WI Court of Appeals rules auto insurer must pay for its absentmindedness.

• Author: Ziemer, David

Byline: David Ziemer

If an insurer did not realize that an insured's policy had expired prior to his negligent actions - and the insurer therefore engaged in three years of negotiations with the injured party - the insurer may be equitably estopped from asserting cancellation as a defense, the Wisconsin Court of Appeals held last week.

Facts and procedure

Charles Slaght had an auto insurance policy with American Family Mutual Insurance Company, but the policy expired on July 16, 1996.

Three days later - on July 19 - Slaght's negligence caused an auto accident in which Heather Nugent was injured.

American Family dealt with Nugent as if the insurance policy had still been in force. American Family negotiated with Nugent, paid her $9,600 for her property damage loss, made a settlement offer, and reached a settlement with a passenger in Nugent's vehicle.

Nugent and American Family were unable to fully settle, and on June 22, 1999, Nugent filed suit.

At that point, American Family finally discovered the cancellation and moved for summary judgment.

Crawford County Circuit Court Judge Michael T. Kirchman granted summary judgment for American Family, rejecting Nugent's arguments that either waiver or equitable estoppel barred the defense.

Nugent appealed, and the District IV (Madison) Court of Appeals reversed in a decision by Judge Paul Lundsten.

The court's reasoning

The Court of Appeals first rejected Nugent's argument that American Family waived its defense.

The court concluded it was bound by the Wisconsin Supreme Court decision in Ryder v. State Farm Mut. Auto. Ins. Co., 51 Wis.2d 318, 187 N.W.2d 176 (1971).

In Ryder, an insured made material misrepresentations when applying for auto insurance by failing to inform the insurer of several driving citations. After issuance of the policy, the insured struck a pedestrian.

An adjuster at State Farm received "unconfirmed" information relating to the misrepresentations. An underwriter who was unaware of the misrepresentations, however, instructed the insured's agent to continue the insured's policy if he paid his renewal premium.

The adjuster later received official confirmation of the insured's misrepresentations, and rescinded the policy.

State Farm argued it was not liable to the pedestrian because the policy had been rescinded. The pedestrian argued that renewal of the policy constituted waiver.

The court ruled in favor of State Farm, holding where one employee acts mistakenly, without knowledge...