June 4, 2015 – Under state law, insurers must promptly pay covered claims for sum certain amounts within 30 days of written notice, or start paying interest. Recently, a state appeals court upheld an interest award on claims by a hit-and-run victim, a cop.
The appeals court also ruled that that the circuit court improperly ordered an insurance company to produce the insurance claim file despite attorney-client and work product privilege protections but said the error was harmless and did not warrant reversal.
Hit-and-Run, Claim Filed
Around midnight in December 2009, Christine Druecke was driving her car home from a bar when she hit police officer Paul Dilger as he walked along the roadway in response to a call. Druecke did not stop. She turned herself in three days later, asserting that she thought she hit a deer. She ultimately pled guilty to hit-and-run causing injury.
Dilger, an officer in Brookfield, suffered severe and career-ending injuries. In 2011, he filed a “partial demand” for $500,000 with Druecke’s auto insurer, Metropolitan Property and Casualty Insurance. Druecke had liability coverage amounting to $1.5 million.
Under Wis. Stat. section 628.46 and Kontowicz v. American Standard Insurance Co., 2006 WI 48, 290 Wis.2d 302, 714 N.W.2d 105, third-parties like Dilger can make demands for timely payment of claims that are covered by liability insurance.
But there must be no question of liability and the amount of damages must be sum certain. Insurers must pay legitimate claims within 30 days of notice. Metropolitan rejected Dilger’s “partial demand,” arguing that Druecke’s liability was in question.
About three months after Dilger’s claim was rejected, Druecke pleaded guilty. About four months later, in January 2012, she was sentenced. A month later, Dilger sent Metropolitan written notice demanding full payment of $1.5 million under Druecke’s policies, noting that the criminal case against her resolved any question of liability.
About a year later, Metropolitan paid Dilger the $1.5 million (Druecke paid an additional $40,000 personally), under a settlement agreement. The court dismissed the case, aside from the issue of how much interest, if any, Dilger was entitled to receive.
Under section 628.46, interest accrues at 12 percent per year on overdue payments to claimants who filed a written claim. The question was when interest began to accrue.
The circuit court ordered Metropolitan to pay about $178,000, concluding that interest began accruing when Druecke was sentenced, which removed any question of liability. The court noted that Druecke could have withdrawn her guilty plea until sentencing.
Appeal on Interest
Metropolitan appealed and Dilger cross-appealed. Metropolitan argued that interest could not accrue until the parties reached a settlement because liability issues still remained, even after she pled guilty to the charges and was sentenced.
The insurer noted Dilger’s possible contributory negligence: walking on the roadway at night without a reflective vest and failing to see or hear a car coming behind him.
Dilger argued that interest should have started to accrue 30 days after he made his claims for payment under section 628.46, or on the day that Druecke pled guilty.
But in Dilger v. Metropolitan Property and Casualty Insurance Co., 2014AP1851 (June 3, 2015), a three-judge panel for the District II Appeals Court affirmed, upholding the circuit court’s interest award and rejecting both parties claims for a different amount.
“We affirm as neither party has demonstrated that the great weight and clear preponderance of the evidence dictates a finding contrary to that of the circuit court,” wrote Judge Paul Reilly for the three-judge panel.
The panel clarified that insurers must pay demand claims within 30 days unless there’s “reasonable proof” that a demand for liability claim is “fairly debatable.”
Metropolitan argued that Dilger’s potential contributory negligence supported any finding of nonresponsibility until the parties settled. On the other hand, Dilger offered a 2011 report estimating Druecke’s liability exposure at 70 to 100 percent of the $1.5 million policy limits, and argued that her guilty plea resolved “any lingering doubt.”
“While both sides’ arguments are viable, we conclude that they do not support a finding contrary to that of the circuit court,” Judge Reilly concluded. “The court’s finding that Metropolitan had reasonable proof of nonresponsibility until the date of Druecke’s sentencing is not clearly erroneous.”
Claim File, Attorney-Client and Work Product Privilege
Finally, the appeals court panel ruled that it was harmless error for the circuit court to compel Metropolitan to produce the claim file through a discovery request, despite objections that the file was protected by attorney-client and work product privileges.
The attorney-client privilege protects communications between attorney and client. The work product doctrine protects documents “prepared in anticipation of litigation.”
Dilger requested the file, relying on cases involving bad faith tort claims against insurers where the claim file was necessary to determine the insurer’s state of mind.
“We find this reliance to be misplaced in the context of a third-party claim for interest under Wis. Stat. §628.46,” wrote Judge Reilly, also noting that Kontowicz did not address whether courts may order insurers to produce claim files despite attorney-client and work product protections in cases involving timely payment of claims.
It was error for the circuit court to rule that the privileges did not apply to section 628.46 interest proceedings or prelitigation communications, the panel noted.
However, the panel also ruled that the error did not warrant reversal of the $178,000 interest award in Dilger’s favor because the error was harmless.
“[T]he court’s ultimate determination of the interest award was based on Druecke’s conviction and not on any of the information found in the claim file,” Judge Reilly noted.
“All of the court’s factual findings that supported its § 628.46 interest decision were based on admissible evidence from outside of the claim file.”