Sandra A. GROSS, Plaintiff-Respondent, v. LLOYDS OF LONDON INSURANCE COMPANY, a foreign corporation, The Experimental Aircraft Association, Inc., a Wisconsin corporation, Imperial Casualty & Indemnity Company, a foreign corporation, and Milwaukee County, Defendants-Respondents, Dr. Ivan D. FRANTZ, Defendant and Third-Party Plaintiff-Appellant-Petitioner, PIPER AIRCRAFT CORPORATION, Third-Party Defendant-Respondent.
No. 83-664
Supreme Court of Wisconsin
Argued October 2, 1984. --Decided November 27, 1984.
121 Wis. 2d 78 | 358 N.W.2d 266
† Motion for reconsideration pending. This motion was not decided at the time the volume went to press. Its disposition will be reported in a later volume.
The issue presented for review is whether an insurer may terminate the defense of its insured by tendering its policy limit for settlement pursuant to the terms of the liability insurance policy.
On July 30, 1982, Dr. Ivan D. Frantz submitted an application to the Imperial Casualty and Indemnity Company (Imperial) for the renewal of a policy of aircraft bodily injury liability insurance.2 The application was in the form of a conditional insurance binder,3 and it stated that the limits of liability for bodily injury were $100,000 for each person and $300,000 for each occurrence. The policy itself was issued on August 11, 1982.
On August 5, 1982, at The Experimental Aircraft Association‘s annual fly-in at Oshkosh, Wisconsin, an unoccupied Piper aircraft, owned by Frantz, rolled into
On December 3, 1982, Imperial filed a motion in the trial court seeking permission to pay its policy limit into court and seeking to be relieved from any further obligation to defend Frantz under the terms of the insurance policy. The policy issued to Frantz contained the following language:4
“Imperial . . . [a]grees . . .
“To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:
“A. bodily injury, sickness or disease, including death
“caused by an occurrence and arising out of the ownership, maintenance or use of the aircraft, and the Company shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the Company may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company‘s liability has been exhausted by payment of judgments or settlements or after such limit of the Company‘s liability has been tendered for settlements.” (Emphasis added.)
The trial court entered an order allowing Imperial to pay its policy limit into court and relieving it of any further obligation to defend Frantz in the litigation. The court of appeals affirmed the trial court‘s order, stating that the plain language of the policy envisioned that the company could be relieved of its obligation to defend its insured either upon payment of a judgment or settlement in the amount of the policy limit or upon tender of the policy limit to the court. 118 Wis. 2d at 371-72. In addition, the court of appeals found that allowing the insurer to be relieved of its obligation to defend the insured upon payment of the policy limit into court was not contrary to public policy. Id. at 376. While the policy at issue was a renewal of a previously issued policy, the original policy of insurance was not made part of the record. The court of appeals did not comment on the fact that, at the time of the accident, Frantz had not yet received the policy and nothing in the record showed that Frantz had any notice of Imperial‘s right to terminate its defense upon tender of the policy limits for settlement. Frantz petitioned this court for review, and we granted the petition.
The issue we decide is whether a provision in a liability insurance policy allowing the insurer to terminate
Policies of liability insurance impose two duties on the insurer with respect to the insured—the duty to indemnify and the duty to defend. 7C J. Appleman, Insurance Law and Practice, sec. 4684 at 80-82, (Berdal ed. 1979). The clauses in liability policies defining these two duties have undergone a number of changes over the years. Prior to 1966 clauses defining the insurer‘s duty to defend were contained in a different section of the policy than clauses defining the insurer‘s duty to indemnify. See N. Risjord and J. Austin, Automobile Liability Insurance Cases, (Standard Provisions and Appendix) at 219 (1964 & Supp. 1974). The pre-1966 policy form contained the following language with respect to the insurer‘s duties to indemnify and defend:
“[The company agrees]
“To pay on behalf of the insured all sums which the insured shall become legally obligated to pay . . .
“. . .
“and the company shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.” (Emphasis in original.) E. Van Vugt, Termination of the Insurer‘s Duty to Defend by Exhaustion of Policy Limits, 44 Ins. Couns. J. 254, 257 (1977).
It was not clear under policies containing this type of language whether the insurer‘s duty to defend the insured would be terminated once the policy limits had been paid out.
“The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay . . . but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company‘s liability has been exhausted by payment of judgments or settlements.” (Emphasis added.) 1 R. Long, The Law of Liability Insurance, sec. 5.12 at 5-74 (1984).
The 1966 revisions were meant to clarify when the insurer‘s duty to defend the insured has been satisfied by providing that the duty to defend ceases after the policy limits are exhausted either by payment of judgments or settlements. 7C J. Appleman, supra, sec. 4682 at 29. Despite the clear policy language, Appleman cautions that the insurer‘s duty to defend the insured may continue even after the policy limits have been exhausted:
“Despite the 1966 and subsequent revisions, the primary insurer may not walk away from the insured by paying relatively low limits into court and abandon the insured with a substantial judgment simply because the cost of appeal or other handling may be formidable. The insured‘s interest may demand continued protection despite threatened exhaustion of the primary limits.” Id. at 36 (footnote omitted).
