Opinion ID: 2144926
Heading Depth: 1
Heading Rank: 5

Heading: The Made Whole Inquiry Today

Text: ¶ 34. We recognize that, in light of our decision in Sorge, the court of appeals below took a logical step by remanding for a determination of Michael Ives' contributory negligence. Although not explicitly directed by the court of appeals, the circuit court would necessarily have to determine the negligence of all of the alleged tortfeasors. The court of appeals also was compelled to rule on the applicability of the contributory negligence bar as contained in Wis. Stat. § 895.045. The Iveses' attorney vividly described the possible outcomes, based on prior case law: In this case, under the Court of Appeals ruling, Michael Ives'(sic) is made whole if he is found to be 82.58 percent or greater contributorily negligent. So, at the mini-trial, Rhinelander must focus on Michael Ives' contributory negligence and get a ruling of at least 82.58 percent of contributory negligence from the trial court in order to recover at all. If the trial court reaches that magic number, then Rhinelander recovers. Under the Court of Appeals formula, they would recover up to 17.42 percent of its total lien. However, if Rhinelander does a somewhat better job in proving Michael Ives' negligence, and the trial court finds Michael Ives 90 percent negligent, Rhinelander recovers only 10 percent of its total lien. To take this a step further, if Rhinelander does the best job it can in proving Michael Ives' contributory negligence, and the trial court finds Michael Ives 100 percent negligent, Rhinelander gets nothing, just as it would have if Michael Ives had not been made whole. Respondents' brief, at 12. ¶ 35. The parties before the court acknowledge the uncertain and unworkable status of the current law on subrogation reimbursement. They seek guidance so that the principles of earlier decisions may be properly applied, where possible, to pre-trial settlements. [11] Neither party seeks a trial on liability. [12] At oral argument, counsel for Rhinelander and the Iveses agreed that a full trial on liability would be unworkable, time-consuming, expensive and contrary to judicial economy. ¶ 36. To respond to the parties before us, we would return to traditional principles of subrogation. We give the doctrine of subrogation a liberal application. D'Angelo v. Cornell Paperboard Products Co., 19 Wis. 2d 390, 402, 120 N.W.2d 70 (1963); Perkins v. Worzala, 31 Wis. 2d 634, 639, 143 N.W.2d 516 (1966). However, subrogation reimbursement will not be permitted where it works a result that is contrary to public policy. First Nat. Bank of Columbus v. Hansen, 84 Wis. 2d 422, 429, 267 N.W.2d 367 (1978). Subrogation is based on equity and is permitted only when the rights of those seeking subrogation have greater equity than those who oppose it. 84 Wis. 2d at 429. As the court said in Cunningham v. Metropolitan Life Ins. Co., 121 Wis. 2d 437, 455, 360 N.W.2d 33 (1985), we are not ready to dispose of our long standing doctrine of equitable subrogation. Here we would reaffirm the equitable principles which underlie the doctrine. [13] ¶ 37. The made whole principle has been characterized as the primary doctrine developed to alleviate the harshness of subrogation. Roger M. Baron, Subrogation: A Pandora's Box Awaiting Closure, 41 S. Dak. L. Rev. 237, 238 (1996). This court defined made whole in Rimes by saying that where there is a claim for either equitable or conventional subrogation, the insurer will not share in the recovery from the tortfeasor if the total amount recovered by the insured from the insurer and the wrongdoer does not cover his or her entire loss. 106 Wis. 2d at 271. After the plaintiff and defendants have settled, either the settling plaintiff or the subrogated insurer may request a Rimes hearing. At that hearing the circuit court will determine whether the injured plaintiff has been made whole, that is, whether the injured plaintiff has been fully compensated for the loss sustained. ¶ 38. We believe that the Sorge court failed to apply this formula, in part because the parties created a stipulated record that did not contain the plaintiff's total damage figure. [14] Nonetheless, the Sorge court proceeded to rule that the insurers were entitled to reimbursement because the insured had received all that she was legally entitled to receive, without actually calculating her total damages. We would now vote to overrule our holding in Sorge. By doing so, we would preserve the requirement for a made whole determination before a subrogated insurer may be reimbursed. [15] ¶ 39. A majority of jurisdictions that still permit reimbursement