Case Name: Thomas W. Nelson, Plaintiff-Respondent-Petitioner, American Family Mutual Insurance Company and Wisconsin Physicians Service Insurance Corporation, Plaintiffs-Respondents, v. John L. McLaughlin, and Mutual Service Casualty Company, Defendants-Appellants
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1997-07-02
Citations: 211 Wis. 2d 487
Docket Number: No. 95-3391
Parties: Thomas W. Nelson, Plaintiff-Respondent-Petitioner, American Family Mutual Insurance Company and Wisconsin Physicians Service Insurance Corporation, Plaintiffs-Respondents, v. John L. McLaughlin, and Mutual Service Casualty Company, Defendants-Appellants.
Judges: Abrahamson, C.J., dissents.
Reporter: Wisconsin Reports Second
Volume: 211
Pages: 487–527

Head Matter:
Thomas W. Nelson, Plaintiff-Respondent-Petitioner, American Family Mutual Insurance Company and Wisconsin Physicians Service Insurance Corporation, Plaintiffs-Respondents, v. John L. McLaughlin, and Mutual Service Casualty Company, Defendants-Appellants.
Supreme Court
No. 95-3391.
Oral argument May 28, 1997.
Decided July 2, 1997.
(Also reported in 565 N.W.2d 123.)
Abrahamson, C.J., dissents.
Bablitch and Bradley, J. J., join.
For the plaintiff-respondent-petitioner there were briefs by Toby E. Marcovich, George L. Glonek and Marcovich, Cochrane & Milliken, Superior and oral argument by Toby E. Marcovich.
For the defendants-appellants there was a brief by Jeffrey A. Schmeckpeper, Christine D. Bakeis and Kas-dorf, Lewis & Swietlik, S.C., Milwaukee and oral argument by Jeffrey A. Schmeckpeper.
Amicus curiae was filed by Jason W. Whitely and Erspamer Law Office, Amery for the Wisconsin Academy of Trial Lawyers.

Opinion:
N. PATRICK CROOKS, J.
¶1. Thomas W. Nelson (Nelson) seeks review of a published decision of the court of appeals which reversed an Order for Judgment of the Circuit Court for Douglas County, Joseph A. McDonald, Judge. In the circuit court, Nelson filed suit against John L. McLaughlin (McLaughlin) and McLaughlin's insurer, Mutual Service Casualty Company (Mutual Service), for damages Nelson suffered in an automobile accident. Prior to trial, Nelson offered to settle the entire case for the policy limits of $100,000, but the offer was rejected. Subsequently, the jury awarded Nelson $507,407.40 in damages. Accordingly, pursuant to Wis. Stat. § 807.01(4) (1993-94), Nelson was entitled to 12% interest on the amount recovered from the date of the offer of settlement until the amount was paid.
¶ 2. The sole issue on review is whether Mutual Service is liable for interest owed under Wis. Stat. § 807.01(4) on the entire verdict of $507,407.40, rather than its policy limits of $100,000. The court of appeals, applying its recent decision in Blank v. USAA Property & Cas. Ins. Co., 200 Wis. 2d 270, 546 N.W.2d 512 (Ct. App. 1996), held that the circuit court improperly imposed interest on the entire verdict against Mutual Service. We agree with the court of appeals that Mutual Service is liable for interest imposed under § 807.01(4) only on its policy limits. This conclusion is based on: (1) the legislature's choice of the phrase "amount recovered" instead of "verdict" or "judgment" in § 807.01(4); and (2) the fact that if "amount recovered" is interpreted to mean the entire verdict, insurers will be forced to settle cases that would be more appropriately resolved at trial. We emphasize that our interpretation of "amount recovered" will not encourage insurers to deny settlement offers in reckless disregard of their insureds' interests, because the availability of a bad faith claim provides a substantial deterrent against insurers engaging in such practices.
