Court Opinion

ID: 8203521
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:49:31.690942+00
Date Added: 2024-06-11T16:41:03.073602
License: Public Domain

DAVID T. PROSSER, J.
¶ 86. (dissenting). This case is not governed by Paulson v. Allstate Ins. Co., 2003 WI 99, 263 Wis. 2d 520, 665 N.W.2d 744. By holding that it is, the court is damaging the right of many plaintiffs to secure a fair recovery for their personal injuries.
¶ 87. To understand this case, it is important to understand the facts. Roger H. Fischer, Sr. and Sandra J. Fischer are husband and wife. They purchased an automobile insurance policy from American Family Insurance Company. The Fischer policy included coverage for $10,000 in medical expenses if one of the insureds were involved in an automobile accident.
¶ 88. Roger Fischer was involved in such an accident. He suffered personal injuries and $12,157.14 in medical expenses. The most that American Family was required to pay under the policy was $10,000 toward Fischer's medical expenses.
¶ 89. The accident was not caused by Roger Fischer. It was caused entirely by Pamela Steffen. Steffen and her insurer, Wilson Mutual Insurance Company, contended that while Steffen caused the accident, she was excused from liability because she suffered a sudden, incapacitating illness immediately prior to the accident. There is no suggestion that in making this defense of its insured Wilson Mutual was acting in any inappropriate way.
¶ 90. Thus, for Roger Fischer to recover his full medical expenses and any damages resulting from his personal injuries, he and his wife were required to file suit against Pamela Steffen and/or Wilson Mutual, and they did.
*531¶ 91. As the majority notes, a jury found Steffen 100 percent liable for Roger Fischer's injuries. Majority op., ¶ 3. The jury awarded the Fischers a total of $21,000 for his pain and suffering and her loss of consortium, while the parties stipulated to $12,157.14 as the reasonable value of Roger's past medical expenses. Id.
¶ 92. Before the Fischers ever filed suit, American Family and Wilson Mutual arbitrated American Family's subrogation claim for the $10,000 it had paid to Roger under the Fischers' policy. American Family wanted Wilson Mutual to reimburse American Family for all or part of this payment. The Fischers received no notice of this arbitration and did not participate in it. However, they were clearly affected by the decision of the arbitration panel, that Steffen was not causally negligent and that American Family had no subrogation claim against either Steffen or Wilson Mutual. Inevitably, Wilson Mutual's victory in the arbitration proceeding stiffened its resistance to paying any money for Fischer's medical bills and the other damages.
¶ 93. After the jury trial, Wilson Mutual moved to reduce the award of $12,157.14 in medical expenses to $2,157.14 as Roger Fischer had already recovered $10,000 in medical expenses from his own insurer. The circuit court granted that motion.
¶ 94. The issue before this court is whether the circuit court erred in reducing the jury's verdict for Roger Fischer's medical expenses from $12,157.14 to $2,157.14 on grounds that Fischer was not entitled to keep the $10,000 because it would amount to a double recovery.
I
¶ 95. The most striking fact about this case is that defendant Steffen caused $12,157.14 in medical ex*532penses to the Fischers hut has been relieved of the burden of paying all but $2,157.14 toward these expenses. Even though total medical expenses were stipulated by the parties and found by the jury, the circuit court overturned part of the jury's verdict on policy grounds. As a result, the Fischers are being punished for their foresight in purchasing automobile insurance with coverage for medical expenses, while Wilson Mutual receives a $10,000 windfall.
¶ 96. The majority is untroubled by this result and appears unconcerned about various other inequities in this case.
II
¶ 97. The Fischers' automobile insurance policy with American Family had a subrogation component. If the Fischers had filed suit against Steffen and Wilson Mutual before American Family had taken any arbitration action vis-á-vis Wilson Mutual, the Fischers would have been required to join American Family in their suit.