to a subrogated carrier in personal injury actions adhere to the made whole rule of Garrity and Rimes. [16] See, e.g., Powell v. Blue Cross & Blue Shield, 581 So. 2d 772, 777 (Ala. 1990); Marquez v. Prudential Property & Cas. Ins. Co., 620 P.2d 29, 32-33 (Colo. 1980) (interpreting statute to be consistent with insured-whole rule); Magsipoc v. Larsen, 639 So. 2d 1038, 1042 (Fla. Dist. Ct. App. 1994); Hardware Dealers Mut. Fire Ins. Co. v. Ross, 262 N.E.2d 618, 621 (Ill. App. Ct. 1970); Capps v. Klebs, 382 N.E.2d 947, 951 (Ind. Ct. App. 1978) (construing statute as intending to confer right of subrogation only in event the insured has been fully compensated for his or her adjudged losses); Ludwig Farm Bureau Mut. Ins. Co., 393 N.W.2d 143, 144-46 (Iowa 1986) (upholding made whole rule, but permitting subrogation reimbursement where amounts recovered by insured from tortfeasor can be identified and credited toward subrogated claims); Southern Farm Bureau Cas. Ins. Co. v. Sonnier, 406 So. 2d 178, 180 (La. 1981); Wescott v. Allstate Ins. Co., 397 A.2d 156, 169 (Me. 1979); Frost v. Porter Leasing Corp., 436 N.E.2d 387, 389-90 (Mass. 1982) (where insurance policy contained no subrogation clause, court unwilling to extend implied rights of subrogation to insurance for personal injuries); Union Ins. Soc'y v. Consolidated Ice Co., 245 N.W. 563, 564, (Mich. 1932); Westendorf v. Stasson, 330 N.W.2d 699, 703 (Minn. 1983); Home Ins. Co. v. Hartshorn, 91 So. 1, 3 (Miss. 1922); Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628, 632 (Mont. 1977) (holding that insured is entitled to be made whole for his or her entire loss and any costs of recovery, including attorney fees, before insurer can assert its right of legal subrogation); Providence Washington Ins. Co. v. Hogges, 171 A.2d 120, 124 (N.J. Super. Ct. App. Div. 1961); St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 198 S.E.2d 482, 484-85 (N.C. Ct. App.) cert. denied, 200 S.E.2d 655 (N.C. 1973); Lombardi v. Merchants Mut. Ins. Co. 429 A.2d 1290, 1292 (R.I. 1981); Wimberly v. American Cas. Co. of Reading, Pa., 584 S.W.2d 200, 203 (Tenn. 1979); Ortiz v. Great Southern Fire & Cas. Ins. Co. 597 S.W.2d 342, 344 (Tex. 1980); Hill v. State Farm Mut. Auto Ins. Co., 765 P.2d 864, 868 (Utah 1988); Vermont Indus. Dev. Auth. v. Setze, 600 A.2d 302, 307 (Vt. 1991); Thiringer v. American Motors Ins. Co., 588 P.2d 191, 193-94 (Wash. 1978); Kittle v. Icard, 405 S.E.2d 456, 464 (W. Va. 1991). ¶ 40. We now believe that our decision in Sorge, while seemingly reasonable, misapplied the made whole rule of Garrity and Rimes. Because the stipulation by the parties focused the court on what the plaintiff was legally entitled to receive, instead of focusing on what loss the plaintiff had actually sustained, none of the courts considering the issue addressed Ms. Sorge's total damages. Total damages, however, are the heart of the made whole determination. The focus of made whole is not on what the plaintiff can legally receive, but on what the plaintiff lost. See, e.g., Rimes, 106 Wis. 2d at 275: It is clear that a payment of [the settlement amount], unless that sum had been arrived at by a jury whose intent was to make the plaintiff whole, was irrelevant. Under the facts of this case, the payment. . .was the price that the defendant tortfeasors were willing to pay to avoid the risk of greater exposure; and it was the sum that [the injured plaintiff] was willing to accept. It has nothing to do with the determination of whether [the injured plaintiff] was made whole. ¶ 41. Therefore, we would overrule the holding of Sorge that a plaintiff is made whole when he or she receives all that he or she is legally entitled to receive taking into account his or her contributory negligence. Instead, we believe that reaffirming the made whole rule would restore consistency of results and lead to more prompt resolution of subrogation claims between an insured and his or her insurer. ¶ 42. Justice Steinmetz' concurrence asks [o]f what value is precedent when a unanimous holding can be overruled two years later due to a change in the minds of members of this court? Steinmetz conc. at 88. We answer by saying that it is now clear that Sorge misapplied 18 years of precedent by not correctly applying the made whole theory recognized in Garrity and Rimes. Thus, it is indeed Sorge which changed existing precedent and which has created the problems now facing this court. ¶ 43. Justice Steinmetz' concurrence states that settlements should be encouraged. We agree. We disagree, however, with the implication that the made whole rule of Garrity and Rimes has worked to discourage