¶ 3. In addition, we acknowledge that an insurer may, pursuant to its insurance contract, agree to pay interest imposed under Wis. Stat. § 807.01(4) on damages above its policy limits. However, in this case, we conclude that Mutual Service did not agree to pay interest on damages above its policy limits, and that this provision of its insurance contract with McLaughlin does not contravene Wisconsin law or public policy. Accordingly, we affirm the decision of the court of appeals.
hH
¶ 4. The pertinent facts are undisputed. On May 3, 1990, an accident occurred involving motor vehicles operated and owned by Nelson and McLaughlin. At the time of the accident, Mutual Service insured McLaughlin under a car insurance policy that contained a bodily injury liability limit of $100,000 per person. The policy also contained the following provision:
We will pay damages for bodily injury. . .for which any insured becomes legally responsible because of an accident. . . . We will settle or defend, as we consider appropriate, any claim or suit asking for these damages.
(R.68, exhibit 24, at 3) (emphasis added; emphasis from policies omitted.) Therefore, pursuant to this provision, Mutual Service had control over the litigation, including settlement.
¶ 5. On December 11, 1992, Nelson filed suit against McLaughlin and Mutual Service, alleging damages for pain and suffering, loss of wages, and medical expenses. Subsequently, Mutual Service conceded that McLaughlin was liable to Nelson; therefore, the only remaining issue was the extent of Nelson's damages. However, Mutual Service decided to contest this issue, because it believed that surgery performed on Nelson's back in 1993 was not necessary to alleviate symptoms caused by the accident, but instead to alleviate symp toms of Schurmann's disease, a preexisting degenerative disc disease.
¶ 6. On November 21, 1994, pursuant to Wis. Stat. § 807.01, Nelson served a formal offer of settlement, whereby Nelson offered to settle the litigation against both Mutual Service and McLaughlin for the $100,000 policy limits. This offer was not accepted.
¶ 7. On August 29, 1995, through August 31, 1995, a jury trial was held on the issue of damages. The jury returned a unanimous verdict against Mutual Service and McLaughlin in the total amount of $507,407.40. Since Nelson's offer of settlement, was not accepted, and the verdict was greater than or equal to the amount specified in the offer, Nelson was entitled to 12% interest on the amount recovered from the date of the offer of settlement until the amount was paid, pursuant to Wis. Stat. § 807.01(4).
¶ 8. In its motions after verdict, Mutual Service argued that, pursuant to McPhee v. American Motorists Ins. Co., 57 Wis. 2d 669, 205 N.W.2d 152 (1973), it was not liable for interest on the entire verdict because the following language from the insurance policy was controlling: (R.68, exhibit 24, at 3) (emphasis added; emphasis from policies omitted.) Mutual Service therefore contended that it was liable for interest only on its policy limits.
In addition to our limit of liability we will pay for an insured:
4. Interest on all damages owed by an insured as the result of a judgement until we pay, offer or deposit in court the amount due under this coverage. Interest will be paid only on damages which do not exceed our policy limits.
¶ 9. At a motion hearing held on November 21, 1995, the circuit court rejected Mutual Service's argument. The circuit court held that Mutual Service was responsible for interest on the entire verdict, based on Knoche v. Wisconsin Mut. Ins. Co., 151 Wis. 2d 754, 445 N.W.2d 740 (Ct. App. 1989). Accordingly, on November 28, 1995, the circuit court entered judgment against Mutual Service in the amount of $100,000, together with double taxable costs and disbursements pursuant to Wis. Stat. § 807.01(3), 12% interest on the jury verdict of $507,407.40 from November 21, 1994 through October 24, 1995, and further interest until the judgment was paid. The circuit court also entered judgment against McLaughlin in the amount of $407,407.40.
¶ 10. Mutual Service appealed, and the court of appeals reversed the circuit court's order. Nelson v. McLaughlin, 205 Wis. 2d 460, 467-68, 556 N.W.2d 130 (Ct. App. 1996). In making its determination, the court of appeals relied exclusively on its recent decision in Blank, in which it held that Wis. Stat. § 807.01(4) "merely allows a trial court to impose interest against a party on the 'amount recovered' against that party." See Nelson, 205 Wis. 2d at 468 (explaining Blank). Applying Blank, the court of appeals held that, under § 807.01(4), Mutual Service could only be held liable for interest on its policy limits. Id. In addition, the court concluded that it was "unnecessary to address Mutual Service's argument that its contract with McLaughlin denied coverage for penalty interest on amounts above the policy limits." Id. at 468 n.6.
