Wisconsin Statute § 628.46 is an important statute in Wisconsin insurance law – it provides that an insurer is subject to penalty interest for liability on claims “if not paid within 30 days after the insurer is furnished written notice of the fact of a covered loss and of the amount of the loss . . .” Importantly, the statute also provides that “[a]ny payment shall not be deemed overdue when the insurer has reasonable proof to establish that the insurer is not responsible for the payment . . .” So, what is this “reasonable proof”?
In Casper v. American International South Insurance Company, 2015AP2412 (Ct. App. Dist. I, May 16, 2017), the court reviewed the application of § 628.46 under circumstances which indicated liability would likely be apportioned between the plaintiffs and defendants at trial, meaning the defendant insurer was considered to have a liability defense at trial. The plaintiffs were severely injured in an auto accident and made a demand in 2007 for the defendants’ $1,000,000 policy limits, which the defendants ultimately tendered in 2012. The plaintiffs’ medical bills at the time of their demand exceeded $643,000, and claimed future treatment totaled more than $7,000,000.
The plaintiffs also sought almost $700,000 in interest under Wis. Stat. § 628.46 for the time period between their demand and the ultimate tender. The defendants argued, however, that payment had not been due under Wis. Stat. § 628.46 because they had a reasonable defense – there was evidence that the plaintiff driver had not proceeded normally through the intersection upon a green light and thereby may have contributed to causing the accident.
In reviewing Kontowicz v. American Standard Ins. Co. of Wisconsin, 2006 WI 48, the court explained that for third-party claims to trigger the interest provision of Wis. Stat. § 628.46, the claimants had to show “that there is ‘no question’ of the insured’s liability; second, that there is a ‘sum certain’ of plaintiffs’ damages; and third, that the insurer received written notice of liability and the ‘sum certain’ damages.” Regarding the first prong (which is the focus here) – interest would not be triggered “if the insurer has reasonable proof it is not responsible,” which was defined in Kontowicz as “that amount of information which is sufficient to allow a reasonable insurer to conclude that it may not be responsible for payment of a claim.” Several factors inform this calculus, including whether there are reasonable coverage issues and whether there are high damages compared to relatively lower limits. Importantly, regarding the latter, “the potential for contributory negligence by a party is not, in itself, sufficient to constitute ‘reasonable proof’ that will defeat an award of interest.”
The defendant driver in Casper admitted that he was under the influence of prescription drugs at the time of the collision and that he neither saw the plaintiffs’ vehicle nor slowed down before the collision. This, the court reasoned, showed that there was no question of liability on the part of the defendant driver, even though some apportionment could have been possible later at trial. Based upon the clear liability and amount of claimed medical specials far exceeding the limits, the defendants’ duties under Wis. Stat. § 628.46 were triggered and the penalty interest was found appropriate by the court.