Destiney Kashia Xiong v. Security National Life Ins. Co.

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
February 22, 2022
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2019AP2320 Cir. Ct. No. 2017CV320

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT III

DESTINEY KASHIA XIONG,

PLAINTIFF-RESPONDENT,

V.

SECURITY NATIONAL LIFE INSURANCE COMPANY,

DEFENDANT-APPELLANT.

APPEAL from orders of the circuit court for Dunn County:
JAMES M. PETERSON, Judge. Order affirmed; order reversed and cause
remanded for further proceedings.

Before Stark, P.J., Hruz and Nashold, JJ.
No. 2019AP2320

¶1 NASHOLD, J. This interlocutory appeal1 involves an insurer’s
fraud defense to claims for death benefits under life insurance policies, with some
unusual twists. Security National Life Insurance Company (Security) issued two
life insurance policies to its own insurance agent, Destiney Kashia Xiong
(Destiney), insuring the life of Wang Y. Xiong (Wang), a man Destiney claims
was her father. When Wang died, Security denied Destiney’s claims and
attempted to rescind the policies, but it did not then allege that Destiney had
committed any fraud. Destiney sued for breach of contract and various torts.
Security attempted to plead a fraud defense based on circumstances it claims to
have learned of after Wang’s death—including that Wang was not Destiney’s
father and that he was unaware the policies were even issued.

¶2 The circuit court granted partial summary judgment to Destiney on
her breach of contract claim because it determined that Security did not comply
with statutory notice requirements before attempting to rescind the policies. See
WIS. STAT. § 631.11(1)(b), (4)(b) (stating that an insurer must, within specified
time frames, notify the policyholder that the insurer intends to rescind or defend
against a claim on the basis of fraud). We conclude that, under these
circumstances, Security’s initial (allegedly improper) attempt to rescind the
policies and deny Destiney’s claims does not impact its ability to subsequently
raise a fraud defense. We further conclude that Destiney failed to set forth a prima
facie case for why Security did not meet the notice requirements of § 631.11(4)(b)
when asserting its fraud defense. Accordingly, we reverse the order granting

1
This court granted Security National Life Insurance Company’s petitions for leave to
appeal pursuant to WIS. STAT. RULE 809.50(3) (2019-20). All references to the Wisconsin
Statutes are to the 2019-20 version unless otherwise noted.

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Destiney’s motion for partial summary judgment on her breach of contract claim,
and we remand for further proceedings on all claims.

¶3 Security further appeals a circuit court order denying its motion to
bifurcate Destiney’s contract and tort claims for purposes of trial. We conclude
that the court did not erroneously exercise it discretion in ordering a consolidated
trial. Accordingly, we affirm that order.

BACKGROUND

¶4 The following material facts are undisputed. In 2016, while
Destiney was employed as a Security insurance agent, she applied for and was
issued two Security policies, together insuring Wang’s life for $35,000. The
policies are materially identical except as to their benefit amounts, so we discuss
them together.2

¶5 For each policy, Destiney is the policyholder and beneficiary. The
applications (incorporated into the policies) state that Destiney is Wang’s child;
that they share an address in Eau Claire, Wisconsin; and that Wang does not have
any of the medical conditions listed on the applications. The applications contain
Wang’s and Destiney’s electronic signatures as applicant and policyholder,
respectively, and are “[d]ated at” Eau Claire, Wisconsin, indicating that Wang and
Destiney signed them there. Destiney, as a licensed Security insurance agent, also
electronically signed the “Agent’s statement,” certifying:

2
The first Security policy, issued April 8, 2016, insures Wang’s life for $20,000. The
second policy, issued August 16, 2016, insures Wang’s life for $15,000.

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1. I correctly asked all the Medical Questions in
this application and correctly recorded all the answers
given; and

2. All answers given in this application are true and
complete; and

….

