Oakley v. Fireman's Fund of Wisconsin

GARTZKE, P.J.

American Family Mutual Insurance Company and its insured, Frederic Oakley, appeal from an order declaring that American Family has no subrogation rights against Fireman's Fund of Wisconsin and its insured, Affiliated Carriage Systems, Inc. Oakley was hurt in a multi-vehicle accident involving two other motorists. One motorist was uninsured. The other was Affiliated's employee, and we refer to him as the insured motorist. Oakley's policy with American Family contained uninsured motorist coverage. American Family paid Oakley on the basis of that coverage and now claims subrogation rights against the insured motorist and Fireman's Fund. The uninsured motorist and the insured motorist are joint tortfeasors as to Oakley.

The issues are whether: (1) American Family's uninsured motorist policy grants subrogation rights against the insured motorist; (2) sec. 632.32(4)(a)3, Stats., grants such rights;1 and (3) Oakley is entitled to contribution toward his attorney's fees from any amount American Family collects from the insured motorist.

We conclude that the policy grants American Family subrogation rights against the insured motorist. We do not reach the statutory question. Oakley is entitled to contribution toward his attorney's fees from the amount American Family recovers on its subrogation *80claim. We reverse the order and remand with directions to enter an order consistent with this opinion.

American Family's policy provides, "If we [American Family] pay under this policy, we are entitled to all the rights of recovery of the person to whom payment was made against another. But, our right to recovery will apply only after that person has been fully compensated for the loss." [Emphasis added.]

Before trial, American Family paid $50,000 to Oakley, the limit under its uninsured motorist coverage. The jury apportioned causal negligence five percent to Oakley, forty-five percent to the uninsured motorist, and fifty percent to the insured motorist.

The parties stipulated to several matters. First, after reduction for his five-percent negligence, Oakley incurred $100,000 in damages. Second, on behalf of the insured motorist, Fireman's Fund would pay $50,000 (fifty percent of his damages) to Oakley immediately. Third, the parties would request a declaration of American Family's right to recover from the insured motorist. Fourth, the parties would petition for a declaration of Oakley's right to contribution toward his attorney's fees from American Family if it recovered on its subrogation claim.

The trial court held that American Family's policy granted it no rights against the insured motorist. It reasoned that the word "another" in American Family's subrogation clause refers only to the uninsured motorist. As support for that proposition, the court noted that Oakley signed a release that entitled American Family to the proceeds from any settlement received from the uninsured motorist. It cited Cunningham v. Metropolitan Life Ins. Co., 121 Wis. 2d 437, 450, 444, 360 N.W.2d 33, 39, 36-37 (1985), for the propositions that policy ambiguities are resolved against the insurer *81and in favor of the insured, including ambiguities in subrogation clauses, and that the purpose of subrogation is to prevent unjust enrichment. It believed that the uninsured motorist was unjustly enriched when American Family paid Oakley under the uninsured motorist coverage. The court concluded that American Family had no subrogation rights against the insured motorist and did not reach the attorney's fee issue.

The trial court read the subrogation clause too narrowly. The clause entitles American Family to "all the rights of recovery . . . against another" if the person to whom American Family made payment has been fully compensated. American Family paid Oakley, and but for his attorney fees, Oakley has been fully compensated for his $100,000 in deunages. American Family simply steps into Oakley's shoes vis-a-vis the uninsured and insured motorists. See Waukesha County v. Johnson, 107 Wis. 2d 155, 160, 320 N.W.2d 1, 3 (Ct. App. 1982) (" [sjubrogation puts one to whom a right does not belong in the position of the owner of that right").

A policy provision is ambiguous only if reasonable persons can read it differently. Hartland Cicero Mut. Ins. Co. v. Elmer, 122 Wis. 2d 481, 487, 363 N.W.2d 252, 255 (Ct. App. 1984). We decide whether a provision is ambiguous without giving weight to the trial court's view. Hemerly v. American Fam. Mut. Ins. Co., 127 Wis. 2d 304, 307, 309-10, 379 N.W.2d 860, 862-63 (Ct. App. 1985). We give the words in the provision their usual and ordinary meaning, and we may locate that meaning in a dictionary. Lawver v. Boling, 71 Wis. 2d 408, 414, 238 N.W.2d 514, 517 (1976).

