was inapposite, 
when the subrogated insurer filed an answer, counterclaim, and 
cross-claim asserting its subrogation interest, but later sought 
and obtained the court's permission to be excused from further 
participation in the litigation). 
No. 
2009AP1669   
 
22 
 
claim.  Therefore, American Family's conduct is inconsistent 
with the concept of waiver.50       
¶62 American Family's situation is analogous to that of 
the subrogated insurers in Paulson and Lambert.  In Paulson, the 
subrogated insurer moved to be dismissed from the case because 
the settlement of its subrogation claim with the tortfeasor's 
insurer barred the subrogation claim.51  In Lambert, the 
subrogated insurer was barred from advancing its subrogation 
claim by the statute of limitations.52  In both Paulson and 
Lambert the insurers' subrogation claims were not viewed as 
lost; the insurer's subrogation claims did not inure to the 
injured party. 
¶63 The distinction the plaintiffs try to draw is that the 
dismissal here, unlike the dismissals in Paulson and Lambert, 
was not done with the agreement of, or upon the motion of, the 
injured party.  Further, the plaintiffs attempt to portray the 
arbitration as "secret" in that the plaintiffs were not given 
notice and did not have the opportunity to participate.  We 
conclude that this distinction does not support a different 
result.  American Family's settlement and dismissal (whether 
with or without the plaintiffs' participation or agreement) does 
                                                 
50 Ryan, 191 Wis. 2d at 183 ("[The subrogee's] request not 
to participate in the trial under these circumstances did 
nothing to impair the efficient and orderly disposition of the 
case"). 
51 Paulson, 263 Wis. 2d 520, ¶32. 
52 Lambert, 135 Wis. 2d at 107. 
No. 
2009AP1669   
 
23 
 
not affect the plaintiffs' ability to recover the reasonable 
value of medical services.  The important factor in the present 
case, as in Paulson and Lambert, is that the subrogated insurer 
may separately pursue its subrogation claim through a settlement 
agreement without affecting the injured party's ability to 
recover for the injury.   
¶64 We further support our conclusion by examining Voge v. 
Anderson, 
181 
Wis. 2d 726, 
512 
N.W.2d 749 
(1994). 
 
Voge 
presented two issues and the court rendered two rulings—-one 
relating to UIM payments and the other relating to medical 
benefits payments.  Our conclusion in the present case is 
supported by both rulings in Voge.  The second ruling is 
directly on point. 
¶65 With regard to the UIM ruling in the Voge case:  In 
Voge, American Family paid its insured, the injured party, 
$150,000 UIM benefits after a jury verdict.  It also entered 
into a stipulation with its insured, the injured party, stating 
that American Family "waived any and all subrogation rights 
which it may have had to seek reimbursement" from the tortfeasor 
or the tortfeasor's insurance company.53   
¶66 The tortfeasor and the tortfeasor's insurance company 
asserted that they were entitled to a reduction in judgment in 
the amount of $150,000 for the UIM benefits paid by American 
Family.  The court held against the tortfeasor's insurance 
                                                 
53 The jury found the injured party 15% contributorily 
negligent.  Voge, 181 Wis. 2d at 729. 
No. 
2009AP1669   
 
24 
 
company on the ground that American Family had waived its right 
to subrogation and thus the collateral source rule applied.54  
The court reasoned that American Family "explicitly waived its 
rights to subrogation and thus never possessed the right to 
recover the UIM benefits; the claim to recover such damages 
remained at all times with [the injured party]."55  Thus, the 
collateral source rule, not subrogation, governed the UIM 
payments.56  The insured got the windfall created by American 
Family's waiver of its subrogation rights, not the tortfeasor.    
¶67 In contrast to Voge, in the present case, as in 
Paulson, the subrogated insurance company did not explicitly 
waive its subrogation rights.  Accordingly, the UIM ruling in 
Voge supports our conclusion in the present case.    
¶68 With regard to the medical benefits ruling in the Voge 
case:  Prior to commencement of the Voge lawsuit, American 
Family paid its insured no-fault medical payments in the amount 
of $5,895.75 under the automobile insurance policy (in contrast 
with the UIM portion of the policy).  American Family did not 
waive its rights to subrogation for that amount.57     
¶69 Also, before commencement of the injured party's 
lawsuit, American Family pursued and settled its subrogation 
claim arising from the medical payments through arbitration with 
                                                 