4. The signature of the proposed insured(s) … is
what they are represented to be and were signed in my
presence; and

5. I know of no factor affecting the insurability of
the proposed insured(s) except as stated in this application.

¶6 Wang died of a heart attack in February 2017, less than a year after
the policies were issued. In March 2017, Destiney submitted claims for the death
benefits under the policies. By letter dated December 14, 2017 (the
December 2017 letter), Security informed Destiney that it was returning the
premiums paid on the policies and not paying the death benefits, on the grounds
that it lacked Wang’s medical records. The letter explains:

[Security] requested medical records from doctors
listed on the form provided by [Wang’s] family, [and] no
medical records were available for the period from March
2014—August 2016[,] which is 2 years prior to the
[policies’] date[s] of issue. This being a contestable claim
there are no records to present for review by our Medical
director to determine [Wang’s] insurability at the time [the]
policy was issued.

… Should any new information be discovered[,]
you can request that the claim be reopened and reviewed[.]

¶7 Destiney filed suit on December 21, 2017, and filed an amended
complaint on December 26, 2017. As pertinent here, the amended complaint
asserted a breach of contract claim for $35,000. In its February 13, 2018 answer,

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Security raised several affirmative defenses, including that Destiney had “engaged
in fraudulent conduct to procure the issuance of the policies.”

¶8 Destiney brought a motion for summary judgment. She argued that
Security could neither rescind the policies nor raise fraud as an affirmative defense
because—based on Destiney’s status as Security’s insurance agent—Security had
constructive knowledge of any misrepresentation involved in the policies’
procurement. See WIS. STAT. § 631.11(4)(a) (providing that a misrepresentation
made by or on behalf of a policyholder cannot constitute grounds for rescission of,
or affect the insurer’s obligations under, the policy if the insurer had constructive
knowledge of the relevant facts when it issued the policy); WIS. STAT. § 631.09(1)
(imputing to the insurer “any fact material to the risk or which breaches a
condition of the policy” and known to the agent who transmitted the insurance
application).

¶9 In its response, Security argued that, as a matter of law,
misrepresentations by a person who is both an agent and a policyholder cannot be
imputed to the insurer. Security also addressed some of the “suspicious
circumstances” that formed the basis of its fraud defense. Referencing various
discovery materials and Wang’s death certificate (listing his residence in the State
of Arkansas), Security argued that there were disputed material facts as to whether
Wang was in fact Destiney’s father; whether Wang lived in Wisconsin with
Destiney; whether Wang was physically present with Destiney in Eau Claire when
the applications were completed and submitted; and whether Wang had an
undisclosed heart condition. According to Security, if it had known or suspected
the above facts when Destiney submitted the applications, it either would not have
issued the policies or would have made additional inquiries. Thus, it was
Security’s position that Destiney may have unilaterally acted as agent,

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No. 2019AP2320

policyholder, and beneficiary to secure policies insuring a man who was not her
father and who lacked any knowledge of the policies.

¶10 Security further represented that, over the course of its investigation,
it had learned that Destiney had entered into a consent order in Minnesota
revoking her Minnesota agent’s license. That order was based on allegations that,
while an agent, Destiney “sold a life insurance policy, which was delivered,
signed, dated and finalized on the date the insured passed away” and that she had
entered into an agreement with her client—the surviving spouse of the insured—to
split the death benefit proceeds.

¶11 The circuit court denied Destiney’s motion for summary judgment,
determining that any knowledge of fraud on Destiney’s part could not be imputed
to Security. Destiney then filed a second amended complaint reasserting her
breach of contract claim, adding various tort claims (including for bad faith), and
seeking punitive damages. Security reasserted its fraud defense in its answer.3
Security moved to bifurcate the contract and tort claims. The circuit court denied
that motion.

¶12 The case proceeded to pretrial motions, at which time Destiney
moved in limine to prohibit Security “from referring, alleging or implying that
[she] committed fraud, misrepresentation, dishonesty, breach of fiduciary duty
and/or other misconduct in applying for the life insurance policies on the grounds
that [Security] completely failed to comply with” statutory notice requirements.4
3
It is unclear from Security’s answer whether its fraud defense was intended to apply
only to Destiney’s breach of contract claim or whether it also extended to Destiney’s tort claims.
4
Destiney additionally argued that Security did not comply with a provision of the
Wisconsin Administrative Code, but she has since abandoned that argument.

