Title: Estate of Dale Otto v. Physicians Insurance Company of Wisconsin, Inc.
Citation: 2008 WI 78
Docket Number: 2006AP001566
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 3, 2008

2008 WI 78 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2006AP1566 
COMPLETE TITLE: 
 
 
Estate of Dale Otto, by Personal Representative 
Shelley Otto, Shelley Otto, Ashley Otto and 
Amanda Otto, 
          Plaintiffs-Respondents, 
     v. 
Physicians Insurance Company of Wisconsin, Inc., 
          Defendant-Appellant-Petitioner, 
 
Charles L. Folkestad, M.D., Terrance J. Witt, 
M.D., Red Cedar Clinic - Mayo Health System and 
Wisconsin Patients Compensation Fund, 
          Defendants, 
 
Valley Health Plan, Inc. and Blue Cross & Blue 
Shield of Nebraska, 
          Subrogated Defendants. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2007 WI App 192 
Reported at: 305 Wis. 2d 198, 738 N.W.2d 599 
(Ct. App. 2007-Published) 
 
 
OPINION FILED: 
July 3, 2008   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
April 15, 2008   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Dunn   
 
JUDGE: 
Rod W. Smeltzer   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
ROGGENSACK, J., dissents (opinion filed). 
PROSSER and ZIEGLER, JJ., join the dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the defendant-appellant-petitioner there were briefs by 
Michael B. Van Sicklen, Bree Grossi Wilde, and Foley & Lardner 
LLP, Madison, and oral argument by Michael B. Van Sicklen. 
 
For the plaintiffs-respondents there was a brief filed by 
John L. Cates, Michael J. Luebke, Eric J. Haag, Heath P. Straka, 
 
 
2 
and Gingras, Cates & Luebke, S.C., Madison, and oral argument by 
Heath P. Straka. 
 
An amicus curiae brief was filed by James A. Friedman, 
Katherine Stadler, and Godfrey & Kahn, S.C., Madison, on behalf 
of the Wisconsin Insurance Alliance and the Property Casualty 
Insurers Association of America. 
 
An amicus curiae brief was filed by Linda V. Meagher and 
Habush Habush & Rottier, S.C., Waukesha, on behalf of the 
Wisconsin Association for Justice. 
 
 
 
 
2008 WI 78
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
 
No.  2006AP1566  
(L.C. No. 
2003CV187) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Estate of Dale Otto, by Personal Representative 
Shelley Otto, Shelley Otto, Ashley Otto and 
Amanda Otto, 
 
          Plaintiffs-Respondents, 
 
     v. 
 
Physicians Insurance Company of Wisconsin, 
Inc., 
 
          Defendant-Appellant-Petitioner, 
 
Charles L. Folkestad, M.D., Terrance J. Witt, 
M.D., Red Cedar Clinic - Mayo Health System and 
Wisconsin Patients Compensation Fund, 
 
          Defendants, 
 
Valley Health Plan, Inc. and Blue Cross & Blue 
Shield of Nebraska, 
 
          Subrogated Defendants. 
 
 
 
FILED 
 
JUL 3, 2008 
 
David R. Schanker 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.    
 
No. 
2006AP1566   
 
2 
 
¶1 
SHIRLEY 
S. 
ABRAHAMSON, 
C.J.   The 
defendant, 
Physicians Insurance Company of Wisconsin, Inc. (PIC), seeks 
review of a published decision of the court of appeals.  For 
purposes of this review, the court of appeals affirmed a 
judgment by default rendered by the Circuit Court for Dunn 
County, Rod W. Smeltzer, Judge,1 against PIC for damages suffered 
by plaintiffs Shelley Otto, Ashley Otto, Amanda Otto, and the 
Estate of Dale Otto (collectively, the plaintiff) as a result of 
the alleged medical malpractice of PIC's codefendant insureds.  
We affirm the decision of the court of appeals.  
¶2 
Our analysis is as follows: 
I.  We begin by stating what is not at issue in the present 
case. 
II.  We state the issue presented. 
III.  We explore the facts. 
                                                 
1 Estate of Otto v. Physicians Ins. Co. of Wis., Inc., 2007 
WI App 192, 305 Wis. 2d 198, 738 N.W.2d 599. 
The court of appeals agreed with PIC that the circuit court 
erred in failing to offset the damage award against PIC by the 
amount that a subrogated insurer had already paid to the 
plaintiff.  The court of appeals thus reversed the circuit court 
on this issue and remanded cause with directions for the clerk 
of courts to adjust the judgment against PIC to account for the 
offset of $46,635.26.  See Estate of Otto, 305 Wis. 2d 198, 
¶¶28-32.  In all other respects, the court of appeals affirmed 
the circuit court's judgment. 
The plaintiff declined to petition for review of that 
portion of the court of appeals' opinion reversing the circuit 
court's judgment in part.   
No. 
2006AP1566   
 
3 
 
IV.  We consider and reject each of PIC's arguments in 
turn. 
I 
¶3 
Whether PIC is in default is not at issue.  Although 
PIC vigorously disputed the issue of its default before the 
circuit court and court of appeals, PIC does not dispute here 
that it is in default.   
¶4 
PIC argued before the circuit court that although it 
had failed to serve an answer timely in response to the 
plaintiff's amended complaint naming PIC as a defendant, PIC 
should not be held in default under the circumstances of the 
present case.  PIC moved for the circuit court to enlarge the 
time in which PIC could file and serve its answer, arguing that 
its neglecting to serve an answer within the time originally 
specified was excusable.2   
¶5 
PIC explained its failure to serve an answer timely as 
follows: PIC hired counsel to represent PIC and all of PIC's 
codefendants (most of whom were PIC's insureds) in the action; 
the counsel hired by PIC intended to serve an answer timely on 
behalf of all defendants in the action, including PIC; the 
counsel timely served an answer (which denied the liability of 
all 
defendants) 
on 
behalf 
of 
PIC's 
codefendants 
but 
inadvertently omitted PIC's name from the caption of the answer; 
                                                 
2 PIC argued to the circuit court that PIC's neglect was of 
the kind "which might have been the act of a reasonably prudent 
person under the same circumstances."  See Connor v. Connor, 
2001 WI 49, ¶16, 243 Wis. 2d 279, 627 N.W.2d 182 (quotation 
marks and citation omitted).   
No. 
2006AP1566   
 
4 
 
counsel's inadvertent omission of PIC's name stemmed from a 
clerical or computer-based error without PIC's, counsel's, or 
counsel's staff's fault; the parties continued to litigate the 
action for more than nine months before anyone noticed PIC's 
failure to answer and for more than one year before the 
plaintiff moved for default judgment against PIC; the plaintiff 
and all other parties knew or believed all along that the 
counsel representing PIC's codefendants was also representing 
PIC; and the counsel hired by PIC immediately filed an amended 
answer including PIC's name in the caption when counsel's prior 
omission was finally called to his attention.  
¶6 
PIC argued to the circuit court that notwithstanding 
the oversight of its counsel, PIC had at all times diligently 
defended the action on its merits on behalf of itself and its 
codefendants.  PIC contended that when counsel's oversight has 
caused no prejudice to the plaintiff, the interests of justice 
weigh heavily in favor of accepting PIC's answer.  The plaintiff 
did not argue to the circuit court that it was prejudiced by 
PIC's failure to serve its answer timely.   
¶7 
PIC's argument to the circuit court was unsuccessful.  
The circuit court found as matters of fact that the counsel 
purportedly representing PIC had accepted service of the 
plaintiff's amended complaint on behalf of PIC's codefendants 
but had refused to accept service on PIC's behalf; that the 
plaintiff had been forced to serve its amended complaint to PIC 
personally; that there was no evidence in the record showing 
that PIC ever notified counsel that it had been served with the 
No. 
2006AP1566   
 
5 
 
amended complaint or requested counsel to serve or file an 
answer on its behalf; that "[f]rom October 30, 2003 through 
August 24, 2004 (when PIC filed an Answer with the Court), 
[counsel for the codefendants] filed numerous formal documents 
with the Court, none listing PIC as being represented by his 
firm";3 that "[h]earings were held on motions to strike the 
expert testimony of Dr. Melby [an expert witness called by the 
plaintiff] on April 20, 2004 and to strike certain testimony of 
Dr. Hogan [another expert witness called by the plaintiff] on 
July 13, 2004" and that "PIC did not appear with counsel at 
those hearings."4   
¶8 
On the basis of the facts as it found them, the 
circuit court determined that PIC's neglect was not excusable.  
The circuit court thus denied PIC's motion to enlarge the time 
                                                 
3 The record shows that either counsel for the codefendants 
or his cocounsel filed 12 formal documents with the circuit 
court during the relevant period.  Each document listed PIC's 
codefendants, but not PIC, as being represented by counsel's 
firm.   
4 The transcript of the April 20, 2004, hearing is not in 
the record.  However, the transcript of the July 13, 2004, 
hearing is.  At the beginning of the July 13 hearing, cocounsel 
for the defendants identified herself as follows: 
Lori Lubinsky of the Axley Brynelson firm appearing on 
behalf of the defendants, Charles Folkestad, Terrence 
Witt, Red Cedar Clinic and the Fund to the extent we 
provided a defense for the Fund. 
As the circuit court found, counsel's recitation of the 
clients she appeared to represent did not include PIC.    
No. 
2006AP1566   
 
6 
 
in which to file and serve an answer and granted the plaintiff's 
motion to strike the answer that PIC had served untimely.   
¶9 
In the petition for review filed with this court, PIC 
declined to contest that it is in default for its failure to 
serve an answer timely.  PIC concedes before this court that its 
failure to serve an answer timely cannot be excused under the 
circumstances of the present case; that the circuit court 
properly denied PIC's motion to enlarge the time in which to 
serve and file an answer; and that the circuit court properly 
granted the plaintiff's motion to strike PIC's untimely answer.  
In short, PIC concedes that it is in default, that is, that PIC 
has failed without excuse to join issue of law or fact. 
II 
¶10 We turn now to the issue to be decided in the instant 
case.  PIC's petition presents only a single issue for review by 
this court.  That issue pertains to the legal effect of PIC's 
now-acknowledged default.5  We decide in the present case this 
                                                 
5 In its petition, PIC explicitly addressed its decision not 
to petition for review of the additional issues that PIC raised 
and argued before the lower courts.  PIC's petition explains 
that although PIC "disagrees with the lower courts' ruling on 
all of the default issues," PIC opted to focus its petition "on 
the key issue of first impression in Wisconsin pertaining to the 
effect of the default."  Petition for Review by Defendant-
Appellant Physicians Insurance Company of Wisconsin, Inc. at 6.    
At oral argument, members of this court also pressed PIC's 
appellate counsel for a statement of the issue or issues that 
PIC intended to argue before this court.  Counsel for PIC 
confirmed that among the many issues PIC raised and argued 
before the lower courts, PIC had declined to present all but one 
"narrow" issue for review by this court.    
No. 
2006AP1566   
 
7 
 
single issue of law that PIC has presented for our review.  We 
do not address or decide any issues decided in the circuit court 
or court of appeals but not raised in PIC's petition to this 
court.   
¶11 The issue that PIC presents in its petition to this 
court may be stated as follows: Did the answer served timely by 
PIC's 
codefendant 
insureds 
denying 
the 
liability 
of 
all 
defendants inure to PIC's benefit so as to preclude, as a matter 
of law, a judgment by default against PIC for the plaintiff's 
damages, notwithstanding PIC's acknowledged default?6   
¶12 PIC contends that because the timely answer of its 
codefendant insureds denied the liability of all defendants, the 
effect of PIC's default is limited and partial as a matter of 
law.  PIC asserts that it remains entitled to a trial on the 
issue of its insureds' causal negligence and PIC's liability to 
the plaintiff.  According to PIC, its default only precludes PIC 
                                                 
6 The following is PIC's statement of the issue in its 
Petition for Review and in its Opening Brief in this court: 
Is it appropriate to impose an almost $1 million 
default judgment on a late answering insurer for all 
of the damages caused by its insured where the 
insureds——whose conduct is the issue in the case——
timely and vigorously disputed all of the Plaintiffs' 
liability and damage allegations through the defense 
counsel the insurer retained to provide a joint 
defense for it and its insureds?  The trial court 
ruled that the effect of the insurer's default was to 
preclude it from challenging whether its insureds were 
negligent even though the insureds timely denied all 
of Plaintiffs' allegations and imposed a $972,469.81 
default judgment against the insurer. 
No. 
2006AP1566   
 
8 
 
from contesting that it had at all times material a policy of 
insurance in full force and effect that provided coverage to 
PIC's codefendant insureds for malpractice claims of the kind 
alleged by the plaintiff.  In other words, PIC argues that the 
effect of PIC's default is to admit only its unconditional 
coverage for the codefendant insureds.  
¶13 We affirm the decision of the court of appeals.  We 
conclude that the circuit court did not err as a matter of law 
in rendering a judgment by default against PIC for the 
plaintiff's damages.  We determine, as did the circuit court and 
the court of appeals, that the timely answer of the codefendant 
insureds denying the liability of all defendants did not, as a 
matter of law, preclude a judgment by default against PIC on the 
issue of liability and damages upon PIC's acknowledged default.  
We hold that PIC's acknowledged default subjected PIC to a 
judgment by default for the plaintiff's damages against it.   
¶14 Accordingly, we affirm the decision of the court of 
appeals affirming the circuit court's default judgment against 
PIC for damages. 
III 
 
¶15 We briefly summarize the facts relevant to the issue 
that PIC presents for review.     
¶16 Dale Otto, Shelley Otto, and Ashley Otto filed a 
complaint against two medical doctors, the clinic employing the 
doctors, the doctors' and clinic's fictitious insurers, and the 
No. 
2006AP1566   
 
9 
 
Wisconsin Patients' Compensation Fund.7  The complaint pled, 
inter alia, causes of action for recovery of damages allegedly 
caused by the doctors' negligence.  Dale Otto died not long 
after the complaint was filed.   
¶17 Upon Otto's death, an amended complaint was filed 
substituting the Estate of Dale Otto for Otto personally and 
adding Amanda Otto as a named plaintiff.8  The amended complaint 
also substituted PIC for the fictitious insurers named in the 
original complaint and alleged that PIC had, in full force and 
effect at all material times, a policy of insurance covering the 
doctors and their employer for the damages alleged by the 
plaintiff.   
¶18 The amended complaint pled causes of action for 
medical negligence not only against the codefendant doctors but 
also directly "against . . . Physicians Insurance Company of 
Wisconsin, Inc. . . . ."  The plaintiff's amended complaint 
alleged that PIC's codefendant insureds were negligent causing 
damages to the plaintiff and that "Physicians Insurance Company 
of Wisconsin, Inc. . . . [is] directly liable to Plaintiffs in 
an amount to be proven at trial."   
¶19 Attorney Guy DeBeau served and filed an answer to the 
amended complaint on behalf of the doctors and the doctors' 
employer on November 5, 2003.  The answer of the doctors and 
                                                 
7 The complaint also named a subrogated defendant.   
8 In 
addition, 
the amended complaint named a second 
subrogated defendant in the action.   
No. 
2006AP1566   
 