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¶ 11. The issue of whether Mutual Service is liable for interest on the entire verdict involves the interpretation and application of Wis. Stat. § 807.01(4). Interpretation and application of a statute to undisputed facts is a question of law, reviewable de novo. See, e.g., Sievert v. American Family Mut. Ins. Co., 190 Wis. 2d 623, 628, 528 N.W.2d 413 (1995); Chang v. State Farm Mut. Auto. Ins. Co., 182 Wis. 2d 549, 560, 514 N.W.2d 399 (1994).
¶ 12. The goal of statutory interpretation is to ascertain and give effect to the legislature's intent. See, e.g., Lake City Corp. v. City of Mequon, 207 Wis. 2d 156, 163, 558 N.W.2d 100 (1997); DeMars v. LaPour, 123 Wis. 2d 366, 370, 366 N.W.2d 891 (1985). If the meaning of a statute is clear from its language, we are prohibited from looking beyond such language. See, e.g., Stockbridge School Dist. v. DPI, 202 Wis. 2d 214, 220, 550 N.W.2d 96 (1996) (quoting Jungbluth v. Hometown, Inc., 201 Wis. 2d 320, 327, 548 N.W.2d 519 (1996)). However, if the language of a statute is ambiguous, we must look at the history, scope, context, subject matter, and object of the statute to discern legislative intent. See, e.g., Lake City Corp., 207 Wis. 2d at 164; DeMars, 123 Wis. 2d at 370. Statutory language is ambiguous if reasonably well-informed individuals could differ as to its meaning. Harnischfeger Corp. v. LIRC, 196 Wis. 2d 650, 662, 539 N.W.2d 98 (1995); Wagner Mobil, Inc. v. City of Madison, 190 Wis. 2d 585, 592, 527 N.W.2d 301 (1995).
¶ 13. When interpreting a statute, this court is guided by several principles. First, in the absence of a statutory definition, "[a]ll words and phrases shall be construed according to common and approved usage; but technical words and phrases and others that have a peculiar meaning in the law shall be construed according to such meaning." Wagner Mobil, Inc., 190 Wis. 2d at 591 (quoting Wis. Stat. § 990.01(1)). Second, where the legislature uses similar but different terms in a statute, particularly within the same section, it is presumed that the legislature intended such terms to have different meanings. Armes v. Kenosha County, 81 Wis. 2d 309, 318, 260 N.W.2d 515 (1977); Calaway v. Brown County, 202 Wis. 2d 737, 758-59, 553 N.W.2d 809 (Ct. App. 1996); American Motorists Ins. Co. v. R & S Meats, Inc., 190 Wis. 2d 196, 214, 526 N.W.2d 791 (Ct. App. 1994). Third, this court must interpret a statute in a manner that avoids an absurd or unreasonable result. See, e.g., Lake City Corp., 207 Wis. 2d at 163; DeMars, 123 Wis. 2d at 370.
¶ 14. This case also involves the interpretation of an insurance policy. In the absence of extrinsic evidence, we determine the interpretation of an insurance policy as a matter of law, without deference to the lower courts. See, e.g., Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 532, 514 N.W.2d 1 (1994). In general, the interpretation of an insurance policy is controlled by principles of contract construction. See, e.g., Kuhn v. Allstate Ins. Co., 193 Wis. 2d 50, 60, 532 N.W.2d 124 (1995); McPhee v. American Motorists Ins. Co., 57 Wis. 2d 669, 673, 205 N.W.2d 152 (1973). A court must construe and enforce an insurance policy in conformity with the parties' intentions. See, e.g., Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621 (1992); McPhee, 57 Wis. 2d at 673. "Of primary importance is that the language of an insurance policy should be interpreted to mean what a reasonable person in the position of the insured would have understood the words to mean." General Cas. Co. v. Hills, 209 Wis. 2d 167, 175, 561 N.W.2d 718 (1997) (quoting Sprangers, 182 Wis. 2d at 536); accord, e.g., McPhee, 57 Wis. 2d at 676.
III. STATUTORY INTERPRETATION OF WIS. STAT. § 807.01(4)
A.
¶ 15. We first consider whether Mutual Service is liable for interest on the entire verdict pursuant to Wis. Stat. § 807.01(4). Section 807.01(4) provides:
If there is an offer of settlement by a party under this section which is not accepted and the party recovers a judgment which is greater than or equal to the amount specified in the offer of settlement, the party is entitled to interest at the annual rate of 12% on the amount recovered from the date of the offer of settlement until the amount is paid. Interest under this section is in lieu of interest computed under ss. 814.04(4) and 815.05(8).
