Title: John Ranes v. American Family Mutual Insurance Company
Citation: N/A
Docket Number: 1997AP000441
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: June 19, 1998

SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
97-0441 
 
 
Complete Title 
of Case: 
 
 
John Ranes and Mary Ranes,  
 
Plaintiffs-Appellants, 
 
v. 
American Family Mutual Insurance Company,  
 
Defendant-Respondent-Petitioner.  
 
ON REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  212 Wis. 2d 626, 569 N.W.2d 359 
 
 
 
(Ct. App. 1997-PUBLISHED) 
 
 
 
Opinion Filed: 
June 19, 1998 
Submitted on Briefs: 
 
Oral Argument: 
April 29, 1998 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Pepin 
 
JUDGE: 
Dane F. Morey 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the defendant-respondent-petitioner there 
were briefs by Ward I. Richter, David J. Pliner and Bell, 
Metzner, Gierhart & Moore, S.C., Madison and oral argument by 
Ward I. Richter. 
 
 
For the plaintiffs-appellants there was a brief 
by Charles B. Harris, Martha Heidt and Doar, Drill & Skow, S.C., 
Baldwin and oral argument by Matthew A. Biegert. 
 
No.  97-0441 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
No. 97-0441 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
John Ranes and Mary Ranes,  
 
          Plaintiffs-Appellants, 
 
     v. 
 
American Family Mutual Insurance Company,  
 
 
          Defendant-Respondent-Petitioner. 
 
FILED 
 
JUN 19, 1998 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed. 
¶1 
SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE.   This is a 
review of a published decision of the court of appeals1 reversing 
a judgment and an order of the Circuit Court for Pepin County, 
Dane F. Morey, Judge.  The circuit court granted summary 
judgment to American Family Mutual Insurance Company, holding 
that the failure of John and Mary Ranes, the plaintiffs-
insureds, to give notice of settlement to American Family 
pursuant to Vogt v. Schroeder, 129 Wis. 2d 3, 383 N.W.2d 876 
(1986), bars underinsured motorist (UIM) coverage regardless of 
whether American Family was prejudiced by the lack of notice.2   
                     
1 Ranes v. American Family Mut. Ins. Co., 212 Wis. 2d 626, 
569 N.W.2d 359 (Ct. App. 1997). 
2 This is the limited issue presented by the parties to the 
circuit court.   
No.  97-0441 
 
2 
¶2 
The court of appeals reversed the judgment of the 
circuit court, concluding that the failure of the plaintiffs-
insureds to give notice of settlement to American Family 
violates the Vogt decision but that the lack of notice does not 
bar UIM coverage unless American Family was prejudiced by the 
lack of notice.  See Ranes v. American Family Mut. Ins. Co., 212 
Wis. 2d 626, 632, 569 N.W.2d 359 (Ct. App. 1997).  The court of 
appeals further concluded that the plaintiffs-insureds must 
produce sufficient evidence to satisfy the fact finder by a 
preponderance of the evidence that American Family suffered no 
prejudice as a result of the lack of notice.  See Ranes, 212 
Wis. 2d at 636.  The court of appeals remanded the cause to the 
circuit 
court 
to 
determine 
whether 
American 
Family 
was 
prejudiced by the failure of the plaintiffs-insureds to give 
notice of settlement.  
¶3 
For the reasons set forth, we affirm the decision of 
the court of appeals reversing the judgment and order of the 
circuit court and remanding the cause for determination of 
prejudice.  We hold, as did the court of appeals, that the 
failure of the plaintiffs-insureds to give notice of settlement 
to American Family does not bar UIM coverage unless American 
Family was prejudiced by the lack of notice.  We differ, 
however, with the court of appeals on whether a rebuttable 
presumption of prejudice arises when an insured fails to give 
notice of settlement to the UIM insurance company.  The court of 
appeals declined to apply a rebuttable presumption of prejudice. 
 We conclude that because the plaintiffs-insureds failed to give 
No.  97-0441 
 