10 
 
their employer denied the plaintiff's allegation that the 
doctors were negligent or that they had caused damages to the 
plaintiff.  Although the answer was not filed or served on 
behalf of PIC, the answer specifically denied PIC's liability to 
the plaintiffs for any damages; admitted that PIC "had at a time 
material hereto a policy of insurance in full force and effect 
which provided coverage to [the doctors and the doctors' 
employer] for claims of the nature alleged by the plaintiffs"; 
and "specifically aver[red] that the extent of coverage provided 
under said policy is limited by the terms and conditions of said 
policy . . . ."  
¶20 The plaintiff served PIC the amended complaint and 
summons on November 20, 2003, fifteen days after the codefendant 
insureds had served and filed their answer.  The plaintiff 
initially asked Attorney DeBeau to admit service of the amended 
summons and complaint on behalf of PIC.  For reasons unclear 
from the record, Attorney DeBeau declined.  The plaintiff 
ultimately served PIC personally through its vice-president of 
claims.  
¶21 The amended summons informed PIC that "[w]ithin 45 
days of receiving th[e] summons," PIC would be required to 
"respond with a written answer, as that term is used in Chapter 
802 of the Wisconsin Statutes, to the complaint."  The amended 
summons further advised PIC that if it did "not provide a proper 
answer within 45 days, the court may grant judgment against you 
for the award of money or other legal action requested in the 
complaint." 
No. 
2006AP1566   
 
11 
 
¶22 PIC answered some eight months later.  On August 23, 
2004, PIC answered in the form of an amended answer served and 
filed by Attorney DeBeau on behalf of the doctors, their 
employer, and the defendant.  PIC's answer was untimely.9     
¶23 The plaintiff moved for judgment by default against 
PIC and for an order striking PIC's answer.  PIC moved for an 
order enlarging the time to file and serve its answer.  The 
circuit court denied PIC's motion for an order enlarging the 
time to file and serve its answer, finding that PIC's failure to 
answer timely was not the result of excusable neglect.10  See 
Wis. Stat. § (Rule) 801.15(2)(a).  The circuit court then 
ordered that PIC's untimely answer be struck and that judgment 
by default be entered against it.   
¶24 In a brief filed subsequent to the circuit court's 
order for the entry of default judgment, PIC argued to the 
circuit court that its default had the sole effect of rendering 
PIC "estopped from asserting its policy defenses."  PIC argued 
that its default could not preclude PIC from litigating the 
                                                 
9 As stated in the amended summons, the time allotted to PIC 
to answer was 45 days.  See Wis. Stat. § (Rule) 802.09(1) (2003-
04) ("A party shall plead in response to an amended pleading 
within 45 days after service of the amended pleading.").  
All subsequent references to the Wisconsin Statutes are to 
the 2003-04 version unless otherwise indicated. 
10 See Wis. Stat. § (Rule) 801.15(2)(a) (providing in 
relevant part that if a motion for enlargement of the time in 
which to perform an act "is made after the expiration of the 
specified time, it shall not be granted unless the court finds 
that the failure to act was the result of excusable neglect").  
No. 
2006AP1566   
 
12 
 
plaintiff's 
allegation 
that 
the 
doctors 
insured 
by 
PIC 
negligently caused damages to the plaintiff.  Although the 
circuit court had already granted the plaintiff's motion for 
default judgment, PIC argued that the remedy of a default 
judgment 
was 
not 
available 
to 
the 
plaintiff 
under 
the 
circumstances of the present case.   
¶25 The 
circuit 
court 
rejected 
PIC's 
argument 
and 
determined that PIC's default made it subject to a judgment by 
default for the plaintiff's damages.  The circuit court 
scheduled a hearing to determine the amount of the plaintiff's 
damages.11   
¶26 After the circuit court determined that PIC would be 
liable by its default for the plaintiff's damages, the circuit 
court 
ordered 
the 
codefendant 
insureds 
dismissed 
upon 
a 
stipulation between the plaintiff and the insureds.  Under the 
terms of the circuit court's order of dismissal, all claims 
against 
the 
codefendant 
insureds 
were 
dismissed 
without 
prejudice and without costs to any party, and the plaintiff 
covenanted not to refile the action for the remainder of the 
applicable limitations period.  The circuit court's order also 
provided that no finding would be made as to whether the 
defendant doctors had been negligent or had demonstrated 
unprofessional conduct. 
                                                 
11 See Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 478 n.5, 
326 N.W.2d 727 (1982) ("Upon entry of a default judgment, the 
circuit court may hold a hearing or inquiry to determine 
damages."). 
No. 
2006AP1566   
 
13 
 
¶27 After conducting a hearing on damages, the circuit 
court 
rendered 
judgment 
by 
default 
against 
PIC 
for 
the 
plaintiff's 
compensatory 
damages, 
plus 
fees, 
costs, 
and 
interest.  
IV 
¶28 We address PIC's argument that the timely answer of 
the codefendant insureds denying the liability of all defendants 
inured to PIC so as to preclude a judgment by default against 
PIC notwithstanding PIC's acknowledged default.   
¶29 The decision whether to grant a motion for judgment by 
default lies within the sound discretion of the circuit court.12  
In reviewing a circuit court's discretionary decision, an 
appellate court decides questions of law imbedded in the circuit 
court's exercise of discretion independently of the circuit 
court but benefiting from its analysis.13  The issue presented in 
the instant case requires this court to interpret and apply 
rules of pleading, practice, and procedure adopted by this court 
pursuant to Wis. Stat. § 751.12.  Interpretation of these rules 
presents 
a 
question 
of 
law 
that 
this 
court 
determines 
independently of the circuit court and court of appeals but 
benefiting from their analyses.14     
                                                 
12 Split Rock Hardwoods, Inc. v. Lumber Liquidators, Inc., 
2002 WI 66, ¶63, 253 Wis. 2d 238, 646 N.W.2d 19.   
13 Kocken v. Wis. Council 40, 2007 WI 72, ¶26, 301 
Wis. 2d 266, 732 N.W.2d 828.   
14 Waters ex rel. Skow v. Pertzborn, 2001 WI 62, ¶16, 243 
Wis. 2d 703, 627 N.W.2d 497.   
No. 
2006AP1566   
 
14 
 
¶30 PIC makes the following arguments in support of its 
position that the timely answer of the codefendant insureds 
denying the liability of all defendants inured to it so as to 
preclude, as a matter of law, a judgment by default against it 
notwithstanding its acknowledged default: (A) PIC's default 
cannot establish its liability, because its liability is 
completely dependent upon the liability of its codefendant 
insureds and PIC thus cannot admit by its default the negligence 
of its codefendant insureds; (B) Wisconsin law supports PIC's 
position; (C) Case law from other jurisdictions supports PIC's 
position; (D) Case law from other jurisdictions demonstrates 
that the circuit court's default judgment against the defendant 
improperly invited inconsistent outcomes in the action; and (E) 
Public policy considerations support limiting the effect of 
PIC's default to an admission of unconditional coverage.  We 
reject each argument in turn.   
A 
¶31 PIC's 
first 
argument 
is 
that 
its 
liability 
is 
completely dependent upon the liability of its codefendant 
insureds and that it therefore cannot admit by its default the 
negligence of its codefendant insureds.  We conclude that this 
argument is contrary to Wis. Stat. § 632.24, Wisconsin's "direct 
action" statute.   
¶32 The direct action statute provides that any liability 
policy covering negligence makes the insurance company liable to 
the person entitled to recover against the insured up to the 
policy limits.  Under the direct action statute, the complaining 
No. 
2006AP1566   
 
15 
 
party may allege the insured's conduct, and the insurer's 
liability therefor, directly against the insurer.  The statute 
renders the insurer "directly liable" for the conduct of its 
insured.15  "[J]udgment may be directly against the insurer 
and . . . payment must be made directly to the injured party."16  
In addition, the insured is not a necessary party to the action 
brought against its insurer.17    
¶33 Section 632.24 provides in full as follows: 
DIRECT ACTION AGAINST INSURER.  Any bond or policy of 
insurance covering liability to others for negligence 
makes the insurer liable, up to the amounts stated in 
the bond or policy, to the persons entitled to recover 
against the insured for the death of any person or for 
injury to persons or property, irrespective of whether 
the 
liability 
is 
presently 
established 
or 
is 
contingent and to become fixed or certain by final 
judgment against the insured. 
¶34 The text of the direct action statute contradicts 
PIC's assertion that PIC's liability is "completely dependent on 
[its insureds'] liability."18  The statute expressly states that 
an insurer may be liable "irrespective of whether the liability 
is presently established or is contingent and to become fixed or 
certain by final judgment against the insured."   
                                                 
15 Loy v. Bunderson, 107 Wis. 2d 400, 423, 320 N.W.2d 175 
(1982).   
16 Id. at 423.   
17 Id. at 421.     
18 Opening 
Brief 
and 
Appendix 
of 
Defendant-Appellant-
Petitioner Physicians Insurance Company of Wisconsin, Inc. at 
11. 
No. 
2006AP1566   
 
16 
 
¶35 An insurer's liability is, of course, dependent upon 
the conduct of its insured, but the insurer's liability is not 
necessarily dependent on the insured's liability.  There can be 
no recovery against the insurer unless the insured's conduct 
giving rise to liability is proven.    
¶36 Our cases interpreting and applying the direct action 
statute establish that "[t]he responsibility of an insurance 
company to an injured party is derivative of the insured's 
conduct, but it is not derivative of the status of the insured's 
personal liability to a plaintiff . . . ."19  The case law 
further establishes that liability may be imposed "upon the 
insurer irrespective of whether there is a final judgment 
against the insured."20  Indeed, under certain circumstances, the 
insurer may be subject to a judgment against it even when 
recovery against the insured is precluded by law.21    
                                                 
19 Loy, 107 Wis. 2d at 426 (emphasis added).   
20 Id. at 421.  
21 We have stated that the direct action statute embodies 
the 
following 
three 
legislative 
purposes: 
(1) 
to 
"save 
litigation and reduce the expense by determining the rights of 
all parties in a single action which is usually defended by the 
insurance carrier"; (2) to "expedite the final settlement of 
litigation and the final payment to the injured person, if he be 
entitled to recovery"; and (3) to "place the burden upon the 
insurance carrier who has been compensated in advance for its 
liability to pay the damage assessed for such injuries to person 
and damage to property as have been caused by actionable 
negligence on the part of the person insured."  Decade's Monthly 
Income & Appreciation Fund v. Whyte & Hirschboeck, S.C., 173 
Wis. 2d 665, 675, 295 N.W.2d 335 (1993) (quoting Ducommun v. 
Inter-State Exchange, 193 Wis. 179, 185, 212 N.W. 289, reh'g 
denied, 193 Wis. 185, 214 N.W. 616 (1927)). 
No. 
2006AP1566   
 
17 
 
¶37 Kujawa v. American Indemnity Co., 245 Wis. 361, 14 
N.W.2d 31 (1944), provides one such example.  This court held in 
Kujawa that Kujawa could proceed with a properly commenced 
action against a defendant insurer although recovery against the 
tortfeasor-insured was barred under the applicable statute of 
limitations.    
¶38 Kujawa sued American Indemnity for damages that Kujawa 
suffered in an automobile accident allegedly caused by the 
tortious conduct of American Indemnity's insured.  Kujawa did 
not bring action against the tortfeasor-insured.  After Kujawa's 
action was commenced, the time allotted under the applicable 
statute of limitation expired, barring Kujawa's cause of action 
against the tortfeasor-insured.  The trial court granted 
American Indemnity's motion for summary judgment against Kujawa, 
holding that "[t]here being no liability on the part of [the 
insured] then there is no liability on the part of the insurance 
carrier because under its contract there is no one to 
indemnify."22  
¶39 This 
court reversed the trial court's decision, 
permitting Kujawa to proceed with the cause of action against 
American Indemnity, although the insured could not be liable to 
Kujawa.  The court stated that under the Wisconsin direct action 
statute, Kujawa was entitled to pursue the cause of action 
against the defendant insurer alone.23  So long as Kujawa had a 
                                                 
22 Kujawa v. Am. Indem. Co., 245 Wis. 361, 363, 14 N.W.2d 31 
(1944). 
23 Id.  
No. 
2006AP1566   
 
18 
 
cause of action against the insured at the time the action was 
commenced, further discussion about the statute of limitation 
was, according to this court, "unnecessary."24  It was of no 
moment that Kujawa's action could result in recovery against 
American Indemnity when the statute of limitation would bar any 
recovery against the insured. 
¶40 A 
necessary 
corollary 
of 
the 
insurer's 
direct 
liability to an injured complainant is that the insurer may 
admit an allegation of its liability, as well as the underlying 
allegation of the tortious conduct of its insured.  When the 
action is brought directly against the insurer and the insured 
is not a party to the action, the insurer must have the ability 
to admit or deny the plaintiff's allegations as the insurer sees 
fit.   
¶41 The plaintiff in the present case pled causes of 
action for medical negligence directly against PIC.  The 
plaintiff alleged, directly against PIC, that PIC's insureds 
negligently caused damages to the plaintiff and that PIC was 
"directly liable" to the plaintiff due to the causal negligence 
of its insured.  PIC was obligated to answer these allegations. 
¶42 The ordinary rule is that the allegations in a 
complaint "are admitted when not denied" in the answer of a 
defendant against whom the allegations are made.25  Furthermore, 
when a defendant is determined to be in default, the factual 
                                                 
24 Id. at 366.   
25 Wis. Stat. § (Rule) 802.02(4) 
No. 
2006AP1566   
 
19 
 
allegations against the defendant, except those relating to the 
amount of damages, ordinarily are deemed true.26  Nothing in the 
nature of an insurer's liability to the plaintiff serves to 
impair the operation of these general rules. 
¶43 Although we conclude that the direct action statute 
shows that PIC may admit by its default the negligence of its 
codefendant insureds and its own consequent liability to the 
plaintiff, we do not conclude that the direct action statute 
shows that PIC's default must constitute such an admission under 
the circumstances of the present case.  The plaintiff in the 
present case brought action not only against PIC but also 
against 
PIC's 
insureds, 
who 
answered 
timely 
denying 
the 
liability of all defendants.  The direct action statute does not 
speak to the question whether the timely answer of an insured 
denying liability may inure to the benefit of a defaulting 
insurance company so as to preclude a judgment by default 
against it for the plaintiff's damages.  We examine PIC's other 
arguments supporting its position that an insured's answer 
inures to the benefit of a defaulting insurance company when the 
insured's liability has not been determined and the insured is 
dismissed from the case.   
B 
¶44 PIC's 
second 
argument 
is 
that 
Wisconsin 
law 
demonstrates that despite PIC's default, PIC can take advantage 
                                                 
26 3A Jay E. Grenig, Wisconsin Practice Series: Civil 
Procedure § 602.3, at 171 (3d ed. 2003). 
No. 
2006AP1566   
 