(Emphasis added.) The parties dispute the meaning of the phrase "amount recovered." Nelson argues, and the circuit court agreed, that "amount recovered" means the entire verdict awarded against Mutual Service and McLaughlin. Mutual Service argues, and the court of appeals agreed, that "amount recovered" means only that portion of the verdict for which it is responsible, i.e., the judgment entered against it, not including double costs. We conclude that reasonably well-informed individuals could interpret the phrase "amount recovered" in either way; therefore, this statutory language is ambiguous. See Blank, 200 Wis. 2d at 279-80.
¶ 16. Although the parties and lower courts have primarily focused on the meaning of "amount recovered," Wis. Stat. § 807.01(4) contains other language that is relevant to our determination. Specifically, § 807.01(4) begins by indicating that interest is available when a party's pretrial settlement offer is rejected and the party subsequently "recovers a judgment which is greater than or equal to the amount specified in the offer of settlement." § 807.01(4) (emphasis added). Next, § 807.01(4) provides that the 12% interest award shall be calculated "on the amount recovered until the amount is paid." § 807.01(4) (emphasis added). Accordingly, in the very same sentence of § 807.01(4), the legislature used the distinct legal term "judgment" and the phrase "amount recovered."
¶ 17. The court of appeals considered this highly relevant in another case involving the interpretation of Wis. Stat. § 807.01(4). In American Motorists Ins. Co., the court considered whether "amount recovered" in § 807.01(4) includes the double costs portion of a judgment. Id. at 212-15. The court concluded that if the legislature had intended the later phrase "amount recovered" in § 807.01(4) to equate with the prior word "judgment," the legislature would have simply used the same word. Id. at 214. Thus, the court concluded that "amount recovered" does not include double costs. Id. We agree with this reasoning, and therefore presume that the legislature did not intend "amount recovered" to mean "judgment." See id.; see also Armes, 81 Wis. 2d at 318; Calaway, 202 Wis. 2d at 758-59.
¶ 18. In addition, we find further guidance as to the meaning of "amount recovered" in Wis. Stat. § 814.04(4), which is explicitly referred to in Wis. Stat. § 807.01(4), and is closely interrelated to § 807.01(4) regarding the calculation of interest on a verdict. Section 814.04(4) provides: "Except as provided in s. 807.01(4), if the judgment is for the recovery of money, interest at rate of 12% per year from the time of verdict, decision or report until judgment is entered shall be computed by the clerk and added to the costs." (Emphasis added.) Accordingly, in § 814.04(4), the legislature used the distinct legal term "verdict." Moreover, in the very same bill in which it amended § 814.04(4), the legislature created Wis. Stat. § 807.01(4), using similar but different words "amount recovered." See 1979 Senate Bill 533; 1979 Wis. Laws ch. 271.
¶ 19. It is therefore clear that the legislature knew how to use the precise legal terms "judgment" and "verdict" in regard to the calculation of interest. See Wis. Stats. § 807.01(4) & 814.04(4). Consequently, if it had intended interest owed under § 807.01(4) to be calculated on the amount of the entire verdict, it could have easily used the term "verdict" instead of "amount recovered." Thus, the language of § 807.01(4) and 814.04(4), along with American Motorists Ins. Co., strongly supports Mutual Service's contention that "amount recovered" does not mean the entire verdict, but instead means that portion of the verdict for which a party is responsible.
B.
¶ 20. We do not end our inquiry here, however, because we must ensure that this interpretation furthers the purpose of Wis. Stat. § 807.01(4). It is well-settled that Wis. Stat. § 807.01 is intended to encourage pretrial settlement. See DeMars, 123 Wis. 2d at 373; Graves v. Travelers Ins. Co., 66 Wis. 2d 124, 140, 224 N.W.2d 398 (1974); Gorman v. Wausau Ins. Cos., 175 Wis. 2d 320, 328, 499 N.W.2d 245 (Ct. App. 1993). Yet, it is also clear that the purpose of § 807.01(4) is not to force a party into settlement of a suit that would more appropriately be resolved by a trial. See DeMars, 123 Wis. 2d at 373-74; Blank, 200 Wis. 2d at 280.