3 
notice of settlement to American Family, there is a rebuttable 
presumption of prejudice, with the burden on the plaintiffs-
insureds to prove by the greater weight of the credible evidence 
that American Family suffered no prejudice.  
I 
¶4 
For purposes of the motion for summary judgment, the 
facts are not in dispute.  John Ranes was severely injured in an 
automobile accident involving a vehicle owned by Kinney Dairy 
Equipment, Inc., and driven by Robert Elsenpeter.  John and Mary 
Ranes (the plaintiffs-insureds) commenced an action against 
Elsenpeter, Kinney Dairy and Kinney Dairy's insurer Secura 
Insurance (collectively the tortfeasors) for injuries sustained 
as a result of the accident. 
¶5 
The plaintiffs-insureds settled their claims against 
the tortfeasors in exchange for a full and comprehensive release 
in favor of the tortfeasors.  The plaintiffs-insureds did not 
give notice of settlement to American Family, their UIM 
insurance company. 
¶6 
At the time of the accident the plaintiffs-insureds 
had multiple insurance policies issued by American Family and 
providing UIM coverage.  The American Family policies provided 
UIM coverage in the amount of $100,000 per person and $300,000 
per accident.  The insurance policies also provided that the 
limits of liability would be reduced by payment made on behalf 
of the tortfeasors.  Shortly after the settlement was concluded, 
the 
plaintiffs-insureds 
became 
aware 
of 
Matthiesen 
v. 
Continental Cas. Co., 193 Wis. 2d 192, 532 N.W.2d 729 (1995), 
No.  97-0441 
 
4 
which alerted them to the possibility that the reducing clause 
in the American Family policies might be void.  The plaintiffs-
insureds therefore filed suit against American Family, claiming 
UIM coverage.  American Family moved for summary judgment based 
on the failure of the plaintiffs-insureds to give notice of 
settlement.  
¶7 
American Family and the plaintiffs-insureds submitted 
a single issue to the circuit court on summary judgmentwhether 
the failure to give notice pursuant to Vogt bars the plaintiffs-
insureds' UIM coverage.  The parties agreed that for purposes of 
the summary judgment motion, a factual dispute exists whether 
American Family was prejudiced by the lack of notice.  The 
circuit court granted summary judgment in favor of American 
Family.3  The issue of what constitutes prejudice was not 
addressed by the parties, and the court does not address it. 
II 
¶8 
This case presents a question of law, namely whether 
the failure of an insured to give notice of settlement to a UIM 
insurance company bars UIM coverage, regardless of whether the 
UIM insurance company was prejudiced by the lack of notice.4  
                     
3 The order of the circuit court denied the plaintiffs-
insureds' motion to reconsider the summary judgment.  That order 
was reversed by the court of appeals. 
4 It is undisputed that the plaintiffs-insureds did not give 
notice 
to 
American 
Family 
of 
their 
settlement 
with 
the 
tortfeasors. 
No.  97-0441 
 
5 
This court determines questions of law independent of the 
circuit court and the court of appeals, benefiting from their 
analyses.  See Miller v. Thomack, 210 Wis. 2d 651, 659, 563 
N.W.2d 891 (1997). 
¶9 
The judgment of the circuit court was entered on a 
motion for summary judgment.  In reviewing a grant of summary 
judgment, an appellate court applies the standards set forth in 
Wis. Stat. § 802.08(2) (1993-94)5 in the same manner as does the 
circuit court in deciding a motion for summary judgment.  See 
Miller, 210 Wis. 2d at 659.  Summary judgment is properly 
granted when there is only a question of law at issue and the 
moving party is entitled to judgment as a matter of law.  See 
Id.  
III 
¶10 When an insured settles with a tortfeasor, the 
settlement 
agreement 
generally 
includes 
release 
of 
the 
                                                                  