¶ 98. Wisconsin Stat. § 803.03(1) provides:
A person who is subject to service of process shall be joined as a party in the action if:
(a) In the person's absence complete relief cannot be accorded among those already parties; or
(b) The person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may:
1. As a practical matter impair or impede the person's ability to protect that interest; or
2. Leave any of the persons already parties subject to a substantial risk of incurring double, multiple or otherwise inconsistent obligations by reason of his or her claimed interest. (Emphasis added.)
*533¶ 99. The emphasized portion of the statute would have governed American Family's right to be joined in the suit, inasmuch as any mishandling of the suit by the Fischers would have "impair[ed] or impede[ed]" American Family's subrogation rights.
¶ 100. The general principle stated in subsection (1) is made explicit in Wis. Stat. § 803.03(2)(a): "A party asserting a claim for affirmative relief shall join as parties to the action all persons who at the commencement of the action have claims based upon subrogation to the rights of the party asserting the principal claim."
¶ 101. Subsection (2) (a) then states the converse principle: "Any party asserting a claim based upon subrogation to part of the claim of another .. . shall join as a party to the action the person to whose rights the party is subrogated." Wis. Stat. § 803.03(2)(a) (emphasis added).
¶ 102. There is no contention here that Wis. Stat. § 803.03 applies to arbitration proceedings. Nonetheless, the principles embedded in this statute are salutary. The Fischers followed those principles. The insurance company did not. If American Family had won the arbitration, it might have softened up Wilson Mutual and encouraged it to make a reasonable settlement offer to the Fischers for medical expenses and other damages. However, American Family lost the arbitration and that loss discouraged settlement and impeded the Fischers' ability to achieve a reasonable settlement without going to trial.
¶ 103. If there had been no prior arbitration between American Family and Wilson Mutual, American Family would have had several options with respect to the Fischers' suit:
(a) It could have participated in the prosecution of the action;
*534(b) It could have agreed to have its interest represented by the Fischers; or
(c) It could have moved to dismiss its participation with or without prejudice.
See Wis. Stat. § 803.03(2)(b)l.a.-c.; majority op., ¶ 59 n.48.
¶ 104. If American Family had participated in the prosecution of the action, it no doubt would have had legal expenses. If it had agreed to have its interest represented by the Fischers and the Fischers had prevailed (as they did), the Fischers' attorneys would have been "awarded reasonable attorney fees [from American Family] by the court." Wis. Stat. § 803.03(2)(b)3. These attorney fees would have helped finance the Fischers' entire litigation. Instead, the Fischers had to proceed alone. Because of the circuit court's ruling on the $10,000 in medical expenses, the Fischers' attorney fees necessarily take a big bite out of their reduced recovery.
Ill
¶ 105. The majority opinion asserts that this case involves the intersection of three rules of law: the collateral source rule, the subrogation rule, and the made whole doctrine. Majority op., ¶ 28. Although I agree that all three rules are implicated, I do not agree with the court's analysis and application of them.
A. Collateral Source Rule
¶ 106. Under the collateral source rule, the amount of damages awarded to a person injured because of another person's tortious conduct is not reduced when the injured party receives compensation from another source, such as insurance. Ellsworth v. Schelbrock, 2000 *535WI 63, ¶ 1, 235 Wis. 2d 678, 611 N.W.2d 764 (citing Payne v. Bilco Co., 54 Wis. 2d 424, 433, 195 N.W.2d 641 (1972)). This rule has been part of Wisconsin tort law since at least 1908. Gatzweiler v. Milwaukee Elec. Ry. & Light Co., 136 Wis. 34, 116 N.W 633 (1908).
¶ 107. "Early cases discussing the collateral source rule addressed whether insurance payments or continued wages should reduce an injured plaintiffs damages." Lagerstrom v. Myrtle Werth Hosp., 2005 WI 124, ¶ 126, 285 Wis. 2d 1, 700 N.W.2d 201 (Prosser, J., dissenting). Eventually the court considered medical expenses. See McLaughlin v. Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 31 Wis. 2d 378, 395-96, 143 N.W.2d 32 (1966); Thoreson v. Milwaukee & Suburban Transp. Corp., 56 Wis. 2d 231, 244, 201 N.W.2d 745 (1972); Merz v. Old Republic Ins. Co., 53 Wis. 2d 47, 53-54, 191 N.W.2d 876 (1971); Rixmann v. Somerset Pub. Schs., 83 Wis. 2d 571, 575-83, 266 N.W.2d 326 (1978).
