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Wisconsin: Coverage – “Mere Volunteer Defense”

Published by Michael Dougherty on November 3, 2009 in Casualty and Property | 0 Comments

The federal District Court for the Eastern District of Wisconsin recently addressed the issue of whether an insurer may be subject to a “mere volunteer” defense if it pays a claim when coverage is in dispute.  The City of Green Bay hired a contractor to complete a major reconstruction of Lambeau Field, home of the NFL’s Green Bay Packers.  A subcontractor, Spirtas Wrecking, accidentally damaged the stadium during the project.

At the time of the loss, the City was insured under multiple policies.  Westchester Insurance underwrote a builder’s risk policy, in which both the City and Spirtas were named insureds.  The City also maintained a policy through The Local Government Property Insurance Fund (“the Fund”).  Eventually, Westchester paid the City $400,000 in exchange for a release agreement.  As part of the agreement, the City assigned to Westchester its rights to collect under the Fund’s policy.

The Fund’s policy included an “other insurance” provision:

“If there is other insurance cover loss to the property…the Fund will not be liable under this policy until such other insurance has been exhausted…”

However, Westchester disputed the applicability of this provision.  To resolve the coverage dispute, the Fund reimbursed Westchester $200,000 on the City’s behalf, in return for a commensurate assignment of Westchester’s subrogation rights.

In the Fund’s ensuing subrogation suit, Defendant Spirtas Wrecking moved for summary judgment, asserting that the Fund was not entitled to proceed in subrogation because it paid the $200,000 as a “mere volunteer.”  Under Wisconsin law, subrogation arises only “when a person other than a mere volunteer pays a debt which in equity and good conscience should be satisfied by another.”[1]  Spirtas argued that Westchester’s policy was the primary coverage for the loss, and that therefore the Fund voluntary paid Westchester.

The court examined the mere-volunteer defense, noting that “it is a narrow exception to the principles of subrogation,” and expressed skepticism that an entity would pay another’s debt without an obligation to do so.  The court was also persuaded by outside authority:

 “The payor must have acted on compulsion, and it is only in cases where the person paying the debt of another…is compelled to pay in order to protect his own interests…that equity [subrogates him to the creditor]; in other cases the debt is absolutely extinguished.”[2]

The court concluded that “the definition of a ‘volunteer’ is necessarily limited to those rare cases where payment is truly voluntary…” and therefore, “one is not deemed a ‘mere volunteer’ even if he pays pursuant to a legal obligation that is not crystal clear.”

Spirtas’ theory would effectively require insurers to assert defenses against their insureds, thereby removing the incentive for insurers to settle claims promptly and encouraging additional litigation.  Faced with a coverage dispute, the Fund elected to reimburse Westchester for half of the amount paid as a result of Spirtas’ conduct.  Under these circumstances, the court held that the Fund’s payment was not truly voluntary

[1] Citing Millers Nat’l Ins. Co. v. City of Milwaukee, 184 Wis.2d 155, 168-69, 516 N.W.2d 376 (Wis. 1994).

[2] Citing Home Owners’ Loan Corp v. Crouse, 151 Pa. Super. 259, 30 A.2d, 330, 331 (Pa. 1943).

The Local Gov’t. Property Ins. Fund v. Spirtas Wrecking Co., 2009 U.S. Dist LEXIS 67212 (E.D. Wisc. 2009).

Spoliation And Subrogation

Published by admin on September 10, 2009 in Bad Faith and Property | 0 Comments

Spoliation or as many in our field have incorrectly stated “spoilation” is an issue faced by many subrogation professionals. While “spoilation” is the incorrect spelling and pronunciation, it does partially convey the meaning of it’s properly spelled cousin. Blacks Law Dictionary defines spoliation as, “The intentional destruction, mutilation, alteration or concealment of evidence, usually a document.” In a sense, the evidence is spoiled.

houseIn the subrogation world, spoliation normally applies to the destruction of a home, boat, automobile, or product therein, more so than a document. Most commonly, spoliation is a defense raised by a defendant against the plaintiff at the time of suit. The spoliation defense arises after a loss occurs (due to a fire, product defect, etc.) where the alleged cause of the loss is not preserved by the spoliator or the spoliator does not give the opposing party an opportunity to investigate the loss scene. An opposing party typically claims their case is prejudiced due to an inability to investigate and/or examine the alleged cause of the loss. It is important to point out that the spoliation can be either intentionally or unintentional.

It should be noted that spoliation applies not only to the alleged cause of the loss, but also extends to alternative potential causes. Mt. Olivet Tabernacle Church v. Edwin L. Wiegand Division, et al., 781 A.2d 1263 (Pa. Super. 2001). The policy behind this application reasons that a defendant is prejudiced if unable to investigate other potential causes and in turn partially indemnify themselves or exculpate liability completely.

In Pennsylvania, if the Court finds that spoliation has occurred, it may issue sanctions, preclude testimony, direct the jury to consider an adverse inference toward the spoliator, or in the most severe of cases dismiss the entire action. The ultimate decision of whether and how to sanction a party rests within the sound discretion of the trial court. Eichman, et al. v. McKeon, et al., 824 A.2d 305 (Pa. Super. 2003).

In determining the appropriate sanction, Pennsylvania courts consider three key elements:

  1. the degree of fault of the spoliator;
  2. the degree of prejudice suffered by the opposing party; and
  3. whether a lesser sanction than dismissal will avoid unfairness and deter such future conduct.

The Courts goal is to achieve accuracy at trial, punish the spoliator, and compensate the victims. Schroeder v. DOT, 710 A.2d 23 (Pa. 1998).

When examining fault, the Court imposes a general duty to preserve relative evidence when the spoliator knows litigation is likely and when it is foreseeable that discarding the evidence would prejudice the opposing party. Secondly, the Court will look for the presence or absence of good faith, not necessarily for the presence of bad faith.

The Courts have held that prejudice to the opposing party is less severe: (1) when alternative causes of the loss are speculative; (2) when an independent third party, such as a fire marshal, investigates the loss thus mooting the defendant’s need to rely solely on the plaintiff’s investigation; and (3) in design defect cases, because products with identical designs are easily attainable for examination.

Generally Courts should select the least onerous sanctions that are commensurate with the spoliator’s fault and the opposition’s prejudice. Where fault and prejudice are not severe, dismissal of the entire action is rarely appropriate. Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 73 (3rd Cir. Pa. 1994).

To guard against spoliation, it is recommended to our clients to have a third party perform the site investigation when possible. When practical, we recommend preserving all possible causes of the loss until causes can be conclusively ruled out or the opposition stipulates in writing to the items disposal. Lastly, when scheduling and conducting a loss clean up, remain in contact with the opposition to insure against the unilateral discarding of relevant evidence and ward off claims of bad faith.