In its opinion, the court of appeals reasoned that Appleman‘s caveat spoke to policies lacking the “tendered for settlements” language present in the Imperial policy. 118 Wis. 2d at 374. The language contained in
While numerous cases have dealt with the language contained in the older policy forms, there is a split of authority in those cases as to whether an insurer may be relieved of its obligation to defend the insured after the policy limits have been exhausted. 1 R. Long, supra, sec. 5.12 at 5-69; Annot., 27 A.L.R. 3d 1057 (1969). It has been stated that the insurer‘s duty to defend is broader than the duty to indemnify, Val‘s Painting & Drywall, Inc. v. Allstate Insurance Co., 53 Cal. App. 3d 576, 584, 126 Cal. Rptr. 267 (1975); Conway v. Country Casualty Insurance Co., 97 Ill. App. 3d 768, 773, 423 N.E.2d 559 (1981), and that regardless of the exhaustion of the policy limits, the insurer should not be permitted to withdraw from the defense in a manner that would prejudice the rights and interests of the insured. 1 R. Long, supra, sec. 5.12 at 5-72. Alternatively, some courts have stated that insurers
When construing language covering an obligation such as the insurer‘s duty to defend the insured, courts must look to the reasonable expectations of the insured. Kocse v. Liberty Mutual Insurance Co., 159 N.J. Super. 340, 345-46, 387 A.2d 1259 (1978). Both parties concede that the provision in the Imperial policy terminating the insurer‘s duty to defend once the policy limits have been tendered for settlement was a substantial deviation from the defense provisions contained in previous policy forms. The “tendered for settlements” language was a supplement at the end of the sentence contained in older policy forms which provided that “the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company‘s liability has been exhausted by payment of judgments or settlements.” The new language was not highlighted in any way so as to put insureds on notice that the standard form liability policy, which had been in use in the insurance industry since 1966, had been changed with respect to the insurer‘s duty to defend. We believe the reasonable expectations of insureds would be that the policy language in use by the industry since
We have previously stated that an insurer cannot rely on a standard form for its protection when the provisions relied upon are not made clear to the insured. Roeske v. Diefenbach, 75 Wis. 2d 253, 261 n. 2, 249 N.W.2d 555 (1977). Because any limitation on the insurer‘s duty to defend is in the nature of an exclusion, the defense coverage clause must clearly express the limitation. E. Van Vugt, 44 Ins. Couns. J. at 255. Frantz did not receive the renewal policy containing the exclusionary language until after the accident. His original policy with Imperial was not made a part of the record, and the provisions contained in the original policy regarding defense of insureds were not before the court. The binder Frantz received when he applied for a renewal of the previously issued policy made no mention of Imperial‘s duty to defend the insured in the event of a loss. Even though the renewal policy itself did contain the new “tendered for settlements” language, there is nothing in the record before us to show that Frantz had received any notice of the “tendered for settlements” language at the time of the accident. The only document he had received from Imperial was the binder. Because the binder was silent concerning Imperial‘s obligation to defend, the reasonable expectation of an insured would be that the standard industry practice would apply. Because the “tendered for settlements” language was a substantial change from past industry practice and because Frantz had received no notice at the time of the accident that Imperial could terminate its defense efforts upon tender of the policy limits, we hold that Imperial‘s tender of the policy limits into court does not relieve it of its duty to defend Frantz in the lawsuit.
HEFFERNAN, CHIEF JUSTICE (concurring). I agree with the majority‘s holding that the provision in the Imperial policy, allowing the insurer to terminate its defense of its insured by tendering the policy limit for settlement, is not enforceable because the insured, Frantz, had insufficient notice of the policy provision. I do not join in the dicta concerning the public policy of allowing insurers to terminate their obligation to defend nor in the sub silentio implication that, had proper notice been given, the provision in question would be enforceable. These public policy issues were neither considered nor decided by this court and, under the rationale of the court, are not necessary for the disposition of the case.
I am authorized to state that JUSTICE WILLIAM A. BABLITCH joins in this concurrence.
SHIRLEY S. ABRAHAMSON, J. (concurring). I agree with the majority that this case should be remanded to the circuit court. I would remand, however, for an evidentiary hearing on the issue of Dr. Frantz‘s notice, knowledge, or expectations.1 The majority makes a finding of fact that “Frantz had received no notice at the time of the accident that Imperial could terminate its defense efforts upon tender of the policy limits.” (P. 88, supra.) Appellate courts cannot make findings of fact. Wurtz v. Fleischman, 97 Wis. 2d 100, 109, 293 N.W.2d 155 (1980).
Nor can I join either of the concurrences. I do not agree with Chief Justice Heffernan‘s or Justice Ceci‘s interpretation of the majority opinion on the public policy issue that the parties have presented to this court. The issue presented is whether public policy precludes an insurer from enforcing a provision in the policy allowing the insurer to terminate the defense of its insured by tendering its policy limit for settlement. As I read the opinion, the majority does not decide the public policy issue—either in dicta, as the Chief Justice contends, or in holding, as Justice Ceci asserts.
The majority has merely reasoned that highlighted or boldface language is necessary for an insurer to be relieved of his duty to defend by relying on a tendered for settlements clause in the insured‘s contract; it has not concluded that this is a sufficient condition. The public policy question, while argued by the parties, is not discussed in the majority opinion. Indeed the whole point of the majority opinion seems to be to avoid the public policy question entirely.
I also agree with the majority‘s ruling that an insured is entitled to notice when new policy language is added after an insured expresses a desire to renew a previous policy. I feel compelled to concur, however, because I disagree with the guidelines set out in the majority opinion as to the manner in which an insured must be notified of language changes in the policy. The policy in question was issued and received in Minnesota and approved by the Minnesota Commissioner of Insurance. The majority, in effect, is instructing foreign insurance companies how to write policies of insurance for their own residents. The issue of whether an insured has been properly notified of an insurer‘s intent to limit its duty to defend by tendering the policy limits should be decided on a case-by-case basis and not under the stringent rules laid out in the majority opinion.
I would also remand this case to the trial court to determine whether Dr. Frantz‘s prior policy contained the disputed language and, thus, whether Dr. Frantz was in fact put on notice that his insurer‘s duty to defend could be terminated by tendering the policy limits. The majority is assuming that the limiting language was not in Dr. Frantz‘s previous policy, and this assumes a fact not before this court.