¶ 108. In Ellsworth, the court explained the collateral source rule:
Our tort law applies the collateral source rule as part of a policy seeking to "deter negligent conduct by placing the full cost of the wrongful conduct on the tortfeasor." American Standard Ins. Co. v. Cleveland, 124 Wis. 2d 258, 264, 369 N.W.2d 168 (Ct. App. 1985). The tortfeasor who is legally responsible for causing injury is not relieved of his obligation to the victim simply because the victim had the foresight to arrange, or good fortune to receive, benefits from a collateral source for injuries and expenses.
Ellsworth, 235 Wis. 2d 678, ¶ 7. The court went on to quote approvingly from Campbell v. Sutliff, 193 Wis. 370, 374, 214 N.W 374 (1927):
We see no reason why one whose acts have caused injury to another should reap the entire benefit that *536comes from the payment of wages made by an employer, either as a gratuity... or because such payments are required by contract. Such payments do not change the nature of the injury which the employee sustains through the wrongful acts of the tortfeasor. If either is to profit by the payments ..., it should be the person who has been injured, not the one whose wrongful acts caused the injury.

Id.

¶ 109. In Voge v. Anderson, 181 Wis. 2d 726, 732-33, 512 N.W.2d 749 (1994), the court said: "[T]he collateral source rule requires that the tortfeasor be held responsible for his conduct by requiring the tortfeasor to compensate the injured party the full amount of damages." Because Voge appears relevant, the majority attempts to distinguish the case on its facts. Majority op., ¶¶ 64-72. It cannot reasonably do so.
¶ 110. In Voge, the plaintiff was injured in an automobile accident and he brought suit against the driver, Anderson, and his insurer, Illinois Farmers Insurance Company. Voge, 181 Wis. 2d at 728-29. The plaintiff, Voge, was insured by American Family Mutual Insurance Company under a policy that included an express subrogation clause. Id. at 729. Similar to the situation here, Voge brought suit against Anderson and Illinois Farmers, and also named American Family. Id. A jury trial resulted in a large verdict for Voge1 which exceeded the liability limits on Anderson's policy. Id. Consequently, American Family paid $150,000 to Voge in underinsured motorist (UIM) benefits under his policy, and then waived its subrogation rights against Anderson and Illinois Farmers. Id. at 729.
*537¶ 111. Illinois Farmers and Anderson asserted that they were entitled to a reduction in the judgment against them in the amount of American Family's payment to Voge under his policy. Id. at 730. The court relied on the binding waiver entered into by the parties to find that the collateral source rule applied and the defendants were not entitled to a reduction of benefits. Id. The court explained:
Assignment of a claim by means of subrogation is not automatic. The party that wants to impose subrogation has the burden of proving it. Illinois Farmers and Anderson have not done so in this case. Rather, American Family explicitly waived its rights to subrogation and thus never possessed the right to recover the UIM benefits; the claim to recover such damages remained at all times with Voge.
In light of this, we hold the collateral source rule applicable. The collateral source rule does not allow a tortfeasor to reduce his or her liability... by benefits that the injured person receives .... Rather, the collateral source rule requires that the tortfeasor be held responsible for his conduct by requiring the tortfeasor to compensate the injured party the full amount of damages.
We recognize that the results in this case allow the injured party a double recovery. However, a contrary conclusion would result in giving the tortfeasor a windfall: the tortfeasor would not have to pay the full amount of damages he would owe.... Since Voge's recovery from American Family stemmed from his own actions of obtaining underinsurance and paying the premium for it, the better result is to allow Voge to recover that windfall, not Illinois Farmers and Anderson. Any windfall in benefits should inure to the injured party, not to the tortfeasor.
Id. at 732-33 (emphasis added) (citations omitted).
