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Judgment is offset by default

By: dmc-admin//July 30, 2007//

Judgment is offset by default

By: dmc-admin//July 30, 2007//

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What the court held

Case: Otto v. Physicians Insurance Company of Wisconsin, Inc., No. 06-1566.

Issue: Can a tortfeasor offset the amount of the plaintiff’s medical bills, when the subrogated insured fails to file an answer?

Holding: Yes. Longstanding case law permits an offset to prevent double recovery by the plaintiff.

Attorneys: For Appellant: Van Sicklen, Michael B., Madison; Andre, Theresa A., Madison; For Respondent: Cates, John L., Madison

A defaulting tortfeasor can offset its judgment by medical expenses paid by a subrogated insurer that also defaulted, the Wisconsin Court of Appeals held on July 24.

Dale Otto was a patient of Dr. Charles Folkestad beginning in the 1980s. Otto also began seeing Dr. Terrance Witt in 1999. Otto had been treated by both doctors for gastroesophageal reflux disease for this entire time period.

Despite Otto’s ongoing symptoms, the doctors allegedly failed to conduct any further testing to update or otherwise check that diagnosis. In September 2002, Otto was diagnosed with metastatic esophageal cancer.

In 2003, Otto filed a medical malpractice complaint against Folkestad, Witt, the clinic where the doctors worked, the Wisconsin Patients Compensation Fund, and fictitious insurers.

After Otto died from the cancer, an amended complaint was filed, naming Physicians Insurance Company of Wisconsin, Inc. (PIC), specifically as the insurer, and identifying Blue Cross Blue Shield of Nebraska as a subrogated party based on payments it made on Otto’s behalf.

Neither Blue Cross nor PIC filed a timely answer, and default judgment was entered against PIC.

At the damages hearing, PIC asked that any judgment against it be offset by the amount the subrogated insurers had paid, arguing the statute of limitations had expired on their claims. The circuit court denied the motion and entered judgment for what it concluded were Otto’s entire damages.

PIC appealed, and the court of appeals reversed in a decision by Judge Michael Hoover.

The court first concluded that it was not an erroneous exercise of discretion to grant default judgment against PIC.

The court concluded, “While there might be some series of facts that could give rise to a finding of excusable neglect explaining why it took from November to August to ascertain that PIC was required to file an answer, PIC never offers any facts for our consideration.”

The court also rejected PIC’s argument that, as an insurer, the effect of the default should only be to establish insurance coverage, while still allowing it to defend against the allegations of negligence, because its named insureds filed answers of their own.

The court concluded that this interpretation would be contrary to the direct action statute and would produce an unreasonable result in that insurers whose insureds were also named would not be required to answer a complaint while insurers named alone would have to respond.

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Case Analysis

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However, the court agreed with PIC that it is entitled to an offset of $42,635 — the amount paid by Blue Cross for Otto’s medical expenses.

Longstanding law provides that, where an insurer is barred from pursuing a subrogation claim, the tortfeasor is entitled to a reduction in judgment for the amount of that claim. Lambert v. Wrensch, 135 Wis. 2d 105, 399 N.W.2d 369 (1987).

Otto argued that Lambert is distinguishable because Blue Cross lost its subrogation right through a default judgment, rather than the running of the statute of limitations.

However, the court declined to address the argument, noting that, at the time judgment was entered against PIC, the statute of limitations had run on Blue Cross’s subrogation claim.

Accordingly, the court reversed the circuit court and directed it to reduce the judgment by the amount of Blue Cross’ subrogated interest.

Click here for Case Analysis.

David Ziemer can be reached by email.

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