Case Name: Palmer H. Rimes and Patricia A. Rimes, Plaintiffs-Respondents, v. State Farm Mutual Automobile Insurance Company, Defendant-Appellant
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1982-03-02
Citations: 106 Wis. 2d 263
Docket Number: No. 81-387
Parties: Palmer H. Rimes and Patricia A. Rimes, Plaintiffs-Respondents, v. State Farm Mutual Automobile Insurance Company, Defendant-Appellant.
Judges: 
Reporter: Wisconsin Reports Second
Volume: 106
Pages: 263–290

Head Matter:
Palmer H. Rimes and Patricia A. Rimes, Plaintiffs-Respondents, v. State Farm Mutual Automobile Insurance Company, Defendant-Appellant.
Supreme Court
No. 81-387.
Argued November 30, 1981.
Decided March 2, 1982.
(Also reported in 316 N.W.2d 348.)
For the appellant there were briefs by Kenneth W. Forbeck and O’Neal, Noll, Elliott, Forbeek & Iglesias, S.C., of Beloit, and oral argument by Kenneth W. For-beck.
For the respondents there was a brief by Edward Grutzner and Grutzner, Byron & Holland, S.C., of Beloit, and oral argument by Edward Grutzner.
Motion for reconsideration denied, with costs, on May 3, 1982. Ceci, J., took no part.

Opinion:
HEFFERNAN, J.
The question presented is whether an automobile insurer, State Farm Mutual Automobile Insurance Company, which, under a subrogation agreement signed by its insured, Palmer H. Rimes, has made payment under the medical-pay provisions of its policy, has the right to recover those payments out of the monies received by its insured in a settlement with negligent third-party tortfeasors and their liability insurers, when, according to the findings and judgment of the circuit court, the settlement figure was less than the total damages sustained by the insured as the result of an automobile accident.
The court found, after a post-settlement trial to the court, that Palmer and Patricia Rimes sustained damages in the amount of $300,433.54 and that the settlement with the tortfeasors was $125,000. Accordingly, the circuit court, relying upon the rule of Garrity v. Rural Mutual Insurance Company, 77 Wis. 2d 537, 253 N.W.2d 512 (1977), concluded that an insurer was entitled to no recovery whatsoever in subrogation in circumstances where the insured was not made whole for his damages. The court summarized its findings and conclusions thus:
"In this case the plaintiff [s] settled their claims for $125,000.00. The Court has found that their damages far exceeded this sum. The settlement did not make the plaintiffs whole .
"Since the plaintiffs have not been made whole by the settlement, the insurer may not share in the amount recovered through settlement from the tort-feasors."
The exact facts of the underlying automobile accident are of no particular importance at this stage of the proceedings. Suffice it to say that Palmer Rimes, who was traveling alone in his vehicle, insured with State Farm Mutual, came upon the scene of an accident in which a car driven by Peggy L. Stiles had rear-ended a vehicle driven by Roy A. Langdon. Because Rimes thought there might be injured persons in the vehicles in need of assistance, he was examining the Stiles vehicle when a car driven by Leonard A. Switzer struck the Stiles vehicle, causing severe injuries to Rimes.
The injured Rimes and his wife commenced an action in the circuit court for Rock County against the drivers of the three other vehicles involved in the accident and their insurers. Switzer was insured by Travelers Indemnity for the sum of $300,000. Stiles was insured by American Family Insurance Company in the amount of $50,000, as was Langdon. State Farm, Rimes' own liability insurance company, was joined as a defendant because of its possible subrogation rights as the result of payments under the medical-pay provisions of two separate automobile policies, one issued to Rimes and one issued to his wife. The total payments made under the medical-pay provisions of the two policies amounted to $9,649.90. The two policies afforded identical coverage of $5,000, and each contained a subrogation agreement providing:
"Upon payment . . . the company shall be subrogated to the extent of such payment to the proceeds of any settlement or judgment that may result from the exercise of any rights of recovery which the injured person . . . may have against any person . . . and such person shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Such person shall do nothing after loss to prejudice such rights."
