Title: Fire Insurance Exchange v. Dale M. Basten

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

No. 94-3377-FT 
 
 
 
 
 
 
 
 
 
 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
 
 
 
 
No.  94-3377-FT 
 
STATE OF WISCONSIN             :                IN SUPREME COURT 
                                                                   
 
 
Fire Insurance Exchange, 
 
 
Plaintiff-Respondent, 
 
 
v. 
 
Dale M. Basten, 
 
 
Defendant-Appellant-Petitioner. 
 
 
FILED 
 
 JUNE 20, 1996 
 
 
 Marilyn L. Graves 
  
Clerk of Supreme Court 
  
Madison, WI  
                                                                 
  
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded. 
 
JON P. WILCOX, J.   The defendant-appellant-petitioner, Dale 
M. Basten (Basten), comes before this court seeking review of a 
published decision of the court of appeals, Fire Ins. Exchange v. 
Basten, 195 Wis. 2d 260, 536 N.W.2d 150 (Ct. App. 1995), which 
affirmed a declaratory judgment finding that the plaintiff-
respondent, Fire Insurance Exchange (Fire Insurance), had no duty 
to defend or indemnify Basten in a wrongful death lawsuit brought 
against him.  The court of appeals concluded that because of its 
status as a non-party to the underlying personal injury action, 
 
No. 94-3377-FT 
 
 
 
2 
Fire Insurance's filing of a declaratory judgment action was not 
improper procedure.  Id. at 266.   
 
The case before us involves an insurer's use of the 
declaratory judgment proceeding to construe a liability policy 
where there are legitimate questions of coverage arising under the 
policy issued for the protection of the insured.  On review before 
this court, Basten raises two issues for our consideration.  
First, in seeking a determination of coverage under a liability 
insurance policy, may a non-party insurer bring a separate 
declaratory judgment action against its insured pursuant to Wis. 
Stat. § 806.04
1 (1993-94)
2, rather than pursuing resolution of the 
coverage dispute through intervention in the underlying action to 
which its insured is a party defendant?  We conclude, as did the 
court of appeals, that intervention in the underlying lawsuit 
followed by a request for a bifurcated trial, pursuant to Wis. 
                     
     
1  Section 806.04(1) provides as follows: 
 
(1)  Scope.  Courts of record within their respective 
jurisdictions shall have power to declare rights, status 
and other legal relations whether or not further relief 
is or could be claimed.  No action or proceeding shall 
be open to objection on the ground that a declaratory 
judgment or decree is prayed for.  The declaration may 
be either affirmative or negative in form and effect; 
and such declaration shall have the force and effect of 
a final judgment or decree, except that finality for 
purposes of filing an appeal as of right shall be 
determined in accordance with s. 808.03(1). 
     
2  All future references to Wis. Stats. will be to the 1993-
94 version of the statutes unless otherwise indicated. 
 
No. 94-3377-FT 
 
 
 
3 
Stat. § 803.04(2)(b),
3 is not the exclusive means by which to seek 
a coverage determination.  If the insurance coverage involves a 
party not named in the underlying lawsuit, coverage may be 
determined by utilization of either a bifurcated trial or a 
separate declaratory judgment action.  We therefore agree with the 
court of appeals' resolution of this issue.  
 
The second issue on this review requires us to consider 
whether declaratory relief was proper when neither the plaintiffs 
nor any of the other defendants in the underlying personal injury 
action were joined as parties, under Wis. Stat. § 806.04(11)
4, to 
                     
     
3  Section 803.04(2)(b) provides as follows: 
 
If an insurer is made a party defendant pursuant to this 
section and it appears at any time before or during the 
trial that there is or may be a cross issue between the 
insurer and the insured or any issue between any other 
person and the insurer involving the question of the 
insurer's liability if judgment should be rendered 
against the insured, the court may, upon motion of any 
defendant in the action, cause the person who may be 
liable upon such cross issue to be made a party 
defendant to the action and all the issues involved in 
the controversy determined in the trial of the action or 
any 3rd party may be impleaded as provided in s. 803.05. 
 Nothing 
herein 
contained 
shall 
be 
construed 
as 
prohibiting 
the 
trial 
court 
from 
directing 
and 
conducting separate trials on the issue of liability to 
the plaintiff or other party seeking affirmative relief 
and on the issue of whether the insurance policy in 
question affords coverage.  Any party may move for such 
separate trials and if the court orders separate trials 
it shall specify in its order the sequence in which such 
trials shall be conducted. 
     
4  Section 806.04(11) provides as follows: 
 
Parties.  When declaratory relief is sought, all persons 
shall be made parties who have or claim any interest 
which would be affected by the declaration, and no 
 
No. 94-3377-FT 
 
 
 
4 
the declaratory judgment proceeding.  We conclude that although 
the declaratory judgment action was a proper procedure for 
contesting coverage, the Monfils plaintiffs were required to be 
joined in the separate declaratory judgment proceeding as an 
interested party under Wis. Stat. § 806.04(11).  In the event that 
the joining of multiple parties to the action will result in 
duplicate proceedings, the circuit court judge, in the exercise of 
his or her discretion, should order that the actions be 
consolidated in accordance with Wis. Stat. § 805.05.  Because all 
interested parties were not joined in the declaratory relief 
action, the decision of the court of appeals is reversed. 
 
