Family exclusion provision does not prevent ex-wife from obtaining wrongful death damages 

By Joe Forward, Legal Writer, State Bar of Wisconsin

May 9, 2011 – The divorced parents of a child who died have a right to bring separate actions for wrongful death, but a judgment in favor of one parent does not entitle the other to any ownership of the recovery, the Wisconsin Supreme Court recently ruled.

This ruling, in Day v. Allstate Indemnity Co., 2011 WI 24 (April 29, 2011), was essential in determining whether a “family exclusion” provision in a homeowner’s insurance policy would prevent Wendy Day (Wendy) from recovering wrongful death damages for the death of her daughter because Wendy’s ex-husband, Clinton, was an insured under the policy.

In 2006, eight-year-old Emma Day drowned while taking a bath at the home of her father, Clinton, and stepmother, Holly Day. Clinton’s ex-wife, Wendy, filed suit alleging that Holly left Emma, prone to epileptic seizures, unattended in the bathtub and was therefore negligent.

Holly and Clinton’s homeowner’s insurance policy with Allstate Indemnity Company (Allstate) covered damages an insured became legally obligated to pay because of bodily injury or death. The policy covered Holly, Clinton, and three children, including Emma.

But the policy’s family exclusion clause precluded coverage for bodily injury to an insured person if the benefit of the coverage “would accrue directly or indirectly to an insured person.”

Allstate argued the family exclusion clause precluded coverage for any wrongful death damages asserted against Holly (stepmother) because Emma, an insured party, was the one injured and any benefit of the coverage would accrue to Clinton.

That is, Allstate argued that Clinton would be entitled to half of any recovery that Wendy secured as a result of her wrongful death claim against Holly, an insured party. Ultimately, Wendy brought her tort action against Allstate directly under Wisconsin’s direct action statute.

Recovery is individualized 

Citing Bruflat v. Prudential Prop. & Cas. Ins. Co., 2000 WI App 69, 233 Wis. 2d 523, 608 N.W.2d 371, a Wisconsin appeals court granted summary judgment to Allstate. The appeals court concluded that Clinton, an insured, would benefit from coverage “by virtue of his legal right to collect a portion of the wrongful death award.”

But the supreme court majority (4-3), in an opinion written by Justice Ann Walsh Bradley, rejected the appeals court reasoning, concluding that Allstate’s family exclusion clause did not preclude Wendy from recovering on a wrongful death action.

In her opinion – joined by Chief Justice Shirley Abrahamson, Justices N. Patrick Crooks, and Patience D. Roggensack – Justice Bradley explained that the right to sue and recover damages under the wrongful death statute is distinguishable from ownership of any recovery.

Both Clinton and Wendy have a right to make a wrongful death claim, though such claims must be consolidated, and any wrongful death recovery “may be an individualized amount that is based on a beneficiary’s actual loss,” the court explained.

As an insured, Clinton would be precluded from recovering on a wrongful death claim, the court explained. But Wendy is not an insured and no portion of her recovery would accrue to Clinton.

“Although all members of a class (here, both Wendy and Clinton), share the right to bring a wrongful death action, they do not necessarily share joint ownership of the recovery,” Justice Bradley wrote. The court denounced any portion of the Bruflat case that suggests “a wrongful death recovery must be distributed to all wrongful death beneficiaries.”

The supreme court ruled the appeals court erred in concluding that Clinton, as Wendy’s ex-husband, would have a legal right to collect a wrongful portion of Wendy’s wrongful death award. Thus, the court ruled that Allstate’s family exclusion does not preclude coverage of any award in favor of Wendy, because Clinton would not directly or indirectly benefit from it.

“The court of appeals’ assertion that Clinton would have a legal right to collect a portion of the wrongful death award fails to distinguish the right to pursue a claim under the wrongful death statute from the ownership of a wrongful death recovery when the parties are divorced,” Justice Bradley wrote.

The court also rejected Allstate’s argument that the term “benefit” in the family exclusion clause includes the benefit of the insurer’s defense and indemnification, which would preclude coverage based on Allstate’s defense of Holly, an insured person.

“Allstate’s expansive definition is inconsistent with Wisconsin case law interpreting identical policy language,” Justice Bradley wrote. The majority also concluded that such an interpretation would be inconsistent with how the term is used in other provisions.

Dissent 

Writing for the dissent, Justice Annette Kingsland Ziegler (joined by Justices David Prosser and Michael Gableman), fears the majority opinion invites “insureds to manipulate intra-family claims so as to obtain liability coverage where it otherwise would be excluded.”

The dissent argued that under Whirlpool Corp. v. Ziebert, 197 Wis. 2d 144, 539 N.W.2d 883 (1995), the family exclusion clause should be enforced because of the mere potential for intra-family collusion, despite the low probability that it occurred in this case.

The dissent also argued that an “indirect” benefit would accrue to Clinton’s and Wendy’s other children, both insured under the Allstate policy, based on the assumption that the other insured children would indirectly benefit from their mother having more money.

Attorneys 

Martha Heidt of Bye, Goff & Rohde Ltd., River Falls, argued on behalf of Wendy Day. John Swietlik Jr. of Kasdorf, Lewis & Swietlik S.C., Milwaukee, argued on behalf of Allstate.