Upon payment under the medical-pay provisions, Palmer H. Rimes signed subrogation receipts covering the payment of $9,649.90. The receipts provided:
"It is further warranted that no settlement has been made by the undersigned with any person or corporation against whom a claim may lie, and no release has been given to any one responsible for the loss, and that no such settlement will be made nor release given by the undersigned without the written consent of the said insurer, and the undersigned covenants and agrees to cooperate fully with said insurer in the prosecution of such claims and to procure and furnish all papers and documents necessary in such proceedings and to attend court and testify if the insurer deems such to be necessary."
State Farm attempted to enter into stipulations with the alleged tortfeasor-defendants to protect its subrogation rights but was unsuccessful in that attempt, and it filed an answer alleging its subrogation rights and participated in the case.
Immediately prior to the commencement of trial to a jury on January 21, 1980, the defendant Langdon and his insurance company, American Family, were dismissed with prejudice by a stipulation of all parties. On that day also the remaining' parties entered into a stipulation :
"That the defendant, State Farm Mutual Automobile Insurance Company, has a subrogation interest in recovery of those medical bills and expenses as a result of the payments made under the medical pay provisions of certain insurance policies . . .
The stipulation further provided:
"That should a judgment be rendered or a settlement be agreed upon between the parties which grants recovery of those medical bills and expenses, that the defendant, State Farm Mutual Automobile Insurance Company, shall recover the amounts paid under the medical pay provisions of its insurance policies as evidenced by the subrogation receipts . to the extent that such amounts are recovered by the plaintiff, Palmer A. Rimes."
On the second day of the trial, Rimes and his wife settled all of their claims with the remaining defendants for the sum of $125,000. American Family paid $50,000, its policy limits, on behalf of Stiles; and Travelers paid $75,000 of its $300,000 policy limit on behalf of Switzer. The stipulation provided that of the $75,000 paid by Travelers, $65,350.10 was paid directly to the plaintiffs and their attorneys, and $9,649.90 was paid into court to be held in escrow pending the outcome of a "trial" to the court concerning State Farm's claimed subrogation rights for the medical payments theretofore made on behalf of Rimes. The stipulation and order was signed by all parties, including State Farm. Included in its recitations was the provision:
"This action is fully settled as to all claims for relief and all cross claims by all parties, except as specifically otherwise provided by this order."
The stipulation and the order entered by the court contained the further provision:
"This action shall remain pending only insofar as a dispute exists between the plaintiffs, Palmer H. Rimes and Patricia A. Rimes, and defendant, State Farm Automobile Insurance Company, regarding the claims of State Farm Automobile Insurance Company and Palmer H. Rimes and Patricia A. Rimes to the sum of Nine Thousand, Six Hundred Forty-nine dollars and Ninety Cents ($9,649.90) to be paid into the court by Travelers Indemnity Company."
Subsequently, pursuant to the stipulation, the plaintiffs executed general releases of the defendants. By agreement of the remaining parties, the plaintiffs Rimes and State Farm, a two-day trial to the court was held. It was State Farm's position that the only issue to be determined was the amount that State Farm should recover under its subrogation rights and the only factual issue that needed to be determined was the percentage of negligence, if any, that was to be attributed to its insured, Rimes. The plaintiffs took the position that the principal issue was whether or not they had been made whole by the settlement for the injuries and damages sustained in the accident. The position of Rimes was that State Farm was to be allowed no subrogation recovery whatsoever if the court found that the damages in fact sustained by the plaintiffs exceeded the total of the settlement.