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See WIS. STAT. § 631.11(4)(b) (once the insurer learns of “sufficient facts to
constitute grounds for rescission of the policy … or a general defense to all claims
under the policy,” it must notify the insured, within specified time frames, of its
intent to rescind or defend). Although somewhat difficult to discern, we construe
Destiney’s argument to be that, because Security did not provide the statutorily
required notice of its intent to rescind prior to sending the December 2017 letter,
Security was barred from later raising fraud as an affirmative defense.

¶13 The circuit court agreed with Destiney’s position and determined
that Security was statutorily barred from raising fraud as an affirmative defense.
This determination also caused the court to reverse its earlier ruling denying
Destiney’s summary judgment motion, given that, without the fraud defense,
Security no longer had any viable defense to the contract claim. The court entered
an order granting summary judgment on Destiney’s breach of contract claim and
awarding Destiney $35,000, plus costs and interest.

¶14 We granted Security’s leave to appeal the circuit court
orders: (1) granting partial summary judgment to Destiney on her breach of
contract claim; and (2) denying Security’s motion to bifurcate Destiney’s contract
and tort claims. The court stayed proceedings related to Destiney’s tort claims,
pending the outcome of this appeal. We will discuss further facts below where
relevant to our analysis.

DISCUSSION

I. Standards of Review

¶15 We review a circuit court’s order on summary judgment de novo,
applying the same methodology as the circuit court. Fromm v. Village of Lake

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No. 2019AP2320

Delton, 2014 WI App 47, ¶11, 354 Wis. 2d 30, 847 N.W.2d 845. A party is
entitled to summary judgment “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” WIS. STAT. § 802.08(2). The movant
has the initial burden of showing the absence of genuine issues of material fact, at
which point, the burden shifts to the respondent to “set forth specific facts showing
that there is a genuine issue for trial.” Sec. 802.08(3); Central Corp. v. Research
Prods. Corp., 2004 WI 76, ¶19, 272 Wis. 2d 561, 681 N.W.2d 178.

¶16 This appeal requires us to interpret and apply several insurance
statutes. Statutory interpretation presents a question of law that we review de
novo. Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶9, 293 Wis. 2d 123,
717 N.W.2d 258. Statutory interpretation begins with the language of the statute.
State ex rel. Kalal v. Circuit Ct. for Dane Cnty., 2004 WI 58, ¶45, 271 Wis. 2d
633, 681 N.W.2d 110. If the statute’s meaning is plain, our inquiry ordinarily
ends. Id. “[S]tatutory language is interpreted in the context in which it is used;
not in isolation but as part of a whole; in relation to the language of surrounding or
closely-related statutes; and reasonably, to avoid absurd or unreasonable results.”
Id., ¶46.

¶17 We review the circuit court’s denial of a motion to bifurcate for an
erroneous exercise of discretion. See Dahmen v. American Fam. Mut. Ins. Co.,
2001 WI App 198, ¶11, 247 Wis. 2d 541, 635 N.W.2d 1.

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No. 2019AP2320

II. Summary Judgment Was Inappropriate on Destiney’s Contract Claim.

A. Destiney did not set forth a prima facie case that Security failed to comply
with the notice requirements of WIS. STAT. § 631.11(4)(b).

¶18 The circuit court granted summary judgment on Destiney’s breach of
contract claim based on Security’s failure to comply with the notice requirements
of WIS. STAT. § 631.11(4)(b). That paragraph states:

If after issuance of an insurance policy an insurer acquires
knowledge of sufficient facts to constitute grounds for
rescission of the policy under this section or a general
defense to all claims under the policy, the insurer may not
rescind the policy and the defense is not available unless
the insurer notifies the insured within 60 days after
acquiring such knowledge of its intention to either rescind
the policy or defend against a claim if one should arise ….

Sec. 631.11(4)(b).5 Although § 631.11(4)(b) concerns notice to “the insured,” that
term encompasses “any person to whom or for whose benefit an insurer makes a
promise in an insurance policy,” including a policyholder and beneficiary. WIS.
STAT. § 600.03(26). As stated, Destiney is both a policyholder and a beneficiary.