At the circuit court and the court of appeals, the parties 
agreed that Vogt required the plaintiffs-insureds to give notice 
to American Family.  In this court the plaintiffs-insureds 
asserted for the first time that Vogt did not impose any notice 
requirement.  The plaintiffs-insureds asserted that the present 
case presents a different fact situation from the one presented 
in Vogt.  Although a party may generally make a new argument to 
support affirmance of a favorable ruling in the court of 
appeals, a party cannot raise a new issue in this court that 
will cause a modification of the decision of the court of 
appeals without filing a petition for review or cross review.  
The plaintiffs-insureds did not file either petition.  See Wis. 
Stat. (Rule) § 809.62(7)(1995-96).  Accordingly we will not 
address this issue.  
5 All references to the Wisconsin statutes are to the 1993-
94 version unless otherwise indicated.  
No.  97-0441 
 
6 
tortfeasor and forecloses subrogation claims of a UIM insurance 
company.  Recognizing that a UIM insurance company has an 
interest 
in 
preserving 
its 
subrogation 
claims 
against 
a 
tortfeasor, the Vogt court fashioned a notice of settlement 
procedure designed to allow the UIM insurance company to decide 
whether it wants to pay the insured and assume subrogation 
rights against the tortfeasor. 
¶11 The court of appeals concluded that failure to give 
notice of settlement pursuant to Vogt does not bar UIM coverage 
unless the UIM insurance company was prejudiced by the lack of 
notice.  The court of appeals based its conclusion on the 
following reasons, with which we agree. 
¶12 First, the court of appeals was persuaded that a 
majority of state courts considering the question have concluded 
that failure to give notice of settlement does not bar UIM 
coverage unless the UIM insurance company was prejudiced by the 
lack of notice.6  American Family argues that these cases are 
thin in reasoning and that many of them involve interpretation 
of consent-to-settlement provisions.   
                     
6 Some of the cases are cited by the court of appeals at 
Ranes, 212 Wis. 2d at 631-32.  Also see cases cited at 3 Alan I. 
Widiss, Uninsured and Underinsured Motorist Insurance, § 43.5, 
at 347 (2d ed. 1998) ("There is now a significant body of 
judicial precedents for the proposition that in order to justify 
foreclosing an insured's right to indemnification from an 
otherwise applicable underinsured motorist coverage, an insurer 
must show that it was prejudiced by the settlement of the tort 
claim."). 
No.  97-0441 
 
7 
¶13 We are not convinced by American Family's attempt to 
diminish the import of the cases.  Courts generally seek to 
avoid an insured's forfeiture of a claim resulting from the 
insured's failure to comply with a provision in an insurance 
policy or statute when the failure to comply does not prejudice 
the 
insurance 
company. 
 
This 
doctrine 
corresponds 
with 
principles of contract law and insurance law and is applicable 
to the present case.  
¶14 Second, the court of appeals concluded that the 
Wisconsin 
legislature has 
enacted 
statutes 
declaring 
that 
violations of an insured's obligation to give notice will 
penalize the insured only when the insurance company is 
prejudiced by the lack of notice.  The court of appeals looked 
to three statutestwo insurance statutes and the notice of 
claims statute relating to claims against a governmental body.  
See Wis. Stat. § 632.26(2) (notice required under a liability 
policy)7; Wis. Stat. § 631.81 (notice of proof of loss)8; Wis. 
Stat. § 893.80(1)(a) (notice of injury against a governmental 
                     
7 Wisconsin Stat. § 632.26(2) EFFECT OF FAILURE TO GIVE 
NOTICE.  Failure to give notice . . . does not bar liability 
under the policy if the insurer was not prejudiced by the 
failure, but the risk of nonpersuasion is upon the person 
claiming there was no prejudice. 
8 Wisconsin Stat. § 631.81 Notice and proof of loss. 
(1) TIMELINESS OF NOTICE.  Provided notice or proof of loss is 
furnished as soon as reasonably possible and within one year 
after the time it was required by the policy, failure to furnish 
such notice or proof within the time required by the policy does 
not invalidate or reduce a claim unless the insurer is 
prejudiced thereby and it was reasonably possible to meet the 
time limit. 
No.  97-0441 
 