20 
 
of its insureds' denial of negligence.  We disagree with PIC.  
The effect of PIC's acknowledged default was to expose PIC to a 
judgment by default against it for damages.    
¶45 We begin with Wis. Stat. § (Rule) 806.02, governing 
default judgment cases.  Default judgment may be rendered if no 
issue of law or fact has been joined and if the time for joining 
issue has expired.  Sections (Rules) 806.02(1) and (2), which 
are relevant to the present case in which PIC defaulted for 
failure to answer timely, provide in full as follows: 
(1) A default judgment may be rendered as provided in 
subs. (1) to (4) if no issue of law or fact has been 
joined and if the time for joining issue has expired. 
Any defendant appearing in an action shall be entitled 
to notice of motion for judgment. 
(2) After filing the complaint and proof of service of 
the summons on one or more of the defendants and an 
affidavit that the defendant is in default for failure 
to join issue, the plaintiff may move for judgment 
according to the demand of the complaint. If the 
amount of money sought was excluded from the demand 
for judgment, as required under s. 802.02 (1m), the 
court shall require the plaintiff to specify the 
amount of money claimed and provide that information 
to the court and to the other parties prior to the 
court rendering judgment. If proof of any fact is 
necessary for the court to give judgment, the court 
shall receive the proof. 
¶46 Sections (Rules) 806.02(1) and (2) are, on their face, 
inconsistent with PIC's position that the answer of its 
codefendants denying the liability of all defendants precludes a 
judgment by default against PIC for damages.   
¶47 Subsection (1) expressly authorizes the circuit court 
to render a judgment by default in circumstances when, as in the 
No. 
2006AP1566   
 
21 
 
present case, "no issue of law or fact has been joined 
and . . . the time for joining issue has expired."  PIC concedes 
that it has failed in the present case to join issue of law or 
fact and that the time for joining issue has expired.   
¶48 Moreover, 
although 
subsection 
(1) 
expressly 
contemplates cases involving multiple defendants ("Any defendant 
appearing in an action shall be entitled to notice of motion for 
judgment. . . ."), the text of the subsection does not suggest 
that there may be circumstances in which one defendant may join 
issue of fact or law on behalf of another.  The plain language 
of § (Rule) 806.02(1) thus seems to render a defendant subject 
to a default judgment against it for its failure to join issue 
of law or fact. 
¶49 Subsection (2) further reinforces the concept that the 
effect of a defendant's default is to make available the remedy 
of a judgment by default against the defendant.  Subsection (2) 
plainly states that when a defendant is in default for failure 
to join issue, "the plaintiff may move for judgment according to 
the demand of the complaint."  Nothing in the text of subsection 
(2) suggests that the plaintiff's right to move for judgment 
against a defendant in default may be conditional upon the 
content of an answer served timely by a codefendant not in 
default.   
¶50 Significantly, the default judgment statute provides 
no circumstances in which a party is in default and yet is 
exempt as a matter of law from the provisions of the default 
judgment statute.  PIC's argument is essentially that such an 
No. 
2006AP1566   
 
22 
 
exemption does exist: PIC concedes that it is in default in the 
present case yet denies that a default judgment may be rendered 
against it under the default judgment statute.  We see no 
textual basis for recognizing the exemption proposed by PIC.     
¶51 In addition to the default judgment statute, we look 
to Wis. Stat. § (Rule) 802.02, which governs pleadings.  We 
examine, in particular, Wis. Stat. § (Rule) 802.02(2) and (4), 
setting forth general rules for denying allegations in the 
plaintiff's complaint and specifying the effect of a defendant's 
failure to deny such allegations.  These subsections provide in 
full as follows:   
(2) DEFENSES; FORM OF DENIALS.  A party shall state in 
short and plain terms the defenses to each claim 
asserted and shall admit or deny the averments upon 
which the adverse party relies.  If the party is 
without knowledge or information sufficient to form a 
belief as to the truth of an averment, the party shall 
so state and this has the effect of a denial.  Denials 
shall fairly meet the substance of the averments 
denied.  The pleader shall make the denials as 
specific 
denials 
of 
designated 
averments 
or 
paragraphs, but if a pleader intends in good faith to 
deny only a part or a qualification of an averment, 
the pleader shall specify so much of it as is true and 
material and shall deny only the remainder. 
. . . . 
(4) EFFECT OF FAILURE TO DENY.  Averments in a 
pleading to which a responsive pleading is required, 
other than those as to the fact, nature and extent of 
injury and damage, are admitted when not denied in the 
responsive pleading, except that a party whose prior 
pleadings set forth all denials and defenses to be 
relied upon in defending a claim for contribution need 
not respond to such claim.  Averments in a pleading to 
which no responsive pleading is required or permitted 
shall be taken as denied or avoided. 
No. 
2006AP1566   
 
23 
 
¶52 Like the default judgment statute, Wis. Stat. § (Rule) 
802.02(2) and (4) are inconsistent with PIC's position in the 
present case.  The text of these provisions belies the premise, 
implicit in PIC's argument, that PIC is justified in assuming 
that a codefendant's answer denying common allegations in the 
plaintiff's complaint has the effect of permitting it to forgo 
responding to those same allegations without repercussion.   
¶53 Subsection (2) establishes a defendant's duty to 
respond to the plaintiff's pleadings without qualifying this 
duty by reference to the responsive pleadings of a codefendant.  
Section (Rule) 802.02(2) simply mandates that "[a] party shall 
state in short and plain terms the defenses to each claim 
asserted and shall admit or deny the averments upon which the 
adverse party relies" (emphasis added).  Nothing in the text of 
subsection (2) suggests that this clear language requiring a 
party to admit or deny the plaintiff's averments may not apply 
when a codefendant of the party has denied an averment on behalf 
of the party.   
¶54 Wisconsin Stat. § (Rule) 802.02(4) also stands in 
clear and direct contradiction to PIC's position in the present 
case. 
 
Subsection 
(4) 
establishes 
that 
averments 
in 
a 
plaintiff's complaint are deemed to be admitted when not denied 
in a defendant's responsive pleading, with certain exceptions.  
These exceptions, applying when an averment pertains "to the 
fact, nature and extent of injury and damage" or when the 
defendant's "prior pleadings set forth all denials and defenses 
to be relied upon in defending a claim for contribution," do not 
No. 
2006AP1566   
 
24 
 
include the exception that PIC seeks in the present case.  
Section (Rule) 802.02(4) does not suggest that the general rule 
stated therein cannot apply when the averment is denied in the 
separate responsive pleading of a codefendant.   
¶55 Wisconsin Stat. § (Rule) 802.02(4) demonstrates that 
PIC's default made a judgment against it appropriate within the 
discretion of the circuit court.  In support of causes of action 
pled directly against PIC, the plaintiff alleged that PIC's 
insureds were negligent causing damages to the plaintiff and 
that PIC is "directly liable" to the plaintiff for these 
damages.  PIC, in failing to deny this allegation of its 
liability in a timely answer, admitted it.  With the issue of 
liability resolved by virtue of PIC's default, only the amount 
of damages was left to be determined before entry of judgment 
against PIC.27     
¶56 Moreover, PIC's position is contrary to Wis. Stat. 
§§ (Rules) 802.06(1) and 802.09(1).  These provisions establish 
PIC's unequivocal duty to serve its answer timely to the 
complaint served against it.28  Our precedent recognizes the 
                                                 
27 See 3A Grenig, supra note 26, § 602.3, at 171 ("If the 
court determines the defendant is in default, the factual 
allegations of the complaint, except those relating to the 
amount of damages, will be taken as true.") (citing Charles Alan 
Wright et al., Federal Practice and Procedure: Civil 2d § 2688 
(1998) pertaining to Rule 55 of the Federal Rules of Civil 
Procedure). 
28 See Wis. Stat. § (Rule) 802.06(1) ("[A] defendant shall 
serve an answer within [specifying times] . . . .") (emphasis 
added); § (Rule) 802.09(1) ("A party shall plead in response to 
an amended pleading within [specifying times] . . . ") (emphasis 
added). 
No. 
2006AP1566   
 
25 
 
importance of these provisions.  We have held that "[t]he 
Wisconsin rules expect that answers will be timely served and 
promptly filed.  Courts ought to have authority to impose a 
serious 
sanction 
for 
failure 
to 
timely 
'serve,' 
and 
an 
appropriate sanction, however modest, for failure to file 
'within a reasonable time after service.'"29  
¶57 PIC's position does not comport with the statutory 
provisions imposing a duty to serve an answer timely or with our 
case law recognizing the circuit court's authority to impose a 
serious sanction for failure to serve an answer timely.   
¶58 PIC suggests that the consequence of its default in 
the present case is merely an admission of unconditional 
coverage.  This consequence, however, is no consequence at all 
when the insurer's obligation to insure the matter (and the 
extent of this obligation) is not contested.30  PIC concedes that 
insurance coverage is clear and that it never contested coverage 
and never intended to contest coverage.   
                                                 
29 Split Rock Hardwoods, 253 Wis. 2d 238, ¶29.  
30 Indeed, it is not clear that a deemed admission of 
unconditional coverage would be of any consequence to PIC in the 
present case.  In its untimely answer, PIC admitted that it "had 
at a time material hereto a policy of insurance in full force 
and effect which provided coverage to [the codefendant insureds] 
for claims of the nature alleged by plaintiffs."  PIC did 
attempt to plead "the terms and conditions of said policy" as a 
limitation on its coverage obligations, but it is not clear from 
the record that PIC could have expected the terms and conditions 
of its policy to make any practical difference.  PIC's contract 
with its codefendant insureds is not in the record.   
No. 
2006AP1566   
 
26 
 
¶59 The rule PIC proposes would render the mandatory 
provisions of Wis. Stat. §§ (Rule) 802.06(1) and 802.09(1) 
virtually optional in cases in which the insurer indisputably 
provides coverage for the damages alleged in the plaintiff's 
complaint.    
 
¶60 Martin 
v. 
Griffin, 
117 
Wis. 2d 438, 
440, 
344 
N.W.2d 206 (Ct. App. 1984), is germane to the present case.  In 
Martin, the court of appeals sustained a default judgment on 
facts and issues not significantly distinguishable from those of 
the present case.   
¶61 In the Martin case, Martin brought action against 
Griffin, Aetna Casualty (insurer of the vehicle operated by 
Griffin), and Milbank Mutual (Griffin's personal insurer), 
alleging that Griffin's negligence caused $150,000 in damages to 
Martin.31  Aetna Casualty answered timely on behalf of itself and 
Griffin, denying that Griffin was negligent and alleging that 
the accident was caused by Martin's negligence.32  Milbank 
Mutual's answer was not timely.  The circuit court struck 
Milbank Mutual's untimely answer, dismissed Milbank Mutual's 
codefendants from the action, and entered a judgment by default 
against Milbank Mutual in the amount of $150,000. 
¶62 Relevant to the present case, Milbank Mutual argued on 
appeal 
that 
the 
circuit 
court 
erroneously 
exercised 
its 
                                                 
31 Martin 
v. 
Griffin, 
117 
Wis. 2d 438, 
440-41, 
344 
N.W.2d 206 (Ct. App. 1984) 
32 See Martin, 117 Wis. 2d at 441; Brief of Milbank Mutual 
to the Court of Appeals at 1-2.   
No. 
2006AP1566   
 
27 
 
discretion in striking Milbank Mutual's untimely answer and 
granting a default judgment against it for damages.  Milbank 
Mutual contended that its failure to answer timely was due to 
excusable 
neglect, 
explaining 
that 
the 
claims 
supervisor 
responsible for handling Martin's complaint had "concluded 
erroneously that Aetna's answer was sufficient to protect 
Milbank and its insured," given that "Aetna was the primary 
insurer and provided coverage exceeding the damages demanded in 
the complaint."33  Milbank Mutual further explained that it 
generally wrote no coverage "in Wisconsin or in any state 
allowing insurance companies to be sued directly or requiring 
them to answer complaints involving their insureds."34   
¶63 The Martin court of appeals affirmed the circuit 
court's default judgment for damages, holding that "[i]t is not 
excusable neglect, as a matter of law, for an insurance company 
to fail to file a timely answer due to the good faith belief of 
its personnel that, since there appeared to be a primary insurer 
with coverage exceeding damages alleged in the complaint, 
Wisconsin law did not require it to answer."35 
¶64 The 
facts 
of 
Martin 
are 
not 
significantly 
distinguishable from those of the present case.  In Martin, 
Milbank Mutual's codefendant Aetna Casualty answered timely on 
behalf of itself and the defendant insured, denying Martin's 
                                                 
33 Martin, 117 Wis. 2d at 441.   
34 Id.   
35 Id. at 443.   
No. 
2006AP1566   
 
28 
 
allegation that the defendant insured was negligent.  In the 
instant case, the codefendant insureds similarly answered timely 
on their own behalf, denying the plaintiff's allegation of 
negligence.  There is no principled reason that PIC should be 
spared a default judgment against it when the default judgment 
against Milbank Mutual was sustained despite the timely answer 
of Milbank Mutual's codefendant denying negligence on the part 
of Milbank Mutual's codefendant insured.    
¶65 The arguments set forth by the defendant insurers in 
Martin and the instant case, although structured differently, 
are essentially the same for purposes of the present case.  The 
position of PIC in the present case, like the position of the 
defendant insurer in Martin, rests upon the premise that the 
timely answer of a codefendant may have the effect of precluding 
judgment by default against a defendant insurer who fails to 
answer timely.  In Martin, Milbank Mutual argued that it could 
excusably rely upon the timely answer of its codefendant so as 
to avoid a default situation (and thus also to avoid a default 
judgment).  PIC concedes its default but argues that, even in 
default, it is entitled to rely upon the timely answer of its 
codefendant to avoid a default judgment. 
¶66 Indeed, PIC's argument in the present case seems to be 
a more ambitious version of the argument that Milbank Mutual set 
forth in Martin.  Milbank Mutual contended only that its 
reliance upon the answer of its codefendant, although erroneous, 
was excusable.  PIC asserts a right to rely (in default) upon 
No. 
2006AP1566   
 
29 
 
the answer of its codefendant.  What Milbank Mutual claimed as 
an excuse, PIC in the instant case claims as an entitlement.          
¶67 In 
sum, 
the 
Martin 
court 
of 
appeals' 
decision 
sustaining the circuit court's default judgment against Milbank 
Mutual strongly supports the default judgment rendered against 
PIC.  It makes little sense for PIC to be spared a default 
judgment for damages against it when Milbank Mutual was subject 
to a default judgment despite the timely answer of Milbank 
Mutual's codefendant denying that Milbank Mutual's insured was 
negligent.   
¶68 PIC attempts to distinguish Martin on the ground that 
the defendant insured in Martin failed to answer and was in 
default.  PIC asserts that the insured in Martin "failed to 
answer" and that "[t]herefore, there was no answer denying 
negligence that could have inured to the benefit of Millbank 
[sic]."36  PIC further asserts that the court of appeals 
"addressed the effect of [Milbank Mutual's] default separate 
from the [defendant insured's] default."37  PIC argues that it 
was "the effect of the insured's default . . . ," not the effect 
of Milbank Mutual's default, "to establish [the insured's] 
negligence."38 
                                                 
