Recently, the Wisconsin Court of Appeals touched on two important insurance issues: covered autos under Wis. Stat. § 632.32(3) and prejudgment interest under Wis. Stat. § 628.46(1).

In January 2016, Jason and Wendy Foerster’s thirteen-year-old son was directed by his uncle to drive a Chevrolet Tahoe to the child’s grandparents’ house to retrieve a piece of equipment. The Tahoe belonged to the child’s aunt and was covered under the aunt’s 1st Auto & Casualty Insurance Company motor vehicle policy. The Foerster child crashed the Tahoe into Savanah Thom’s vehicle, leaving Thom severely injured.

Thom sued the three Foersters and the Foersters’ motor vehicle insurer, Rural Mutual Insurance Company.[1] It was uncontested that the Foerster child was a Rural insured, that he acted negligently, and that the policy had a $300,000 per-accident limit.

At the circuit court, Thom sought a declaration that Wis. Stat. § 632.32(3) required the Rural policy to have three separate $300,000 limits—one for each insured—totaling $900,000 in liability coverage. Thom also moved for prejudgment interest under Wis. Stat. § 628.46(1), premised on the eighteen-month delay in Rural paying the $300,000 policy limit after receiving discovery responses itemizing Thom’s medical expenses at $1,046,894.

The circuit court determined that (1) Rural’s maximum liability is the stated policy limit of $300,000 and (2) Thom was entitled to prejudgment interest under Wis. Stat. § 628.46(1) for Rural’s delay in paying the policy limit, even after receiving notice that Thom’s injuries far exceeded the limit. Both parties appealed.

  1. Interpretation of § 632.32(3)

On appeal, Thom renewed her argument that Wis. Stat. § 632.32(3) superseded the $300,000 per-accident liability limit. In relevant part, Wis. Stat. § 632.32(3) provides that:

[E]very policy subject to this section issued to an owner shall provide that:

  • Coverage provided to the named insured applies in the same manner and under the same provisions to any person using any motor vehicle described in the policy when the use is for purposes and in the manner described in the policy.
  • Coverage extends to any person legally responsible for the use of the motor vehicle.

(emphases added)

Wisconsin courts have determined that Wis. Stat. § 632.32(3) requires an insurer to extend separate liability limits to each insured where both the “named insured and the additional insured are actively negligent.” Iaquinta v. Allstate Ins. Co., 180 Wis. 2d 661, 666, 510 N.W.2d 715 (Ct. App. 1993. However, the court of appeals determined as a threshold matter the Tahoe driven by the Foerster child was not “described in the policy” as required by Wis. Stat. § 632.32(3). The Chevy Tahoe is not listed in the insurance application or on the declaration page of the Rural policy, nor is it otherwise covered in the policy.

To this end, Thom argued that the Foerster child is covered through the policy’s definition of the term “insured” which states:

    1. [Jason or Wendy] or any “family member” for the ownership, maintenance or use of any auto or “trailer”.
    2. Any person using “your covered auto.”
    3. For “your covered auto,” any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded ….
    4. For any auto or “trailer,” other than “your covered auto”, any other person or organization but only with respect to legal responsibility for acts or omissions of you or any “family member” for whom coverage is afforded ….

(emphases added).

Thom argued that the Foerster child is insured for the use of “any auto,” and accordingly any vehicle he drives is covered by the policy. The court rejected this argument because there is a difference between “any auto” and what a “covered auto” is. The term “any auto” is used in the policy’s definition insured to guarantee that any insured will be insured for driving “any auto.” This is different from “covered autos” which are the vehicles explicitly listed in the policy’s declaration page. The court concluded that no reasonable insured would interpret the policy to mean that the Tahoe itself was covered. Accordingly, the conflation of “covered auto” to mean “any auto” was creative attempt to expand coverage, but was ultimately unpersuasive.

  1. Prejudgment interest

On cross-appeal, Rural contended that the circuit court erred in two distinct ways by finding that Thom was entitled to prejudgment interest under Wis. Stat. § 628.46(1). Rural argued first that the thirty-day deadline to pay was not triggered upon receipt of the July 2017 discovery responses. Rural further asserted that, at the time it received the July 2017 discovery responses, there was “reasonable proof” that Rural was not responsible for the $300,000 payment.

On the first argument, the court of appeals found that the thirty-day deadline to pay was triggered by the July 2017 discovery responses. In Kontowicz, our supreme court set forth a three-part test to determine when the thirty-day payment deadline began under Wis. Stat. § 628.46(1):

  • There must be “no question of liability on the part of the insured,”
  • The amount of damages must be “in a sum certain amount,” and
  • The claimant must have provided “written notice of both liability and the sum certain amount owed.”

Kontowicz v. Am. Standard Ins. Co., 2006 WI 48, ¶48, 290 Wis. 2d 302, 714 N.W.2d 105

It was undisputed between the parties that the first two conditions were met. Rural admitted the Foerster child’s liability and conceded that receipt of Thom’s July 2017 discovery responses satisfied the second prong. These discovery responses included an itemization of medical bills totaling $1,046,894. The court rejected Rural’s argument that these responses—without an attached demand—were insufficient to trigger the thirty-day deadline to pay. The court held that, as a matter of law, the lack of a demand did not render the responses insufficient to satisfy the third Kontowicz condition.

Next, the court rejected that Rural’s argument that it had “reasonable proof,” before February 2019, that it was not responsible for any portion of Thom’s medical expenses. In relevant part, Wis. Stat. § 628.46(1) provides:

Unless otherwise provided by law, an insurer shall promptly pay every insurance claim. A claim shall be overdue if not paid within 30 days after the insurer is furnished written notice of the fact of a covered loss and of the amount of the loss.

Any payment shall not be deemed overdue when the insurer has reasonable proof to establish that the insurer is not responsible for the payment, notwithstanding that written notice has been furnished to the insurer

(emphasis added)

Rural contended that, upon receipt of the discovery responses, the number of potentially responsible defendants and policies was unknown and the insurer was obligated by the policy to provide coverage only in “excess over any other collectible insurance.” The court found that it was inevitable that Rural would have to pay at least the full $300,000 limit given that it insured the Foerster child who caused the crash and the discovery responses revealed damages far in excess of $300,000.

As noted, this decision touched on two important insurance issues. First, the court determined the Foerster child’s aunt’s Tahoe was not a covered auto under the Rural policy. Because the Tahoe was not covered, Wis. Stat. § 632.32(3) did not require Rural to provide separate limits for each insured. Second, the court held that the receipt of discovery responses detailing the extent of Thom’s injuries was enough to trigger the thirty-day payment deadline under Wis. Stat. § 628.46(1), requiring Rural to pay statutory interest on its $300,000 liability payment. The potential triggering of prejudgment interest without a demand is of utmost importance to plaintiffs’ and defense attorneys alike and certainly something to be cognizant of early on in discovery.

[1] Thom also brought claims against 1st Auto and the Foerster child’s aunt, uncle, and grandparents. Those claims are not relevant to this appeal.

Law Clerk Isaac Brodkey assisted with researching and writing this post.

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