Opinion ID: 1290952
Heading Depth: 2
Heading Rank: 3

Heading: Vogt v. Schroeder

Text: ¶ 32. The starting point for any such analysis must be our decision in Vogt. In Vogt, the injured party had been a passenger in a vehicle driven by his son during a collision with the defendant Schroeder's vehicle. Vogt, 129 Wis. 2d at 7. The court noted that the parties implicitly concluded that Schroeder was primarily, perhaps wholly, liable, because it is conceded, for this appeal at least, that his vehicle invaded the lane of the Vogt vehicle when the collision occurred. Id. In effect, the same assumption is made here. Although it has not been determined that Knueppel's negligence caused the accident, we assume for the purposes of this appeal that the Pittses have the right to attempt to draw on the Sentry UIM coverage to make up the difference between the damages available from the tortfeasor and the Sentry policy limits. [4] ¶ 33. In Vogt, Schroeder's insurance policy had a limit of only $15,000, and, although nothing in the record explicitly showed that Vogt's damages exceeded that amount, the parties conceded for purposes of the appeal that the damages did exceed $15,000. Id. Schroeder's insurer offered to pay its policy limit in exchange for a release of its insured. Id. at 8. Vogt wanted to accept the proffered $15,000 and then pursue a UIM claim under his own auto insurance policy with Wisconsin Employers Casualty Company (WECC), which contained $50,000 in underinsured motorist coverage. Id. WECC hesitated to consent to the settlement because it felt that its right to subrogation against the tortfeasor could be impaired by such consent. [5] Id. At its core, the Vogt decision was about subrogation rights. ¶ 34. [S]ubrogation is an equitable doctrine and depends upon a just resolution of a dispute under a particular set of facts. Id. at 12 (citing 6A Appleman, Insurance Law and Practice, § 4051 at 110). Generally, the doctrine of subrogation rests upon the equitable principle that one, other than a volunteer, who pays for the wrong of another should be permitted to look to the wrongdoer to the extent he has paid and be subject to the defenses of the wrongdoer. Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 541, 253 N.W.2d 512 (1977). The doctrine is often invoked after an insurer has compensated its own insured for an accident its insured did not cause. See, e.g., Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 271-72, 316 N.W.2d 348 (1982). The insurer, in some circumstances, steps into the shoes of its insured and may prosecute the tortfeasor to recoup the benefits it paid to its insured. Patients Comp. Fund v. Lutheran Hosp., 223 Wis. 2d 439, 451, 588 N.W.2d 35 (1999) (citing Anderson, Wisconsin Insurance Law, § 12.3, at 12-18). ¶ 35. In the Vogt case, Schroeder's insurer argued that a UIM insurer or underinsurer never has a right to subrogation. Vogt, 129 Wis. 2d at 11. The Vogt court answered this open question by confirming that an underinsurer does have a right to subrogation as long as it substitutes its funds for those proferred by the tortfeasor's insurer. Id. at 17-19. However, if the underinsurer chooses simply to consent to the settlement, it forfeits its right to subrogation. Id. at 20-21. ¶ 36. The Vogt court cited two major factors it believed supported this outcome. First, in the underinsurance context, the balancing of equities is not between the insurer and its own insured but between the underinsurer and the tortfeasor. Id. at 17. This balance weighs in favor of the underinsurer's subrogation right. ¶ 37. Second, the court recognized that a motorist who carries UIM coverage should not be left in a worse position when she is injured by an underinsured motorist than if she has been injured by a fully insured motorist. Id. at 17-18. The court noted: Such motorist ought to be able to settle with the tortfeasor's insurance company to the extent of that tortfeasor's coverage. The motorist should not be required to sue for what is being offered and thus incur larger fees and expenses just to accommodate the underinsurance company's desire to protect its subrogation rights. At least the motorist should not be obligated to do so if it is possible, under the terms of the contract and in justice, for the injured party to receive the settlement proceeds, or its equivalent, and the underinsurer is still able to protect its subrogation rights. Id. at 18. ¶ 38. Having determined that the underinsurer potentially had subrogation rights, the Vogt court had to emplace a method to allow the underinsurer to intervene in the settlement process. It adopted a procedure approved by the Minnesota Supreme Court in Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983). Vogt, 129 Wis. 2d at 20-21. In Schmidt, the Minnesota court held that the underinsurer was entitled to notice of a potential settlement and a period of time in which to assess the case. Vogt, 129 Wis. 2d at 20 (citing Schmidt, 338 N.W.2d at 263). The Minnesota court explained its holding: In that time [the underinsurer] could evaluate relevant factors, such as the amount of the settlement, the amount of liability insurance remaining, if any, the amount of assets held by the tortfeasor and the likelihood of their recovery via subrogation, the total amount of the insured's damages, and the expenses and risks of litigating the insured's cause of action. If the underinsurer were to determine after assessment that recovery of underinsurance benefits it paid was unlikely (e.g., where the liability limits are exhausted or nearly so and the tortfeasor is judgment-proof), it could simply let the grace period expire and permit the settlement and release. It must, of course, thereafter process the underinsurance claim but would not be able to recover those payments through subrogation. If, on the other hand, damages were substantially more than the liability limits and the tortfeasor had substantial assets, the underinsurer could substitute its payment to the insured in an amount equal to the tentative settlement. In this situation, the underinsurer's payment would protect its subrogation rights to the extent of the payment, and the insured would receive the amount of the settlement offer in cash. The underinsurer would then have to arbitrate the underinsured claim and could, thereafter, attempt to negotiate a better settlement or could proceed to trial in the insured's name. Id. at 20-21 (quoting Schmidt, 338 N.W.2d at 263) (internal citation omitted). ¶ 39. The quoted passage notes that the underinsurer might consider whether the tortfeasor is judgment-proof. This implies at a minimum that if the underinsurer substitutes its own funds, it has the right to sue all parties released by the proposed settlement. In Vogt, this was both the tortfeasor and the tortfeasor's insurer. ¶ 40. The Vogt court reasoned that the underinsurer could protect its right to subrogation, but it could not thwart the right of its own insured to receive some payment, either the amount of the insured's underinsurance claim or the amount offered in settlement. Id. at 21. The court thus struck an equitable balance between the right of the insurance company to protect its subrogation interest and the right of the insured to be timely compensated.