8 
body).9  The court of appeals viewed these statutes, taken 
together, as an expression of a legislative policy. 
¶15 American Family correctly asserts, and the court of 
appeals agreed, that none of these statutes applies to this case 
or resolves the issue presented here.  Nevertheless, we agree 
with the court of appeals that these statutes give an indication 
of the legislature's policy to require prejudice before an 
insured's rights are forfeited for failure to give notice.  
¶16 Third, the court of appeals considered principles of 
contract law to determine whether an insured's failure to give 
notice relieves a UIM insurance company of its obligations.  
Under Wisconsin common law, a party to a contract is obligated 
to perform in accordance with the contract terms unless the 
other party's breach is material.  See Management Comp. Serv., 
Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 183, 557 
N.W.2d 67 (1996) (internal citations omitted).  For a breach to 
be material, it must be so serious as to destroy the essential 
object of the agreement.  See Appleton State Bank v. Lee, 33 
Wis. 2d 690, 692-93, 148 N.W.2d 1 (1967).  When the breach is 
"relatively minor" and not "of the essence," the nonbreaching 
party is not excused from performance.  Management Comp. Serv., 
                     
9 Wisconsin Stat. § 893.80(1)(a) provides in pertinent part: 
Failure to give the requisite notice shall not bar 
action on the claim if the [governmental body] had 
actual 
notice 
of 
the 
claim 
and 
the 
claimant 
shows . . . that the delay or failure to give the 
requisite notice has not been prejudicial to the 
defendant . . . . 
 
No.  97-0441 
 
9 
206 Wis. 2d at 183 (quoting Arthur L. Corbin, Corbin on 
Contracts, § 700, at 310 (1960)).  
¶17 We agree with the court of appeals' application of 
general contract principles to conclude in this case that 
failure to give notice should not void the obligations of the 
UIM insurance company unless the breach is material, that is, 
the UIM insurance company was prejudiced by the lack of notice. 
¶18 American Family further argues that the Vogt decision 
sets forth a basic, clear procedure for an insured to follow and 
that by imposing a prejudice requirement, the court of appeals 
has created a new "layer" of litigation over the question of 
prejudice.   
¶19 We agree with American Family that a bright line rule 
requiring notice of a proposed settlement to a UIM insurance 
company 
reduces 
litigation. 
 
American 
Family's 
position, 
however, does not comport with general principles of contract 
law.  Furthermore, subrogation (the basic underlying issue here) 
is an equitable doctrine, and it does not appear just to excuse 
a UIM insurance company from providing UIM coverage when the UIM 
insurance company was not prejudiced by the insured's failure to 
give notice.  
¶20 Fourth, the court of appeals reasoned that because the 
Vogt decision relied heavily on a Minnesota supreme court 
decision, Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), 
Minnesota case law relating to the consequences of an insured's 
failure to give notice of settlement to a UIM insurance company 
would be persuasive.  The court of appeals turned to American 
No.  97-0441 
 
10
Family Mut. Ins. Co. v. Baumann, 459 N.W.2d 923, 927 (Minn. 
1990), in which the Minnesota supreme court held that the 
insured's failure to give notice of settlement does not bar UIM 
coverage unless the UIM insurance company was prejudiced by the 
lack of notice.  
¶21 American Family contends that the Wisconsin court of 
appeals reads Baumann too broadly.  American Family claims that 
Baumann 
should 
be 
limited 
to 
its 
facts, 
which 
are 
distinguishable from the facts in the present case.  To American 
Family, the important distinguishing fact in Baumann is that the 
UIM insurance company in Baumann was given some notice even 
though the notice 
did not 
fully 
comply 
with 
the 
legal 
requirements.  
¶22 We are not persuaded by American Family's attempt to 
distinguish Baumann from the present case.  The Minnesota court 
of appeals has applied Baumann in a case in which an insured 
failed to give any notice of settlement to the UIM insurance 
company.  See Behrens v. American Family Mut. Ins. Co., 520 
N.W.2d 763, 767 (Minn. Ct. App. 1994).   
¶23 American Family also points out that the Baumann court 
cited, but did not overrule, Klang v. American Family Mut. Ins. 
Group, 398 N.W.2d 49 (Minn. Ct. App. 1986).  In Klang the 
Minnesota court of appeals held that when an insured settles 
with an alleged tortfeasor without giving notice to the UIM 
insurance company, the insured forfeits UIM coverage. 
¶24 But the Baumann court did not have to overrule Klang 
because the Baumann court set down a rule of prejudice to be 
No.  97-0441 
 