I. 
 
For purposes of this review, the facts are not in dispute.  
On May 26, 1993, a wrongful death lawsuit was commenced against 
Basten and six other men in Brown County Circuit Court by the 
Estate of Thomas Monfils and his surviving spouse and children.  
Fire Insurance was not a named party in the lawsuit.  The Monfils' 
action sought compensatory and punitive damages against the 
defendants, jointly and severally.  The case was assigned to the 
Honorable Richard Greenwood, Branch I. 
 
In June 1993, Basten tendered the defense of this suit to his 
homeowner's insurance carrier, Fire Insurance.  The insurer 
refused to defend Basten under a reservation of rights or in any 
(..continued) 
declaration may prejudice the right of persons not 
parties to the proceeding. 
 
No. 94-3377-FT 
 
 
 
5 
other manner, and similarly rejected his request to pay for the 
costs of his defense.  Instead, Fire Insurance initiated a 
separate declaratory judgment action against Basten to seek 
judicial resolution of the insurance coverage issue, which was 
assigned to another branch of the Brown County Circuit Court.
5   
 
A hearing was held on September 16, 1994, during which time 
the Honorable William Atkinson considered the briefs of the 
parties as well as oral arguments.  The circuit court found that 
the declaratory judgment procedure was appropriate in this case 
and held that Fire Insurance had no duty to defend or indemnify 
Basten in the Monfils case.  The circuit court found that the 
declarations in the complaint and the amended complaint alleged 
intentional torts, and that the allegations made in the amended 
complaint did not constitute "occurrences" within the meaning of 
Fire Insurance's policy.  The court also concluded that the policy 
contained an exclusion for intentional acts and for punitive or 
exemplary damages or the cost of defense related to such damages, 
and that no reasonable person would expect the subject insurance 
policy to provide coverage for the damages resulting from the 
intentional acts alleged in the amended complaint.  Judgment was 
entered in accordance with the bench decision on November 9, 1994, 
and Basten appealed. 
                     
     
5  In contrast, the remaining insurance companies of all but 
one of the other defendants, named parties in the wrongful death 
lawsuit, moved to intervene and sought a bifurcated trial on the 
coverage issue, in accordance with Wis. Stat. § 803.04. 
 
No. 94-3377-FT 
 
 
 
6 
 
In June 1995, the court of appeals issued its decision 
affirming the judgment in favor of Fire Insurance.  The issue 
before the court was whether Fire Insurance had followed proper 
procedure by filing a separate declaratory judgment action on the 
question of coverage, or whether they should have moved to 
intervene and seek a bifurcated trial under the permissive joinder 
of parties statute, Wis. Stat. § 803.04(2)(b).  Fire Ins. 
Exchange, 195 Wis. 2d at 264.  The court of appeals rejected 
Basten's contention that the declaratory judgment action brought 
by Fire Insurance was improper procedure.  Basten had argued that 
Fire Insurance's only proper course of action to resolve the issue 
of insurance coverage was to intervene in the underlying lawsuit 
and request a bifurcated trial.  Id. at 265.   
 
The court of appeals held otherwise, noting that the proper 
procedural approach in each case would be determined by the status 
of the parties.  Id.  The court agreed that if the party seeking a 
determination of coverage is a named party in the underlying 
lawsuit, a bifurcated trial is the proper procedure to be 
incorporated.  Id.; see Newhouse v. Citizens Sec. Mut. Ins. Co., 
176 Wis. 2d 824, 836, 501 N.W.2d 1 (1993).  However, the court 
further held that bifurcating the trial pursuant to Wis. Stat. 
§ 803.04 was not the exclusive means by which to seek coverage 
determinations, stating: "[i]f the insurance coverage involves a 
party not named in the underlying lawsuit, coverage may be 
determined by either a bifurcated trial or a separate declaratory 
 
No. 94-3377-FT 
 
 
 
7 
judgment action."  Fire Ins. Exchange, 195 Wis. 2d at 265 (citing 
Elliott v. Donahue, 163 Wis. 2d 1059, 1066 n.3, 473 N.W.2d 155 
(Ct. App. 1991), rev'd on other grounds, 169 Wis. 2d 310, 485 
N.W.2d 403 (1992)).  Due to the fact that Fire Insurance was not a 
named party in the Monfils' underlying tort action involving 
Basten and the others, the appellate court concluded that the 
filing of a declaratory judgment action remained an accepted 
procedure.  Id. at 266. 
This case requires the court to interpret the declaratory judgment 
statute, Wis. Stat. § 806.04, as well as the permissive 
joinder of parties statute, Wis. Stat. § 803.04(2)(b), and apply 
them to a set of undisputed facts.  As such, a question of law is 
presented, and these issues are reviewed independently by this 
court without deference to the decisions of the circuit or 
appellate courts.  Millers Nat'l Ins. Co. v. City of Milwaukee, 
184 Wis. 2d 155, 164, 516 N.W.2d 376 (1994); State v. Williams, 
104 Wis. 2d 15, 21-22, 310 N.W.2d 601 (1981). 
 