The trial court took testimony for two days in respect to the damages sustained as the result of injuries to Palmer Rimes and in respect to the negligence aspects of the accident. It concluded that Rimes and Langdon, both of whose vehicles had been rear-ended, were not negligent at all, that Stiles was 70 percent causally negligent, and Switzer was 30 percent causally negligent. In its findings of damages, it concluded that past medical and hospital expenses were in the amount stipulated by the parties — $26,560.70, that the plaintiff's past loss of earnings was in the amount of $65,855.34, that the damages for past physical disability, pain, and suffering- to the time of trial were in the amount of $35,000, that future medical expenses were reasonably computed to be in the amount of $20,517.50, that there was a loss of future earning capacity in the amount of $82,500, and damages for future physical disability, pain and suffering, inconvenience, humiliation and mental anguish were in the amount of $45,000. It also assessed damages to Patricia Rimes for the loss of consortium in the amount of $25,000. These damages totaled the sum of $300,433.54.
The trial court, relying upon Garrity, supra, concluded that, under this state of the record, only the amount of damages as found in the trial to the court would have been sufficient to make the plaintiffs whole and that, because the settlement fell short by over $175,000, the insurance company had no right of subrogation. Accordingly, it denied any subrogation payments to State Farm and ordered the escrowed amount of $9,649.90 delivered to the plaintiffs.
Appeal was taken by State Farm to the Court of Appeals. The Court of Appeals requested that this court accept the appeal on certification pursuant to Rule 809.61, Stats. Paraphrasing the argument of State Farm, the Court of Appeals in its petition for certification pointed out that the Garrity case, upon which the trial court relied, might not be appropriately determinative of the issue herein. It pointed out that Garrity involved fire insurance; that the policy limits were paid in Garrity; and, in addition, in the instant case, according to State Farm, the voluntary settlement by an injured party and the giving of a release was the legal equivalent of acknowledging that the injured party had been made whole. Because it was at least arguable that Garrity might not be precedential for the instant case, we accepted certification.
Although the facts in Garrity are not on all fours with those presented in the instant case, we conclude that the principles set forth therein are applicable and are decisive. Accordingly, we affirm.
In Garrity, the property owners were insured under a fire insurance policy with Rural Mutual Insurance Company. They suffered a fire loss to their barn and dairy when a negligently operated truck belonging to a feed mill burst into flames and caused the loss to the Garrity's property. The alleged fire loss exceeded the sum of the amount recovered under their fire policy and the policy limits on the vehicle driven by the negligent tortfeasor. The fire insurance company claimed, however, that it had a right of priority in any recovery of monies from the third-party tortfeasor up to the amount that it, the fire insurer, had paid on the fire loss. The subrogation agreement in Garrity provided that:
" 'This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this Company.' " P. 540.
The trial court in Garrity interpreted that subrogation agreement literally and, accordingly, permitted recovery by Rural Mutual up to the amount it paid on the fire loss. The subrogation agreement in the instant case between Rimes and State Farm is not significantly dissimilar and if literally interpreted would permit recovery by State Farm in the amount of medical payments made on behalf of Rimes. This court in Garrity, however, pointed out that the effect of "conventional subrogation" was the same as "legal subrogation," which arises by application of the principles of equity, and that, accordingly, the contractual terms of subrogation agreements in an insurance policy were to be applied according to the rules of equity. We said that:
" ' [In equitable subrogation] no right of subrogation against the insured exists upon the part of the insurer where the insured's actual loss exceeds the amount recovered from both the insurer and the wrongdoer, after deducting costs and expenses. In other words, the insurer has no right as against the insured where the compensation received by the insured is less than his loss.' " P. 543.