¶ 21. In Blank, the court of appeals considered it significant that Wis. Stat. § 807.01(4) is intended to encourage, but not force, pretrial settlements. 200 Wis. 2d at 280. In particular, the court determined that if it were to construe "amount recovered" to mean the entire verdict, this construction would force pretrial settlement of cases that would more appropriately be resolved by a trial. Id. The court indicated:
Where the insurer provides modest policy limits, where the insured's liability is fairly debatable or even highly debatable, and where the damages are manifestly immense, what insurer could refuse an offer of settlement? Were we to adopt the plaintiffs interpretation of § 807.01(4), STATS., the consequence for trying a valid liability issue may be an added liability for millions of dollars of interest.
Id. Accordingly, the court held that § 807.01(4) "imposes penalty interest upon the insurer for the amount recovered against it under its policy limits from the date of the offer." Id. at 283 (emphasis added).
¶ 22. We agree with the Blank court that if "amount recovered" in Wis. Stat. § 807.01(4) is interpreted to mean the entire verdict, insurers which provide modest policy limits will be compelled to accept pretrial settlement offers rather than risk substantial liability for interest, even where the insured's liability is questionable or the appropriate amount of damages is highly debatable. For example, consider the following hypothetical:
Insured is involved in an automobile accident. It appears likely that the third party's damages total $1,000,000; however, the insured's liability for such damages is highly debatable. The third party offers to settle the entire litigation for $25,000, which is the insurer's policy limits. The insurer wants to go to trial because it believes that its insured was not at fault. However, the insurer is compelled to settle because of the substantial interest it would be liable for under § 807.01(4) if the jury returned a verdict against its insured.
Consequently, if "amount recovered" were interpreted to mean the entire verdict, insurers would be unreasonably forced to settle cases that would be more appropriately resolved by a trial. See Blank, 200 Wis. 2d at 280. Thus, this interpretation must be avoided. See, e.g., DeMars, 123 Wis. 2d at 370 (court must interpret statute in manner that avoids unreasonable result).
¶ 23. The dissent, however, concludes that Blank "should be read as condemning only an offer that unreasonably forces settlement, that is, an offer which the offeree cannot fairly assess in terms of its total individual liability to the litigant offering settlement." Dissenting op. at 517. However, the dissent ignores precedent which establishes that a party is unreasonably forced to settle under § 807.01(4) when forced "into settling suits which would be more appropriately resolved at trial," DeMars, 123 Wis. 2d at 374, which includes suits in which damages or liability are debatable, see Blank, 200 Wis. 2d at 280. In addition, the dissent ignores the fact that this court cannot look at the present case in isolation, but instead must consider the impact of its decision in future cases. As was true of the Blank court, see id., we are persuaded by the fact that if "amount recovered" in Wis. Stat. § 807.01(4) is interpreted to mean entire verdict, insurers in the future will be unreasonably forced to settle cases that should be resolved by a trial.
¶ 24. Furthermore, the dissent attempts to distinguish Blank by concluding that "amount recovered" means the entire verdict only when "an insurance company has the sole right and ability to settle an entire litigation, yet rejects on behalf of itself and its insured a plaintiffs offer. . . ." Dissenting op. at 527 (emphasis added). Accordingly, the dissent concludes that "amount recovered" means that portion of a verdict for which an insurer is liable, so long as the insurer rejected a settlement offer that would have released only the insurer, which was the situation in Blank. However, where the insurer rejected a settlement offer that would have released both it and its insured, as is the situation here, the dissent concludes that "amount recovered" means the entire verdict. The dissent does not adequately explain why these different interpretations of "amount recovered" are "consistent with the text of the statute" and "mandated by the principles developed and followed in prior decisions interpreting § 807.01....'"Id.
¶ 25. We cannot conclude that Wis. Stat. § 807.01(4) has a different meaning depending on these facts. Section 807.01(4) is devoid of any indication that the legislature intended to impose interest differently on an insurer that rejects a settlement offer releasing both the insurer and insured, as opposed to an insurer that rejects a settlement offer releasing only the insurer. Moreover, there is no indication that the legislature intended to impose interest differently on insurers as opposed to other parties in civil actions.