settlements. Very few cases have come to this court in the past twenty years, other than Sorge, where the parties have asked us to interpret the Garrity and Rimes decisions. We can only assume that parties have successfully achieved settlements, applying the made whole principles of our earlier cases. ¶ 44. The made whole rule may best be explained by an example: A plaintiff has total damages of $60,000. That is the made whole number. The insurer has paid $40,000 in medical expenses on behalf of the plaintiff. The plaintiff settles with the tortfeasor for $30,000. Thus, the plaintiff has received, or received the benefit of, $70,000, or $10,000 over his or her made whole number. That excess $10,000 is available to reimburse the subrogated insurer. After that, the plaintiff will likely pay $10,000 in attorney's fees (1/3 of $30,000 settlement) and have $10,000 left over to pay costs of litigation, and as compensation for all of the other elements of damage for which the plaintiff was not insured. ¶ 45. Contrary to the position of Justice Steinmetz' concurrence, insureds may well settle for an amount which, when combined with the dollars already paid by the insurer, is in excess of the insured's total damages or made whole number. Justice Steinmetz' concurrence fears that our willingness to maintain the made whole rule of Garrity and Rimes would work an injustice to insurers who seek subrogation reimbursement. This fear is misplaced. Were our analysis that of a majority, it would not allow insured plaintiffs to reap a new benefit. Simply put, we believe that the rule of Garrity and Rimes should remain. And, as we have noted earlier, the made whole rule is applied in a vast number of states permitting subrogation in personal injury actions. ¶ 46. Nonetheless, in place of the made whole rule Justice Steinmetz' concurrence would adopt Rhinelander's position and allow the insurer to recover a pro rata portion of the settlement proceeds from the insured, even when the sum of the subrogated payments and the settlement dollars does not equal the plaintiffs' total damages. Justice Steinmetz' concurrence offers no Wisconsin precedent for this proposal, a proposal which would effectively overrule Garrity and Rimes. Instead, the concurrence cites a bar journal article written 15 years ago, in which the author proposed to attorneys that they settle subrogation cases by executing a pro rata agreement with the insured. [17] Donald H. Piper, The Garrity and Rimes Dilemma, The Milwaukee Lawyer, October, 1982, at 3. [I]t is possible in an appropriate case for an insurer and its insured to enter into a binding agreement modifying the Garrity-Rimes rules for purposes of the specific lawsuit. . . .The essence of such a solution to the problem would be an agreement that the insured and the insurer would share pro rata in any recovery according to a negotiated percentage that reflects the amounts of the claims of both parties, the strengths and weaknesses of the plaintiff's noninsured claims, and the roles that both parties intend to play in prosecuting the litigation. Attorney Piper's proposal was not directed at the courts, but at the parties to the subrogation dispute. [18] ¶ 47. Although not required by the facts of this case, Justice Steinmetz' concurrence also proposes a formula for sharing of attorney's fees between the insured and subrogated insurer. In that discussion, the concurrence relies again on the Piper article. While Justice Steinmetz' concurrence seeks to be completely equitable, Steinmetz conc. at 92-93, it fails to recognize the varying degrees of participation by lawyers for subrogated insurers. In any given case, the insurer may have a lawyer who enters an appearance and does nothing, or who does little work and advances no costs, or who is substantially involved in the prosecution of the claim. Applying the suggestion of Justice Steinmetz' concurrence, under either of these three scenarios the insured plaintiff would have to bear the full amount of his or her attorney's fees and litigation costs. ¶ 48. In sum, Justice Steinmetz' concurrence proposes a fractured remedy for subrogation claims. Under that proposal, resolution of a claim for subrogation will depend upon whether there is a trial finding of contributory negligence, a stipulation as to gross damages and contributory negligence, [19] or a settlement without such stipulations. Our position is simpleonly one rule should apply. The made whole rule as set out in Garrity and Rimes, and as applied in subsequent case law, best meets the equitable and legal principles behind subrogation and should apply to each of the situations addressed herein.