36 Reply Brief of Defendant-Appellant-Petitioner Physicians 
Insurance Company of Wisconsin, Inc. at 8 n.4.   
37 Opening 
Brief 
and 
Appendix 
of 
Defendant-Appellant-
Petitioner Physicians Insurance Company of Wisconsin, Inc. at 
20-21.   
38 Id. at 21.   
No. 
2006AP1566   
 
30 
 
¶69 PIC's account of Martin is inaccurate.  The Martin 
court of appeals expressly referenced the answer of Aetna 
Casualty, Milbank Mutual's codefendant.39  Although the Martin 
opinion is silent as to the content of Aetna Casualty's answer, 
Milbank Mutual's brief to the court of appeals stated that "the 
answer denied that [the] defendant [insured] was negligent and 
alleged that the accident was caused by the plaintiff's 
negligence."40  PIC's assertion that there was no answer in 
Martin denying the insured's negligence that could have inured 
to the benefit of Milbank Mutual is not correct, according to 
the opinion and briefs in the Martin case. 
¶70 PIC is also incorrect in asserting that the defendant 
insured in Martin was in default.  Milbank Mutual's brief to the 
court of appeals stated that "Aetna Casualty and Surety Company 
interposed an answer on behalf of itself and defendant John 
Francis Griffin, III [the insured]."41  Nowhere in its opinion 
did the Martin court of appeals suggest that any defendant other 
than Milbank Mutual had failed to answer timely or was in 
default. 
¶71 PIC additionally directs our attention to statements 
in the Martin opinion that PIC interprets as limiting the effect 
of Milbank Mutual's default to an admission of unconditional 
                                                 
39 Martin, 117 Wis. 2d at 441. 
40 Brief of Milbank Mutual Insurance Company to the Court of 
Appeals at 1-2.   
41 Id. at 1.   
No. 
2006AP1566   
 
31 
 
coverage.  Early in its opinion, the Martin court of appeals 
stated that "[w]ithout a valid answer, Milbank is deemed by law 
to have admitted, without qualification, Martin's allegation 
that it covered Griffin's liability for negligence."42  A similar 
statement also appears later in the opinion: "By failing to file 
a 
timely 
answer 
of 
denial, 
Milbank 
has 
admitted 
the 
unconditioned allegation that its policy covered [the insured] 
for liability for damages caused by his negligence."43  PIC 
argues that these statements show that the court of appeals 
perceived Milbank Mutual's default to result solely in an 
admission of unconditional coverage, not in an admission of its 
insured's negligence or in liability.    
¶72 We 
disagree 
with 
PIC's 
interpretation 
of 
these 
statements in the Martin opinion.  The court of appeals' 
assertions 
about Milbank Mutual's default constituting an 
admission of coverage were clearly directed at Milbank Mutual's 
argument that despite its default, Milbank Mutual's liability 
should be limited according to provisions in its policy with the 
insured limiting Milbank Mutual's coverage to damages in excess 
of those that Aetna Casualty (the primary insurer) was obligated 
to cover.  It is unsurprising that the court of appeals 
responded to Milbank Mutual's contention that it could argue for 
limited coverage even in default by holding that Milbank 
Mutual's default constituted an admission of unconditional 
                                                 
42 Martin, 117 Wis. 2d at 440.   
43 Id. at 444.     
No. 
2006AP1566   
 
32 
 
coverage.  Elsewhere in its opinion, the Martin court of appeals 
described the effect of Milbank Mutual's default more broadly: 
"Milbank has . . . waived its opportunity to argue issues of 
liability and the respective obligations of the two insurance 
companies."44  This language makes clear that the effect of 
Milbank Mutual's default was to establish both liability and 
unconditional coverage irrespective of Aetna's obligations.   
¶73 Moreover, 
the 
Martin 
court 
of 
appeals' 
mandate 
affirming the default judgment against Milbank Mutual for 
damages necessarily 
implies that Milbank Mutual's default 
constituted a full-fledged admission of its liability to Martin.  
No other basis except Milbank Mutual's default existed for a 
judgment imposing liability on Milbank for the negligence of its 
insured.  As we have stated, the allegation of negligence was 
denied, not admitted, in the timely answer of Milbank's 
codefendant.  The default judgment against Milbank clearly would 
have been improper if Milbank's default had not established its 
liability. 
¶74 The default judgment against PIC in the instant case 
is further supported by Gerth v. American Star Insurance Co., 
166 Wis. 2d 1000, 480 N.W.2d 836 (Ct. App. 1992).  Gerth 
represents another case in which the court of appeals sustained 
a default judgment on facts not significantly distinguishable 
from those considered here. 
                                                 
44 Id. (emphasis added).   
No. 
2006AP1566   
 
33 
 
¶75 Gerth brought action against Reid Boiler Works and 
American Star, Reid Boiler's liability insurer.  Although the 
opinion is silent on the matter, Reid Boiler Works apparently 
answered timely.45  American Star failed to answer timely.  The 
circuit court denied American Star's motion to extend the time 
for answering (finding no excusable neglect), granted Gerth's 
motion to strike American Star's untimely answer, and entered a 
judgment by default against American Star for damages.  PIC 
correctly states that the Gerth opinion does not discuss whether 
an answer of a codefendant should inure to the benefit of the 
insurer.  Gerth is about excusable neglect, an issue not before 
us in the present case.  But the result in Gerth does not favor 
PIC.       
¶76 Finally, we also find support in Pett v. Clark, 5 Wis. 
198 (1856).  In Pett, the circuit court entered a default, and 
ultimately rendered a default judgment, against defendants 
Reynolds and Clark.  Reynolds, however, previously had filed a 
plea that was not struck and that remained in the court's 
record.   
¶77 On appeal, the Wisconsin Supreme Court held that when 
a plea was on file with the circuit court, "a default could not 
be entered against the defendant pleading it."46  Relevant to the 
                                                 
45 Brief of American Star Insurance Company to the Court of 
Appeals at 5 ("Reid Boiler Works appeared by counsel and 
answered 
the 
Complaint 
denying 
all 
of 
the 
Complaint's 
allegations 
except 
the 
allegations 
of 
Reid's 
existence . . . ."). 
46 Pett v. Clark, 5 Wis. 198, 199 (1856) (emphasis added).   
No. 
2006AP1566   
 
34 
 
instant case, here the default judgment was not entered against 
the insureds who had filed an answer.  The insureds in the 
instant case voluntarily agreed to be dismissed from the case.  
The Pett court did not hold that the defendant with no plea on 
file, here PIC, was immune to the entry of a default.           
¶78 PIC adduces two Wisconsin cases that it characterizes 
as in its favor: Leonard v. Cattahach, 214 Wis. 2d 236, 571 
N.W.2d 444 (Ct. App. 1997), and Haugen v. Wittkopf, 242 Wis. 
276, 7 N.W.2d 886 (1943).  However, neither Leonard nor Haugen 
is on point in the present case.   
¶79 The Leonards brought action against defendants Sandra 
Conley and DuPont Mutual (Conley's insurer), alleging that 
Conley negligently caused damages to the Leonards.  Conley 
answered timely, denying the Leonards' allegation of negligence 
and asserting a cross-claim against a codefendant who also 
allegedly negligently caused damages to the Leonards.  DuPont 
Mutual failed to answer timely.  The circuit court struck DuPont 
Mutual's untimely answer and entered a judgment by default 
against it for damages.   
¶80 Relevant to the instant case, DuPont Mutual argued on 
appeal that even assuming its answer was properly stricken, the 
circuit court erred by entering final judgment for damages in 
excess of DuPont Mutual's policy limits.47  DuPont Mutual 
contended that the circuit court should have taken account of 
                                                 
47 Leonard 
v. 
Cattahach, 
214 
Wis. 2d 236, 
241, 
571 
N.W.2d 444 (Ct. App. 1997). 
No. 
2006AP1566   
 
35 
 
DuPont Mutual's policy limits, because Conley's [the insured's] 
answer stated that DuPont Mutual's policy of insurance had terms 
and limitations on DuPont Mutual's obligation to pay.48  The 
court of appeals rejected this argument, refusing to presume 
that Conley's answer "was meant by Conley to plead DuPont's 
policy limits and thereby increase her exposure, if damages 
proved to be greater than those limits."49  The court of appeals 
affirmed the judgment by default for damages in excess of policy 
limits entered against DuPont Mutual. 
¶81 Although it affirmed the circuit court's default 
judgment, which necessarily implied that DuPont Mutual's default 
established DuPont Mutual's liability to the Leonards, the court 
of appeals questioned (without deciding) whether DuPont Mutual's 
default indeed had such an effect.  In a footnote, the Leonard 
court of appeals stated as follows: 
Although the Leonards' complaint alleged only that 
DuPont had an obligation to pay "all sums which Sandra 
K. Conley might become legally obligated to pay," 
DuPont did not argue to the circuit court, and has not 
argued to us, what effect Conley's answer, which 
denied negligence and asserted a cross-claim against 
[a 
codefendant], 
had 
on 
the 
apportionment 
of 
negligence and thus on DuPont's exposure to damages. 
Therefore, we do not address that issue . . . ."50    
¶82 In Leonard, the court of appeals and the parties did 
not directly deal with the issue of whether an insured's answer 
                                                 
48 Id. at 251.   
49 Id. (citation omitted).   
50 Id. at 251 n.7.   
No. 
2006AP1566   
 
36 
 
should benefit the insurer.  The result in Leonard, however, 
does not favor PIC.    
¶83 Haugen, 242 Wis. 276, the remaining Wisconsin case 
relied on by PIC, is also not on point in the present case.  
Haugen was not a default judgment case and did not involve a 
defendant's failure to answer denying any allegation.   
¶84 Haugen 
brought 
action 
against 
Wittkopf 
and 
his 
insurer, seeking recovery for injuries Haugen sustained as a 
passenger in a vehicle operated by Wittkopf.  Wittkopf answered 
timely, asserting as an affirmative defense that Haugen had 
assumed (by acquiescence) any risk incident to Wittkopf's 
negligence.  The insurer also answered timely but did not assert 
the affirmative defense asserted by Wittkopf.  Trial was had to 
a jury, which found that Haugen had not assumed the risk 
incident to Wittkopf's negligence.  Wittkopf and the insurer 
appealed together, arguing that Haugen had assumed the risk 
incident to Wittkopf's negligence as a matter of law.   
¶85 This court agreed with Wittkopf and his insurer and 
reversed the judgment of the circuit court.  Relevant to the 
present case, this court then considered Haugen's argument that 
Wittkopf's 
insurer 
was 
"not 
entitled 
to 
the 
benefit 
of 
[Haugen's] assumption of risk, because it [the insurer] did not 
plead it as a defense."51  Assuming (without deciding) that such 
defense could be raised only by pleading, this court held that 
                                                 
51 Haugen v. Wittkopf, 242 Wis. 276, 277, 7 N.W.2d 886 
(1943).   
No. 
2006AP1566   
 
37 
 
the insurer's failure to raise the defense in its answer was 
immaterial.  The Haugen court explained that the insurer's 
liability was "to indemnify [Wittkopf] and as Wittkopf is not 
liable the insurer is not and there can be no recovery against 
it."52 
 
¶86 Haugen stands for the proposition that when the 
insured and the insurer are parties and each answers timely, the 
insurer cannot be held liable when the plaintiff fails to prove 
on the merits that the insured's conduct provides a basis for 
liability.   
 
¶87 Haugen is of limited relevance to the present case.  
Wittkopf's insurer did not fail to answer timely or to deny 
Haugen's allegation of liability.  Haugen addresses a different 
issue: the effect 
of an insurer's failure to plead an 
affirmative 
defense 
that 
the 
insured 
successfully 
used.  
Wittkopf's 
insurer 
was 
spared 
judgment 
because 
Wittkopf 
succeeded at trial in showing that his conduct provided no basis 
for his liability or that of his insurer.  
¶88 The Haugen court did not address the hypothetical 
question whether Wittkopf's answer denying liability would have 
precluded a judgment by default against the insurer if the 
insurer 
had 
failed 
to 
answer 
Haugen's 
complaint 
timely.  
Likewise, we do not address here the hypothetical case in which 
PIC's codefendant insureds succeeded in showing at trial that 
                                                 
52 Id.   
No. 
2006AP1566   
 
38 
 
their conduct did not provide a basis for their or PIC's 
liability. 
C 
¶89 PIC argues that case law from other jurisdictions 
supports PIC's position in the present case that despite its 
default PIC can take advantage of its insureds' denial of 
negligence.  The cases PIC cites all apply some version of the 
"common defense" doctrine.  According to the common defense 
doctrine, "[t]he answer of the codefendant inures to the benefit 
of a defaulting defendant where there exists a common defense as 
to both of them."53   
¶90 The cases reveal substantial variation in the manner 
in which the "common defense" doctrine is applied.  The cases 
also provide little, if any, support to PIC.  Indeed, the cases 
upon which PIC relies appear to show that the position advanced 
by PIC is one unknown to the law of any jurisdiction.   
¶91 PIC begins its examination of the cases of other 
jurisdictions with discussion of a Florida case, Rothman v. 
Hebebrand, 720 So. 2d 595 (Fla. Dist. Ct. App. 1998).  Rothman, 
however, is distinguishable from the present case.  Furthermore, 
the version of the "common defense" doctrine applied by the 
Florida courts would be of no avail to PIC even if the doctrine 
did apply to the present case.   
¶92 In the Rothman case, Hebebrand sued Rothman (a medical 
doctor) and his professional association for damages allegedly 
                                                 
53 46 Am. Jur. 2d Judgments § 252 (2007). 
No. 
2006AP1566   
 
39 
 
stemming from Rothman's medical malpractice.  The professional 
association defaulted and judgment was entered against it.  The 
action proceeded against Rothman, who prevailed before the jury.  
On appeal, the professional association argued that because the 
association's liability could only be vicarious, the trial court 
had erred in refusing to set aside its default after Rothman was 
exonerated of liability.   
 