*538¶ 112. How does Voge compare to the present case? In Voge, the injured party brought suit against the other driver and the driver's insurer. Id. at 728. After achieving a successful verdict, the injured party's insurer paid UIM benefits and explicitly waived its subrogation rights related to those benefits. Id. at 729-30. In this case, the injured party brought suit against the other driver and the driver's insurer. The injured party's insurer initially asserted subrogation rights but this subrogation claim was dismissed by the court on the insurer's stipulation because the insurer had voluntarily gone to arbitration and lost. In my view, the voluntary waiver in Voge and the stipulation here are functionally the same.
¶ 113. The majority tries to dodge this result by pointing to the fact that the tortfeasor in Voge was relieved of paying medical expenses to the injured party after the injured party received medical expenses from his insurer. But the Voge facts were critically different: Voge's insurer went to arbitration with the tortfeasor's insurer and received a 70 percent reimbursement of the $5,895.75 that Voge's insurer had paid to Voge. Id. at 730. The 70 percent figure reflected, in part, Voge's contributory negligence. Id. at 729. Requiring the tortfeasor to pay all of Voge's medical expenses would have meant a double payment by the tortfeasor as well as double recovery by Voge. Id. at 733. Here, Steffen's insurer (Wilson Mutual) did not pay $10,000 in medical expenses to either American Family or the Fischers. Thus, there is no double payment, and the collateral source rule allows double recovery on these facts to avoid giving the tortfeasor and her insurer a windfall.
¶ 114. For the same reasons articulated so clearly in Voge, the collateral source rule should preclude any *539reduction in the jury award here. American Family may not have "waived" its right to subrogation by signing it away, but it "waived" its right when it voluntarily agreed to enter binding arbitration with Wilson Mutual and lost. By submitting the question of its subrogation claim to arbitration, American Family surrendered the right to recover medical expenses from the Fischers and lost its right to collect from the tortfeasor. If the plaintiff in Voge, who was contributorily negligent for the accident, could not be deprived of his jury verdict, the Fischers have an even clearer entitlement to recovery of the jury verdict against Steffen.
B. Subrogation Rule
¶ 115. The majority correctly characterizes the rules of subrogation as "ensur[ing] that the loss is ultimately placed upon the tortfeasor and prevent[ing] the subrogor . .. from being unjustly enriched through double recovery." Majority op., ¶ 31 (emphasis added). Conspicuously absent from the majority's description, however, is an acknowledgment that subrogation in the insurance context is a derivative right arising from the insurer's contractual obligation to satisfy a loss caused by a third party to its insured. Muller v. Soc'y Ins., 2008 WI 50, ¶ 22, 309 Wis. 2d 410, 750 N.W.2d 1.
¶ 116. As the court of appeals noted, "[0]nce an insurer pays, it has a right to stand in the place of its insured, pursuant to the contract for insurance, and may seek to recoup its outlay from the tortfeasor." Fischer v. Steffen, 2010 WI 68, ¶ 7, 325 Wis. 2d 382, 783 N.W.2d 889. Accordingly, the rules of subrogation allow an insurer to take over ownership of the insured's right to seek recovery from the tortfeasor. See Paulson, 263 Wis. 2d 520, ¶¶ 27, 29. Normally, this right "does not *540arise until the debt has been fully paid." Drinkwater v. Am. Fam. Mut. Ins. Co., 2006 WI 56, ¶ 16, 290 Wis. 2d 642, 714 N.W.2d 568.
¶ 117. This principle is referred to as the "recovery priority rule" or the "subrogation rule of priority." Muller, 309 Wis. 2d 410, ¶¶ 31-32. This court has explained that "[s]ubrogation is to be allowed only when the insured is compensated in full by recovery from the. tortfeasor." Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 272, 316 N.W.2d 348 (1982); see also Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 542, 253 N.W.2d 512 (1977).
¶ 118. Under this principle, the Fischers would be entitled to recover in full from the tortfeasor before American Family could exercise any right of subrogation.
