John C. Peterson Peterson, Berk & Cross, S.C. 200 East College Avenue P.O.

Box 2700 Appleton, WI 54912-2700 (920) 831-0300 jpeterson@pbclaw.com www.foxriverlawyers.com SETTING UP THE STING: WHEN THE POLICY LIMIT IS NOT THE LIMIT - SETTING UP THE RECALCITRANT, THIRD PARTY CARRIER FACT SCENARIO: The plaintiff was helping a friend install a new window in his friends house. In need of some hardware in the trunk of his car, he went down to his car which was parked a few feet in front of a pickup truck. The pickup truck had a large hook below the front bumper for pulling loads in reverse. It was daylight and the weather was not an issue. The defendant was approaching the two parked vehicles in the same direction they were facing with his wife and young son in the car heading for a weekend campout. He was not intoxicated or otherwise impaired, he was not on a cell phone, he was not speeding, and he had no explanation for why he drifted to the right curb and rearended the parked truck. The hook on the front of the truck was driven through the lower leg of the plaintiff. The damage to the plaintiffs leg was irreparable, and it was amputated below the knee in emergency surgery, with an imperfect result, later that day. We learned within two months that the defendant was covered by an underlying liability limit of $500,000 with an umbrella of $1,000,000 in policies issued by Auto Owners Insurance Company. A young boy was standing next to the plaintiff, and he sustained significant, but not catastrophic injuries. Approximately 8 months postaccident, the two victims conducted a mediation to which the carrier was invited but did not attend. At the mediation it was agreed how the $1,500,000 would be divided between our client and the minor. All documentation of the plaintiffs past and future medical expense and past and future earnings loss had been submitted to the carrier in their copies of the mediation statements. Approximately a month later, we requested a response, and Auto Owners responded that they would need an additional month to respond. Two weeks later we were told by the adjuster that they might settle our portion of the claim, but then would continue to contest the childs claim. We responded that our claim alone had a potential verdict value well in excess of the policy limits, and we were only willing to accept less out of consideration for the child and his injuries. When Auto Owners still had not responded to the demands 7-8 weeks after they were provided to them, the demands were withdrawn and the respective cases put in suit. Approximately two weeks later, we were contacted by counsel who had been retained personally by the Auto Owners insured beseeching us to extend the offer to settle for the limits so he could approach the carrier on behalf of the insured and demand that the case be settled to avoid the insureds exposure to personal liability. We agreed to extend the demand until the end of that week, but again the demand was refused by Auto Owners. At the earliest allowable time, an offer of settlement was served on behalf of the plaintiff for $2,000,000. The statutory time period expired without response from Auto Owners, and the offer was withdrawn.

Depositions of all of the parties were taken about a month after the offer of settlement was rejected. Two weeks later the carrier offered the policy limit, but the plaintiffs rejected the belated offer. Approximately two years post-accident, almost a year after the case was filed, Auto Owners hired an investigator to go into the plaintiffs neighborhood inquiring about what activities they observed the plaintiff undertaking. Approximately 18 months after the filing of the statutory offer and 4 months before trial the case settled for $1,980,000. In light of the childs settlement for $200,000, the plaintiff received $680,000 in excess of Auto Owners coverage. OUTLINE OF STRATEGICAL CONSIDERATIONS: I. Applicable law A. 807.01, Settlement Offers, provides, in relevant part, as follows; (3) After issue is joined but at least 20 days before trial, the plaintiff may serve upon the defendant a written offer of settlement for the sum, or property, or to the effect therein specified with costs. If the defendant accepts the offer and serves notice thereof in writing, before trial and within 10 days after receipt of the offer, the defendant may file the offer, with proof of service of the notice of acceptance, with the clerk of court. If notice of acceptance is not given, the offer cannot be given as evidence nor mentioned on the trial. If the offer of settlement is not accepted and the plaintiff recovers a more favorable judgment, the plaintiff shall recover double the amount of the taxable costs. (4) If there is an offer of settlement by a party under this section which is not accepted and the party recovers a judgment which is greater than or equal to the amount specified in the offer of settlement, the party is entitled to interest at the annual rate of 12% on the amount recovered from the date of the offer of settlement until the amount is paid. B. It is well settled law in Wisconsin that a third party liability carriers duty is to defend and indemnify its insured, and a tort victim has no claim for relief against the tortfeasors liability carrier for failing to settle his/her claim. Bruheim v. Little, 103 Wis. 2d 96, 307 N.W.2d 276 (1981); Kranzush v. Badger Mutual Casualty Company, 103 Wis. 2d 56, 307 N.W.2d 256 (1981). C. It is also well settled Wisconsin law, however, that a claim for relief can arise on behalf of an insured if his liability carrier fails to act in good faith in investigating the accident, defending its insured, and negotiating with the third party for the protection of its insureds excess liability. Alt v. American Family Mutual Insurance Company, 71 Wis. 2d 340, 237 N.W.2d 706 (1976); Howard v. State Farm Mutual Automobile Insurance Company, 60 Wis.2d 224, 208 N.W.2d 442 (1973); and Baker v. Northwestern National Casualty Company, 22 Wis. 2d 77, 125 N.W.2d 370 (1963).