¶93 The Florida Court of Appeals held for the professional 
association.  The Rothman court of appeals relied on a line of 
Florida cases holding that "if the liability of a defaulting 
defendant is completely dependent upon the liability of a non-
defaulting codefendant, a final judgment should not be entered 
against the defaulting defendant unless the codefendant has been 
found liable."54  
 
¶94 Rothman is distinguishable from the present case.  In 
Rothman, the defaulting party's liability is vicarious.  In the 
present case the insurer's liability is not completely dependent 
on the liability of a non-defaulting defendant.  Rather, the 
insurer's liability depends on the insured's conduct.  The 
action in the present case against the codefendant insureds did 
not proceed to jury; the codefendant insureds in the present 
case have not been exonerated by a jury.  Rothman is more like 
Haugen, 242 Wis. 276, in that a codefendant insured obtained a 
judgment in its favor showing that the insured's conduct could 
                                                 
54 Rothman v. Hebebrand, 720 So. 2d 595, 596 (Fla. Dist. Ct. 
App. 1998). 
No. 
2006AP1566   
 
40 
 
not provide a basis for the insurer's liability to the 
plaintiff.  Unlike in Rothman or Haugen, PIC's codefendant 
insureds stipulated to their dismissal from the action and did 
not obtain a judgment showing that their conduct could not 
provide a basis for PIC's liability.  
¶95 More importantly, application of the Florida "common 
defense" rule would be of no avail to PIC given the procedural 
facts of the instant case.  Although the Florida courts 
recognize that a defaulting defendant may escape a default 
judgment when its liability is completely dependent upon the 
liability of a non-defaulting codefendant,55 the Florida courts 
do not appear to go so far as to permit the defaulting defendant 
to continue participating in the litigation despite its default.  
For example, in Days Inns Acquisition Corp. v. Hutchinson, 707 
So. 2d 747, 751 (Fla. Dist. Ct. App. 1997), the Florida Court of 
Appeals reversed the entry of a final default judgment against 
Days Inns because no determination had been made on the merits 
                                                 
55 See Days Inns Acquisition Corp. v. Hutchinson, 707 So. 2d 
747, 751 (Fla. Dist. Ct. App. 1997):  
We reject [a rule] that would require a trial court to 
defer entry of a default judgment in all cases where 
there are non-defaulting co-defendants.  We likewise 
reject a per se rule that a plaintiff is always 
entitled to a default judgment against a defaulting 
defendant prior to the adjudication of the merits 
against 
non-defaulting 
co-defendants. . . . 
Where . . . relief against one defendant is completely 
dependent upon the liability of a co-defendant, it 
would be improper to allow the final judgment to be 
entered until the liability of the co-defendant has 
been decided.   
No. 
2006AP1566   
 
41 
 
of the plaintiff's claim against a non-defaulting codefendant.  
The Florida Court of Appeals then noted as follows: "By this 
opinion we do not imply that Days Inns can participate as a 
party or otherwise defend against plaintiff's claim against [the 
non-defaulting defendant]."56   
¶96 Were this court to apply the Florida rule faithfully, 
PIC in the present case could not participate in the action as a 
party defendant at the circuit court level on the issue of 
negligence and liability. 
¶97 PIC's inability to participate further in the action 
on the issue of negligence and liability in the circuit court 
would render meaningless PIC's request that this court remand 
the matter to the circuit court for "further proceedings so the 
disputed negligence and damage allegations can be tried on the 
merits."57  PIC is the sole defendant remaining in the action.  
The codefendants were dismissed by order of the circuit court, 
an order from which PIC has declined to appeal.  With PIC unable 
to participate in the action on the issue of negligence and 
liability, a circuit court has no "further proceedings" to 
conduct.  
¶98 At least one jurisdiction, Arkansas, seems to permit a 
defaulting defendant to carry on as a participant when a 
codefendant has answered timely and asserted a defense common to 
                                                 
56 See id. at 751-52 & n.6. 
57 See Opening Brief and Appendix of Defendant-Appellant-
Petitioner Physicians Insurance Company of Wisconsin, Inc. at 3, 
36. 
No. 
2006AP1566   
 
42 
 
all the defendants.  It appears that under Arkansas law, the 
timely answer of a codefendant asserting a common defense 
altogether cures the default problem.  For example, in Sutter v. 
Payne 989 S.W.2d 887 (Ark. 1999), the Arkansas Supreme Court 
held that "[b]ecause [the timely answer of a codefendant] was 
still viable at the time that [the defaulting defendant] 
answered the petition . . . the trial court erred when it ruled 
that the common-defense doctrine did not apply . . . ."58  The 
Arkansas Supreme Court then stated its mandate in relevant part 
as follows: "Accordingly, we reverse the trial court's order 
striking [the untimely] answer . . . ."59  With its answer not 
struck, the dilatory party in Sutter could not be in default.    
¶99 PIC cannot argue for adoption of the Arkansas rule 
under the circumstances of the present case.  Under the Arkansas 
rule, the untimely answer is not struck, and the default is 
cured.  PIC, however, concedes that the circuit court properly 
struck PIC's untimely answer and that PIC is in default in the 
present case.   
¶100 The remaining cases cited by PIC fail to aid PIC's 
case.  Many state the rule that a defaulting defendant may 
benefit from a codefendant's successful defense demonstrating 
that 
there can be no factual basis for the defaulting 
                                                 
58 Sutter v. Payne, 989 S.W.2d 887, 889 (Ark. 1999).   
59 Id. 
No. 
2006AP1566   
 
43 
 
defendant's liability to the plaintiff.60  In the instant case no 
judgment has been obtained by a codefendant demonstrating that 
there is no factual basis for PIC's liability.  Others appear to 
hold (like Sutter) that the timely answer of a codefendant 
prevents default.61   
                                                 
60 See, e.g., Blea v. Sandoval, 761 P.2d 432, 437 (N.M. Ct. 
App. 1988) ("Plaintiffs should not have been allowed to obtain a 
default 
judgment 
against 
defendant, 
whose 
ownership 
and 
possessory interests were equal to those of his wife, who 
successfully defended against the quiet title action. . . . [The 
wife's] successful defense against that action inured to 
defendant's benefit.") (emphasis added);  Kooper v. King, 15 
Cal. Rptr. 848, 852 (Cal. App. 1961) ("Where there are two or 
more defendants and the defenses interposed by an answering 
defendant go to the whole right of the plaintiff to recover at 
all, as distinguished from his right to recover as against any 
particular 
defendant . . . [And] 
when 
such 
defenses 
prove 
successful 
they 
enure 
to 
the 
benefit 
of 
the 
defaulting 
defendant, and final judgment must therefore be entered not only 
in favor of the answering defendant, but in favor of the 
defaulting defendant as well." (emphasis added; quotation marks 
and citations omitted); Bronn v. Soules, 13 P.2d 623, 623 (Or. 
1932) ("[I]n actions against several defendants jointly, where 
the defense interposed by the answering defendant is not 
personal to himself . . . but common to all, as where it goes to 
the whole right of the plaintiff to recover at all, as 
distinguished 
from 
his 
right 
to 
recover 
as 
against 
any 
particular defendant, or questions the merits or validity of the 
plaintiff's entire cause of action in general, or his right to 
sue, such defense, if successful, inures to the benefit of the 
defaulting defendants both in actions at law and suits in 
equity, with the result that final judgment must be entered not 
merely in favor of the answering defendant, but also in favor of 
the defaulting defendants.") (quotation marks and citation 
omitted; emphasis added). 
61 See, e.g., Paul v. Pool, 605 P.2d 635, 637 (Nev. 1980) 
("It was . . . error for the district court to enter a default 
against appellant, hear ex parte evidence and enter judgment."). 
No. 
2006AP1566   
 
44 
 
¶101 No case cited by PIC appears to recognize the unusual 
rule that PIC asks this court to adopt in the present case: PIC 
concedes that it is in default and yet asserts that it is 
entitled to proceed indefinitely in the action as a party 
defendant on the issue of liability and damages.     
D 
¶102 PIC urges that case law from other jurisdictions 
demonstrates that the circuit court's judgment against it 
improperly invites inconsistent outcomes in the action.  PIC 
argues that inconsistent outcomes remain possible because the 
circuit 
court 
dismissed 
the 
codefendant 
insureds 
without 
prejudice and without a finding regarding whether the insureds 
were negligent.  PIC does not allege, however, error in the 
circuit court's order dismissing the codefendants from the 
action.     
¶103 PIC relies principally upon Frow v. De La Vega, 82 
U.S. 552 (1872), in contending that this risk of inconsistent 
outcomes renders the circuit court's judgment improper.  
¶104 In Frow, De La Vega brought action against Frow and 
thirteen other defendants, alleging that eight of the defendants 
(including Frow) had jointly conspired to defraud De La Vega.  
Frow's codefendants answered timely, but Frow did not.  The 
trial court entered a final decree against Frow.  The action 
against Frow's codefendants, however, proceeded and was resolved 
to the disfavor of De La Vega and in favor of Frow's 
codefendants.   
No. 
2006AP1566   
 
45 
 
¶105 The United States Supreme Court held that it was error 
for the trial court to make a final decree against Frow while 
the cause proceeded undetermined against Frow's codefendants.  
The Frow Court explained that the circuit court's procedure 
risked that "there might be one decree of the court sustaining 
the charge of joint fraud committed by the defendants; and 
another decree disaffirming the said charge, and declaring it to 
be entirely unfounded, and dismissing the complainant's bill."62  
The Court denounced such a result as "unseemly and absurd."63  
                                                 
62 Frow v. De La Vega, 82 U.S. 552, 554 (1872). 
63 Id.   
No. 
2006AP1566   
 
46 
 
Frow is interpreted in a number of ways.64  It can stand for the 
proposition that if at trial a defendant is exonerated and if a 
defaulting codefendant's liability depends on the liability of 
the former, the plaintiff cannot obtain a judgment from the 
latter defendant.  
¶106 PIC 
argues 
that, 
like 
in 
Frow, 
"a 
significant 
possibility of inconsistent outcomes" remains in the present 
                                                 
64 Courts appear to disagree about the scope of Frow's 
application.  Some courts have limited Frow to its facts and 
refused to apply Frow to cases in which the alleged liability is 
both joint and several.  See, e.g., Westinghouse Elec. Corp. v. 
Rio Algom Ltd., 617 F.2d 1248, 1258 (7th Cir. 1980) ("To the 
extent that [Frow] holds that there cannot be inconsistent 
adjudications as to joint liability or as to a single res in 
controversy this ancient equity case remains good law.  But to 
apply Frow to a claim of joint and several liability is to apply 
that venerable case to a context for which it was never 
intended . . . .") (footnotes omitted).  Other courts have 
suggested that Frow's application may be limited to situations 
in which the nature of the relief demanded makes it impossible 
to grant relief against one defendant without also granting 
relief against others.  See, e.g., Carter v. District of 
Columbia, 795 F.2d 116, 137 (D.C. Cir. 1986) ("The holding in 
Frow did not 'rest solely on the fact that the liability alleged 
was joint'; more importantly, Frow responded to the reality that 
'[u]nder plaintiff's demand for relief, it was necessary that 
judgment be entered against all of the defendants in order to be 
effective.'") (footnotes omitted).  At the same time, a leading 
treatise states that the Frow rule applies in cases where the 
alleged liability is both joint and several and that the rule 
likely may be extended even further in its scope.  See 10A 
Charles Alan Wright et al., Federal Practice and Procedure 
§ 2690 (1998) ("[T]he rule developed in the Frow case applies 
when the liability is joint and several [but] probably can be 
extended to situations in which several defendants have closely 
related defenses.").  For another view of Frow, see 10 James Wm. 
Moore et al., Moore's Federal Practice § 55.36[2, at 55-67 to 
55-70 (3d ed. rev. 2007). 
No. 
2006AP1566   
 
47 
 
case.65  We disagree with PIC.  The outcome for PIC (a judgment 
for damages against it) and the outcome for PIC's codefendant 
insureds (dismissal of the action against them with no finding 
of liability) are not necessarily inconsistent.  PIC has not 
sought review of the dismissal.  Liability may be imposed "upon 
the insurer irrespective of whether there is a final judgment 
against the insured."66   
¶107 Frow is not on point in the instant case.  Unlike in 
Frow, the cause in the present case did not proceed against non-
defaulting 
defendants. 
 
The 
circuit 
court 
dismissed 
all 
codefendants from the action and accepted the plaintiff's 
covenant not to refile the action within the applicable 
limitations period.   
¶108 Moreover, even if Frow did apply, the rule stated 
therein would be of no avail to PIC.  Under the Frow rule, PIC 
could not participate in any further proceedings that this court 
might order on remand.  The Frow Court stated the effect of 
Frow's default as follows: "The defaulting defendant has merely 
lost his standing in court.  He will not be entitled to service 
of notices in the cause, nor to appear in it in any way.  He can 
adduce 
no 
evidence, 
he 
cannot 
be 
heard 
at 
the 
final 
hearing. . . ."67     
                                                 
65 See Opening Brief and Appendix of Defendant-Appellant-
Petitioner Physicians Insurance Company of Wisconsin, Inc. at 
30-33. 
66 Loy, 107 Wis. 2d at 421. 
67 Frow, 82 U.S. at 552 (emphasis added).   
No. 
2006AP1566   
 
48 
 
¶109 The Frow rule thus presents the same problem for PIC 
that the Florida rule does.  Unsurprisingly, the Florida courts 
rely upon Frow in deciding their cases regarding defaulting 
defendants.68  Without PIC's participation in any further 
proceedings in the circuit court, there can be no further 
proceedings because no defendants would be present.   
¶110 In sum, Frow does not support PIC's position that the 
circuit court's judgment was in error.  Frow contradicts the 
defendant's position that a party may, despite its default, 
continue to participate in the action.  
E 
 
¶111 PIC's 
final 
argument 
is 
that 
public 
policy 
considerations support limiting, as a matter of law, the effect 
of PIC's default to an admission of unconditional coverage.  PIC 
argues that as a matter of law the circuit court should have 
considered a lesser sanction than default judgment, such as a 
monetary sanction, under the circumstances of the present case.    
¶112 Conflicting public policy considerations underlie our 
procedural rule requiring that responsive pleadings be timely 
served and our procedural rule authorizing circuit courts "to 
impose a serious sanction for failure to timely serve" an 
answer.69  On the one hand, prompt proceedings are important.  On 
the other hand, litigants should have their day in court; 
default judgments are disfavored.   
                                                 
68 See Days Inns Acquisition Corp., 707 So. 2d at 749-51. 
69 Split Rock Hardwoods, 253 Wis. 2d 238, ¶63.  
No. 
2006AP1566   
 
49 
 
¶113 These conflicting public policies are set forth in 
Hedtcke v. Sentry Insurance Co., 109 Wis. 2d 461, 469, 326 
N.W.2d 727 (1982).      
 
¶114 We explained in Hedtcke that a circuit court grants a 
motion to enlarge the time in which to answer if the court 
"finds reasonable grounds for noncompliance with the statutory 
time period (which the statute and this court refer to as 
excusable neglect) and if the interests of justice would be 
served by the enlargement of time, e.g., that the party seeking 
an enlargement of time has acted in good faith and that the 
opposing party is not prejudiced by the time delay."70   
¶115 PIC does not fit into the Hedtcke analysis.  PIC 
agrees that it does not fit into the first step set forth in 
Hedtcke, namely that its failure to answer timely was the result 
of excusable neglect.  Thus PIC is not able to fit into the 
second part of Hedtcke's analysis, pertaining to the "interests 
of justice," that requires the circuit court to apply the 
conflicting public policies to the facts of the case before it.71 
                                                 
70 Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 468, 326 
N.W.2d 727 (1982) (citations omitted).   
71 The Hedtcke court stated that in considering whether the 
interests of justice would be served by an enlargement of time, 
"the circuit court should . . . be aware of the party's and 
society's interest in prompt adjudication and the probability 
that a [public] policy which excused or tolerated a lawyer's 
neglect would foster delay in litigation and lower the quality 
of 
legal 
representation." 
 