The pronoun "another" as defined in Webster's Third New International Dictionary 89 (1976), has *82three meanings, the most pertinent of which is: ”2: one other than oneself. . one that is different, separate, or in contrast to the first or present one." Thus, the pronoun "another" in the subrogation provision before us means that American Family is entitled to all the rights of recovery of the person to whom payment was made against any "one that is different, separate, or in contrast to the first" person, i.e., the person to whom American Family made payment. In short, American Family is entitled by the unambiguous terms of the subrogation clause to all the rights of recovery of the person to whom it made payment — here Oakley, its insured — against any other person.

Oakley has the right to recover his entire damages from either the uninsured or insured motorists, since they are joint tortfeasors and jointly and severally liable to him. Bielski v. Schulze, 16 Wis. 2d 1, 6, 114 N.W.2d 105, 107 (1962). His uninsured motorist coverage does not alter that right. His damages are stipulated at $100,000. He is therefore entitled to recover his entire damages, $100,000, from the insured motorist and its insurer, Fireman's Fund. Fireman's Fund paid him $50,000. American Family paid him $50,000 under the uninsured motorist coverage. We hold that the policy's subrogation clause gives to American Family Oakley's right to collect the remaining $50,000 from the insured motorist.

We reject the trial court's reasoning. The rule that a policy is strictly construed in favor of the insured is inapplicable. That rule leads nowhere, since Oakley in this case takes the same position as American Family regarding the subrogation clause. Nor does our holding that American Family is subrogated against the insured motorist conflict with subrogation's purpose to prevent *83unjust enrichment. The uninsured motorist will not be unjustly enriched by American Family's recovery. His position remains unchanged. No payments were or will be made to him. He has not been and will not be absolved of his liability to the other joint tortfeasor or to American Family. The insured motorist — the other joint tortfeasor — and his insurer would be unjustly enriched if permitted to escape liability. . Oakley's release to American Family is consistent with our holding.

Oakley and American Family argue in the alternative that sec. 632.32(4)(a)3, Stats., grants American Family subrogation rights against joint tortfeasors. Since we hold that American Family has a claim under its subrogation clause against the insured motorist, we need not reach the statutory issue. See Cunningham, 121 Wis. 2d at 445-46, 360 N.W.2d at 37 (court gives effect to express subrogation clause before considering whether policy is one of investment or indemnity).

Oakley argues that he is entitled to pro rata contribution toward his costs of collection, his attorney's fees incurred in establishing the insured motorist's liability to him and thus to American Family by subrogation. He notes that American Family benefits from the action he brought against the insured motorist. If he had not brought the action, American Family would recover none of its uninsured motorist payment.

In Wisconsin, if "the contract . . . contains no language to the contrary, the normal rule of subrogation applies and the subrogee [insurer] has no right to share in the fund recovered from the tort-feasor until the subrogor [insured] is made whole." Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d 537, 546-47, 253 N.W.2d 512, 516 (1977). As in Garrity, the contract between Oakley and American Family contains no language contrary to the *84rule. Indeed, since it provides that American Family's "right to recovery will apply only after [the insured] has been fully compensated for the loss," the policy is consistent with the "make whole" principle recognized by the Garrity court.2

The Garrity court construed a subrogation clause in a standard fire insurance policy but based its decision on "the substantive common law rights of the insured." Id. at 540-41, 253 N.W.2d at 513-14. In Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 272, 316 N.W.2d 348, 353 (1982), the supreme court applied Garrity to liability policy subrogation clauses, saying: "It appears clear that, under Wisconsin law as recapitulated in Garrity, one who claims subrogation rights ... is barred from any recovery unless the insured is made whole."

