Dufour v. Progressive Classic Ins. Co., No. 2014AP157, 2015 WL 4275292 (Wis. Ct. App. July 16, 2015).
The Court of Appeals of Wisconsin reverses the Circuit Court for Dodge County and remands for proceedings on damages for insured’s bad faith claim, finding that there was no reasonable basis for insurer’s denial of insured’s claim to subrogated property funds where the insured had not yet been made whole for his total loss resulting from a motorcycle accident.
Dennis Dufour (“Dufour”) was involved in a motorcycle accident caused by another driver. Both Dufour’s insurer, Dairyland Insurance Company, and the other driver’s insurer, American Standard Insurance Company, paid Dufour their respective policy limits for bodily injuries of $100,000. In addition to the bodily injury payment, Dairyland also paid Dufour an additional $15,589 for his property damage. Dufour’s bodily injuries exceeded the amount of insurance proceeds that he received from both insurers.
Under a subrogation clause in its policy, Dairyland received the property damage funds in subrogation from American Standard. Dufour submitted a claim to Dairyland and argued that he was entitled to the subrogated funds under the “made whole” doctrine. When Dairyland refused to turn over the subrogated funds to Dufour, Dufour sued Dairyland for breach of contract and bad faith in the Circuit Court for Dodge County. Dufour and Dairyland filed cross-motions for summary judgment. The court found in Dufour’s favor on the breach of contract claim and awarded him the subrogated funds plus interest. The court found in Dairyland’s favor on Dufour’s bad faith and punitive damages claims, dismissing those counts.
Both parties appealed the circuit court’s decision. On appeal, the Court of Appeals of Wisconsin affirmed the circuit court’s award of the subrogated funds to Dufour; however, the appellate court reversed the circuit court’s bad faith ruling and remanded for further proceedings on damages. The Court of Appeals reasoned that under the “made whole” doctrine, an insurer has no rights in subrogation if the insured is unable to fully recover his or her loss. The court explained that when determining whether the insured had been fully compensated, it looked at the insured’s “total loss,” which, in Dufour’s case, included both his property damage and bodily injury claims. The fact that Dairyland, not Dufour, possessed the cause of action against American Standard for the subrogated funds did not impact the court’s analysis of whether Dufour was entitled to the additional funds. Because Dufour had not been made whole for his total loss, Dairyland had no subrogation rights as a matter of Wisconsin law and Dufour was entitled to the subrogated property damage funds Dairyland collected from American Standard.
The Court of Appeals further held that Dufour was entitled to summary judgment on his bad faith claim. The court reasoned that prior Wisconsin case law clearly established that Dufour was entitled to the subrogated funds under the “made whole” doctrine. Dairyland argued that while it was aware of this prior case law, it “reasonably” believed that Dufour’s claim was distinguishable from other “made whole” cases. The court rejected this argument outright, explaining that Dairyland’s disagreement with controlling case law did not make its position fairly debatable and that Dairyland’s attempts to distinguish prior cases lacked merit. Because no reasonable insurer would have denied Dufour’s claim for the subrogated funds, the Court of Appeals entered summary judgment in Dufour’s favor on his bad faith claim. The Court of Appeals remanded the case to the circuit court, with instructions to conduct proceedings of Dufour’s damages, including punitive damages, with regard to the bad faith claim.