Hedtcke, 
109 
Wis. 2d at 
469 
(quotation marks omitted).   
No. 
2006AP1566   
 
50 
 
The Hedtcke court stated as follows: "If the motion [for 
enlargement of the time in which to answer] is made after the 
expiration of the specified time, an order enlarging the time 
for performing an act must be based on a finding of excusable 
neglect; when the circuit court determines that there is no 
excusable neglect, the motion must be denied."72 
¶116 PIC does not dispute that in the absence of a finding 
of excusable neglect, a circuit court shall deny a defendant's 
motion to enlarge the time in which to answer.  PIC does not 
argue that after the circuit court has denied a defendant's 
motion to enlarge the time in which to answer, the circuit court 
                                                                                                                                                             
At the same time, the Hedtcke court also recognized that 
the circuit court "must be cognizant that denial of a motion for 
enlargement of time to answer may result in a default judgment 
in favor of the plaintiff" and that "[t]he law views default 
judgments 
with 
disfavor 
and 
prefers, 
whenever 
reasonably 
possible, to afford litigants a day in court and a trial on the 
issues." Hedtcke, 109 Wis. 2d at 469 (quotation marks and 
citation omitted). 
72 Hedtcke, 109 Wis. 2d at 468.  See also Wis. Stat. 
§ (Rule) 801.15(2)(a) (providing in relevant part that if a 
motion for enlargement of the time in which to perform an act 
"is made after the expiration of the specified time, it shall 
not be granted unless the court finds that the failure to act 
was the result of excusable neglect.") (emphasis added).   
No. 
2006AP1566   
 
51 
 
is still required to weigh policy considerations prior to 
granting a motion for default judgment against the defendant.73   
¶117 In other words, PIC does not argue that the circuit 
court erred by failing to make, at some stage of the process, a 
discretionary determination regarding whether a default judgment 
against PIC is consistent with sound public policy or with the 
interests of justice.  Rather, PIC's argument is that this court 
should hold that the circuit court was altogether precluded as a 
matter of law from rendering a default judgment for damages 
against PIC for serving a late answer when the plaintiff has not 
shown prejudice. 
¶118 We cannot conclude that the circuit court's default 
judgment against PIC is inconsistent with sound policy as a 
matter of law.  PIC has caused its own problems by its default 
without excusable neglect.     
¶119 PIC agrees in this court that it failed to answer 
timely the complaint against it alleging the defendant's direct 
liability; that it has no excuse for its failure to answer the 
complaint timely; and that it is irreparably in default with no 
answer before the circuit court.  Under these circumstances, we 
cannot hold that the circuit court's judgment of default 
                                                 
73 This latter argument is made, however, in a third party 
brief filed with this court by the Wisconsin Insurance Alliance 
and the Property Casualty Insurers Association of America.  The 
third party brief contends that a circuit court is required to 
consider the interests of justice prior to granting a motion for 
judgment by default.  See Non-Party Brief of the Wisconsin 
Insurance 
Alliance 
and 
the 
Property 
Casualty 
Insurers 
Association of America at 9. 
No. 
2006AP1566   
 
52 
 
awarding damages against PIC is inconsistent with sound public 
policy as a matter of law.  We cannot conclude that the result 
in the present case gives undue weight to the policy of 
promoting prompt adjudication or insufficient weight to the 
policy of affording litigants a day in court whenever reasonably 
possible.   
¶120 For the reasons set forth, we conclude that the timely 
answer of the codefendant insureds denying the liability of all 
defendants did not preclude a judgment by default against the 
defendant for damages upon its acknowledged default.     
* * * * 
¶121 We affirm the decision of the court of appeals 
affirming the circuit court's default judgment against PIC for 
damages.  We conclude that the circuit court did not err as a 
matter of law in rendering a judgment by default against PIC for 
the plaintiff's damages.  We determine, as did the circuit court 
and court of appeals, that the timely answer of the codefendant 
insureds denying the liability of all defendants did not 
preclude a judgment by default against PIC on the issue of 
liability and damages upon the PIC's acknowledged default.  We 
hold that PIC's acknowledged default subjected PIC to a judgment 
by default for the plaintiff's damages against it.   
¶122 Accordingly, we affirm the decision of the court of 
appeals affirming in part and reversing in part the judgment of 
the circuit court. 
By the Court.—The decision of the court of appeals is 
affirmed.   
No.  2006AP1566.pdr 
 
1 
 
¶123 PATIENCE 
DRAKE 
ROGGENSACK, 
J. 
(dissenting).  
Physicians 
Insurance 
Company 
(PIC) 
contracted 
to 
provide 
liability insurance for damages that its insureds caused by 
medical malpractice.  The majority opinion affirms the court of 
appeals' conclusion that PIC's failure to answer within the 
statutorily prescribed time results in the following conclusive 
factual findings:  (1) PIC's insureds were negligent; and (2) 
PIC's insureds' negligence was causal of plaintiffs' damages.1  
PIC's insureds, in their answer to the amended complaint, denied 
that their conduct was negligent and denied that their conduct 
caused plaintiffs' damages, which denials joined those issues of 
fact and have not been stricken or proven false.  Under the 
direct action statute, Wis. Stat. § 632.24 (2005-06),2 PIC cannot 
be liable unless its insureds' conduct was negligent and a cause 
of plaintiffs' damages.  Kranzush v. Badger State Mut. Cas. Co., 
103 Wis. 2d 56, 75, 307 N.W.2d 256 (1981).  Therefore, the 
matter should be returned to the circuit court to litigate the 
contested factual questions relating to PIC's insureds' conduct.  
Because the majority opinion disconnects PIC's liability from 
the insureds' conduct contrary to the legislative directive, I 
respectfully dissent. 
I.  BACKGROUND 
¶124 Undisputed facts that gave rise to a default judgment 
being entered against PIC are fully set out in the majority 
                                                 
1 Majority op., ¶¶43, 55. 
2 All further references to the Wisconsin Statutes are to 
the 2005-06 version, unless otherwise noted. 
No.  2006AP1566.pdr 
 
2 
 
opinion; therefore, I will not review them here in any detail.  
Briefly, PIC contracted to provide insurance to Charles L. 
Folkestad, M.D., Terrance J. Witt, M.D. and Red Cedar Clinic—
Mayo Health System (hereinafter, the insureds).  The insureds 
were sued for negligence in the provision of medical services to 
Dale Otto, who died shortly after this action was commenced.   
¶125 PIC was first named in the amended complaint, as an 
alleged insurer.  A default judgment was entered against PIC 
because, although its attorney filed an answer to the amended 
complaint for the insureds in this malpractice action and raised 
defenses for PIC, through a scrivener's error, he did not name 
PIC as a party for whom he provided representation.   
¶126 After almost a year of litigation in which the 
attorney for PIC participated in negotiations and discovery in 
preparation for trial, the plaintiffs discovered the scrivener's 
error and moved for default judgment against PIC.  The circuit 
court granted plaintiffs' motion.3   
¶127 The question presented here is whether in direct 
action litigation the scope of an insurer's default in failing 
to timely answer includes conclusive findings that the insureds 
were negligent and that their negligence caused plaintiffs' 
damages, even though the insureds denied that medical care was 
negligently provided and denied that their conduct caused 
plaintiffs' damages.   
                                                 
3 Although the circuit court's decision to grant default 
judgment against PIC under the circumstances of this case is 
very troubling to me, that issue was not brought to us for 
review. 
No.  2006AP1566.pdr 
 
3 
 
¶128 The circuit court concluded that because of the direct 
action statute, Wis. Stat. § 632.24, PIC's default resulted in 
admissions that the insureds were negligent and that the 
insureds' negligence caused plaintiff's damages.  The court of 
appeals, in reliance on § 632.24, affirmed the circuit court's 
conclusion.  Otto v. Physicians Ins. Co. of Wis., Inc., No. 
2006AP1566, slip op., ¶¶23, 26 (Wis. App. Jul. 24, 2007).  The 
majority opinion affirms as well.    
II.  DISCUSSION 
A. 
Standard of Review 
¶129 Although whether to hold a party in default for 
failure to timely answer is a discretionary decision of the 
circuit court, Connor v. Connor, 2001 WI 49, ¶¶17-18, 243 
Wis. 2d 279, 627 N.W.2d 182, we are not reviewing that 
discretionary decision here.  Rather, this case turns on the 
interpretation and application of Wis. Stat. § 632.24, known as 
the direct action statute.  We review questions of statutory 
interpretation and application independently, but benefiting 
from the discussions of the court of appeals and the circuit 
court.  Marder v. Bd. of Regents of the Univ. of Wis. Sys., 2005 
WI 159, ¶19, 286 Wis. 2d 252, 706 N.W.2d 110.  
B. 
PIC's Potential Liability   
¶130 PIC can be liable to the plaintiffs through two 
mechanisms:  (1) solely by virtue of its contract with the 
insureds, or (2) through the combination of its contract and the 
direct action statute, Wis. Stat. § 632.24.  
No.  2006AP1566.pdr 
 
4 
 
 
1. 
PIC's contract 
¶131 PIC's contract of insurance requires it to pay only 
those damages that its insureds are legally obligated to pay.4  
Here, the insureds have denied negligence and causation of 
plaintiffs' damages.  They have been dismissed from this action; 
accordingly, they are legally obligated to pay nothing to the 
plaintiffs.  Therefore, on a purely contractual basis, PIC has 
no liability to anyone for the plaintiffs' damages. 
2. 
Direct action   
¶132 The circuit court and the court of appeals rested 
their determinations of PIC's liability on the direct action 
statute, Wis. Stat. § 632.24.  The majority opinion also relies 
on § 632.24 as a necessary component to PIC's liability.5  
Indeed, since the insureds have not been determined to be liable 
to the plaintiffs, the only basis on which liability can be 
developed against PIC is under the direct action statute.  Under 
direct action, if the insureds' negligent conduct caused the 
plaintiffs' damages, the plaintiffs can obtain a judgment 
directly against PIC for those damages.  Kranzush, 103 Wis. 2d 
at 75.   
¶133 The majority opinion spends no time explaining how 
Wis. Stat. § 632.24 sets the stage for PIC's liability, without 
                                                 
4 In ¶6 of its Amended Answer, PIC averred "that the extent 
of coverage . . . [was] limited by the terms and conditions of 
[its] policy."  However, the actual policy is not part of the 
record before us. 
5 Majority op., ¶31. 
No.  2006AP1566.pdr 
 
5 
 
proving or stipulating that the insureds were negligent and that 
their negligence caused plaintiffs' damages.  The majority 
opinion's failure to apply the plain meaning of § 632.24 leads 
it 
to erroneously 
conclude that PIC is liable for the 
plaintiffs' damages, notwithstanding the conditions imposed on 
the insurer's liability under § 632.24 and the denials of fault 
in the answers of the insureds.  
a. 
Statutory interpretation's general principles 
¶134 "[S]tatutory interpretation 'begins with the language 
of the statute.  If the meaning of the statute is plain, we 
ordinarily stop the inquiry.'"  State ex rel. Kalal v. Circuit 
Court for Dane County, 2004 WI 58, ¶45, 271 Wis. 2d 633, 681 
N.W.2d 110 (quoting Seider v. O'Connell, 2000 WI 76, ¶43, 236 
Wis. 2d 211, 612 N.W.2d 659).  Plain meaning may be ascertained 
not only from the words employed in the statute, but also from 
statutory context.  Id., ¶46.  We do not interpret statutory 
language in isolation, but rather, as that language appears in 
relation to surrounding or related statutes, and reasonably, to 
avoid absurd or unreasonable results.  Id.   
¶135 Context includes statutory history, i.e., the previous 
versions of the statute currently being examined.  Richards v. 
Badger Mut. Ins. Co., 2008 WI 52, ¶22, __ Wis. 2d __, 749 N.W.2d 
581 (citing Kalal, 271 Wis. 2d 633, ¶69).  "Statutory history 
encompasses the previously enacted and repealed provisions of a 
statute."  Id.  By analyzing the changes the legislature has 
made over the course of several years, we may more easily 
discern the meaning of a statute.  Id.  We also presume that the 
No.  2006AP1566.pdr 
 
6 
 
legislature meant an interpretation of the statute that will 
advance the statutory purpose.  GTE N. Inc. v. Pub. Serv. Comm'n 
of Wis., 176 Wis. 2d 559, 566, 500 N.W.2d 284 (1993). 
¶136 If a statute is "capable of being understood by 
reasonably well-informed persons in two or more senses[,]" then 
the statute is ambiguous, and we may consult extrinsic sources 
to comprehend its meaning.  Kalal, 271 Wis. 2d 633, ¶¶47-48, 50.  
We have also consulted statutory history to confirm the plain 
meaning of a statute.  Id., ¶51.  
b. 
Wisconsin Stat. § 632.24 
¶137 As with all statutory interpretation and application, 
I begin my discussion with the language of the statute.  Here we 
review Wis. Stat. § 632.24, Wisconsin's current direct action 
statute.  It provides: 
Any bond or policy of insurance covering liability to 
others for negligence makes the insurer liable, up to 
the amounts stated in the bond or policy, to the 
persons entitled to recover against the insured for 
the death of any person or for injury to persons or 
property, irrespective of whether the liability is 
presently established or is contingent and to become 
fixed or certain by final judgment against the 
insured.   
(Emphasis added.)  Section 632.24 does not make an insurer 
directly liable to all who choose to sue an insurance company.  
Rather, § 632.24 provides only conditional liability, wherein an 
insurer is liable to all who are entitled to recover against the 
insured for the insured's negligence.  The condition imposed by 
the direct action statute is clear and unambiguous.  Section 
632.24 plainly means to impose liability on an insurer only if 
the claimant is "entitled to recover against the insured" for 
No.  2006AP1566.pdr 
 
7 
 
the insured's conduct that underlies the direct action against 
the insurer.  Section 632.24 is not a strict liability statute.  
An examination of the statutory history supports my conclusion 
because it places the current statute in context and confirms 
the necessary connection between an insured's conduct and direct 
liability of the insurer. 
¶138 A direct action statute providing injured parties with 
the right to directly sue insurance companies was first enacted 
in 1925 as Wis. Stat. § 85.25 (1925).  At that time, direct 
action was part of the "Law of [the] Road" and applied only to 
motor vehicle accidents.  It provided: 
Accident insurance, liability of insurer.  Any 
bond or policy of insurance covering liability to 
others by reason of the operation of a motor vehicle 
shall be deemed and construed to contain the following 
conditions:  That the insurer shall be liable to the 
persons entitled to recover for the death of any 
person, or for injury to person or property, caused by 
the negligent operation, maintenance, use or defective 
construction of the vehicle described therein, such 
liability not to exceed the amount named in said bond 
or policy. 
(Emphasis added.)  Direct action was conditioned on the 
insured's negligent conduct being a cause of the claimant's 
damages.   
¶139 Our decisions, which interpreted Wis. Stat. § 85.25 
(1925) shortly after it was enacted, considered it in the 
context of the negligent operation of a motor vehicle.  We did 
not construe the statutory right of direct action as superior to 
contractual provisions; but rather, we permitted contractual 
limitations on the timing of the right of direct action.  That 
is, if a provision in an insurance policy precluded suit against 
No.  2006AP1566.pdr 
 