54 Id. at 732. 
55 Id. 
56 Id. at 732-33. 
57 Id. at 730. 
No. 
2009AP1669   
 
25 
 
the tortfeasor's insurance company.58  American Family recovered 
70% of its medical payments from the tortfeasor's insurance 
company through arbitration.59    
¶70 In its answer to the injured party's complaint, 
American Family, the subrogated insurer, stated that it would 
waive any rights to subrogation for the medical payments.60  The 
Voge court concluded that this waiver (after an arbitration 
proceeding 
with 
the 
tortfeasor's 
insurance 
company) 
was 
unenforceable.  The court concluded that the insurer had already 
pursued its subrogation rights through arbitration and recovered 
the amount it was entitled to recover from the tortfeasor's 
insurance company.61   
¶71 The Voge court held that "[u]nlike the UIM benefits, 
then, the right to recover the medical payments was never 
possessed by Voge [the injured party].  Thus, Voge is not 
entitled to recover for such expenses."62  The Voge court 
concluded that the tortfeasor's insurance company is entitled to 
a reduction in the jury award equal to the medical expenses paid 
to the injured party by the injured party's subrogated insurance 
company.63   
                                                 
58 Id. at 733-34. 
59 Id. 
60 Id. 
61 Id. 
62 Id. at 734. 
63 Id. at 733-34. 
No. 
2009AP1669   
 
26 
 
¶72 The present case, like Voge, involves no-fault medical 
payments made by the injured party's insurance company to the 
injured party; a subrogated insurance company that did not 
explicitly waive its subrogation rights; and two insurance 
companies that arbitrated the subrogation rights prior to 
commencement of the injured party's lawsuit.   
¶73 Applying the teachings of Voge v. Anderson supports 
our conclusion that the plaintiffs in the present action are not 
entitled to recover the value of American Family's subrogation 
claim that American Family pursued and lost in arbitration.   
¶74 We conclude that in all significant respects the 
present case is indistinguishable from Paulson, and that 
therefore the present case is governed by Paulson.  Accordingly, 
we conclude that the collateral source rule does not, under the 
facts of the present case, entitle the plaintiffs to recover 
$10,000, the value of their insurer's subrogation claim.  For 
the reasons set forth, we affirm the decision of the court of 
appeals.  
By the Court.—The decision of the court of appeals is 
affirmed.     
No.  2009AP1669.awb 
 
1 
 
¶75 ANN WALSH BRADLEY, J.   (dissenting).  The made whole 
doctrine, subrogation, and the collateral source rule are all 
equitable 
doctrines. 
 
Generally, 
the 
order 
of 
equitable 
priorities is stated as follows: The injured party has greater 
equity than the subrogated insurer, while the subrogated insurer 
has greater equity than third parties who tortiously caused the 
loss.  III Russell M. Ware, Law of Damages in Wisconsin § 32.6 
(5th ed. 2010) (citing First Nat. Bank of Columbus v. Hansen, 84 
Wis. 2d 422, 267 N.W.2d 367 (1978); Waukesha Sav., Bldg. & Loan 
Ass'n v. Hamill, 203 Wis. 414, 232 N.W. 877 (1931); Valley 
Bancorp. 
v. 
Auto 
Owners 
Ins. 
Co., 
212 
Wis. 2d 609, 
569 
N.W.2d 345 (Ct. App. 1997)).  
¶76 Examining the application of these three equitable 
doctrines in a particular case is a fact-intensive inquiry.  See 
Koffman v. Leichtfuss, 2001 WI 111, ¶26, 246 Wis. 2d 31, 630 
N.W.2d 201.  Both the analysis and the result depend on the 
unique circumstances of the case.  Paulson v. Allstate Ins. Co., 
2003 WI 99, ¶17, 263 Wis. 2d 520, 665 N.W.2d 744.    
¶77 This case involves many unique circumstances.  Here, 
the jury determined that the tortfeasor was 100 percent 
negligent.  In stark contrast, during arbitration the tortfeasor 
was determined to be negligence free.  The binding arbitration 
was done without any knowledge of the plaintiff so that 
traditional concepts of issue preclusion cannot apply.  American 
Family 
voluntarily 
dismissed 
its 
subrogation 
claim 
with 
prejudice, and with the approval of everyone but the plaintiff.  
No.  2009AP1669.awb 
 
2 
 
Perhaps the most unusual fact in this case is that there is an 
"extra" $10,000.  
¶78 Under the unique facts of this case, how should these 
three equitable doctrines be applied?  Who is entitled to 
recover the $10,000 windfall? 
¶79 As the majority aptly explains, the plaintiffs have 
been fully compensated for their loss.  Accordingly, the made 
whole doctrine is not implicated by the facts of this case.  
Majority op., ¶51.     
¶80 Likewise, I conclude that the rule of subrogation is 
not determinative here.  There is no subrogated party that can 
assert a subrogation interest in this case.  American Family 
lost in binding arbitration and voluntarily dismissed its 
subrogated claim with prejudice.  
¶81 Under 
the 
collateral 
source 
rule, 
neither 
the 
tortfeasor nor its insurer is entitled to the extra $10,000.  As 
Justice 
Prosser 
correctly 
explains 
in 
his 
dissent, 
the 
collateral source rule in part provides that windfalls should 
not inure to the benefit of the tortfeasor or its insured.  
Rather, any windfall should inure to the benefit of the injured 
parties.  Justice Prosser's dissent, ¶108 (citing Ellsworth v. 
Schelbrock, 2000 WI 63, 235 Wis. 2d 678, 611 N.W.2d 764).   
¶82 Although the parties vigorously debate the interplay 
of these three equitable doctrines, I conclude that under the 
unique facts of this case, it is only the collateral source rule 
that is at play.  In applying the collateral source rule, I 
conclude that the circuit court erred when it determined that 
No.  2009AP1669.awb 
 