Wisconsin has long held, as pointed out in Garrity, at 544, that the same rule applies to an insurer claiming subrogation under contract and that such insurer is to be allowed no share in the recovery from the tortfeasor if the total amount recovered by the insured from the insurer and the wrongdoer does not cover his entire loss. As Garrity points out, the entire law of subrogation is based upon equitable principles; and relying upon Williston, in Garrity, at 542, we stated:
" 'A partial payment of the debt, even though it may be the full amount for which the surety has bound himself, will not entitle him to subrogation to the creditor's rights and securities.' "
Thus, even though an insured has recovered from a tortfeasor a sum more than sufficient to equal the sub- rogated amount claimed by the insurer, the insurer is not entitled to subrogation unless the insured has been made whole for his loss. The purpose of subrogation is to prevent a double recovery by the insured. Under circumstances where an insured has received full damages from the tortfeasor and has also been paid for a portion of those damages by the insurer, he receives double payment — he has been made more than whole. Only under those circumstances is the insurer, under principles of equity, entitled to subrogation. Subrogation is to be allowed only when the insured is compensated in full by recovery from the tortfeasor. The insured is to be made whole, but no more than whole.
In the instant case, State Farm argues that Garrity is inapplicable because Garrity involved a property-damage fire case, where the total amount of damages is more easily determinable than the amount of damages sustained by plaintiff in a personal-injury action. While that is undoubtedly true, we see it as a distinction without a difference. The law of damages in personal-injury cases is premised upon the fact that the damages are reasonably ascertainable. The trial of a personal-injury action is based on that proposition, and we find the alleged difficulty of ascertainment of actual damages to be irrelevant to the merits of this case. Particularly, it is irrelevant when, in fact, the procedures adopted by the trial court were designed to determine with exactitude the actual damages sustained by Rimes. Whether the mini-trial procedure to the court which was utilized is appropriate to this purpose will be discussed further in this opinion.
It appears clear that, under Wisconsin law as recapitulated in Garrity, one who claims subrogation rights, whether under the aegis of either legal or conventional subrogation, is barred from any recovery unless the insured is made whole.
State Farm argues, however, that the fact that the plaintiffs gave a general release to the tortfeasors is "an affirmation by them that they have been made whole as required by law."
We think this overstates the characteristics of a release and settlement of a claim, particularly in a personal-injury case, where both the questions of liability and of damages prior to trial are to some degree in doubt. A pre-trial release in settlement is in fact usually appropriate only when such doubts exist. A release is merely the giving up of a right or claim, and it may or may not be for full consideration and may or may not make the grantor of the release whole. Moreover, a settlement is defined in Webster's Third New International Dictionary as "the satisfaction of a claim by agreement often with less than full payment."
Thus, it is apparent that the legal import urged by State Farm to be given to the settlement in this case is inappropriate. The most that can be said is that the plaintiffs gave up the right of action against the tort-feasors for consideration that may or may not have been sufficient to make them whole. No recital in any of the stipulations in this case evidences an acknowledgment by the plaintiffs that the settlement made them whole, and the very nature of settlements of personal-injury claims precludes a hypothesis that the grantor necessarily acknowledges full reimbursement for the wrong done.
It is particularly apparent in this case that the release by the plaintiffs was not an affirmation that they were made whole, because the very escrow agreement arose out of the contention by the plaintiffs that they were entitled to the $9,649.90 as a portion of the sum for which they would settle. By the escrow agreement contained in the stipulation it is apparent that the plaintiffs, even if we were to assume that they were acknowledging that the payment of $125,000 would be sufficient to make them whole, believed that amount, less the $9,649.90, would make them less than whole. Thus, by no ratiocination can it be concluded under these cirmumstances that the plaintiffs' release of the tortfeasors was an acknowledgment of wholeness.
Moreover, neither the plaintiffs nor State Farm released the other in respect to the claim for the sum equal to the medical payments. This was the crux of the further litigation between them. Properly interpreted, we believe that the terms of the release and settlement and escrow agreement was a specific affirmation that the plaintiffs believed they were not made whole.