II. 
 
The first issue that we address is whether Fire Insurance 
followed proper procedure by filing a separate declaratory 
judgment action on the coverage issue.  Basten renews his argument 
before this court that a declaratory judgment action separate from 
an underlying civil suit is an inappropriate method of determining 
coverage under an insurance policy.  He claims that Fire 
Insurance's only proper course of action to resolve the issue of 
 
No. 94-3377-FT 
 
 
 
8 
insurance coverage is to intervene in the underlying lawsuit and 
then 
request 
a 
bifurcated 
trial 
pursuant 
to 
Wis. 
Stat. 
§ 803.04(2)(b).  We disagree. 
 
Basten contends that Wisconsin courts have established a 
clear line of precedent requiring an insurance carrier to seek a 
bifurcated trial in the underlying lawsuit when the issue of 
coverage is contested.  He directs this court to our decision in 
Newhouse, as representative of one of the more recent discussions 
involving an insurer's role when this issue arises.  In Newhouse, 
a case involving an insurer's alleged breach of its duty to defend 
its insured, we recalled that: 
In [Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 
(1992)], we clearly stated that the proper procedure for 
an insurance company to follow when coverage is disputed 
is to request a bifurcated trial on the issues of 
coverage and liability and move to stay any proceedings 
on liability until the issue of coverage is resolved.  
Id.  When this procedure is followed, the insurance 
company runs no risk of breaching its duty to defend. 
Newhouse, 176 Wis. 2d at 836.  Focusing on the conduct of the 
named insurer in the Newhouse case, we concluded that Citizen's 
Security Mutual had failed to follow the proper procedure when it 
declined to accept the circuit court's offer to stay the liability 
trial until the appeal on the coverage issue was final, noting 
that "[i]n cases where a coverage decision is not final before the 
 
No. 94-3377-FT 
 
 
 
9 
trial on liability and damage occurs, the insurance company must 
provide a defense to its insured."  Id. at 837 (citing Elliott, 
169 Wis. 2d at 318; Mowry v. Badger State Mut. Cas. Co., 129 
Wis. 2d 496, 528-29, 385 N.W.2d 171 (1986)). 
 
Our conclusion in Newhouse upheld that portion of the 
appellate court's decision in Newhouse v. Citizens Security Mut. 
Ins. Co., 170 Wis. 2d 456, 489 N.W.2d 639 (Ct. App. 1992), rev'd 
on other grounds, 176 Wis. 2d 824, 836, 501 N.W.2d 1 (1993) in 
which the court recognized that "Wisconsin has long held that a 
separate and independent declaratory judgment action is not the 
proper method for resolution of insurance coverage issues."  
Newhouse, 170 Wis. 2d at 466 (citing New Amsterdam Cas. Co. v. 
Simpson, 238 Wis. 550, 555, 300 N.W. 367 (1941) (disapproving of 
the use of separate declaratory judgment actions where underlying 
personal injury suit is threatened or pending), and Allstate Ins. 
Co. v. Charneski, 16 Wis. 2d 325, 331, 114 N.W.2d 489 (1962) 
(encouraging the use of the bifurcated trial procedure on the 
issue of whether coverage existed under the insurance contract)).
6 
                     
     
6  See also Kenefick v. Hitchcock, 187 Wis. 2d 218, 522 
N.W.2d 261 (Ct. App. 1995), in which the appellate court observed 
that: 
 
The rule has thus developed that an insurer who has a duty to 
defend . . . and who claims that the terms of the policy 
deny coverage for the incident forming the basis of the 
suit, must take steps to seek and obtain a bifurcated 
trial--litigating coverage first and obtaining a stay of 
all proceedings in the liability and damage aspects of 
the case until coverage, or lack of coverage, is 
determined. 
 
 
No. 94-3377-FT 
 
 
 
10 
 Although Basten directs us to a host of authority which supports 
his contention that this court has explicitly endorsed the 
utilization 
of 
the 
bifurcated 
trial 
under 
Wis. 
Stat. 
§ 803.04(2)(b) when coverage is disputed, we are not convinced, 
however, that bifurcation is the only proper means of resolving 
the coverage issue, as Basten contends.   
 
Fire Insurance concedes, as it must, that this court has 
explicitly advocated the use of a bifurcated trial where the 
insurer is a named party in the underlying lawsuit, see Newhouse, 
176 Wis. 2d at 836.  However, they contend that bifurcation is not 
the exclusive means by which determinations of insurance coverage 
can be made, and although Basten raises legitimate concerns 
regarding the maintenance of such a procedure, the facts of this 
particular case do not require Fire Insurance to undertake this 
familiar route. 
 