11
applied in future cases.  In Baumann the Minnesota supreme court 
wrote that "henceforth" 30 days' written notice of a settlement 
agreement is required and that without the required notice, a 
rebuttable presumption of prejudice arises.  Baumann, 459 N.W.2d 
at 927.10  
¶25 We are persuaded, as was the court of appeals, that 
under Baumann the failure to give notice of settlement does not 
bar UIM coverage unless the UIM insurance company was prejudiced 
by the lack of notice.  
¶26 Applying the same reasoning as the Wisconsin court of 
appeals, we conclude that the failure of the plaintiffs-insureds 
to give notice of settlement does not bar UIM coverage unless 
American Family was prejudiced by the lack of notice.  Absent 
some showing of prejudice to American Family, the failure to 
give notice will not result in forfeiture of UIM coverage. 
IV 
¶27 Having concluded that an insured's failure to give 
notice does not bar UIM coverage unless the UIM insurance 
company is prejudiced by the lack of notice, we now consider the 
second question of law, namely the applicable burden of proof in 
determining whether a UIM insurance company was prejudiced.   
                     
10 The question arose in Behrens v. American Family Mut. 
Ins. Co., 520 N.W.2d 763, 768 (Minn. Ct. App. 1994), whether the 
Baumann prejudice analysis should be applied retroactively to a 
case arising before Baumann was decided.  The Minnesota court of 
appeals wrote that it was not convinced that Baumann should 
apply to cases arising before that decision.  
No.  97-0441 
 
12
¶28 The plaintiffs-insureds argue that to place on the UIM 
insurance company the burden of producing evidence and the 
burden of persuasion on the issue of prejudice comports with 
principles of contract law, which place the burden on an 
insurance company to prove a defense to coverage.11  American 
Family argues that if this court requires a showing of 
prejudice, the court should adopt a presumption of prejudice 
when an insured fails to give notice of settlement and the 
burden should be placed on the insured to rebut the presumption. 
  
¶29 The 
court 
of 
appeals 
rejected 
both 
of 
these 
propositions, stating that it saw "little compelling reason to 
establish a presumption regarding the question of prejudice."  
Ranes, 212 Wis. 2d at 636.  As analyzed by the court of appeals, 
the prejudice issue is a factual issue to be resolved by the 
fact finder.  According to the court of appeals, once a UIM 
insurance company carries its burden of showing lack of notice, 
an insured must produce sufficient evidence to satisfy the fact 
finder by a preponderance of the evidence that the UIM insurance 
                     
11 Other 
arguments 
that 
favor 
placing 
the 
burden 
of 
producing evidence and the burden of persuasion on the issue of 
prejudice on the UIM insurance company include:  (1) the UIM 
insurance company is in the best position both to assess 
prejudice and to produce evidence of prejudice; (2) it is 
difficult for an insured to prove the "negative fact" of no 
prejudice; and (3) when no clear proof is available on the issue 
of prejudice, placing the burden on the insurer serves to avoid 
forfeiture of UIM coverage.  See 3 Alan I. Widiss, Uninsured and 
Underinsured Motorist Insurance, § 43.5, at 349 (2d ed. 1998).  
No.  97-0441 
 
13
company suffered no prejudice as a result of the lack of notice. 
 See Ranes, 212 Wis. 2d at 636. 
¶30 In determining the applicable burden of proof, we turn 
again to the Minnesota cases for guidance.  The Baumann court 
adopted a presumption of prejudice, with the burden placed upon 
the insured to rebut the presumption: 
 