¶19 In determining that Security did not comply with WIS. STAT.
§ 631.11(4)(b), the circuit court appears to have concluded that Security was
barred from raising a fraud defense because Security did not provide notice of its
intent to rescind the policies prior to sending the December 2017 letter. On
appeal, Security argues that its sending the December 2017 letter has no bearing
on its legal capacity to later plead a fraud defense—the grounds for which, it
contends, it did not discover until after Destiney commenced her lawsuit on

5
As quoted above, WIS. STAT. § 631.11(4)(b) applies only where the insurer seeks to
assert “a general defense to all claims under the policy.” For purposes of this appeal, we assume
that Security’s fraud defense is such a “general defense.”

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No. 2019AP2320

December 21, 2017. Security further asserts that its February 13, 2018 answer
functions as statutory notice, in that Security filed the answer within sixty days of
“acquiring … knowledge” of “sufficient facts to constitute … a [fraud] defense.”6

6
Security also argues that, pursuant to WHEDA v. Verex Assurance, Inc., 166 Wis. 2d
636, 480 N.W.2d 490 (1992), the notice requirements of WIS. STAT. § 631.11(4)(b) do not apply
because Security did not acquire knowledge of sufficient facts to constitute grounds for rescission
of the policy until after the loss occurred—here, the death triggering the obligation to pay life
insurance proceeds. See WHEDA, 166 Wis. 2d at 648 (“[W]here the loss occurred prior to [the
insurer]’s having obtained knowledge of any misrepresentations, [§] 631.11(4) does not apply.”).
Because we decide the notice issue in Security’s favor on other grounds, we do not address
Security’s argument based on the language of WHEDA. See Barrows v. American Fam. Ins.
Co., 2014 WI App 11, ¶9, 352 Wis. 2d 436, 842 N.W.2d 508 (2013) (“An appellate court need
not address every issue raised by the parties when one issue is dispositive.”).

In addition, Security appears to contend that WIS. STAT. § 631.11 does not apply where
the allegation is that an insurance agent committed fraud to secure a policy for herself. Thus,
Security argues that Ҥ 631.11 does not apply where the alleged misrepresentations were made by
the agent of the insurer” and that “§ 631.11 does not apply in this case because the
misrepresentations were made by the agent of the insurer, acting in her multiple capacities as
agent, and proposed owner of the policy, beneficiary, and payor of premiums.” Security notes
that § 631.11(1)(b), which sets forth conditions for an insurer’s rescission based on
misrepresentation, applies where the misrepresentation is “made by a person other than the
insurer or an agent of the insurer” in the negotiation for an insurance contract. Security appears
to advance an interpretation of para. (1)(b) that would allow it to rescind a policy issued to its
own agent without meeting the conditions of that paragraph.

To the extent Security raises these arguments solely to challenge the circuit court’s
determination on the notice issue, again, we do not need to address them given our holding in
Security’s favor on that issue. See Barrows, 352 Wis. 2d 436, ¶9. It is also possible that Security
may mean to argue that Destiney (as agent) should not be allowed to participate in her own fraud
(as policyholder). We address this point in Section II.B, in which we analyze Destiney’s
argument that Security is barred from raising a fraud defense because it had constructive
knowledge of the fraud. See WIS. STAT. § 631.11(4)(a); WIS. STAT. § 631.09(1), (4). However,
because the scope of these arguments is unclear, and because Security may seek to argue on
remand that the consumer protection provisions of § 631.11 are inapplicable under the
circumstances present here, we note that this argument is unpersuasive. It would be absurd, and
therefore contrary to canons of statutory construction, to interpret the “other than the insurer or an
agent” language of § 631.11 as exempting an insurer from compliance with consumer protection
provisions whenever it issues a policy to its own agent (or whenever it alleges fraud in the
negotiation or procurement of such policy). See State ex rel. Kalal v. Circuit Ct. for Dane Cnty.,
2004 WI 58, ¶46, 271 Wis. 2d 633, 681 N.W.2d 110.