II.

The first prong in plaintiffs two prong strategy to recover in excess of the policy limits involved setting up the future first party bad faith suit assuming there was an excess recovery. A. Here we were fortunate to have a WATL (n/k/a WAJ) member representing the insured with whom we could cooperate. If not, try sending a letter to the defense counsel requesting that someone contact you to discuss a possible settlement of the insureds excess liability irrespective of the policy limits. Defense counsel and the carrier under Baker v. Northwestern Nationional Casualty Company, supra, do have a duty to keep the insured timely and adequately informed of any offers and on the progress of any negotiations. B. We knew that in any subsequent first party bad faith action, we, as plaintiffs counsel, would be a witness. Early on after filing suit, we engaged counsel for the plaintiff in the presumed bad faith case he would eventually have on assignment from the defendant-insured. Obviously, we chose competent, credible counsel and made our intentions known to the defense. C. The case settled shortly after the mediation between the plaintiff and Auto Owners, and in our mediation statement we very carefully laid out the factual predicate for the potential bad faith suit. We intentionally included the first mediation statement addressing liability and damages in the appendix as an apparent afterthought.

III.

The second prong of plaintiffs strategy was irrespective of bad faith and arose from the language of the policies and our reliance on 807.01, Wis. Stats., the offer of settlement statute. A. Read the policy provisions carefully to discover exactly what coverage is provided. Although our underlying liability policy arguably provided for coverage of interest incurred on a verdict/judgment, that issue given the policy language was debatable. The umbrella policy provided, as follows: With respect to any occurrence we will pay, in addition to our limit of liability, the following expenses: (1) All costs we incur in the settlement of any claim or defense of any suit (5) Any other reasonable expenses incurred at our request. B. When defense counsel took the position that this language did not specifically provide for payment of interest we responded, as follows: Although the Auto Owners umbrella does not specifically speak to pre-judgment interest under Wisconsins offer of settlement statute, in light of Auto Owners refusal to settle despite [your insureds personal counsels] demand to the contrary, this policy provision unambiguously makes them responsible on all of the interest on any verdict without regard to the amount. As our

Supreme Court has said, since the insurer controls the litigation and by delaying payment may influence the accumulation of interest, it should bear the entire expense of such delay. McPhee v. American Motorists Insurance Company, 57 Wis. 2d 669, 205 N.W.2d 152 (1973). C. Our position was that the offer of settlement in the amount of $2,000,000 had been filed 22 months before the assigned trial date. Without regard to bad faith, if the case proceeded to trial and the verdict was for, $3,000,000, the interest would be $660,000. If the verdict were $4,000,000 interest would be $880,000. D. Finally, it was our position that even after payment, upon verdict, of the remaining policy limit, $1,300,000, and the payment of interest on the entire verdict, whatever that might be, the insurer would still be confronted by the assigned, first party bad faith suit over the insureds excess, personal liability.