Absent the required 30-day written notice, release of 
the tortfeasor shall be deemed prejudicial to the 
underinsurer.  That presumption of prejudice shall be 
rebuttable, but the burden of demonstrating by a 
preponderance of the evidence the absence of prejudice 
shall be borne by the insured.  An insured's failure 
to sustain that burden of proving a lack of prejudice 
to the insurer shall result in forfeiture. 
Baumann, 459 N.W.2d at 927. 
¶31 Recognizing a presumption of prejudice and placing the 
burden to rebut the presumption on an insured take into account 
the rights and responsibilities of both the UIM insurance 
company and the insured.  The UIM insurance company is entitled 
to receive notice of possible settlement, but forcing an insured 
to forfeit UIM coverage is too harsh a penalty if the UIM 
insurance company was not prejudiced by the lack of notice.  
Because prejudice to the UIM insurance company is often 
difficult to prove, the UIM insurance company should be aided by 
a presumption of prejudice.  Imposing the burden to rebut that 
presumption on the insured places the onus on the breaching 
party who failed to provide notice.  Thus the harsh result of 
forfeiture of UIM coverage for failure to give notice is 
ameliorated by giving the insured an opportunity to rebut the 
No.  97-0441 
 
14
presumption of prejudice and to retain coverage under the UIM 
policy.  See 8 Appleman, Insurance Law and Practice § 4732, at 
21-26 (1981). 
¶32 Imposing a rebuttable presumption of prejudice in this 
case comports with other provisions of Wisconsin insurance law 
that have adopted a rebuttable presumption of prejudice when 
notice is not timely and have placed the burden of proving no 
prejudice on the person who failed to give notice.12  Other 
states have also imposed the burden to prove prejudice on the 
insured when notice of settlement was not provided.13  
¶33 For the reasons set forth, we conclude that the 
failure of the plaintiffs-insureds to give notice creates a 
rebuttable presumption that American Family was prejudiced by 
the lack of notice and that the plaintiffs-insureds have the 
burden of going forward with the evidence and the burden to 
                     
12 See, e.g., Wis. Stat. § 632.26(2) ("Failure to give 
notice . . . does not bar liability . . . if the insurer was not 
prejudiced by the failure, but the risk of nonpersuasion is upon 
the person claiming there was no prejudice."); Gerrard Realty 
Corp. v. American States Ins. Co., 89 Wis. 2d 130, 146-47, 277 
N.W.2d 863 (1979) (when notice is given after the time set in 
Wis. Stat. § 631.81, there is a rebuttable presumption of 
prejudice and the insured has the burden to prove the insurer 
was not prejudiced by the untimely notice).   
13 The court of appeals stated that "among those states that 
make a finding of prejudice there is almost an equal division as 
to whom the burden of proof is assigned."  Ranes, 212 Wis. 2d at 
635-36.  But see 3 Alan I. Widiss, Uninsured and Underinsured 
Motorist Insurance, § 43.5, at 349 (2d ed. 1998) (asserting that 
most of the courts requiring a showing of prejudice before an 
insured forfeits UIM coverage hold that it is the UIM insurance 
company's obligation "to show that the unauthorized settlement 
adversely affected its interests"). 
No.  97-0441 
 
15
persuade the fact finder that American Family was not prejudiced 
by the lack of notice.  If the plaintiffs-insureds fail to rebut 
the presumption of prejudice by the greater weight of the 
credible evidence, they will forfeit their UIM coverage under 
the insurance policies.  
¶34 In conclusion, we hold that the failure of the 
plaintiffs-insureds to give notice of settlement to American 
Family does not bar UIM coverage unless American Family was 
prejudiced by the lack of notice.  We further hold that because 
the plaintiffs-insureds failed to give notice to American 
Family, there is a rebuttable presumption of prejudice, with the 
burden on the plaintiffs-insureds to prove by the greater weight 
of the credible evidence that American Family suffered no 
prejudice.  
¶35 Accordingly, we affirm the decision of the court of 
appeals, which remanded the cause to the circuit court to 
determine whether American Family was prejudiced by the lack of 
notice of settlement. 
By the Court.—The decision of the court of appeals is 
affirmed. 
 
 
1