State Farm also argues that, had the case gone to a verdict before the jury and had the total damages returned been $125,000, which sum included the $9,649.90 for medical expenses incurred in the first year after the accident, State Farm would clearly have been entitled to recover the latter amount as its claim in subrogation. While that is undoubtedly true, that fact is irrelevant, because, had such been the result of the trial, we would be obliged to conclude that the damages found by the jury made the plaintiff whole. Rimes, unless he paid over the amount of State Farm's claim, would have reaped a double recovery. The medical payments were made long before trial; and were Rimes to keep all the proceeds of the judgment plus the medical payments, he would have been made whole plus the medical payments previously received. This he may not do under the equitable principles of subrogation. The verdict, under the facts hypothesized by State Farm, would have advised the trial court that the sum of $125,000 made the plaintiff whole. The parties here, however, by their stipulation determined to forego a jury verdict as the test of wholeness. It is clear then that a payment of $125,000, unless that sum had been arrived at by a jury whose intent was to make the plaintiff whole, was irrelevant. Under the facts of this case, the payment of $125,000 was the price that the defendant tortfeasors were willing to pay to avoid the risk of greater exposure; and it was the sum that Rimes was willing to accept. It has nothing to do with the determination of whether Rimes was made whole.
Under Wisconsin law the test of wholeness depends upon whether the insured has been completely compensated for all the elements of damages, not merely those damages for which the insurer has indemnified the insured. Thus the mere fact that the settlement figure of $125,000 exceeded the insurer's claim for subrogation is immaterial. The injured or aggrieved party is not made whole unless all his damages arising out of the tort have been fully compensated.
We pointed out in Garrity that the cause of action against a tortfeasor is indivisible. Accordingly, it is only when there has been full compensation for all the damage elements of the entire cause of action that the insured is made whole. Thus only where an injured party has received an award by judgment or otherwise which pays all of his elements of damages, including those for which he has already been indemnified by an insurer, is there any occasion for subrogation. As we said in Garrity:
"[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." P. 542.
Only if the insured's tort damages make him whole is he required to disgorge the amounts by which he has been indemnified, i.e., the insured cannot collect once in indemnity from the indemnitor and again in damages from the tortfeasor without being compelled to respond in subrogation. It is clear, in accordance with the general principles of subrogation accepted by this court and stated in Garrity, that the settlement in this case did not make the plaintiffs whole and that only compensation in the sum of $300,433.54 would have been sufficient. It was that sum, and nothing less, that would have sufficed to make the plaintiffs whole for the injuries.
The question remains, however, whether the method used by the trial court and acquiesced in by the parties was an appropriate one to determine the sum that would have made the plaintiffs whole. We confess that at first blush it appears to be awkward and inappropriate to proceed with a lawsuit which has been settled for the purpose of determining the damages that would have ensued had the settlement not have taken place. To some degree, the methodology adopted by the trial court defeats the very purpose of a settlement of a lawsuit — the avoidance of further litigation and the consequent saving of the resources of the parties and of the judicial system. It is unfortunate that the parties hereto, having settled the most serious questions of liability and damages amicably, could not have reached a compromise which could have avoided further litigation. Particularly, we find it diffi cult to justify the position of the insurer, which has already been paid a premium for the risk it assumed and which would have been obligated to make the medical payments irrespective of its insured's negligence and irrespective of whether or not a culpable third party could have been found. This is particularly true when there appears to be very little evidence that possible recoveries in subrogation are considered in the determination of insurance premiums.
Be that as it may, the trial judge was confronted with a problem that required judicial resolution. As unnecessary as the procedure adopted should have been, we conclude that the methodology utilized was appropriate. The assumption on which the trial judge proceeded was that, under the circumstances, only a trial in which the various items of damages would be ascertained could determine what sum would have made the plaintiffs whole. Regrettable as we consider the necessity of having any trial at this tag end of a complicated lawsuit, we conclude the trial judge proceeded appropriately.
The question was how best to determine the probable outcome of a lawsuit which had already been settled.