¶ 119. In this case, there is no right of subrogation because American Family never exercised its right to stand in the place of the Fischers. Instead, it staked its rights to subrogation on binding arbitration with Wilson Mutual. When the arbitration panel concluded that American Family had no subrogation claim against Wilson Mutual, American Family filed a stipulation and order for dismissal of its subrogation claim with prejudice. At that point, the rules of subrogation ceased to apply to the Fischers' claims, because, as a matter of law and contract, no party was entitled to subrogation. It was therefore inappropriate to reduce the jury award on the basis of a right that no longer existed.
C. Made Whole Doctrine
¶ 120. Like the subrogation "rule of priority" discussed above, the essence of the made whole doctrine is that an insured is entitled to have priority over an *541insurer where funds are limited. Vogt v. Schroeder, 129 Wis. 2d 3,13, 383 N.W.2d 876 (1986). The doctrine rests ultimately on equitable principles that depend on the facts; it is not an inflexible rule. Id.
¶ 121. One of the critical equitable principles underlying the doctrine is "that the wrongdoer should be responsible for his conduct and not be allowed to go scot-free by failing to respond in damages" while the insurer is required to pay under the insurance policy. Id. Where the right of subrogation would operate to deprive the insured of his compensation for the injury suffered, the equities demand that the insured take priority over the insurer's claim for subrogation. Id. at 15.
¶ 122. Stated differently, it is at least potentially inequitable for an insurer to protect its own interests before the insured is made whole. The majority concludes, as did the court of appeals, that the made whole doctrine is inapplicable because the Fischers have not shown that they have not been made whole or that there is a limited pool of resources from which recovery can be obtained. Majority op., ¶ 51; Fischer, 325 Wis. 2d 382, ¶ 8. This conclusion ignores the equitable principles underlying all three rules implicated in this case.2
*542¶ 123. This conclusion also ignores the reality that the Fischers' insurer forced the Fischers to seek redress on their own and made their task more economically challenging and difficult by rushing to arbitration and dropping the ball. Failure to take into account the equities derived from these facts will encourage insurers to cut their insureds adrift regardless of the consequences.
¶ 124. In finding the made whole rule inapplicable, the majority relies heavily on Paulson. See majority op., ¶¶ 35-43. In Paulson, the plaintiff insured was injured and her car damaged in a car accident with another driver, Cheryl Schacht. Paulson, 263 Wis. 2d 520, ¶ 4. Before the Paulsons filed suit, their insurer, Midwest Security Insurance Company, negotiated a settlement agreement with Schacht's insurer, Allstate Insurance Company. Id., ¶ 2. The agreement took into consideration Paulson's comparative negligence in the accident, and accordingly reduced Allstate's payment to Midwest by 30 percent. Id., ¶ 6. In the circuit court, Allstate argued that the Paulsons should not be able to present evidence on property damage aside from their $500 deductible, because Midwest had already settled any claims for property damage with Allstate. Id., ¶ 9-10.
¶ 125. The question presented to this court in Paulson was whether Paulson could recover the difference between what her insurer paid and what it settled *543for in negotiations with the tortfeasor's insurer. Id., ¶ 18. We concluded that Paulson was not entitled to the difference, because she had already received the amount of damages to which she was entitled, and the made whole doctrine did not apply. Id., ¶¶ 18, 20.
¶ 126. In denying the Paulsons' claim, we acknowledged that Garrity, Rimes, and Vogt, as well as several cases in the court of appeals, found that the insured was to have priority over the insurer when they were competing for limited funds. Id., ¶ 24. These cases, we emphasized, considered the priority rule where insurers were "attempting to take the funds that should have gone to the insured." Id., ¶¶ 21-24. They were distinguishable from the Paulsons' claim because Midwest had paid for the car repairs and settled with Allstate regarding that bill. Id., ¶ 27. The reduction in the Paulsons' recovery was because Midwest had agreed to recovery of only 70 percent against Allstate. Id.
¶ 127. We concluded that Midwest had divested itself of its subrogation interest by choosing to settle with Allstate, and stated, "We find that the subrogation trumps the collateral source rule under the facts of this case." Id., ¶ 32 (emphasis added). In doing so, we did not overrule or depart from our holdings in Garrity and Rimes, but found that the "balance of equities" required a different result. Id., ¶ 41.