8 
 
the insurance company until the liability of its insured had 
been determined, we held that provision was dispositive.  See, 
e.g., Morgan v. Hunt, 196 Wis. 298, 300, 220 N.W. 224 (1928) 
(concluding that § 85.25 (1925) "does not create a liability or 
confer any right of action where none exists under the terms of 
the policy itself"); see also Bro v. Standard Accident Ins. Co., 
194 Wis. 293, 295-96, 215 N.W. 431 (1927) (concluding that 
§ 85.25 (1925) "does not give the plaintiff a right of action 
against the insurance company . . . where none exists under the 
terms of the policy itself").   
¶140 Wisconsin Stat. § 85.25 (1925) was amended and re-
numbered as Wis. Stat. § 85.93 in 1929.  The amendment clarified 
that a litigant had a right of direct action against an insurer 
before, as well as after, the insured's conduct was determined 
to be negligent and a cause of plaintiff's damages.  The 
legislature did so by adding the phrase, "irrespective of 
whether such liability be in praesenti or contingent and to 
become fixed or certain by final judgment against the insured" 
to the direct action statute.  Frye v. Angst, 28 Wis. 2d 575, 
578, 137 N.W.2d 430 (1965).  In 1929, the legislature also 
limited the amount that could be recovered from an insurance 
company to the policy's limits.  Section 85.93 (1929) provided:   
Accident insurance, liability of insurer.  Any 
bond or policy of insurance covering liability to 
others by reason of the operation of a motor vehicle 
shall be deemed and construed to contain the following 
conditions:  That the insurer shall be liable to the 
persons entitled to recover for the death of any 
person, 
or 
for 
injury 
to 
person 
or 
property, 
irrespective of whether such liability be in praesenti 
or contingent and to become fixed or certain by final 
No.  2006AP1566.pdr 
 
9 
 
judgment against the insured, when caused by the 
negligent operation, maintenance, use or defective 
construction of the vehicle described therein, such 
liability is not to exceed the amount named in said 
bond or policy.    
(Emphasis added.)  The amendments did not change the condition 
that direct action continued to impose on the potential 
liability of insurance carriers, i.e., that the insured's 
negligent conduct was a cause of the claimant's damages.  
Section 85.93 (1929) remained unchanged until 1957, when it was 
renumbered as Wis. Stat. § 204.30(4).   
¶141 Decisions that interpreted the 1957 version of the 
direct action statute explained the statutory changes up to that 
point in time.  For example, in Frye, we explained that in 1929 
the statute was amended to provide that direct action was 
permitted even before the liability of the insured had been 
determined, thereby abrogating Morgan and Bro.6  Frye, 28 Wis. 2d 
at 579.  We also explained that direct action set out in Wis. 
Stat. § 204.30(4) (1957) was a substantive right, but that Wis. 
Stat. § 260.11(1) (1957) was a necessary procedural component of 
direct action that determined whether a given insurer could be 
subject to direct action in the first instance.  Id.   
¶142 Our discussion in Frye drew together what we believed 
the 
legislature 
meant 
to 
enact 
by 
comparing 
legislative 
                                                 
6 The notes by Howard Ohm, Chief, Legislative Reference 
Library, reflect that the purpose of the amendment was to change 
the interpretation of Bro v. Standard Accident Insurance Co., 
194 Wis. 293, 215 N.W. 431 (1927) and Morgan v. Hunt, 196 Wis. 
298, 220 N.W. 224 (1928).  Those cases had concluded that 
clauses in insurance policies may prevent a direct action 
against the insurance carrier until the liability of the insured 
has been determined.     
No.  2006AP1566.pdr 
 
10 
 
amendments of direct action statutes with contemporaneous court 
decisions.  However, in Frye, we also held that "'[m]aintenance' 
of an automobile has never been considered a part of operation, 
or of management and control," id. at 582, and accordingly, a 
claim for negligent maintenance did not meet the necessary 
procedural parameters set out in Wis. Stat. § 260.11(1) (1957) 
to permit a direct action, id. at 583. 
¶143 Apparently, we were not quite on target with the 
legislature with regard to that conclusion in Frye because in 
1967, the legislature again amended the direct action statute.  
It added, "[when] caused by the negligent operation, management, 
control, maintenance, use or defective construction of a motor 
vehicle" (emphasis added) to Wis. Stat. § 260.11(1) (1967), 
thereby making the procedural and substantive provisions of 
direct action coextensive in regard to the conduct each covered. 
¶144 In 1971, the legislature made significant revisions to 
Wis. Stat. § 204.30(4) wherein it removed the references to 
"motor vehicle" and substituted "negligence," thereby broadening 
the scope of direct action to impose the potential for liability 
on insurance carriers to "those entitled to recover" for 
injuries or death caused by "negligence," whether a motor 
vehicle was involved or not.  The 1971 version of the direct 
action statute, § 204.30(4), provided: 
Liability of insurer.  Any bond or policy of 
insurance covering liability to others by reason of 
negligence shall be deemed and construed to contain 
the following conditions:  That the insurer shall be 
liable to the persons entitled to recover for the 
death of any person, or for injury to person or 
property, irrespective of whether such liability be in 
No.  2006AP1566.pdr 
 
11 
 
praesenti or contingent and to become fixed or certain 
by final judgment against the insured, when caused by 
negligence, such liability not to exceed the amount 
named in said bond or policy.  The right of direct 
action herein given against an insurer shall exist 
whether or not the policy or contract of insurance 
contains a provision forbidding such direct action.  
(Emphasis added.)  The amendments did not change the condition 
that direct action continued to impose on the potential 
liability of insurance carriers:  that the insured's negligent 
conduct was a cause of the claimant's damages.   
¶145 In 1975, Wis. Stat. § 204.30(4) was repealed and the 
substantive provision of direct action was recreated as Wis. 
Stat. § 632.24 (1975).  It provided: 
Direct action against insurer.  Any bond or 
policy of insurance covering liability to others for 
negligence makes the insurer liable, up to the amounts 
stated in the bond or policy, to the persons entitled 
to recover against the insured for the death of any 
person 
or 
for 
injury 
to 
persons 
or 
property, 
irrespective of whether the liability is presently 
established or is contingent and to become fixed or 
certain by final judgment against the insured.      
(Emphasis added.)  The amendments did not change the condition 
that direct action continued to impose on the potential 
liability of insurance carriers:  that the insured's negligent 
conduct was a cause of the claimant's damages.   
¶146 In Kranzush, we examined Wis. Stat. § 632.24 (1975) in 
light of a claimed bad faith refusal to settle made by the 
injured party.  Kranzush, 103 Wis. 2d at 57.  We began by noting 
that § 632.24 does not create strict liability for the insurance 
companies subject to its provisions.  Id. at 66.  We explained, 
"it is obvious that these statutes fall far short of creating 
the no-fault compensatory scheme embodied in the worker's 
No.  2006AP1566.pdr 
 
12 
 
compensation statutes.  . . .  The claimant is not locked into a 
legislatively 
driven bargain whereby his recovery, though 
smaller, is not contingent upon his success in a lawsuit."  Id. 
at 66-67.   
¶147 In parsing Wis. Stat. § 632.24 (1975), we said that 
"an insurer [is] liable up to policy limits to 'the persons 
entitled to recover against the insured.'"  Id. at 75 (emphasis 
added).7    Of significance to the case now before us, we also 
explained in Kranzush that "it is clear from the language of the 
statute that the liability to which the insurer is exposed is 
predicated upon the liability of the insured."  Id.  We 
explained further, "[u]nder this section the claimant has a 
right of action against the insurer only to the extent that he 
has the same right of action against the insured for his 
negligence."  Id.   
¶148 Wisconsin law holding that the substantive liability 
of an insurer under Wisconsin's direct action statute is 
predicated on the insured's conduct being negligent and a cause 
of the claimant's damages has been settled for more than 60 
years.  For example, in Kujawa v. American Indemnity Co., 245 
Wis. 361, 14 N.W.2d 31 (1944), we reviewed the direct action 
statute then in place, Wis. Stat. § 85.93 (1929), in light of a 
direct action against the insurer where the insured was not 
                                                 
7 This condition on the insurer's liability, i.e., it rests 
upon the claimant having a right to recover against the insurer 
for the insured's conduct, has been in the direct action statute 
since 1925 when it was first enacted.  See Wis. Stat. § 85.23 
(1925).   
No.  2006AP1566.pdr 
 
13 
 
joined in the action.  Id. at 363.  The action against American 
Indemnity was commenced before the statute of limitations had 
run on the claim against the insured; however, before the action 
against American Indemnity was concluded, the statute of 
limitations ran on claims against the insured.  Id. at 362.  
American Indemnity moved to dismiss.  Id.  We explained that 
since its enactment, the direct action statute "makes the 
insurance company directly liable 'to the persons entitled to 
recover for the death of any person, or for injury to person or 
property, caused by the negligent operation . . . irrespective 
of whether such liability be in praesenti or contingent and to 
become fixed or certain by final judgment against the insured."  
Id. at 363.  We reasoned that, because the statute of 
limitations had not run against Kujawa's claim against the 
insured 
when 
the 
action 
against 
American 
Indemnity 
was 
commenced, 
the 
statute 
of 
limitations 
did 
not 
preclude 
continuation of that action.  See id. at 366. 
¶149 In interpreting the direct action statutes in Kujawa, 
we explained that "[i]t is quite impossible to read into the 
statutes [secs. 85.93 and 260.11] an intent to create a 
liability on the part of the insurance carrier completely 
dissociated from the liability of the insured."  Id. at 365 
No.  2006AP1566.pdr 
 
14 
 
(emphasis added).8  We said, "[t]here is nothing in it to 
negative the idea that the insurer is not liable unless the 
assured is, or that any defense under the policy that relieves 
the insurer from liability as against the assured also relieves 
it from liability as against injured persons.  As to the 
statute, it does not create liability against the insurer."  Id. 
at 365 (emphasis added).  Accordingly, we concluded that 
negligent conduct by an insured was a necessary component to 
maintaining a direct action against an insurer.  Id. at 366.  
¶150 In Wiechmann v. Huber, 211 Wis. 333, 248 N.W. 112 
(1933), we also examined whether a lawsuit against an insurer 
would lie under the direct action statute when the lawsuit had 
not been commenced before the plaintiff's claim against the 
insured had abated.  The plaintiff argued that because Wis. 
Stat. § 85.93 (1929) gave it a right of direct action against 
the insurer, the fact that the plaintiff could no longer 
maintain an action against the insured was not dispositive.  Id. 
at 335.  We disagreed.  Id. at 336.  In concluding that no 
                                                 
8 Ignoring the strong language in Kujawa v. American 
Indemnity Co., 245 Wis. 361, 14 N.W.2d 31 (1944), that 
absolutely connects the conduct of the insured to the question 
of whether the insurer is liable to the claimant under the 
direct action statute, the majority opinion tries to show that 
Kujawa supports its position of disconnecting the insured's 
conduct from liability for the insurer.  See majority op., ¶¶37-
39.  It does so by saying that "under certain circumstances" the 
insurer may be liable even when the insured is not.  Majority 
op., ¶36.  However, whether the insurer may be liable when the 
insured is not is not the question presented by this lawsuit.  
The question here is whether the insurer may be liable without 
proving that the insured's conduct was negligent and a cause of 
the plaintiffs' damages. 
No.  2006AP1566.pdr 
 
15 
 
action could be brought against the insurer after the claim 
against the insured had expired, we explained, "It is quite 
impossible to read into the statutes an intent to create a 
liability on the part of the insurance carrier completely 
dissociated from the liability of the insured."  Id. at 336.   
¶151 In Tierney v. Lacenski, 114 Wis. 2d 298, 338 N.W.2d 
320 (Ct. App. 1983), the court of appeals was asked to decide 
whether a direct action against the insurer would lie under Wis. 
Stat. § 632.24 (1975) when the plaintiff did not serve a 
statutorily required notice of claim.  Plaintiff's failure 
precluded any action against the insured.  Id. at 303-04.  In 
concluding that no direct action could be maintained against the 
insurer, we said: 
Even under the direct action statute, sec. 632.24, 
Stats., which makes an insurer liable up to the policy 
limits to "the persons entitled to recover against the 
insured for the death of any person or for injury to 
the person or property," it is clear from the 
statutory language that the liability to which the 
insurer is exposed is predicated upon the insured's 
liability.  Under this section, the claimant has a 
right of action against the insurer only to the extent 
that he has the same right of action against the 
insured for his negligence. 
Id. at 303-04 (citation omitted).   
¶152 My review of the statutory history of Wis. Stat. 
§ 632.24 and the cases that have construed the changing form of 
Wisconsin's direct action statutes uncovers a consistent theme:  
liability of an insurer sued under direct action is tied to and 
conditioned on a finding that the insured's negligent conduct 
was a cause of the plaintiff's damages.  This is so because from 
the beginning of direct action, the direct action statutes have 
No.  2006AP1566.pdr 
 
16 
 
conditioned the liability of an insurer, i.e., direct action 
"makes an insurer liable" only to "persons entitled to recover 
against the insured."  Kranzush, 103 Wis. 2d at 75; see also 
Kujawa, 245 Wis. at 364; Wiechmann, 211 Wis. at 336; Biggart v. 
Barstad, 182 Wis. 2d 421, 428, 513 N.W.2d 681 (Ct. App. 1994); 
Tierney, 114 Wis. 2d at 304-05. 
¶153 This conclusion is also consistent with the purposes 
of the direct action statute, wherein recovery is conditioned on 
the nature of the conduct of the insured.  Those purposes are: 
[to] save litigation and reduce the expense by 
determining the rights of all parties in a single 
action which is usually defended by the insurance 
carrier.  [To] expedite the final settlement of 
litigation and the final payment to the injured 
person, if he be entitled to recovery.  [To] place the 
burden upon the insurance carrier who has been 
compensated in advance for its liability to pay the 
damage assessed for such injuries to person and damage 
to 
property 
as 
have 
been 
caused 
by 
actionable 
negligence on the part of the person insured. 
Decade's 
Monthly 
Income 
& 
Appreciation 
Fund 
v. 
Whyte 
& 
Hirschboeck, S.C., 173 Wis. 2d 665, 675, 495 N.W.2d 335 (1993) 
(quoting Ducommun v. Inter-State Exchange, 193 Wis. 179, 185, 
212 N.W. 289 (1927)). 
¶154 The majority opinion recognizes that the liability of 
the insurer is tied to the conduct of the insured, as evidenced 
by its statement: 
An insurer's liability is, of course, dependent 
upon the conduct of its insured, but the insurer's 
liability 
is 
not 
necessarily 
dependent 
on 
the 
insured's liability.  There can be no recovery against 
the insurer unless the insured's conduct giving rise 
to liability is proven.9 
                                                 
9 Majority op., ¶35 (emphasis in majority opinion). 
No.  2006AP1566.pdr 
 
17 
 
I agree completely with those statements of the law.  However, 
no sooner has the majority correctly stated the law, when in the 
same discussion, it ignores the conduct of the insureds and 
concludes that, notwithstanding that the insureds' conduct has 
not been proven to be negligent or a cause of plaintiffs' 
damages, PIC is liable.10 
¶155 To reach its result, the majority opinion relies 
heavily on its reconstruction of our decision in Loy v. 
Bunderson, 107 Wis. 2d 400, 320 N.W.2d 175 (1982).11  The 
majority 
opinion 
applies 
Loy 
selectively, 
taking 
various 
statements from it and implying that those statements support 
its conclusion that PIC is liable without proving that the 
insureds were negligent and that their negligence was a cause of 
the plaintiffs' damages.12  However, read in its entirety, Loy 
supports this dissent's conclusion that PIC cannot be liable to 
                                                 