A precedent, in a somewhat analogous situation, exists where a client sues an attorney for malpractice because of the attorney's failure to bring suit before the cause of action is barred by the statute of limitations. In Lewandowski v. Continental Casualty Co., 88 Wis. 2d 271, 276 N.W.2d 284 (1979), this court addressed that situation. The question was the value of the plaintiff's cause when his attorney's negligence barred him from bringing suit. The court therein reasoned that, given the admitted negligence of plaintiff's counsel, the measure of damages for malpractice was the sum that might have been recovered had the suit been timely brought. Accordingly, the trial court proceeded to the trial of the underlying, but limitations-barred, automobile-accident negligence case. The case was tried to a jury, and a verdict was submitted with the usual questions on negligence, causation, and damages. The verdict returned in respect to negligence and damages was accepted by the court. In Lewandowslci, the issue was whether the trial court abused its discretion in permitting a trial and submitting to a jury the question of the plaintiff's damages on what had become a moot case. We held that the trial was appropriate for determining the value of the plaintiff's loss of his right to bring suit. The question to be decided in Lewandowslci was what was the value of the claim had it been timely brought to trial. This is not unlike the situation in the instant case where the question is what sum would a finder of fact have found to be sufficient to make the plaintiffs whole had the cause of action gone to trial rather than being terminated by settlement. We held in Lewandowski that the trial judge acted appropriately and did not abuse his discretion. We said, "[I]t is our conclusion that the trial court chose the appropriate methodology to resolve the issue in this case." P. 281.
That conclusion is appropriate in respect to the methodology used by the trial court in this case in determining what sum would have made the plaintiffs whole. In this case, the trial judge was able to conduct the trial without a jury, and this resulted in the saving of time and the resources of the parties and the court system.
While State Farm felt that the only issue that needed to be litigated was the question of its own insured's negligence, it is apparent that the determination of what sum would have made the plaintiffs whole — the damages sustained by the plaintiffs — was properly afforded primacy. Clearly, if the damages, as properly found by the trial to the court, exceeded those received in the settlement, the insured was not made whole. That was the result here, and the trial court correctly concluded that State Farm was not entitled to any of the proceeds of the settlement.
By the Court. — Judgment affirmed.
$67,227.12 was paid for the fire loss by Rural Mutual. The policy limits covering the operation of the truck was $25,000, while the loss as alleged in the complaint was $110,000. The parties agreed that the loss was in excess of Rural Mutual's payment under its fire policy. The total loss was not stipulated, but it appears that the alleged loss was not disputed.
"The creature of equity, strangely enough, is known as legal subrogation as opposed to conventional subrogation, which is the product of an agreement between the parties. Conventional sub-rogation most commonly appears in standard policy provisions or loan receipts, but the distinction is meaningless in terms of the policy justifications for the doctrine. The primary reason for the adoption of subrogation is the principle of indemnity." Denenberg, Subrogation Recovery: Who is Made Whole, FIC Quarterly (Winter 1979) 185, 186.
See Hardware Dealers Mutual Fire Ins. Co. v. Ross, 129 Ill. App 2d 217, 202 N.E.2d 618, 621 (1970), wherein the court held that it would not rule as a matter of law that a pre-trial settlement in legal effect made a settling plaintiff whole where settlement was for less than policy limits. The Illinois Appeals Court held that the question was one of fact, saying:
"The trial court found that the settlement . . . did not constitute full recovery [of damages for wrongful death]. . . . We must therefore accept the finding of the trial court that the settlement did not constitute full recovery . . . ." p. 621.
It concluded that the settlement did not make the plaintiff whole.
"When the sum recovered by the Insured from the Tort-feasor is less than the total loss and thus either the Insured or the Insurer 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." St. Paul Fire and Marine Ins. Co. v. W.P. Rose Supply Co., 19 N.C. App. 302, 198 S.E.2d 482, 484 (1973).
See also Denenberg, supra, p. 185, citing De Cespedes v. Prudence Mut. Cas. Co., 193 So. 2d 224, 227-228 (Fla. App. 1966), affd, 202 So 2d 561 (Fla. 1967), and 2 Richards, Law of Insurance (5th ed.), sec. 183, p. 654, for the proposition that anticipated recoveries under subrogation rights are not generally reflected in the computation of premium rates.