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Default no bar to contribution claim

Fine

Hon. Ralph Adam Fine

A default judgment does not preclude the defendant from seeking contribution from other defendants, the Wisconsin Court of Appeals held on Dec. 28.

SIVA Truck Leasing leased a van to Milwaukee Careers Cooperative (MCC) for use in its business of taking people to their jobs.

Four passengers were injured, and sued MCC, its insurer, Cincinnati Insurance Company, and the van’s driver, Carlos Bates. Four months later, the passengers added SIVA and its insurer, Philadelphia Indemnity Insurance Company, as defendants, alleging that by insuring SIVA, Philadel-phia Indemnity undertook to pay damages that might be caused by the negligence of anyone who drove a SIVA van with SIVA’s consent, and that this included Bates.

Neither SIVA nor Philadelphia Indemnity answered the complaint, and default judgment was entered against them. After default, SIVA and Philadel-phia Indemnity settled with the plaintiffs for more than $500,000. The plaintiffs also settled with Cincinnati Insurance, MCC, and Bates.

Philadelphia Indemnity then brought suit, seeking contribution from Cincinnati Insurance. Because of the default judgment, Milwaukee County Circuit Court Judge Clare L. Fiorenza dismissed the complaint.

What the court held

Case: McGee v. Bates, No. 04-0824.

Issue: Does default judgment preclude the defendant from seeking contribution from a jointly liable party in a subsequent action?

Holding: No. Provided both parties are liable for the same debt, and the plaintiff in the second action paid more than its fair share, it can seek contribution.

Philadelphia Indemnity appealed, and the court of appeals reversed in a decision by Judge Ralph Adam Fine, holding that the default judgment did not bar the contribution action.

The court noted that, when no agreement expressly confers a right of contribution, such right is premised on only two conditions: (1) the parties must be liable for the same obligation; and (2) the party seeking contribution must have paid more than a fair share of the obligation. Kafka v. Pope, 194 Wis. 2d 234, 242-243, 533 N.W.2d 491, 494 (1995).

Rejecting Cincinnati Insurance’s argument that the default judgment against Philadelphia Indemnity barred the contribution claim, the court reasoned, "neither the plaintiffs’ dismissal of Cincinnati Insurance, nor Philadelphia Indemnity’s settlement with the plaintiffs stands in the way of Philadelphia Indemnity’s claim for contribution. As [Fire Insurance Ex-change v. Cincinnati Insurance Co., 2000 WI App 82, 234 Wis.2d 314, 610 N.W.2d 98] recognizes, contribution ‘can also be based on a settlement of what is contended to be joint liability, with the settling party being required to prove that: (1) both parties were obligated to the payee; (2) the amount of the payment was reasonable; and (3) the proportionate fault with negligent tortfeasors, or other apportionment method when negligence is not the basis for mutual liability [sic].’ Id., 2000 WI App 82, par. 8, 234 Wis. 2d at 322, 610 N.W.2d at 103; see also Teacher Ret. Sys., 205 Wis 2d at 545, 556 N.W.2d at 420 (‘whether "common liability" exists is determined at the time the damages were sustained and cannot be extinguished by one or more of those allegedly responsible for the plaintiff’s damages subsequently settling with the plaintiff’). Here, of course, Bates’s alleged negligence is ‘the basis for mutual liability’ asserted by Philadelphia Indemnity, and thus the third Fire Insurance Exchange element does not apply."

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Case Analysis

The court concluded, "It is thus immaterial that Philadelphia Indemnity’s settlement was spurred by the default rather than an active lawsuit against it; if it paid more than its fair share for damages caused by Bates’s alleged negligence, it is entitled to recompense from Cincinnati Insurance if Cincinnati Insurance paid less than its fair share of the damages caused by Bates’s alleged negligence."

The court found remand was necessary to determine whether Philadelphia In-demnity paid more than its fair share, instructing, "The record is not clear whether Bates’s negligence has also been determined in an action that might affect Cincinnati Insurance’s liability. If it has been determined, the apportionment appears to be fairly simple — Cincinnati Insurance’s liability turns on whether and to what extent Bates was negligent. If Bates’s negligence has not been determined in such an action, there must be a trial on that issue (cites omitted)."

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David Ziemer can be reached by email.

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