¶ 26. Thus, we conclude that the legislature could not have intended "amount recovered" in Wis. Stat. § 807.01(4) to have a different meaning depending on the type of settlement offer that was refused by an insurer. Instead, we hold that "amount recovered" in § 807.01(4) means that portion of the verdict for which a party is responsible, i.e., the judgment entered against the party, not including double costs. This conclusion is based on the legislature's use of the phrase "amount recovered" instead of "verdict" or "judgment" in § 807.01(4), as well as the fact that application of the dissent's interpretation would unreasonably force settlement in future cases.
¶ 27. Our interpretation of "amount recovered" in Wis. Stat. § 807.01(4) is entirely consistent with Knoche. In Knoche, the court of appeals considered whether the insurer was liable for interest from the date of the settlement offer under Wis. Stat. § 807.01(4), or whether it was liable only for interest from the date of judgment under its insurance contract. 151 Wis. 2d at 760. The court held that the insurer was liable for interest from the date of the settlement offer under § 807.01(4), and could not free itself of this obligation by contract. Id. The Knoche court also considered whether the insurer was liable for interest imposed under Wis. Stat. § 807.01(4) on amounts above its policy limits. Id. at 760-61. The court concluded that the insurer was liable for interest above its policy limits pursuant to the language of the insurance contract. Id. at 761. Accordingly, the court did not conclude whether the insurer was liable for such interest pursuant to § 807.01(4), since resolution of this question was unnecessary. Thus, Knoche does not "resolve[] the question presented in the case at bar." Dissenting op. at 524.
¶ 28. In addition, we stress that because a claim for bad faith may be brought where an insurer breaches its duty to settle in good faith, see Mowry v. Badger State Mut. Cas. Co., 129 Wis. 2d 496, 510-18, 385 N.W.2d 171 (1985), application of our interpretation of Wis. Stat. § 807.01(4) will not encourage insurers to deny settlement offers in reckless disregard of their insureds' interests. Specifically, where an insured can show by clear and convincing evidence that its insurer rejected a pretrial settlement offer without a reasonable basis for doing so, and it knew or recklessly disregarded this lack of a reasonable basis, the insurer will be liable for all damages that flow from its breach of the duty to settle in good faith. See id. at 515-16. Accordingly, we conclude that the availability of a bad faith claim will substantially deter insurers from engaging in such practices.
IV. INTERPRETATION OF THE INSURANCE POLICY
¶ 29. Although we have concluded that Mutual Service is not liable for interest on the entire verdict pursuant to Wis. Stat. § 807.01(4), it nonetheless may be liable for interest on the entire verdict pursuant to its insurance contract with McLaughlin. "Parties are at liberty to enter insurance contracts which specify the coverage afforded by the contract as long as the contract terms do not contravene state law or public policy." Rural Mut. Ins. Co. v. Peterson, 134 Wis. 2d 165, 170, 395 N.W.2d 776 (1986); accord McPhee, 57 Wis. 2d at 155. Accordingly, we must examine Mutual Service's insurance contract with Nelson, in order to determine whether Mutual Service agreed to pay interest imposed under § 807.01(4) on the amount of the entire verdict.
¶ 30. The insurance policy at issue contains the following relevant provision:
In addition to our limit of liability we will pay for an insured:
4. Interest on all damages owed by an insured as the result of a judgement until we pay, offer or deposit in court the amount due under this coverage. Interest will be paid only on damages which do not exceed our policy limits.
(R.68, exhibit 24, at 3) (emphasis added; emphasis from policies omitted.) Although this provision initially states that Mutual Service will be liable for interest on "all damages," this phrase is qualified in the subsequent sentence, which specifies that "all damages" means only those damages that do not exceed the policy limits. We conclude, therefore, that this provision unambiguously states that Mutual Service is not liable for interest on damages that exceed the policy limits.
¶ 31. This conclusion is consistent with precedent. Specifically, in McPhee, we considered whether an insurer was liable for interest on that portion of a judgment that was in excess of its policy limits. We concluded that determination of this issue depended on the language of the insurance contract. 57 Wis. 2d at 672-73. The policy provided that the insurer would pay "all interest accruing after entry of judgment until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon." Id. at 673 (emphasis added). The court determined that a reasonable person in the position of the insured would understand this language to mean that the insurer was liable for interest on the entire judgment, since the phrase "all interest" connotes "all interest on the judgment, whatever its amount in relation to the policy limits." Id. at 677.
