An insurer’s right to “pay and walk” – pay the limits of its liability and leave the insured to defend himself against any excess judgment – does not depend on whether the insurer might be able to able to obtain a better result, or on the insurer’s motives.
The Wisconsin Court of Appeals held on April 5, “the simple and significant fact here is that once [the insurer] paid [the plaintiff] the $100,000 liability limit, it was allowed … to discontinue defending the … claim.”
Daniel and Jill Gilbert Welytok had an automobile policy with American Standard Insurance Company, with a $100,000 per person bodily injury liability limit. The policy provided, “WE WILL NOT DEFEND ANY SUIT AFTER OUR LIMIT OF LIABILITY HAS BEEN OFFERED OR PAID (bolding and capitalization in policy).”
The Welytoks’ daughter Tara was involved an automobile-motorcycle accident in which Tara collided with Leonard Young.
American Standard unsuccessfully attempted to settle the case with Young for less than $100,000, and also unsuccessfully tried to settle it for $100,000 in exchange for a full release of both it and the Welytoks.
Ultimately, the insurer paid its policy limit, in exchange for its own release from liability, and informed the Welytoks they were on their own.
When Young sued the Welytoks for additional compensation, American Standard intervened to obtain a declaration that it owed no duty to defend.
The circuit court granted the declaration, and the Court of Appeals affirmed, in an opinion by Judge Patricia Curley.
Gross v. Lloyds of London Ins. Co., 121 Wis.2d 78, 358 N.W.2d 266 (1984), and Novak v. American Family Mut. Ins. Co., 183 Wis.2d 133, 515 N.W.2d 504 (Ct.App.1994), establish the rule that payment of the liability limits fulfills an insurer’s duties to indemnify and defend, provided the policy provides adequate notice of that right.
The court first held that the American Standard policy provided sufficient notice of the “pay and walk” provision, because the provision was capitalized, in contrast to the provision invalidated in Gross.
Second, the court held the facts indistinguishable from those in Novak, in which the court upheld the pay and walk provision.
The Welytoks made several arguments why their case was different from Novak.
First, they argued that Novak is distinguishable because there was no dispute in that case that the damages exceeded the policy limits. Here, it was arguable that the damages did not exceed the limits.
Second, they argued that American Standard’s motivation for settling was to avoid costly litigation, rather than a good faith appraisal of the claim against it.
But the court concluded that, even if true, neither of these allegations was material.
Judge Curley wrote for the court, “As the trial court deftly observed, the Welytoks ‘contracted with American Standard to get $100,000 worth of coverage, and how that is spent is how it’s spent.’”
What the Court Held
Issue: Does an insurer discharge its duty to defend by paying its policy limits?
Holding: Yes. Regardless of the value of the case or the insurer’s motivations, payment of the policy limit by the insurer fulfils its duty.
Attorneys: For Defendants: Rex Anderegg, Milwaukee; For Intervenor: Terry J. Booth, Benita L. Anderson, Milwaukee.
David Ziemer can be reached at [email protected].