3 
 
the windfall of the "extra" $10,000 should insure to the benefit 
of the tortfeasor and its insured.    
¶83 The arguments of the parties give rise to a number of 
difficult questions that need not be resolved to address the 
issues presented here.  Left unanswered are the tougher 
questions for future cases.   
¶84 Does the majority's analysis, which involved American 
Family's medical pay claim of a relatively small sum certain 
amount, apply equally to the large subrogation claim of a health 
insurer?  What are the consequences of permitting a subrogated 
insurer to seek recovery against the tortfeasor first, at a 
point in time when it is unknown whether the injured party will 
be made whole?  If a subrogated interest in a personal injury 
case is settled through arbitration before the plaintiff is made 
whole, what happens if it is later determined that there is 
insufficient 
money 
for 
the 
injured 
party 
to 
be 
fully 
compensated?  Would the subrogated insurer be required to 
relinquish the money it received in arbitration to make the 
injured party whole?  Does the injured party's knowledge or 
ignorance of the subrogated insurer's intent to proceed against 
the tortfeasor make any difference when evaluating the equities 
of the case?   
¶85 For the time being, these difficult questions remain 
unanswered.  The interaction between the three equitable 
doctrines can be complex and is driven by the specific facts of 
a case.  Because I conclude that the collateral source rule 
governs the outcome of this case, I respectfully dissent.   
No.  2009AP1669.dtp 
 
1 
 
 
¶86 DAVID T. PROSSER, J.   (dissenting).  This case is not 
governed by Paulson v. Allstate Ins. Co., 2003 WI 99, 263 
Wis. 2d 520, 665 N.W.2d 744.  By holding that it is, the court 
is damaging the right of many plaintiffs to secure a fair 
recovery for their personal injuries. 
¶87 To understand this case, it is important to understand 
the facts.  Roger H. Fischer, Sr. and Sandra J. Fischer are 
husband and wife.  They purchased an automobile insurance policy 
from American Family Insurance Company.  The Fischer policy 
included coverage for $10,000 in medical expenses if one of the 
insureds were involved in an automobile accident. 
¶88 Roger Fischer was involved in such an accident.  He 
suffered personal injuries and $12,157.14 in medical expenses.  
The most that American Family was required to pay under the 
policy was $10,000 toward Fischer's medical expenses. 
¶89 The accident was not caused by Roger Fischer.  It was 
caused entirely by Pamela Steffen.  Steffen and her insurer, 
Wilson Mutual Insurance Company, contended that while Steffen 
caused the accident, she was excused from liability because she 
suffered a sudden, incapacitating illness immediately prior to 
the accident.  There is no suggestion that in making this 
defense of its insured Wilson Mutual was acting in any 
inappropriate way. 
¶90 Thus, for Roger Fischer to recover his full medical 
expenses and any damages resulting from his personal injuries, 
No.  2009AP1669.dtp 
 
2 
 
he and his wife were required to file suit against Pamela 
Steffen and/or Wilson Mutual, and they did. 
¶91 As the majority notes, a jury found Steffen 100 
percent liable for Roger Fischer's injuries.  Majority op., ¶3.  
The jury awarded the Fischers a total of $21,000 for his pain 
and suffering and her loss of consortium, while the parties 
stipulated to $12,157.14 as the reasonable value of Roger's past 
medical expenses.  Id. 
¶92 Before the Fischers ever filed suit, American Family 
and Wilson Mutual arbitrated American Family's subrogation claim 
for the $10,000 it had paid to Roger under the Fischers' policy.  
American Family wanted Wilson Mutual to reimburse American 
Family for all or part of this payment.  The Fischers received 
no notice of this arbitration and did not participate in it.  
However, they were clearly affected by the decision of the 
arbitration panel, that Steffen was not causally negligent and 
that American Family had no subrogation claim against either 
Steffen or Wilson Mutual.  Inevitably, Wilson Mutual's victory 
in the arbitration proceeding stiffened its resistance to paying 
any money for Fischer's medical bills and the other damages. 
¶93 After the jury trial, Wilson Mutual moved to reduce 
the award of $12,157.14 in medical expenses to $2,157.14 as 
Roger Fischer had already recovered $10,000 in medical expenses 
from his own insurer.  The circuit court granted that motion. 
¶94 The issue before this court is whether the circuit 
court erred in reducing the jury's verdict for Roger Fischer's 
medical expenses from $12,157.14 to $2,157.14 on grounds that 
No.  2009AP1669.dtp 
 