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No. 2019AP2320

¶20 For purposes of this appeal, we assume that the December 2017
letter was an improper attempt to rescind the policies. Security approved the
applications and issued the policies without the benefit of Wang’s medical records,
and it has not explained why rescission was permissible upon its later determining
that these records were necessary but unavailable.7 It does not follow, however,
that Security’s sending the December 2017 letter affects its ability to raise a fraud
defense based on “suspicious circumstances” it claims to have learned about after
it sent the letter.

¶21 WISCONSIN STAT. § 631.11(4)(b) provides two situations in which
an insurer must give notice—when it wishes to rescind, and when it wishes to
raise a general defense to all claims—but the statute does not condition either
notice on the other. Thus, Destiney may or may not have a specific cause of
action stemming from Security’s sending the December 2017 letter, but she has
failed to show why Security’s subsequently asserted fraud defense is barred.
Accordingly, we conclude that Security’s attempted rescission has no bearing on
its ability to assert a fraud defense.

¶22 We further conclude that Destiney failed to establish sufficient facts
as to when Security learned of the fraud, so as to entitle her to summary judgment
on the grounds that Security failed to comply with the sixty-day notice
requirement of WIS. STAT. § 631.11(4)(b). Both below and on appeal, Destiney
has not provided any facts or argument supporting the conclusion that Security

7
WISCONSIN STAT. § 631.11 sets forth the grounds for rescission of an insurance
contract. See § 631.11(1)(b) (rescission based on misrepresentation); § 631.11(3) (rescission
based on failure of a condition prior to a loss or breach of promissory warranty). Security claims
that it learned of the alleged fraud after it sent the December 2017 letter, and it has never argued
grounds for rescission under § 631.11(3).

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No. 2019AP2320

filed its answer over sixty days after it learned of the grounds for its fraud defense.
See Central Corp., 272 Wis. 2d 561, ¶¶18, 19 (moving party must establish
“prima facie case for summary judgment” and “[t]he burden is on the moving
party to prove that there are no genuine issues of material fact”). Instead, Destiney
disputes “that the acquisition of knowledge triggers the notice”—an assertion that
is belied by the text of § 631.11(1)(b) and leaves open the question of when, in her
view, the clock starts running on this notice provision.

¶23 Destiney further argues that Security’s notice “must be specific” and
that Security’s answer fails this requirement, in that it does not “notif[y] Destiney
of the specific representations (or misrepresentations) [Security] contends are
offensive and material.” Destiney again misconstrues the statute. WISCONSIN
STAT. § 631.11(4)(b) contains no “specificity” requirement and mandates only
notice of the “intention to … defend against a claim.” (Emphasis added.)
Security’s answer, pleading fraud as an affirmative defense, indisputably meets
this requirement.

¶24 In sum, there is no legal impediment to Security’s bringing a fraud
defense. The fact that Security sent the December 2017 letter does not impact its
ability to raise this defense. Moreover, Destiney did not set forth a prima facie
case establishing that Security failed to comply with WIS. STAT. § 631.11(4)(b)
notice requirements in raising this defense. Because Security raises a viable
defense to Destiney’s contract claim, the circuit court erred in granting her
summary judgment on that claim.

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B. Security did not have constructive knowledge of any alleged
misrepresentations that Destiney made to procure the policies.

¶25 Destiney argues that Security cannot assert a fraud defense because
Security had constructive knowledge of any misrepresentations she made to
procure the policies. This argument rests on the interplay of several provisions in
our insurance statutes. To explain, WIS. STAT. 631.11(1)(b) addresses how an
insurer may rescind or avoid its contractual obligations because of a
misrepresentation in the negotiation for or procurement of a policy.8
Paragraph (1)(b) specifies that not all misrepresentations are grounds for rescission
(for example, the insurer must make a threshold showing that the person making
the misrepresentation “knew or should have known that the representation was
false”). This paragraph applies to a misrepresentation made by a defined class of
people—people “other than the insurer or an agent of the insurer”—and thus
prevents an insurer from basing rescission on its own misrepresentation.

