May 30, 2017 – An insurer must pay about $685,000 in interest under a statute that requires insurers to promptly pay insurance claims or pay interest, unless the insurer provides reasonable proof to establish the insurer is not responsible for payment.
In Casper v. American International South Ins. Co., 2015AP2412 (May 16, 2017), a three-judge panel for the District I Appeals Court ruled that American International South Ins. Co. (AISIC) did not provide reasonable proof that AISIC was not responsible for paying claims after a truck driver rear-ended a family’s vehicle, causing major injuries.
Wis. Stat. section 628.46(1) requires insurers to pay insurance claims within 30 days of receiving notice of a covered claim. Failing to pay a claim can result in the accrual of interest unless the insurer provides reasonable proof that the insurer is not responsible.
Back in 2003, a minivan containing five family members (the Casper family) stopped at a red light. A truck driver under the influence of prescription drugs rear-ended them, injuring all occupants. One occupant suffered a traumatic brain injury and another occupant, a 15-year-old boy, suffered a spinal injury that rendered him a quadriplegic.
AISIC insured five of the six individuals and companies that the Casper family sued. The case settled for policy limits in 2012, nine years after the accident occurred.
But the issue of interest remained. The plaintiffs argued that AISIC owed interest under section 628.46 because AISIC did not pay the limits within 30 days of the claim.
The family had demanded payment of the $1 million policy limit in 2007. At that time, AISIC’s claims adjuster concluded that AISIC would likely be required to pay policy limits because the damages would far exceed the policy limits of $1 million.
AISIC offered to settle for the policy limits if all defendants were released from further claims, but the plaintiffs rejected the offer. Ultimately, though, the Casper family agreed to settlement at policy limits in 2012, with a release of all defendants.
The circuit court ruled that coverage was “not fairly debatable” and AISIC did not provide reasonable proof that it was not responsible for payment of the claim. At a rate of 12 percent interest per year, from 2007 to 2012, it calculated interest at approximately $685,000.
Both sides appealed. AISIC said no interest should apply because of facts that created “reasonable proof” that AISIC was not responsible for paying the claim.
A witness testified that the family’s minivan did not immediately accelerate when the light turned green, before being rear-ended by the tractor-trailer. An accident reconstruction expert determined that the accident could have been avoided if the family’s minivan would have accelerated more quickly when the light turned green.
But the three-judge appeals court panel ruled that interest starts accruing once it’s clear the insurer is liable, there is a “sum certain” of damages payable, and the insurer has received a written notice of liability with the sum certain amount.
The panel ruled that a 2005 itemization of damages letter and a 2007 claim demand, taken together, satisfied the condition for a written claim for a sum certain amount.
An insurer only has reasonable proof that it is not responsible if it provides in a timely manner “information which is sufficient to allow a reasonable insurer to conclude that it may not be responsible for payment of a claim.” But that was not the case here, the panel noted.
The panel rejected AISIC’s claim that “reasonable proof” was provided because there was evidence that the plaintiff could be contributorily negligent.
“We reject that argument because ‘reasonable proof’ relates to responsibility for payment,” wrote Judge Kitty Brennan, noting that even if contributory negligence was applied to the Casper family, AISIC’s contribution would clearly exceed policy limits.
Brennan noted that the truck driver was driving under the influence of prescription drugs, the policy limits were low, and the special and future damages well exceeded policy limits. And she noted that AISIC’s own internal documents refuted its claim.
“The test is whether a reasonable insurer could conclude it was not responsible for payment,” Judge Brennan noted. “Here AISIC’s own adjusters advised that it should expect to be responsible for the payment.”
The panel also rejected AISIC’s claim, under a prior state supreme court decision, that section 628.46 should not apply when a case involves an insurer with multiple insureds.