3 
 
Fischer was not entitled to keep the $10,000 because it would 
amount to a double recovery. 
I 
¶95 The most striking fact about this case is that 
defendant Steffen caused $12,157.14 in medical expenses to the 
Fischers but has been relieved of the burden of paying all but 
$2,157.14 toward these expenses.  Even though total medical 
expenses were stipulated by the parties and found by the jury, 
the circuit court overturned part of the jury's verdict on 
policy grounds.  As a result, the Fischers are being punished 
for their foresight in purchasing automobile insurance with 
coverage for medical expenses, while Wilson Mutual receives a 
$10,000 windfall. 
¶96 The majority is untroubled by this result and appears 
unconcerned about various other inequities in this case. 
II 
¶97 The 
Fischers' 
automobile 
insurance 
policy 
with 
American Family had a subrogation component.  If the Fischers 
had filed suit against Steffen and Wilson Mutual before American 
Family had taken any arbitration action vis-à-vis Wilson Mutual, 
the Fischers would have been required to join American Family in 
their suit.   
¶98 Wisconsin Stat. § 803.03(1) provides: 
 
A person who is subject to service of process 
shall be joined as a party in the action if: 
 
(a) In the person's absence complete relief 
cannot be accorded among those already parties; or 
No.  2009AP1669.dtp 
 
4 
 
 
(b) The person claims an interest relating to 
the subject of the action and is so situated that the 
disposition of the action in the person's absence may: 
 
1. 
As a practical matter impair or impede the 
person's ability to protect that interest; or 
 
2. 
Leave any of the persons already parties 
subject to a substantial risk of incurring double, 
multiple or otherwise inconsistent obligations by 
reason of his or her claimed interest.  (Emphasis 
added.) 
¶99 The emphasized portion of the statute would have 
governed American Family's right to be joined in the suit, 
inasmuch as any mishandling of the suit by the Fischers would 
have "impair[ed] or impede[ed]" American Family's subrogation 
rights. 
¶100 The general principle stated in subsection (1) is made 
explicit in Wis. Stat. § 803.03(2)(a): "A party asserting a 
claim for affirmative relief shall join as parties to the action 
all persons who at the commencement of the action have claims 
based upon subrogation to the rights of the party asserting the 
principal claim." 
¶101 Subsection (2)(a) then states the converse principle: 
"Any party asserting a claim based upon subrogation to part of 
the claim of another . . . shall join as a party to the action 
the person to whose rights the party is subrogated."  Wis. Stat. 
§ 803.03(2)(a) (emphasis added). 
¶102 There is no contention here that Wis. Stat. § 803.03 
applies to arbitration proceedings.  Nonetheless, the principles 
embedded in this statute are salutary.  The Fischers followed 
those principles.  The insurance company did not.  If American 
Family had won the arbitration, it might have softened up Wilson 
No.  2009AP1669.dtp 
 
5 
 
Mutual and encouraged it to make a reasonable settlement offer 
to the Fischers for medical expenses and other damages.  
However, American Family lost the arbitration and that loss 
discouraged settlement and impeded the Fischers' ability to 
achieve a reasonable settlement without going to trial. 
¶103 If there had been no prior arbitration between 
American Family and Wilson Mutual, American Family would have 
had several options with respect to the Fischers' suit:  
(a) It could have participated in the prosecution of the 
action; 
(b) It could have agreed to have its interest represented 
by the Fischers; or 
(c) It could have moved to dismiss its participation with 
or without prejudice.   
See Wis. Stat. § 803.03(2)(b)1.a.-c.; majority op., ¶59 n.48. 
¶104 If American Family had participated in the prosecution 
of the action, it no doubt would have had legal expenses.  If it 
had agreed to have its interest represented by the Fischers and 
the Fischers had prevailed (as they did), the Fischers' 
attorneys would have been "awarded reasonable attorney fees 
[from 
American 
Family] 
by 
the 
court." 
 
Wis. 
Stat. 
§ 803.03(2)(b)3.  These attorney fees would have helped finance 
the Fischers' entire litigation.  Instead, the Fischers had to 
proceed alone.  Because of the circuit court's ruling on the 
$10,000 in medical expenses, the Fischers' attorney fees 
necessarily take a big bite out of their reduced recovery. 
III 
No.  2009AP1669.dtp 
 