¶ 32. Likewise, as previously explained, the Knoche court concluded that the insurer was liable for interest imposed under Wis. Stat. § 807.01(4) above its policy limits "because under its contract it is liable for interest on the entire amount of the judgment." 151 Wis. 2d at 761. Specifically, the insurance policy provided that the insurer would pay "[a]ll interest on the entire amount of any judgment which accrues after entry of the judgment." Id. at 760 (emphasis added). The court, relying exclusively on McPhee, concluded that "such language created liability upon the insurer for interest upon the entire amount of the judgment." Id. at 761.
¶ 33. Both McPhee and Knoche are distinguishable from the present case. Mutual Service did not agree to pay "all interest" without any qualification. Instead, the insurance contract explicitly states that Mutual Service will pay interest only on damages that do not exceed its policy limits. A reasonable person in the position of McLaughlin simply could not have understood this provision to mean anything else. Therefore, we conclude that Mutual Service is not liable, pursuant to its insurance contract with McLauglin, for interest imposed under Wis. Stat. § 807.01(4) on the entire verdict.
¶ 34. In addition, we acknowledge that if "amount recovered" in § 807.01(4) were interpreted to mean the entire verdict, Knoche may support the conclusion that an insurer cannot "free" itself of interest imposed under this section by an insurance contract. However, since we conclude that "amount recovered" under § 807.01(4) does not mean entire verdict, we conclude that the insurance contract does not contravene Wisconsin law or public policy by providing that Mutual Service is not liable for interest on damages that exceed the policy limits.
¶ 35. In conclusion, we hold that Mutual Service is liable for interest imposed under Wis. Stat. § 807.01(4) only on that amount of the verdict for which it is responsible, which is its policy limits of $100,000. This conclusion is based on: (1) the legislature's choice of the phrase "amount recovered" instead of "verdict" or "judgment" in § 807.01(4); and (2) the fact that if "amount recovered" is interpreted to mean the entire verdict, insurers will be forced to settle cases that would be more appropriately resolved at trial. We emphasize that this interpretation of "amount recovered" will not encourage insurers to deny settlement offers in reckless disregard of their insureds' interests, because the availability of a bad faith claim provides a substantial deterrent against insurers engaging in such practices.
¶ 36. We also acknowledge that an insurer may, pursuant to its insurance contract, agree to pay interest imposed under Wis. Stat. § 807.01(4) on damages above its policy limits. However, in this case, we conclude that Mutual Service did not agree to pay interest on damages above its policy limits, and that this provision of its insurance contract with McLaughlin does not contravene Wisconsin law or public policy. Thus, we affirm the court of appeals' decision, which remands this case to the circuit court for a recalculation of the interest imposed on Mutual Service.
By the Court. — The decision of the court of appeals is affirmed.
See Nelson v. McLaughlin, 205 Wis. 2d 460, 462-63, 556 N.W.2d 130 (Ct. App. 1996). The court of appeals also rejected John L. McLaughlin's claim that the evidence was not sufficient to sustain the jury verdict. Id. at 464-66. This issue is not before us on review.
Section 807.01(4) provides:
If there is an offer of settlement by a party under this section which is not accepted and the party recovers a judgment which is greater than or equal to the amount specified in the offer of settlement, the party is entitled to interest at the annual rate of 12% on the amount recovered from the date of the offer of settlement until the amount is paid. Interest under this section is in lieu of interest computed under ss. 814.04(4) and 815.05(8).
All fixture references are to the 1993-94 Statutes unless otherwise indicated.
We acknowledge that, beginning with this motion after verdict, Mutual Service's interests have been directly contrary to McLaughlin's interests in regard to the issue of interest under Wis. Stat. § 807.01(4). Although it therefore may be arguable that Mutual Service had a duty to provide McLaughlin with a separate attorney at this point in the litigation, this issue is not before us on review. See Nelson, 205 Wis. 2d at 467 n.3. Moreover, although McLaughlin did not have separate counsel representing his interests before this court, Nelson's attorney stated during oral arguments that he is in effect representing McLaughlin's interests, since McLaughlin assigned his bad faith claim against Mutual Service to Nelson. We agree that Nelson's attorney in effect has represented McLaughlin's interest before this court, and therefore conclude that both sides of this controversy have been adequately presented to us for our consideration.
