Court Opinion

ID: 9667956
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:59:11.288944+00
Date Added: 2024-06-11T18:15:41.943324
License: Public Domain

SHIRLEY S. ABRAHAMSON, J.
(dissenting). The issue is who should bear the loss resulting from an insurance company's mistaken decision that its policyholder was not covered by the policy where: (1) the in*538surance company never disputed that the policyholder was liable for the damages and that the damages would far exceed the policy limits; (2) the insurance company refused to pay the policy limits in settlement of the case; and (3) the policyholder was found to be covered and was later found liable for nearly ten times the offered settlement.
It does not seem fair to impose the loss on the policyholder. He did not write the policy, he did not control the progress of the litigation, and he was ultimately vindicated by the court's holding that he was covered by the policy. The insurance company made a mistake — an honest mistake — but a mistake nevertheless.
It also does not seem fair to impose the loss on the insurance company. The company reasonably believed that the policyholder was not covered. If the loss is placed on the company, insurance companies may be coerced into settling doubtful coverage cases. Insurance companies should not be forced to pay policy limits for matters they did not contract to insure. The companies' expenses of settling the "doubtful coverage" cases — which include noncoverage cases — will be borne by the policyholders in the form of ever-increasing premiums.
This is not an easy case. The majority puts the loss on the policyholder, holding that the insurance company should not bear the risk of its mistaken dispute of coverage. I would put the loss on the insurance company.
In determining who hears the loss we must remember we are dealing with an insurance contract. The policyholder buys insurance to avoid the risk of loss. The insurance company is in the business of evaluating *539risks, assuming risks, and spreading the costs of the risks. The company in this case had a conflict of interest. Its own interest was to litigate the coverage question and avoid paying $16,000. The policyholder's interest was to have the company pay policy limits in settlement of the case to avoid liability for excess damages. In refusing to pay policy limits in this case, the insurance company decided to impose a risk on the policyholder. As it turned out, the insurance company was wrong about the coverage. It seems to me that under these circumstances the company — not the policyholder — should suffer the consequences of the company's erroneous decision.
Imposing liability on the insurance company in this case comports with basic principles of contract law. As the majority recognizes, the insurance policy is a contract and the company has a contractual duty to defend the policyholder and to use reasonable good faith efforts to settle or compromise a claim against the insured. P. 510. The general rule is that a party who does not perform under the contract — even in a good faith belief that it need not perform under the contract — is responsible for losses resulting from the breach of the contract. In this case the company refused to pay policy limits and settle the claim because it had doubts about coverage. I would treat a company's refusal to pay based solely on the company's mistaken belief about coverage as a breach of contract and would apply the general rule of damages for this breach of contract. The insurance company must pay damages to put the policyholder in the same position he would have been in had the insurance company fulfilled the insurance contract.
*540Another reason for imposing liability on the insurance company is that the company is in a better position than the policyholder to avoid the loss. As the majority explains, the insurance company could have settled the case reserving rights against' the policyholder in the event of a finding of noncoverage. I recognize that many policyholders may not be able to reimburse the company. But in this case the insurance company made no effort to explore this possibility.
Furthermore, the insurance company in some cases may be able to protect itself from liability for damages in excess of policy limits by litigating the coverage issue before a settlement offer is made. In this case the insurance company failed to litigate the issue of coverage promptly. The victim commenced the action within 10 months of the date of the accident. The insurance company answered the complaint a year later. The statutory time for answering is 20 days. Section 802.06 (1). The answer denied coverage under the policy. The insurance company did not request a bifurcated trial on the issue of coverage, sec. 803.04 (2)(b), until 6 months after its answer, and then only after the insurance company received an offer to settle within policy limits. A full year and a half had elapsed between the commencement of the action and the insurance company requested a separate trial on the issue of coverage. As the majority points out, pp. 507-508, were it not for the coverage issue, the insurance company surely would have accepted the offer to settle given the policyholder's liability for the accident and the nature of the damages. The insurance company might have been able to avoid getting itself into the predicament of turning down a settlement offer had it litigated cover*541age promptly. The company did not act promptly in this case and should be liable for the loss.
This case involves the conflicting interests of the policyholder, the insurance company, and the public. For the reasons set forth I conclude that in a case like this where liability and damages in excess of policy limits were undisputed, where the insurance company did not take steps to litigate the coverage question promptly, and where the insurance company erred in asserting that there was no coverage, the insurance company should be liable for damages for erroneously failing to pay policy limits and for erroneously failing to accept the offer of settlement.
I am authorized to state that CHIEF JUSTICE NATHAN S. HEFFERNAN joins in this dissent.