6 
 
¶105 The majority opinion asserts that this case involves 
the intersection of three rules of law: the collateral source 
rule, the subrogation rule, and the made whole doctrine.  
Majority op., ¶28.  Although I agree that all three rules are 
implicated, I do not agree with the court's analysis and 
application of them. 
A. 
Collateral Source Rule 
¶106 Under the collateral source rule, the amount of 
damages awarded to a person injured because of another person's 
tortious conduct is not reduced when the injured party receives 
compensation from another source, such as insurance.  Ellsworth 
v. Schelbrock, 2000 WI 63, ¶1, 235 Wis. 2d 678, 611 N.W.2d 764 
(citing Payne v. Bilco Co., 54 Wis. 2d 424, 433, 195 N.W.2d 641 
(1972)).  This rule has been part of Wisconsin tort law since at 
least 1908.  Gatzweiler v. Milwaukee Elec. Ry. & Light Co., 136 
Wis. 34, 116 N.W. 633 (1908). 
¶107 "Early cases discussing the collateral source rule 
addressed whether insurance payments or continued wages should 
reduce an injured plaintiff's damages."  Lagerstrom v. Myrtle 
Werth Hosp., 2005 WI 124, ¶126, 285 Wis. 2d 1, 700 N.W.2d 201 
(Prosser, J., dissenting).  Eventually the court considered 
medical expenses.  See McLaughlin v. Chicago, Milwaukee, St. 
Paul & Pac. R.R. Co., 31 Wis. 2d 378, 395-96, 143 N.W.2d 32 
(1966); Thoreson v. Milwaukee & Suburban Transp. Corp., 56 
Wis. 2d 231, 244, 201 N.W.2d 745 (1972); Merz v. Old Republic 
Ins. Co., 53 Wis. 2d 47, 53-54, 191 N.W.2d 876 (1971); Rixmann 
No.  2009AP1669.dtp 
 
7 
 
v. Somerset Pub. Schs., 83 Wis. 2d 571, 575-83, 266 N.W.2d 326 
(1978). 
¶108 In Ellsworth, the court explained the collateral 
source rule: 
Our tort law applies the collateral source rule as 
part of a policy seeking to "deter negligent conduct 
by placing the full cost of the wrongful conduct on 
the tortfeasor."  American Standard Ins. Co. v. 
Cleveland, 124 Wis. 2d 258, 264, 369 N.W.2d 168 (Ct. 
App. 1985).  The tortfeasor who is legally responsible 
for causing injury is not relieved of his obligation 
to the victim simply because the victim had the 
foresight to arrange, or good fortune to receive, 
benefits from a collateral source for injuries and 
expenses. 
Ellsworth, 235 Wis. 2d 678, ¶7.  The court went on to quote 
approvingly from Campbell v. Sutliff, 193 Wis. 370, 374, 214 
N.W. 374 (1927): 
 
We see no reason why one whose acts have caused 
injury to another should reap the entire benefit that 
comes from the payment of wages made by an employer, 
either as a gratuity . . . or because such payments 
are required by contract.  Such payments do not change 
the nature of the injury which the employee sustains 
through the wrongful acts of the tortfeasor.  If 
either is to profit by the payments . . . , it should 
be the person who has been injured, not the one whose 
wrongful acts caused the injury. 
Id. 
¶109 In Voge v. Anderson, 181 Wis. 2d 726, 732-33, 512 
N.W.2d 749 (1994), the court said: "[T]he collateral source rule 
requires that the tortfeasor be held responsible for his conduct 
by requiring the tortfeasor to compensate the injured party the 
full amount of damages."  Because Voge appears relevant, the 
majority attempts to distinguish the case on its facts.  
Majority op., ¶¶64-72.  It cannot reasonably do so.   
No.  2009AP1669.dtp 
 
8 
 
¶110 In Voge, the plaintiff was injured in an automobile 
accident and he brought suit against the driver, Anderson, and 
his insurer, Illinois Farmers Insurance Company.  Voge, 181 
Wis. 2d at 728-29.  The plaintiff, Voge, was insured by American 
Family Mutual Insurance Company under a policy that included an 
express subrogation clause.  Id. at 729.  Similar to the 
situation here, Voge brought suit against Anderson and Illinois 
Farmers, and also named American Family.  Id.  A jury trial 
resulted in a large verdict for Voge1 which exceeded the 
liability limits on Anderson's policy.  Id.  Consequently, 
American Family paid $150,000 to Voge in underinsured motorist 
(UIM) benefits under his policy, and then waived its subrogation 
rights against Anderson and Illinois Farmers.  Id. at 729.   
¶111 Illinois Farmers and Anderson asserted that they were 
entitled to a reduction in the judgment against them in the 
amount of American Family's payment to Voge under his policy.  
Id. at 730.  The court relied on the binding waiver entered into 
by the parties to find that the collateral source rule applied 
and the defendants were not entitled to a reduction of benefits.  
Id.  The court explained: 
Assignment of a claim by means of subrogation is not 
automatic.  The party that wants to impose subrogation 
has the burden of proving it.  Illinois Farmers and 
Anderson have not done so in this case.  Rather, 
American 
Family explicitly waived its rights to 
subrogation and thus never possessed the right to 
recover the UIM benefits; the claim to recover such 
damages remained at all times with Voge.   
                                                 
1 The jury found Voge 15 percent causally negligent and 
Anderson 85 percent causally negligent for the accident.  Voge 
v. Anderson, 181 Wis. 2d 726, 729, 512 N.W.2d 749 (1994).   
No.  2009AP1669.dtp 
 
9 
 
 
In light of this, we hold the collateral source 
rule applicable.  The collateral source rule does not 
allow 
a 
tortfeasor 
to 
reduce 
his 
or 
her 
liability . . . by benefits that the injured person 
receives . . . .  Rather, the collateral source rule 
requires that the tortfeasor be held responsible for 
his conduct by requiring the tortfeasor to compensate 
the injured party the full amount of damages. 
 