Blank had not been decided at the time the circuit court rendered its decision.
A "judgment" is "[t]he official and authentic decision of a court of justice upon the respective rights and claims of the parties to an action or suit therein litigated and submitted to its determination." Black's Law Dictionary 841 (6th ed. 1990). In this case, the judgment against Mutual Service was in the amount of $100,000, plus double costs and disbursements, 12% interest under § 807.01(4), and further interest until the judgment was paid.
We acknowledge, however, that the court in American Motorists Ins. Co. wrongly concluded that Wis. Stat. § 807.01(4) was enacted by an order of this court. See American Motorists Ins. v. R & S Meats, Inc., 190 Wis. 2d 196, 213-14, 526 N.W.2d 791 (1994). Although Wis. Stat. § 807.01 was initially enacted by a supreme court order, see Wisconsin Rules of Civil Procedure, 67 Wis. 2d 741-42 (1976), subsection (4) was enacted solely by the legislature. See 1979 Wis. Laws ch. 271. However, since the court in American Motorists Ins. Co. applied traditional principles of statutory construction in reaching its holding, its analysis is sound despite this error.
In addition, note that in our discussion of American Motorists Ins. Co., we have replaced the words "supreme court" with the word "legislature."
Although this court renumbered ch. 271 as ch. 814 in 1975, see Wisconsin Rules of Civil Procedure, 67 Wis. 2d 761, and deleted the phrase "guardian ad litem fees" from Wis. Stat. § 271.04(2) (now § 814.04(2)) in 1971, see 50 Wis. 2d xv (1971), the language of § 814.04(4) originates from the legislature. In fact, the legislature's use of the word "verdict" in § 814.04(4) predates this court's amendments to § 814.04. See § 271.04(4) (1969) (now § 814.04(4)).
A "verdict" is "[t]he formal decision or finding made by a jury, impaneled and sworn for the trial of a cause, and reported to the court (and accepted by it), upon the matters or questions duly submitted to them upon the trial." Black's Law Dictionary 1559 (6th ed. 1990). In this case, the verdict against Mutual Service, along with McLaughlin, was in the amount of $505,407.74.
This interpretation is a logical one, as is demonstrated by the following example. Suppose that, in this case, Nelson had filed suit only against Mutual Service pursuant to Wisconsin's direct action statute, Wis. Stat. § 632.24. The verdict would be in the amount of $507,407.40; however, Nelson would only receive $100,000, in addition to costs and interest. In such a situation, the "amount recovered" could not possibly be equated with the entire verdict, since Nelson would never recover more than Mutual Service's policy limit, along with costs and interest.
In Blank, USAA Property & Casualty Insurance Company (USAA) rejected a pretrial settlement offer for its liability policy limits of $100,000.00. Blank v. USAA Property & Cas. Ins. Co., 200 Wis. 2d 270, 275, 546 N.W.2d 512 (Ct. App. 1996). The jury subsequently returned a verdict in favor of the plaintiff for $7,500,000; therefore, the plaintiff was entitled to interest under Wis. Stat. § 807.01(4). Id. In Blank, USAA was able to fairly assess the offer of settlement, since the offer was made by a single plaintiff to a single defendant. See generally DeMars v. LaPour, 123 Wis. 2d 366, 373, 366 N.W.2d 891 (1985). In addition, counsel for Mutual Service conceded that liability policies generally contain a provision giving the insurer control over litigation; therefore, USAA likely had exclusive control over settlement. The only difference between the present case and Blank is that, in Blank, the offer would not have released the insured. Blank, 200 Wis. 2d at 275. The dissent, however, fails to explain adequately why Blank is distinguishable because of this factual distinction, or why this factual distinction has any bearing in the present case.
The dissent further fails to explain adequately why, under Wis. Stat. § 807.01(4), it is reasonable to force settlement where the plaintiff makes a settlement offer that would release the insurer and insured, but unreasonable to force settlement where the plaintiff makes a settlement offer that would release only the insurer.
Mutual Service has never contended that it is liable for interest under Wis. Stat. § 807.01(4) from the date of judgment instead of the date of the settlement offer; therefore, this portion of Knoche is not controlling here.