Instead, Fire Insurance argues that the Uniform Declaratory 
Judgments Act, Wis. Stat. § 806.04, provides clear procedural 
authority for the circuit court action initiated against Basten in 
the present case.  The philosophy which underlies the Act is to 
enable controversies of a justiciable nature to be brought before 
the courts for settlement and determination, affording relief from 
uncertainty and insecurity, and thus, Wis. Stat. § 806.04(1) 
equips courts with the "power to declare rights, status, and other 
(..continued) 
Id. at 232-33 (citing Elliott, 169 Wis. 2d at 318). 
 
No. 94-3377-FT 
 
 
 
11 
legal relations" which "declaration may be either affirmative or 
negative in form and effect."  See also, 3A Jay E. Grenig & Walter 
L. Harvey, Wisconsin Practice, Civil Procedure, § 604.1 (2d ed. 
1994).  "The purpose [of the Act] is facilitated by authorizing a 
court to take jurisdiction at a point earlier in time than it 
would do under ordinary remedial rules and procedures.  As such, 
the Act provides a remedy which is primarily anticipatory or 
preventative in nature."  Lister v. Board of Regents, 72 Wis. 2d 
282, 307, 240 N.W.2d 610 (1976) (citing Borden Co. v. McDowell, 8 
Wis. 2d 246, 99 N.W.2d 146 (1959)).  Moreover, "[a]ny person 
interested 
under 
a . . . written 
contract . . . may 
have 
determined any question of construction or validity arising under 
the . . . contract . . . and obtain a declaration of rights, 
status or other legal relations thereunder."  Wis. Stat. 
§ 806.04(2).    
 
Fire Insurance contends that in addition to statutory 
authority, Wisconsin case law supports the proposition that 
insurance coverage questions may be raised and resolved through 
declaratory judgment actions, particularly under the factual 
pattern presented by this case.  In Hardware Mut. Cas. Co. v. 
Hartford Accident & Indem. Co., 6 Wis. 2d 457, 95 N.W.2d 215 
(1959), 
this 
court 
upheld 
an 
insurer's 
utilization 
of 
a 
declaratory judgment action to determine a coverage issue under a 
liability policy.  The insurer in the Hardware case, not named in 
the underlying personal injury action, received a tender of 
 
No. 94-3377-FT 
 
 
 
12 
defense from its insured, the city of Stevens Point.  Hardware 
Mutual took the position that its policy did not cover either the 
operation of the schools or the specific risk out of which the 
accident arose, and thereafter commenced an action for declaratory 
judgment.  The circuit court agreed with the insurers coverage 
opinion, holding that neither of the two policies issued to the 
school district required the insurer to provide a defense to its 
insured.  On review before this court, we similarly held that the 
policies did not require Hardware Mutual to insure the school in 
the action for damages, thereby affirming the declaratory judgment 
findings of the lower court.  Id. at 219-20.
7 
 
This court's decision in Iowa Nat'l Mut. Ins. Co. v. Liberty 
Mut. Ins. Co., 43 Wis. 2d 280, 168 N.W.2d 610 (1969) endorsed an 
insurer's use of a declaratory judgment action when seeking a 
declaration of its rights under a liability policy in respect to 
defending a pending lawsuit against its insured.  The Iowa case 
involved a federal lawsuit initiated by Liberty against a party 
insured by Iowa National.  Iowa National originated an action in 
circuit court for declaratory relief under the liability policy in 
question, arguing that it had no duty to defend the liability suit 
as its insured had not tendered the defense in a timely manner.  
Id. at 286.  This court found that a justiciable issue did in fact 
                     
     
7  See also Allstate Ins. Co. v. Gifford, 178 Wis. 2d 341, 
504 N.W.2d 370 (Ct. App. 1993) (permitting declaratory judgment 
action by insurer to seek declaration of liability under insurance 
contract). 
 
No. 94-3377-FT 
 
 
 
13 
exist, entitling Iowa National to an adjudication of rights 
forthcoming under the policy.  Id. at 287.  In so doing, we 
rejected the insured's assertion that a determination of liability 
must precede declaratory relief as to the duty to defend in the 
underlying lawsuit.  Id. at 287-89.  To the contrary, we stated 
that "[a]ll the facts needed to determine if Iowa has a duty to 
defend have occurred.  We think the question should be decided 
now."  Id. at 289.   
 
In upholding the appropriateness of the insurer's use of the 
declaratory relief procedure, in light of the given facts in the 
case, we noted simply that "[d]enial of declaratory relief would 
prolong the conflict--a declaration of rights would terminate it." 
 Id. at 290.  Fire Insurance claims that a justiciable issue 
exists under the factual posture of the present case, in which it 
was not a named party and where the complaint alleges only 
intentional acts, thereby warranting application of declaratory 
relief under Wis. Stat. § 806.04. 
 
We further consider a recent appellate court decision 
regarding the propriety of declaratory judgment actions in 
Atlantic Mut. Ins. Co. v. Badger Medical Supply Co., 191 Wis. 2d 
229, 528 N.W.2d 486 (Ct. App. 1995).  In Atlantic Mutual, General 
Medical brought an action against Badger Medical and a former 
employee alleging breach of a noncompete agreement.  Badger 
Medical tendered the defense of the suit to its insurer, Atlantic 
Mutual, which denied coverage and refused to defend.  Id. at 234. 
 