We recognize that the results in this case allow 
the injured party a double recovery.  However, a 
contrary 
conclusion 
would 
result 
in 
giving 
the 
tortfeasor a windfall: the tortfeasor would not have 
to pay the full amount of damages he would owe . . . .  
Since Voge's recovery from American Family stemmed 
from his own actions of obtaining underinsurance and 
paying the premium for it, the better result is to 
allow Voge to recover that windfall, not Illinois 
Farmers and Anderson.  Any windfall in benefits should 
inure to the injured party, not to the tortfeasor. 
Id. at 732-33 (emphasis added) (citations omitted). 
¶112 How does Voge compare to the present case?  In Voge, 
the injured party brought suit against the other driver and the 
driver's insurer.  Id. at 728.  After achieving a successful 
verdict, the injured party's insurer paid UIM benefits and 
explicitly waived its subrogation rights related to those 
benefits.  Id. at 729-30.  In this case, the injured party 
brought suit against the other driver and the driver's insurer.  
The injured party's insurer initially asserted subrogation 
rights but this subrogation claim was dismissed by the court on 
the insurer's stipulation because the insurer had voluntarily 
gone to arbitration and lost.  In my view, the voluntary waiver 
in Voge and the stipulation here are functionally the same. 
¶113 The majority tries to dodge this result by pointing to 
the fact that the tortfeasor in Voge was relieved of paying 
medical expenses to the injured party after the injured party 
No.  2009AP1669.dtp 
 
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received medical expenses from his insurer.  But the Voge facts 
were critically different: Voge's insurer went to arbitration 
with the tortfeasor's insurer and received a 70 percent 
reimbursement of the $5,895.75 that Voge's insurer had paid to 
Voge.  Id. at 730.  The 70 percent figure reflected, in part, 
Voge's contributory negligence.  Id. at 729.  Requiring the 
tortfeasor to pay all of Voge's medical expenses would have 
meant a double payment by the tortfeasor as well as double 
recovery by Voge.  Id. at 733.  Here, Steffen's insurer (Wilson 
Mutual) did not pay $10,000 in medical expenses to either 
American Family or the Fischers.  Thus, there is no double 
payment, and the collateral source rule allows double recovery 
on these facts to avoid giving the tortfeasor and her insurer a 
windfall.    
¶114 For the same reasons articulated so clearly in Voge, 
the collateral source rule should preclude any reduction in the 
jury award here.  American Family may not have "waived" its 
right to subrogation by signing it away, but it "waived" its 
right when it voluntarily agreed to enter binding arbitration 
with Wilson Mutual and lost.  By submitting the question of its 
subrogation claim to arbitration, American Family surrendered 
the right to recover medical expenses from the Fischers and lost 
its right to collect from the tortfeasor.  If the plaintiff in 
Voge, who was contributorily negligent for the accident, could 
not be deprived of his jury verdict, the Fischers have an even 
clearer entitlement to recovery of the jury verdict against 
Steffen. 
No.  2009AP1669.dtp 
 
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B. 
Subrogation Rule 
¶115 The majority correctly characterizes the rules of 
subrogation as "ensur[ing] that the loss is ultimately placed 
upon the tortfeasor and prevent[ing] the subrogor . . . from 
being unjustly enriched through double recovery."  Majority op., 
¶31 (emphasis added).  Conspicuously absent from the majority's 
description, however, is an acknowledgment that subrogation in 
the insurance context is a derivative right arising from the 
insurer's contractual obligation to satisfy a loss caused by a 
third party to its insured.  Muller v. Soc'y Ins., 2008 WI 50, 
¶22, 309 Wis. 2d 410, 750 N.W.2d 1.   
¶116 As the court of appeals noted, "[O]nce an insurer 
pays, it has a right to stand in the place of its insured, 
pursuant to the contract for insurance, and may seek to recoup 
its outlay from the tortfeasor."  Fischer v. Steffen, 2010 WI 
68, ¶7, 325 Wis. 2d 382, 783 N.W.2d 889.  Accordingly, the rules 
of subrogation allow an insurer to take over ownership of the 
insured's right to seek recovery from the tortfeasor.  See 
Paulson, 263 Wis. 2d 520, ¶¶27, 29.  Normally, this right "does 
not arise until the debt has been fully paid."  Drinkwater v. 
Am. Fam. Mut. Ins. Co., 2006 WI 56, ¶16, 290 Wis. 2d 642, 714 
N.W.2d 568.   
¶117 This principle is referred to as the "recovery 
priority rule" or the "subrogation rule of priority."  Muller, 
309 
Wis. 2d 410, 
¶¶31-32. 
This 
court 
has 
explained 
that 
"[s]ubrogation is to be allowed only when the insured is 
compensated in full by recovery from the tortfeasor."  Rimes v. 
No.  2009AP1669.dtp 
 