8
WISCONSIN STAT. 631.11(1)(b) provides, in full:

No misrepresentation, and no breach of an affirmative warranty,
that is made by a person other than the insurer or an agent of the
insurer in the negotiation for or procurement of an insurance
contract constitutes grounds for rescission of, or affects the
insurer’s obligations under, the policy unless, if a
misrepresentation, the person knew or should have known that
the representation was false, and unless any of the following
applies:

1. The insurer relies on the misrepresentation or affirmative
warranty and the misrepresentation or affirmative warranty
is either material or made with intent to deceive.

2. The fact misrepresented or falsely warranted contributes to
the loss.

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¶26 WISCONSIN STAT. § 631.11(4)(a) further protects a policyholder
whose misrepresentation might ordinarily provide grounds for rescission or
avoidance, where the insurer knew or should have known of the misrepresentation
when it issued the policy. This paragraph provides that a misrepresentation cannot
“constitute[] grounds for rescission of, or affect[] an insurer’s obligations under,
an insurance policy if at the time the policy is issued the insurer has either
constructive knowledge of those facts under [WIS. STAT. § 631.09(1)] or actual
knowledge.” Section 631.09(1), in turn, generally imputes to the insurer “any fact
material to the risk or which breaches a condition of the policy, if the agent who
bound the insurer … or transmitted the application to the insurer knew it at the
time the agent acted.” Thus, the agent’s knowledge becomes the insurer’s
knowledge, and the insurer is prohibited from issuing, collecting premiums for,
and later repudiating a policy based on misrepresentations that the agent knew of
all along.

¶27 As one might suppose, WIS. STAT. § 631.09(1) should not operate to
permit an agent and policyholder together to misrepresent some material fact
otherwise unknown to the insurer. Thus, § 631.09(4) provides that subsec. (1)
does “not apply if the agent and the policyholder or insured acted in collusion to
deceive or defraud the insurer.”

¶28 Relying on WIS. STAT. §§ 631.11(4)(a) and 631.09(1), Destiney
argues that Security had constructive knowledge of any alleged misrepresentations
she made—and thus cannot avoid its contractual obligations—because her
knowledge of the underlying facts must be imputed to Security. In contrast,

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Security contends that § 631.09(4) must necessarily preclude the imputation of
knowledge to the insurer where a dual agent/policyholder “colludes with herself.”9

¶29 We conclude that WIS. STAT. § 631.09(4) applies where an agent
who is also a policyholder (or insured) acts to deceive or defraud the insurer. The
plain purpose of subsec. (4) is to protect the insurer from its agent’s malfeasance.
That purpose can only be carried out by construing subsec. (4) to extend to the
unusual circumstances before us, concerning allegations that an agent fraudulently
obtained a policy for herself as both policyholder and beneficiary. Thus, where an
individual acts in a dual capacity as both agent and policyholder to allegedly
defraud the insurer, the “agent” may be considered to have “colluded” with the
“policyholder.”

¶30 Accordingly, WIS. STAT. § 631.09(4) prevents Destiney’s knowledge
of the alleged fraud from being imputed to Security. Because Security did not
have constructive (or actual) knowledge of any alleged misrepresentations, it may
pursue its fraud defense on remand.

III. The Circuit Court Did Not Erroneously Exercise its Discretion in
Denying Security’s Motion to Bifurcate Contract and Tort Claims.

¶31 Security argues that the circuit court erroneously exercised its
discretion in denying Security’s motion to bifurcate Destiney’s contract and tort
claims for trial. See WIS. STAT. § 906.11 (the circuit court “shall exercise
reasonable control” over the trial); WIS. STAT. § 805.05(2) (the circuit court may

9
In raising this argument, Security refers us to the holding of an unpublished per curiam
decision. We remind appellate counsel that such reference is improper. See WIS. STAT.
RULE 809.23(3).