No. 94-3377-FT 
 
 
 
14 
 Atlantic Mutual subsequently filed a declaratory judgment action, 
requesting a coverage declaration that it had no duty to defend or 
indemnify Badger Medical or pay its defense fees.  Id. at 235.  
Both parties filed cross motions for summary judgment, with Badger 
Medical contending that the offense of "misappropriation of 
advertising ideas or style of doing business" triggered a duty to 
defend under the policy.  The circuit court denied Badger 
Medical's motion, while granting the motion of Atlantic Mutual.  
Id. 
 
On review, the appellate court discussed the policy language 
in question and concluded that the nature of the allegations in 
the complaint, the triggering point for an insurer's duty to 
defend
8, did not contain actions for either misappropriation of 
style of doing business or misappropriation of advertising ideas. 
 Thus, Atlantic Mutual's policy did not cover the claim against 
                     
     
8  See Newhouse, 176 Wis. 2d at 834-35, where we remarked: 
 
An insurance carrier's duty to defend [sic] insured . . . is 
predicated on the allegations in a complaint which, if 
proved, would give rise to recovery under the terms and 
conditions of the insurance policy.  The duty of defense 
depends on the nature of the claim and has nothing to do 
with the merits of the claim.  If there is any doubt 
about the duty to defend, it must be resolved in favor 
of the insured.  If the insurance company refuses to 
defend, it does so at its own peril.  Indemnification 
and defense for claims falling within the parameters of 
the insurance policy are the two primary benefits 
received by the insured from a contract of insurance. 
 
(citing Elliott, 169 Wis. 2d at 320-21) (citations omitted); Grieb 
v. Citizens Casualty Co., 33 Wis. 2d 552, 557-58, 148 N.W.2d 103 
(1967). 
 
No. 94-3377-FT 
 
 
 
15 
Badger Medical.  Id. at 243.  The court of appeals therefore 
concluded that Atlantic Mutual had no duty to indemnify Badger 
Medical nor a duty to defend against the impending civil suit, 
thereby affirming the declaratory relief granted by the circuit 
court.  Id.  
 
Additional 
support 
for 
Fire Insurance's 
argument 
that 
bifurcation is not the exclusive means by which determinations of 
insurance coverage can be made is found in the appellate court's 
decision in Grube v. Daun, 173 Wis. 2d 30, 496 N.W.2d 106 (Ct. 
App. 1992) where the court noted that "[t]here are several 
procedures insurers can use to raise the coverage issue and thus 
retain their right to challenge coverage . . . .  [T]he insurer 
could request a bifurcated trial or a declaratory judgment so that 
the coverage issue would be addressed separately by a court."  Id. 
at 75.  The basis for the Grube court's conclusion is derived from 
language expressed in Elliott, wherein the appellate court 
recognized that "the statutes provide an insurer with several 
methods of reducing the cost of defense until the coverage issue 
is resolved."  See Elliott, 163 Wis. 2d at 1066.  Referring 
specifically to the statutes, the court noted: 
Section 803.04(2)(b) permits bifurcation of the issues or the 
insurer can seek a declaratory judgment on the issue of 
coverage under sec. 806.04, Stats.  If separate trials 
are granted the insurer can seek early resolution of the 
question through a motion for judgment on the pleadings, 
sec. 802.06(3), Stats., or summary judgment, sec. 
802.08, Stats. 
Id. at 1066 n.3.   
 
No. 94-3377-FT 
 
 
 
16 
 
The fact that Fire Insurance was not a named party in the 
underlying lawsuit is a determinative factor in the present case. 
 Wis. Stat. § 803.04(2)(b), the direct action statute, allows a 
plaintiff, such as the Monfils, to join an insurer as a party to 
the underlying tort action.  The plaintiff, however, chose not to 
join Fire Insurance to the wrongful death action.  Rather than 
intervening and seeking a bifurcated trial, Fire Insurance sought 
to resolve the coverage issue through a separate declaratory 
judgment action.  The issue before us today is whether or not this 
procedural route was proper.  We conclude that it was. 
 
The appellate court in this case observed that the joinder or 
intervention of all concerned parties followed by bifurcation of 
the 
coverage 
and 
liability 
issues, 
under 
Wis. 
Stat. 
§ 803.04(2)(b), is the preferred procedure to determine insurance 
coverage.
9  We do not disagree with this proposition, and in fact, 
                     
     
9  Discussing the role of an insurer contesting coverage via 
intervention and bifurcation, the appellate court stated that: 
 
This procedure is consistent with the premise that insurance 
coverage issues should be resolved within the context of 
the underlying lawsuit.  This premise is supported by 
Newhouse v. Citizens Mut. Ins. Co., 170 Wis. 2d 456, 489 
N.W.2d 639 (Ct. App. 1992), where we concluded that the 
injured plaintiff is the real as well as the technical 
adversary of the insurance company; therefore, in 
general, coverage questions should be resolved within 
the context of the underlying personal injury case.  Id. 
at 466, 489 N.W.2d at 642. 
 