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State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 272, 316 
N.W.2d 348 (1982); see also Garrity v. Rural Mut. Ins. Co., 77 
Wis. 2d 537, 542, 253 N.W.2d 512 (1977). 
¶118 Under this principle, the Fischers would be entitled 
to recover in full from the tortfeasor before American Family 
could exercise any right of subrogation.   
¶119 In this case, there is no right of subrogation because 
American Family never exercised its right to stand in the place 
of the Fischers.  Instead, it staked its rights to subrogation 
on binding arbitration with Wilson Mutual.  When the arbitration 
panel concluded that American Family had no subrogation claim 
against Wilson Mutual, American Family filed a stipulation and 
order for dismissal of its subrogation claim with prejudice.  At 
that point, the rules of subrogation ceased to apply to the 
Fischers' claims, because, as a matter of law and contract, no 
party 
was 
entitled 
to 
subrogation. 
 
It 
was 
therefore 
inappropriate to reduce the jury award on the basis of a right 
that no longer existed. 
C. 
Made Whole Doctrine 
¶120 Like the subrogation "rule of priority" discussed 
above, the essence of the made whole doctrine is that an insured 
is entitled to have priority over an insurer where funds are 
limited.  Vogt v. Schroeder, 129 Wis. 2d 3, 13, 383 N.W.2d 876 
(1986).  The doctrine rests ultimately on equitable principles 
that depend on the facts; it is not an inflexible rule.  Id.   
¶121 One of the critical equitable principles underlying 
the doctrine is "that the wrongdoer should be responsible for 
No.  2009AP1669.dtp 
 
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his conduct and not be allowed to go scot-free by failing to 
respond in damages" while the insurer is required to pay under 
the insurance policy.  Id.  Where the right of subrogation would 
operate to deprive the insured of his compensation for the 
injury suffered, the equities demand that the insured take 
priority over the insurer's claim for subrogation.  Id. at 15. 
¶122 Stated 
differently, 
it 
is 
at 
least 
potentially 
inequitable for an insurer to protect its own interests before 
the insured is made whole.  The majority concludes, as did the 
court of appeals, that the made whole doctrine is inapplicable 
because the Fischers have not shown that they have not been made 
whole or that there is a limited pool of resources from which 
recovery can be obtained.  Majority op., ¶51; Fischer, 325 
Wis. 2d 382, 
¶8. 
 
This 
conclusion 
ignores 
the 
equitable 
principles underlying all three rules implicated in this case. 2 
                                                 
2 See Muller v. Soc’y Ins., 2008 WI 50, ¶22, 309 Wis. 2d 
410, 
750 
N.W.2d 1 
("Subrogation 
rests 
upon 
equitable 
principles."); Shulte v. Frazin, 176 Wis. 2d 622, 628, 500 
N.W.2d 305 (1993) ("[S]ubrogation is based upon equitable 
principles. . . .  To resolve the issue in [a] case, [the court] 
must apply equitable principles to the facts."); Petta v. ABC 
Ins. Co., 2005 WI 18, ¶27, 278 Wis. 2d 251, 692 N.W.2d 639 ("It 
has long been recognized that subrogation rests upon principles 
of equity."); Salveson v. Douglas County, 2001 WI 100, ¶56, 245 
Wis. 2d 497, 630 N.W.2d 182 ("[C]ourts are guided by certain 
equitable principles. The collateral source rule operates 'not 
to prevent the plaintiff from being overcompensated but rather 
to prevent the tortfeasor from paying twice.'") (citing Flowers 
v. Komatsu Mining Sys., Inc., 165 F.3d 554, 558 (7th Cir. 
1999)); Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 542, 253 
N.W.2d 512 (1977) ("[W]here either the insurer or the insured 
must to some extent go unpaid, the loss should be borne by the 
insurer for that is a risk the insured has paid it to assume.") 
(citing St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 
198 S.E.2d 482, 484 (N.C. Ct. App. 1973). 
No.  2009AP1669.dtp 
 