10 Majority op., ¶55. 
11 Majority op., ¶36. 
12 The majority opinion quotes Loy v. Bunderson, 107 Wis. 2d 
400, 320 N.W.2d 175 (1982), as saying that "'responsibility of 
an insurance company to an injured party is derivative of the 
insured's conduct, . . . it is not derivative of the status of 
the insured's personal liability to a plaintiff,'" majority op., 
¶36, and "'upon the insurer irrespective of whether there is a 
final judgment against the insured,'" id.  Those quotes are 
absolutely correct, but they do not support the conclusion that 
PIC can be held liable when the insureds' conduct has not been 
proved to be negligent and causal of plaintiffs' injuries.  The 
statute does not create strict liability for the insured.  The 
statutory conditions tie liability of the insurer to the 
insured's conduct such that a claimant must be "entitled" to 
recover against the insured before liability can be imposed on 
the insurer.  
No.  2006AP1566.pdr 
 
18 
 
the plaintiffs until the plaintiffs prove that the insureds' 
conduct was negligent and a cause of the plaintiffs' damages.     
¶156 Loy involved the question of whether a "special 
release" of General Casualty and its insured, Truesdill, was 
valid when it left Travelers Insurance subject to suit.  Id. at 
401-02.  Under the terms of the release, General Casualty paid 
$20,000 upon a $50,000 policy for its release.  Id. at 402.  
Travelers remained subject to suit on its $500,000 policy for 
amounts between $50,000 and $500,000, as did Truesdill.13  Id. at 
402, 405.  Under the release, Travelers continued to have a duty 
to defend Truesdill against the claim that his negligence caused 
the plaintiff's damages.  Id. at 403.   
¶157 In parsing the direct action statute, Wis. Stat. 
§ 632.24 (1975), we explained that "[t]he insurance company has 
a direct liability to an injured party if other factors trigger 
insurance company liability."  Id. at 421 (emphasis added).  We 
further explained that "it is the nature of the insured's 
conduct and its consequences with which an insurance company is 
concerned."  Id. at 422.  In expressing the necessary nexus 
between the insured's conduct and the insurer's direct liability 
to the injured party, we quoted Nichols v. United States 
Fidelity & Guaranty Co., 13 Wis. 2d 491, 109 N.W.2d 131 (1961): 
The fact that a third party can sue an insurer of 
a motor vehicle direct . . . without first recovering 
a judgment against the insured defendant, does not 
                                                 
13 In the absence of the General Casualty policy, Travelers 
Insurance would have provided "dollar-one" coverage.  Loy, 107 
Wis. 2d at 404.  Therefore, it benefited from the "special 
release." 
No.  2006AP1566.pdr 
 
19 
 
enlarge the coverage afforded by such policy or 
determine the insurer's liability thereunder. 
Loy, 107 Wis. 2d at 422 (quoting Nichols, 13 Wis. 2d at 499).  
We summed up our conclusions about the relationship between the 
insured's conduct and the potential for liability of the insurer 
under the direct action statute as follows: 
An insurer is directly liable to the plaintiff if the 
underlying conditions of negligence are satisfied 
although, 
after commencement of the action, the 
insured is released or protected by an absolute 
covenant not to sue.  The responsibility of an 
insurance company to an injured party is derivative of 
the insured's conduct, but it is not derivative of the 
status of the insured's personal liability to a 
plaintiff 
at 
the time the insurer's contractual 
obligations are triggered by a judgment for damages. 
Id. at 426.  Accordingly, the reasoning and conclusions in Loy 
reaffirm my conclusion that, notwithstanding the direct action 
statute, PIC cannot be held liable to the plaintiffs until the 
conduct of the insureds is proved to be negligent and a cause of 
plaintiffs' damages.  In addition, requiring proof of those 
facts furthers a purpose of the direct action statute, i.e., 
requiring the insurer to pay damages "as have been caused by 
actionable negligence on the part of the person insured."  
Decade's Monthly Income, 173 Wis. 2d at 675 (quoting Ducommun, 
193 Wis. at 185).   
¶158 However, here, the majority opinion, for the first 
time in more than 60 years, detaches the conduct of the insured 
from the obligation of the insurer.  None of the purposes of the 
direct action statute is furthered by this interpretation of 
Wis. Stat. § 632.24.  See id.  The majority opinion accomplishes 
this coup de grace by asserting, without any cited authority, "A 
No.  2006AP1566.pdr 
 
20 
 
necessary corollary of the insurer's direct liability to an 
injured complainant is that the insurer may admit an allegation 
of its liability, as well as the underlying allegation of the 
tortious conduct of its insured."14  One can only wonder how this 
assertion plays out if an insurer were to admit that the 
insured's conduct was negligent and a cause of the claimant's 
damages, but also asserts that the policy has lapsed.  
¶159 Furthermore, there are collateral consequences for 
members of certain professions who have been determined to have 
provided services in a negligent manner, thereby causing injury.  
Such an admission of negligence may result in consequences in 
addition to paying damages.15  And finally, and of utmost 
importance in the case before us, the insureds have denied that 
they negligently provided medical care to Dale Otto and that 
their care was a cause of plaintiffs' damages.  Therefore, even 
if one were to accept the bold assertion of the majority 
opinion, which I do not, it has no application here.   
¶160 The majority also relies on PIC's obligation under 
Wis. Stat. § 802.02(4) to answer the amended complaint.16  I have 
no quarrel with the assertion that PIC must answer the amended 
complaint.  However, its failure to timely answer does not 
negate the answers that the insureds made in regard to their own 
                                                 
14 Majority op., ¶40. 
15 See, e.g., Wis. Stat. § 753.30(4) (requiring "[t]he clerk 
of circuit court [to] provide the medical examining board with a 
. . . copy of an order of a circuit court in which a physician 
. . . is found negligent in treating a patient."). 
16 Majority op., ¶¶41-43.   
No.  2006AP1566.pdr 
 
21 
 
conduct.  An example will show the fallacy of the majority's 
reliance on § 802.02(4) for its assertion that PIC's failure to 
timely answer admitted the negligence of the insureds who had 
denied that their conduct was negligent.   
¶161 Suppose that three doctors and one nurse were sued for 
their treatment of a patient who dies subsequent to surgery.  
All the doctors answer and deny negligence, but the nurse does 
not answer.  Does the nurse's default admit the doctors' 
negligence?  Of course, it does not.  Is the nurse liable for 
all of the damages that the patient suffered even though she 
provided only post-operative care?  Of course, she is not.  The 
nurse is not subject to direct action liability.   
¶162 Accordingly, the only way that PIC can be liable here 
is if the direct action statute permits the separation of the 
insured's conduct from the insurer's liability.  However, we 
have held for more than 60 years that it does not do so.  
Kujawa, 245 Wis. at 364; Wiechmann, 211 Wis. at 336.   
¶163 The majority opinion also relies on Martin v. Griffin, 
117 Wis. 2d 438, 344 N.W.2d 206 (Ct. App. 1984), in its efforts 
to justify its overruling 60 years of precedent that uniformly 
has held that under the direct action statute, the insurer's 
liability is tied to the insured's conduct.17  Martin is of no 
assistance because the court of appeals did not address the 
issue upon which the case now before us turns. 
¶164 In Martin, the court of appeals examined the failure 
of Milbank Mutual to file a timely answer when it was sued under 
                                                 
17 Majority op., ¶¶60-73. 
No.  2006AP1566.pdr 
 
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the direct action statute for Griffin's alleged negligence in 
operating a motor vehicle.  Id. at 440.  It began by noting that 
whether 
to 
grant 
a 
default 
judgment 
is 
a 
discretionary 
determination of the circuit court.  Id. at 442.  It then 
examined the circuit court's reasoning and concluded that the 
circuit court "did not abuse its discretion by granting Martin a 
default judgment."  Id. at 444.  In speaking to the issue of 
liability, the court said, "By failing to file a timely answer 
of denial, Milbank has admitted the unconditioned allegation 
that its policy covered Griffin for liability for damages caused 
by his negligence."  Id.  However, the court of appeals did not 
address the question of whether Milbank's default resulted in an 
admission that Griffin was negligent.  It simply assumed that 
once Milbank defaulted, it was responsible for Griffin's 
negligence because negligence had been alleged.  Id.     
¶165 The majority opinion asserts that the court of 
appeals' conclusion in Martin should control the outcome of this 
case.18  To some extent, there are parallels in the facts between 
the two cases, and PIC does not deny that its default resulted 
in a conclusive finding that it is liable for the damages caused 
by the negligence of its insureds.  However, beyond that 
conclusion, the holdings in Martin do not address the critical 
question here.  That is, whether PIC's failure to answer 
admitted that the insureds negligently provided medical care to 
Dale Otto and whether that negligence was a cause of plaintiffs' 
                                                 
18 Majority op., ¶67. 
No.  2006AP1566.pdr 
 
23 
 
damages, even though the insureds denied those allegations and 
their denials have not been stricken.   
¶166 In its effort to impose strict liability on PIC, the 
majority opinion seeks to enlist the default judgment statute, 
Wis. Stat. § 806.02.  The majority opinion asserts that in 
regard to default judgments, "[t]he ordinary rule is that the 
allegations in a complaint 'are admitted when not denied' in the 
answer of a defendant against whom the allegations are made."19  
I do not disagree with that statement, but it does not support 
holding PIC liable to the plaintiffs.  There was no allegation 
that PIC provided negligent medical care.  That was alleged 
against the insureds.  By contrast, it was alleged that PIC, 
had in full force and effect, at all material times, a 
policy of insurance covering Dr. Folkestad, Dr. Witt, 
and Red Cedar Clinic for the alleged negligence which 
is the subject of this complaint, and is therefore 
directly liable to the plaintiffs for the below 
enumerated damages."20  
I agree that, if the insureds were proved to have negligently 
provided medical care to Dale Otto that was a cause of the 
plaintiffs' harm, then PIC's default admits that it provided 
coverage for that conduct.  However, there is nothing in the 
default judgment statute that permits a court to assert the 
claimed liability of a defendant against another defendant when 
claims of jointly negligent conduct have not been made. 
¶167 Holding one defendant liable for more conduct than is 
alleged against him in a complaint serves no rational purpose, 
                                                 
19 Majority op., ¶42.   
20 Amended Complaint, ¶6.   
No.  2006AP1566.pdr 
 
24 
 
as we held long ago.  In Pett v. Clark, 5 Wis. 198 (1856), we 
concluded that it was error to enter default judgment against 
two defendants after one of the two defendants had answered, 
without first striking that answer.  Id. at 198-99.  Here, the 
insureds' answer has not been stricken, nor has any basis to 
strike their answer been asserted.   
¶168 In Haugen v. Wittkopf, 242 Wis. 276, 7 N.W.2d 886 
(1943), we examined the pleading relationship between an insured 
and the insurer.  In Haugen, an insurer did not raise the 
defense of assumption of risk, but its insured did.  Id. at 281.  
We concluded that even though "the answer of the insurer did not 
so assert that defense, its liability is to indemnify the host, 
and as the host is not liable the insurer is not and there can 
be no recovery against it."  Id. at 281.  Haugen fits well with 
the circumstances before us because all of the insureds denied 
that they negligently provided medical care to Dale Otto causing 
the plaintiffs' damages.  Therefore, the conduct that is 
necessary to prove before there can be direct liability against 
PIC under Wis. Stat. § 632.24 remains unproven.  
¶169 Other jurisdictions also have examined the effect of a 
default by one defendant on the liability of another defendant.  
For example, in Fred Chenoweth Equipment Co. v. Oculus Corp., 
328 S.E.2d 539 (Ga. 1985), the Supreme Court of Georgia examined 
the effect of a default by a defendant, Oculus, who was alleged 
to owe Chenoweth for materials and equipment, on the liability 
of Oculus's surety.  Id. at 540.  In determining that the surety 
was not liable based on Oculus's default, the court reasoned 
No.  2006AP1566.pdr 
 
25 
 
that there were actually two causes of action presented by the 
pleadings.  The cause of action against Oculus was based on 
breach of contract for failing to pay, and the cause of action 
against the surety was an action on the bond of the surety.  Id. 
at 540-41.  Therefore, the court concluded that liability of the 
two defendants was not joint.  Id. at 541.  It also concluded 
that the default judgment against Oculus did not reach the 
merits of the breach of contract claim against it.  Id.  
However, in order to recover on the bond, the court noted that 
the merits of the claim against the insured would have to be 
addressed before the surety could be liable for payment.  Id.  
¶170 Here too, there are two claims for relief:  one for 
medical malpractice and one on a contract to provide insurance 
for medical malpractice.  However, the merits of the plaintiffs' 
claims against the insureds must be litigated before their 
direct action will meet the necessary conditions for direct 
liability under Wis. Stat. § 632.24.  PIC and its insureds are 
not joint tortfeasors. 
¶171 Accordingly, the majority opinion has provided no 
rationale for ignoring 60 years of precedent which has made 
direct action liability conditioned upon the conduct of the 
insured.  As Justice Thomas Fairchild said in Wiechmann, "It is 
quite impossible to read into the statutes an intent to create a 
liability on the part of the insurance carrier completely 
dissociated from the liability of the insured."  Wiechmann, 211 
Wis. at 336.  However, after more 60 years, the majority opinion 
chooses to do so.   
No.  2006AP1566.pdr 
 
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III.  CONCLUSION 
¶172 The majority opinion affirms the court of appeals' 
conclusion that PIC's failure to answer within the statutorily 
prescribed time results in the following conclusive factual 
findings:  (1) PIC's insureds were negligent; and (2) PIC's 
insureds' negligence was causal of plaintiffs' damages.  PIC's 
insureds, in their answer to the amended complaint, denied that 
their conduct was negligent and denied that their conduct caused 
plaintiffs' damages, which denials joined those issues of fact 
and have not been stricken or proven false.  Under the direct 
action statute, Wis. Stat. § 632.24, PIC cannot be liable unless 
its insureds' conduct was negligent and a cause of plaintiffs' 
damages.  Kranzush, 103 Wis. 2d at 75.  Therefore, the matter 
should be returned to the circuit court to litigate the 
contested 
factual 
questions 
relating 
to 
PIC's 
insureds' 
conduct.21  Because the majority opinion disconnects PIC's 
liability 
from 
the 
insureds' 
conduct, 
contrary 
to 
the 
legislative directive, I respectfully dissent.    
¶173 I am authorized to state that Justices DAVID T. 
PROSSER and ANNETTE KINGSLAND ZIEGLER join this dissent. 
 
 
                                                 
21 The majority questions how a remand to litigate questions 
about the insureds' conduct is possible because the insureds 
have been dismissed.  Majority op., ¶97.  However, that poses no 
problem in a direct action.  Kujawa, 245 Wis. at 363. 
No.  2006AP1566.pdr 
 
1