Fire Ins. Exchange, 195 Wis. 2d at 266; see also, New Amsterdam 
Cas. Co. v. Simpson, 238 Wis. 550, 300 N.W. 367 (1941), and 
Allstate Ins. Co. v. Charneski, 16 Wis. 2d 325, 114 N.W.2d 489 
(1962). 
 
No. 94-3377-FT 
 
 
 
17 
explicitly endorse its continued widespread use in cases involving 
coverage disputes under a contract of insurance.  However, despite 
Basten's reference to precedent of this court supporting this 
position, we cannot conclude that intervention and bifurcation is 
the exclusive means by which an insurer may seek a coverage 
determination.  Wis. Stat. § 806.04 and Wisconsin case law provide 
well-defined authority for the procedural alternative selected by 
Fire Insurance in seeking resolution of the coverage issue.  Thus, 
we conclude that where the insurance coverage involves a party not 
named in the underlying lawsuit, coverage may be determined by 
utilization of either a bifurcated trial or a separate declaratory 
judgment action.  We therefore agree with the court of appeals' 
resolution of this issue. 
 
III. 
 
We now turn to the issue of whether the plaintiffs and co-
defendants in the underlying action were required to be made 
parties to the separate declaratory judgment proceeding under Wis. 
Stat. § 806.04.  The declaratory judgment action, as prescribed 
under subsection eleven, mandates that all persons who have or 
claim any interest which could be affected by the grant of 
declaratory relief must be made parties to the declaratory 
judgment action. See supra, note 4.  The focus of this inquiry 
requires an identification of who those "interested parties" are 
for purposes of the declaratory relief proceeding. 
 
No. 94-3377-FT 
 
 
 
18 
 
Basten argues that a separate declaratory judgment action 
does 
not 
properly 
address 
the 
concerns 
of 
all 
potential 
adversaries of the insurer, as the statute speaks of "interests," 
not "rights," and the interest need not be claimed in order to 
exist.  Basten contends that the omission of the Monfils 
plaintiffs and co-defendants as interested parties has resulted in 
the loss of a potential claim against Fire Insurance without the 
opportunity to participate in the proceeding.   
 
Fire Insurance, on the other hand, maintains that because the 
insurance agreement is between Basten and itself, the others do 
not have a right or interest under the policy.  Moreover, Fire 
Insurance notes that the plaintiff's tort action against Basten is 
unaffected by the question of whether Basten has or does not have 
insurance coverage for Monfils' alleged wrongful death, and 
therefore, the other parties have no interest in the outcome of 
the declaratory action.  Furthermore, Fire Insurance contends that 
the plaintiffs and co-defendants have not claimed any right or 
interest under the terms of the policy, as they have alleged only 
intentional acts, not covered by any type of liability insurance. 
 However, Fire Insurance's contention that Basten has simply 
confused actual recovery on the part of the Monfils plaintiffs and 
co-defendants with the right of such recovery, is contrary to 
precedent of this court. 
 
In Hardware Mut. Casualty Co. v. Mayer, 11 Wis. 2d 58, 104 
N.W.2d 148 (1960), reh'g denied, 11 Wis. 2d 58, 105 N.W.2d 322, a 
 
No. 94-3377-FT 
 
 
 
19 
case factually similar to the one at hand, this court addressed 
the issue of proper parties to a declaratory judgment action.  An 
employee had brought an action against his employer to recover 
damages for an injury he suffered in the course of his employment 
on a farm.  The employer's insurer, Hardware Mutual, not a named 
party in the underlying action, sought a declaration of its rights 
and obligations under the policy issued to the employer.  The 
insurer claimed that the policy did not afford coverage to the 
employer for the particular accident which resulted in the 
employee's injuries. 
 
After reviewing the terms of the insuring agreement and the 
facts as presented, this court concluded that Hardware Mutual's 
liability policy did not provide coverage to the employer and 
reversed the judgment of the lower court.  Id. at 69.  However, 
for our purposes here today, we examine the second prong of the 
court's decision in which it found that the employee was both a 
proper and necessary party to the action for declaratory judgment 
under Wis. Stat. § [806.04(11)], observing: 
While it is true . . . that a judgment in favor of [the 
employee] against [the employer] in his [underlying] 
tort action would not depend in any way on [the 
employer's] insurance coverage, the amount of [the 
employee's] recovery upon the judgment may depend very 
materially upon the coverage.  In the unhappy event that 
a judgment rendered in favor of [the employee] in the 
tort action should prove uncollectible from [the 
employer], we are confident that [the employee] would 
discover that he had had a very pressing interest in 
establishing that the [insurer's] policy is applicable 
to his accident.  Therefore, [the employee] should be 
heard upon the question and have the opportunity to 
present testimony and argument to sustain the coverage. 
 