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No. 2019AP2320

order a separate trial of any claim “in furtherance of convenience or to avoid
prejudice, or when separate trials will be conducive to expedition or economy”).
In deciding a motion to bifurcate, “the [circuit] court must consider the potential
prejudice to the parties, the complexity of the issues, the potential for jury
confusion and the issues of convenience, economy and delay.” Dahmen, 247
Wis. 2d 541, ¶11. We will not reverse that decision “unless it is clearly shown
that the [circuit] court failed to consider the relevant facts, apply the proper
standard of law and reach a conclusion a reasonable judge could reach.” Id.

¶32 According to Security, the circuit court incorrectly assumed that the
contract and tort claims involved the same basic set of facts, and thus did not
account for several countervailing considerations: (1) that evidence introduced in
support of the tort claims would be irrelevant to Security’s fraud defense; (2) that
such evidence would unduly prejudice Security; (3) that such evidence would
confuse the jury and “make it difficult for [it] to discern between the various
claims”; and (4) that properly drafted jury instructions and a special verdict form
could not cure these defects.

¶33 On review of the motion hearing transcript, however, it does not
appear that the circuit court presumed that the contract and tort claims involved an
entirely overlapping set of facts. Rather, the court viewed the core underlying
facts as less complicated or complex than “many, many other cases that juries hear
and have to decide.” The court acknowledged the potential for prejudice, but it
contrasted the instant case with those in which bifurcation might be required to
prevent discovery abuses. Thus, in the court’s view, consolidation would not
result in extreme prejudice to Security.

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¶34 In addition, the circuit court was mindful of judicial caseloads in
Dunn County; in its view, “[w]e simply can’t afford to have two jury trials on the
same basic set of facts…. I can’t imagine six or seven days on these facts.”
Destiney had further represented that it would be difficult to present certain
witnesses twice: some required English translators, and one had a disability. The
court appeared to take these factors into account, noting that the same witnesses
were necessary to try both sets of claims. Giving weight to “judicial economy
issues” and the relative simplicity of the case, the court declined to bifurcate.

¶35 Security has not shown that the circuit court’s determination
constituted an erroneous exercise of discretion. The court considered and rejected
the general arguments Security now raises on appeal, and it did not rest its
decision on any error of fact or law. It was not an erroneous exercise of discretion,
for example, for the court to give greater weight to “judicial economy issues,”
where the court reasonably believed that the case before it was relatively
noncomplex. Security states that it “is entitled to a bifurcated trial,” but in fact, it
is entitled only to a decision reasonably applying the relevant law to the relevant
facts. See Dahmen, 247 Wis. 2d 541, ¶11. It received such a decision here.

¶36 Security further implies that the circuit court rested its decision on
representations by Destiney that are no longer true, concerning the scope of
presentation of her tort claims. Specifically, Destiney represented to the circuit
court that she did not intend to call certain experts, but Security’s believes that this
is no longer the case. The proper remedy, however, is not for us to require
bifurcated trials. Rather, should these new circumstances arise, the appropriate
redress is for Security to raise any argument on this point in the circuit court. We
defer to the circuit court’s sound discretion on how to try these claims in the face
of any new developments.

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CONCLUSION

¶37 WISCONSIN STAT. § 631.11(4)(b) does not preclude Security from
asserting a fraud defense to Destiney’s claims, even given that Security’s earlier
attempt at rescission may have been improper. Moreover, Destiney failed to set
forth a prima facie case establishing that Security did not comply with
§ 631.11(4)(b) notice requirements in raising this defense. Thus, Security is not
barred under § 631.11(4)(b) from arguing fraud as a defense to its obligations
under the policies. In addition, Destiney’s knowledge of any fraud is not imputed
to Security under WIS. STAT. § 631.09(4), which we construe to prohibit the
imputation of knowledge to an insurer where a dual agent/policyholder essentially
“colludes” with herself. Finally, the circuit court did not erroneously exercise its
discretion in denying Security’s motion to bifurcate Destiney’s tort and contract
claims for trial.

¶38 Accordingly, we reverse the order granting Destiney’s motion for
partial summary judgment on her contract claims and affirm the order denying
Security’s motion to bifurcate. We remand for further proceedings.

By the Court.—Order affirmed; order reversed and cause remanded
for further proceedings.

Not recommended for publication in the official reports.

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