Neither the Garrity court nor the Rimes court had before it the question whether the "make whole" rule is a "net make whole" rule which permits the insured to recover its legal expenses. However, the Garrity court, 77 Wis. 2d at 543, 253 N.W.2d at 515, quoted with approval from Couch on Insurance sec. 61.61 (2d ed. 1968) (emphasis added):

In contrast with the situation in which the insurer has not discharged its obligation in full, the insurer may in a given case have made the full payment required of it by its contract of insurance but this amount is not adequate to indemnify the insured in full. In such an instance, it has been held, in absence of waiver to the contrary, that no right of *85subrogation against the insured exists upon the part of the insurer where the insured's actual loss exceeds the amount recovered from both the insurer and the wrongdoer, after deducting costs and expenses. In other words, the insurer has no right as against the insured where the compensation received by the insured is less than his loss.

The Garrity court also cited Washtenaw Mut. Fire Ins. Co. v. Budd, 175 N.W. 231 (Mich. 1919), which included the insured's attorney's fees and costs as part of the insured's loss. Garrity, 77 Wis. 2d at 542, 253 N.W.2d at 514.3

*86Oakley has not asked for all of his fees in establishing the insured motorist's liability to him and therefore to American Family via its subrogation claim. He argues only that "American Family seeks subrogation as to 50% of the verdict and settlement. They therefore must bear fifty percent (50%) of the collection costs incurred by plaintiff to obtain those sums." We conclude that the "make whole" rationale established by Garrity and Rimes entitles Oakley to the fees he seeks.4 American Family implies in its reply brief that Oakley's counsel is attempting to claim a fee. We emphasize that it is Oakley, not his counsel, who must be made whole. We state no opinion on whether a subrogor's counsel may directly claim a fee from a subrogee.

We reverse the order of the trial court and remand the action. We direct the court to enter an order declaring that: (1) American Family has the right to recover $50,000 from Fireman's Fund and (2) Oakley has the right to recover from that amount one half of those costs and attorney's fees he reasonably and necessarily incurred in establishing Fireman's liability.

By the Court. — Order reversed and cause remanded with directions.

Section 632.32(4)(a)3, Stats., provides: "Insurers making payment under the uninsured motorist coverage shall, to the extent of the payment, be subrogated to the rights of their insureds."

The clause at issue in Garrity read: "This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this Company." Garrity, 77 Wis. 2d at 540, 253 N.W.2d at 513.

Several jurisdictions apply a "make whole" rule permitting a subrogor to recover all of its reasonable costs and expenses before sums may pass to the subrogee. Shawnee v. Fire Ins. Co. v. Cosgrove, 116 P. 819 (Kan. 1911); Washtenaw, supra; Flor v. Buck, 248 N.W. 743 (Minn. 1933); Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628 (Mont. 1977); Coburn v. Rogers, 158 A.2d 302 (N.H. 1960); Sun Ins. Office v. Hohenstein, 220 N.Y.S. 386 (N.Y. Mun. Ct. 1927); Newcomb v. Cincinnati Ins. Co., 22 Ohio St. 382, 10 Am. Rep. 746 (1872); Ortiz v. Great Southern Fire & Cas. Ins. Co., 597 S.W.2d 342 (Tex. 1980).

Other jurisdictions apply a "fund doctrine," by which a subrogor recovers a pro rata share of its reasonable expenses. Blue Cross and Blue Shield of Ala. v. Freeman, 447 So. 2d 757 (Ala. Civ. App. 1983); Washington Fire & Marine Insurance Co. v. Hammett, 377 S.W.2d 811 (Ark. 1964); Phillips v. Liberty Mutual Insurance Company, 253 A.2d 502 (Del. 1969); Forsyth v. Southern Bell Telephone & Telegraph Co., 162 So. 2d 916 (Fla. Dist. Ct. App. 1964); United Services Automobile Association v. Hills, 109 N.W.2d 174 (Neb. 1961); Montefusco Excavating v. County of Middlesex, 414 A.2d 961 (N.J. 1980); Ridenour v. Nationwide Mutual Insurance Company, 541 P.2d 1377 (Or. 1975); O'Neal v. Legg, 764 P.2d 246 (Wash. Ct. App. 1988). Wisconsin approved the fund doctrine in State Farm Mut. Automobile Ins. Co. v. Geline, 48 Wis. 2d 290, 179 N.W.2d 815 (1970), before Garrity was decided.

Because Oakley does not argue he is entitled to 100% of his reasonable fees, we do not decide that question.