No. 94-3377-FT 
 
 
 
20 
 He recognizes sufficient interest presently to submit a 
brief jointly with [the employer] in support of the 
judgment, including the issue of coverage.  We consider 
[the employee] is both a proper and necessary party to 
the action for declaratory judgment. 
Id. at 69a-b.  Thus, the Hardware Mutual decision establishes that 
those parties in the underlying action, who have made a claim 
against the insured, and whose actual recovery on a judgment may 
be affected by a separate coverage determination, are "interested 
persons" under the statute and are required to be made parties to 
the declaratory judgment action, even though their right to 
recover from the insured is not at issue. 
 
We further consider a decision of the state supreme court in 
Oregon, which discussed the propriety of joining potential third 
party claimants to a declaratory judgment proceeding.  See State 
Farm Fire & Cas. Co. v. Reuter, 657 P.2d 1231 (Or. 1983), rev'd on 
other grounds, 700 P.2d 236 (Or. 1985).  In State Farm, a rape 
victim [Bullen] brought a civil action against the rapist [Reuter] 
for damages resulting from the attack.  Defense of the action was 
tendered to State Farm, as the homeowner's liability insurer, 
under which Reuter's parents were the named insureds.  State Farm 
initiated a declaratory judgment action, claiming that coverage 
did not exist under the insuring agreement.  The Oregon Supreme 
Court concluded that the victim was properly made a party to the 
declaratory 
relief 
proceedings 
despite 
allegations 
in 
the 
complaint involving an intentional tort, stating: 
Bullen has claims which may, and probably will, be vitally 
affected by the declaration in this case, for if she 
 
No. 94-3377-FT 
 
 
 
21 
recovers judgment against Reuter, she will have the 
right to compel the plaintiff [State Farm] to pay the 
judgment unless in some proceeding binding on Bullen the 
plaintiff [State Farm] establishes its nonliability as 
insurer at the time of the rape.  Were Bullen not made a 
party herein, the declaration sought by plaintiff [State 
Farm] could not be asserted to the prejudice of Bullen's 
rights.  Consequently, third party damage claimants, 
such as the victim in this case, are proper parties. 
Id. at 1234.
10   
 
In the case before us, Fire Insurance did not name the 
Monfils plaintiffs nor the co-defendants in the underlying tort 
action as parties to the declaratory judgment proceeding, relying 
on its own contention that the complaint alleged only intentional 
acts, not covered under the express terms of the insurance 
contract with Basten.  However, the determination of who is an 
"interested 
person" 
to 
the 
declaratory 
proceedings 
cannot 
logically be based upon the insurer's contentions as to the 
allegations contained in the complaint, as Fire Insurance sought 
to do in the present case.  For that is the purpose of the 
judicial proceeding--to determine if coverage exists under the 
policy.   
                     
     
10  See also Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 
U.S. 270, 273-74 (1941) (wherein the United States Supreme Court 
held that in an action by an insurer to determine its liability 
under a liability insurance policy, third parties asserting claims 
against the insured are proper parties); Franklin Life Ins. Co. v. 
Johnson, 157 F.2d 653, 658 (10th Cir. 1946) (holding that third 
parties asserting liability against an insured under a liability 
policy are proper parties to a declaratory judgment proceeding, 
although their claims against the insurer are contingent upon 
recovery of a judgment against the insured). 
 
No. 94-3377-FT 
 
 
 
22 
 
We hold that when an insurer, not named in the underlying 
lawsuit, 
seeks 
a 
judicial 
declaration 
of 
its 
rights 
and 
obligations under a contract of insurance in accord with Wis. 
Stat. § 806.04, the plaintiff and any other party who has brought 
a claim against the insured in the underlying lawsuit, is an 
"interested person" for purposes of Wis. Stat. § 806.04(11) and 
required to be made a party to the separate declaratory judgment 
proceeding.  In identifying those parties whose presence during 
the relief action is mandatory, the circuit court must also 
consider whether the result of joining these parties will lead to 
the occurrence of duplicate proceedings growing out of the same 
transaction and involving similar issues.  If such parallel 
proceedings will result, the court, in order to alleviate the 
potential for inconsistent determinations and multiplicity of 
suits, should order that the actions be consolidated in accordance 
with Wis. Stat. § 805.05
11 so as to avoid unnecessary costs or 
                     
     
11  Section 805.05 provides in relevant part: 
 
(1) Consolidation.  (a)  When actions which might have been 
brought as a single action under s. 803.04 are pending 
before the court, it may order a joint hearing or trial 
of any or all of the claims in the actions; it may order 
all the actions consolidated; and it may make such 
orders concerning proceedings therein as may tend to 
avoid unnecessary costs of delay. 
 