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¶123 This conclusion also ignores the reality that the 
Fischers' insurer forced the Fischers to seek redress on their 
own and made their task more economically challenging and 
difficult by rushing to arbitration and dropping the ball.  
Failure to take into account the equities derived from these 
facts will encourage insurers to cut their insureds adrift 
regardless of the consequences. 
¶124 In finding the made whole rule inapplicable, the 
majority relies heavily on Paulson.  See majority op., ¶¶35-43.  
In Paulson, the plaintiff insured was injured and her car 
damaged in a car accident with another driver, Cheryl Schacht.  
Paulson, 263 Wis. 2d 520, ¶4.  Before the Paulsons filed suit, 
their insurer, Midwest Security Insurance Company, negotiated a 
settlement agreement with Schacht's insurer, Allstate Insurance 
Company.  Id., ¶2.  The agreement took into consideration 
Paulson's 
comparative 
negligence 
in 
the 
accident, 
and 
accordingly reduced Allstate's payment to Midwest by 30 percent.  
Id., ¶6.  In the circuit court, Allstate argued that the 
Paulsons should not be able to present evidence on property 
damage aside from their $500 deductible, because Midwest had 
already settled any claims for property damage with Allstate.  
Id., ¶9-10.   
¶125 The question presented to this court in Paulson was 
whether Paulson could recover the difference between what her 
insurer paid and what it settled for in negotiations with the 
tortfeasor's insurer.  Id., ¶18.  We concluded that Paulson was 
not entitled to the difference, because she had already received 
No.  2009AP1669.dtp 
 
15 
 
the amount of damages to which she was entitled, and the made 
whole doctrine did not apply.  Id., ¶¶18, 20. 
¶126 In denying the Paulsons' claim, we acknowledged that 
Garrity, Rimes, and Vogt, as well as several cases in the court 
of appeals, found that the insured was to have priority over the 
insurer when they were competing for limited funds.  Id., ¶24.  
These cases, we emphasized, considered the priority rule where 
insurers were "attempting to take the funds that should have 
gone to the insured."  Id., ¶¶21-24.  They were distinguishable 
from the Paulsons' claim because Midwest had paid for the car 
repairs and settled with Allstate regarding that bill.  Id., 
¶27.  The reduction in the Paulsons' recovery was because 
Midwest had agreed to recovery of only 70 percent against 
Allstate.  Id.   
¶127 We concluded that Midwest had divested itself of its 
subrogation interest by choosing to settle with Allstate, and 
stated, "We find that the subrogation trumps the collateral 
source rule under the facts of this case."  Id., ¶32 (emphasis 
added).  In doing so, we did not overrule or depart from our 
holdings in Garrity and Rimes, but found that the "balance of 
equities" required a different result.  Id., ¶41. 
¶128 The Paulson decision makes clear that the priority 
rule is not ironclad; if it were applied inflexibly, it might 
discourage arbitration proceedings and impede normal settlement 
agreements between insurers.  See id., ¶43.  These are laudable 
goals and valid considerations.  On the other hand, the 
majority's departure from the priority rule in this case 
No.  2009AP1669.dtp 
 
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seriously dilutes the rule and impedes the injured insured——
here, the Fischers——from receiving full recovery.  In effect, 
the majority's decision allows a wedge to be driven between the 
insurer and insured who should be allied in seeking recovery 
from the tortfeasor. 
¶129 The holding in Paulson was not a radical departure 
from our precedent, but was specifically limited to its facts.3  
See majority op., ¶17.  It does not apply in all situations, and 
certainly cannot cover the facts presented in the Fischers' 
case, as the majority concludes.  See majority op., ¶18.  The 
instant case does not involve any allegation of contributory 
negligence.  It does not involve a settlement agreement between 
insurers, which this court encourages and favors.  The Fischers, 
unlike the Paulsons, were forced to go to trial to recover the 
full amount of their medical expenses.  Under these disparate 
facts, applying the holding of Paulson works an inequitable 
result. 
IV 
¶130 In the cases considering the intersection of these 
rules, we have repeatedly stated that the tortfeasor should be 
held fully responsible.  See Ellsworth, 235 Wis. 2d 678, ¶17; 
Paulson, 253 Wis. 2d 520, ¶34.   We have also held that when the 
intersection of these competing principles and policies result 
in a windfall, the benefit should always go to the injured party 
                                                 
3 Paulson v. Allstate Ins. Co., 2003 WI 99, 263 Wis. 2d 520, 
665 N.W.2d 744, is actually consistent with the decision on 
medical expenses in Voge v. Anderson, 181 Wis. 2d 726, 512 
N.W.2d 749 (1994). 
No.  2009AP1669.dtp 
 
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rather than the tortfeasor.  See Paulson, 263 Wis. 2d 520, ¶30; 
Koffman v. Leichtfuss, 2001 WI 111, ¶¶29-30, 246 Wis. 2d 31, 630 
N.W.2d 201.   
¶131 We have explained that subrogation "depends upon a 
just resolution of a dispute under a particular set of facts," 
because "[e]quity does not lend itself to the application of 
black letter rules."  Vogt, 129 Wis. 2d at 12.  The complex 
rules brought to bear in this case should be applied to achieve 
an equitable result, under all the facts, and the Fischers 
should be entitled to recovery of their damages before any 
benefit inures to the tortfeasor.   
¶132 For the foregoing reasons, I respectfully dissent. 
 
 
 
 
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