¶ 128. The Paulson decision makes clear that the priority rule is not ironclad; if it were applied inflexibly, it might discourage arbitration proceedings and impede normal settlement agreements between insurers. See id., ¶ 43. These are laudable goals and valid considerations. On the other hand, the majority's departure from the priority rule in this case seriously dilutes the rule and impedes the injured insured — here, the Fischers — from receiving full recovery. In effect, the *544majority's decision allows a wedge to be driven between the insurer and insured who should be allied in seeking recovery from the tortfeasor.
¶ 129. The holding in Paulson was not a radical departure from our precedent, but was specifically limited to its facts.3 See majority op., ¶ 17. It does not apply in all situations, and certainly cannot cover the facts presented in the Fischers' case, as the majority concludes. See majority op., ¶ 18. The instant case does not involve any allegation of contributory negligence. It does not involve a settlement agreement between insurers, which this court encourages and favors. The Fischers, unlike the Paulsons, were forced to go to trial to recover the full amount of their medical expenses. Under these disparate facts, applying the holding of Paulson works an inequitable result.
IV
¶ 130. In the cases considering the intersection of these rules, we have repeatedly stated that the tortfeasor should be held fully responsible. See Ellsworth, 235 Wis. 2d 678, ¶ 17; Paulson, 253 Wis. 2d 520, ¶ 34. We have also held that when the intersection of these competing principles and policies result in a windfall, the benefit should always go to the injured party rather than the tortfeasor. See Paulson, 263 Wis. 2d 520, ¶ 30; Koffman v. Leichtfuss, 2001 WI 111, ¶¶ 29-30, 246 Wis. 2d 31, 630 N.W.2d 201.
¶ 131. We have explained that subrogation "depends upon a just resolution of a dispute under a particular set of facts," because "[elquity does not lend *545itself to the application of black letter rules." Vogt, 129 Wis. 2d at 12. The complex rules brought to bear in this case should be applied to achieve an equitable result, under all the facts, and the Fischers should be entitled to recovery of their damages before any benefit inures to the tortfeasor.
¶ 132. For the foregoing reasons, I respectfully dissent.

 The jury found Voge 15 percent causally negligent and Anderson 85 percent causally negligent for the accident. Voge v. Anderson, 181 Wis. 2d 726, 729, 512 N.W.2d 749 (1994).

 See Muller v. Soc'y Ins., 2008 WI 50, ¶ 22, 309 Wis. 2d 410, 750 N.W.2d 1 ("Subrogation rests upon equitable principles."); Shulte v. Frazin, 176 Wis. 2d 622, 628, 500 N.W.2d 305 (1993) ("[SJubrogation is based upon equitable principles.... To resolve the issue in [a] case, [the court] must apply equitable principles to the facts."); Petta v. ABC Ins. Co., 2005 WI 18, ¶ 27, 278 Wis. 2d 251, 692 N.W.2d 639 ("It has long been recognized that subrogation rests upon principles of equity."); Salveson v. Douglas County, 2001 WI 100, ¶ 56, 245 Wis. 2d 497, 630 N.W.2d 182 ("[C]ourts are guided by certain equitable principles. The collateral source rule operates 'not to prevent the plaintiff from being overcompensated but rather to prevent *542the tortfeasor from paying twice.'") (citing Flowers v. Komatsu Mining Sys., Inc., 165 F.3d 554, 558 (7th Cir. 1999)); Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 542, 253 N.W.2d 512 (1977) ("[W]here either the insurer or the insured must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume.") (citing St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 198 S.E.2d 482, 484 (N.C. Ct. App. 1973).

 Paulson v. Allstate Ins. Co., 2003 WI 99, 263 Wis. 2d 520, 665 N.W.2d 744, is actually consistent with the decision on medical expenses in Voge v. Anderson, 181 Wis. 2d 726, 512 N.W.2d 749 (1994).