(b)  When actions which might have been brought as a single 
action under s. 803.04 are pending before different 
courts, any such action may be transferred upon motion 
of any party or of the court to another court where the 
related action is pending.  A conference involving both 
judges and all counsel may be convened on the record as 
prescribed by s. 807.13(3).  Transfer under this 
 
No. 94-3377-FT 
 
 
 
23 
delay in the interest of judicial economy.  The question of 
consolidation of actions is one that is reserved for the sound 
discretion of the circuit court, see  Keplin v. Hardware Mut. Cas. 
Co., 24 Wis. 2d 319, 129 N.W.2d 321, reh'g denied, 24 Wis. 2d 319, 
130 N.W.2d 3 (1964), and Braun v. Wisconsin Elec. Power Co., 6 
Wis. 2d 262, 94 N.W.2d 593 (1959), and we expressly endorse its 
continued widespread use in cases such as the one before us. 
 
The consolidation of the coverage issue with the underlying 
lawsuit is simply a prudent policy designed to eliminate the 
inefficiency of conducting separate trials in multiple courts, as 
well as simplifying the work of the circuit court.  It must be 
utilized whenever practical, as its proper employment can 
facilitate possible settlements, reduce spurious lawsuits, and 
perhaps more importantly, advance the court's recognized interest 
in expediting litigation and decreasing its spiraling expense.  
See Whalen v. Eagle Lime Products Co., 155 Wis. 26, 143 N.W. 689 
(1913).  Only in rare cases where substantially dissimilar issues 
and different transactions are present would we not seek to have 
consolidation ordered by the circuit court, as the maintenance of 
separate trials remains both a costly and imprudent procedure. 
 
We now turn to an examination of the facts of this case in 
light of the foregoing.  Similar to the result reached in Hardware 
(..continued) 
paragraph shall be made only by the joint written order 
of the transferring court and the court to which the 
action is transferred. 
 
No. 94-3377-FT 
 
 
 
24 
Mutual, the Monfils plaintiff's recovery upon a potential judgment 
against Basten may depend very materially upon the coverage 
afforded to him by Fire Insurance, and thus, the plaintiffs must 
be heard upon the question, as they clearly would have a pressing 
interest in establishing the applicability of the policy to the 
underlying tort action.  The inclusion of the plaintiffs in the 
separate declaratory relief proceeding strikes a balance between 
the competing interests of the insurer on the one hand, and the 
third party claimant asserting an action against the insured on 
the 
other, 
while 
eliminating 
the 
risk 
of 
inconsistent 
determinations in multiple courts.  As such, we find that the 
Monfils plaintiffs were required to be joined as a party to Fire 
Insurance's action for declaratory relief regarding the issue of 
coverage under the contract of insurance.
12 
 
We therefore conclude that although the declaratory judgment 
action is a proper procedure for contesting coverage in limited 
circumstances, the plaintiff and any other party in the underlying 
lawsuit who has brought a claim against the insured are required 
to be joined in the separate declaratory judgment proceeding as 
interested parties under Wis. Stat. § 806.04(11).  The circuit 
                     
     
12  While we recognize that the co-defendants may possess a 
similar interest in the issue of insurance coverage, namely, for 
purposes of contribution, we conclude that they were not required 
to be joined as parties to the declaratory judgment action 
initiated by Fire Insurance, as they had not as yet brought claims 
against 
the 
insured 
in 
the 
underlying 
lawsuit, 
when 
the 
declaratory relief action was initiated. 
 
No. 94-3377-FT 
 
 
 
25 
court failed to properly join the necessary parties to Fire 
Insurance's action for declaratory relief, and therefore, the 
decision of the court of appeals is reversed. 
 
By the Court.—The decision of the court of appeals is 
reversed and the cause is remanded. 
 
No. 94-3377-FT 
 
 
 
 
SUPREME COURT OF WISCONSIN 
 
                                                              
 
Case No.: 
 
94-3377-FT 
                                                              
 
Complete Title 
of Case: 
Fire Insurance Exchange, 
 
 
 
 
Plaintiff-Respondent, 
 
 
 
 
V. 
 
 
 
Dale M. Basten, 
 
 
 
 
Defendant-Appellant-Petitioner, 
 
 
 
____________________________________ 
 
 
 
 
 
 
ON REVIEW OF A DECISION OF THE COURT OF APPEALS 
 
 
 
Reported at:  195 Wis. 2d 260, 536 N.W.2d 150 
 
 
 
 
 
 
(Ct. App. 1995) 
 
 
 
 
 
 
PUBLISHED 
 
 
 
                                                              
 
Opinion Filed:  
June 20, 1996 
Submitted on Briefs: 
 
Oral Argument: 
April 3, 1996 
 
                                                              
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Brown 
 
JUDGE: 
WILLIAM M. ATKINSON 
 
                                                              
 
JUSTICES: 
 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating: 
 
                                                              
 
ATTORNEYS:  
For the defendant-appellant-petitioner there were 
briefs by Avram D. Berk, Mary Taylor Lokensgard and Robinson, 
Robinson, Peterson, Berk & Cross, Appleton and oral argument by 
Avram D. Berk. 
 
 
For the plaintiff-respondent there was a brief by Robert N. 
Duimstra, Joseph J. Beisenstein and Menn, Nelson, Sharratt, 
Teetaert & Beisenstein, Ltd., Appleton and oral argument by Joseph 
J. Beisenstein.