Case Title: Dustin Dowhower v. West Bend Mutual Insurance Company

Citation: 2000 WI 73

Docket Number: 1998AP002762

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2000-06-30T00:00:00Z

Document:
2000 WI 73 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
98-2762 
 
 
Complete Title 
of Case: 
 
Dustin Dowhower, a minor, by his Guardian  
ad Litem, Susan Rosenberg, Tamara  
Dowhower and Larry Dowhower,  
 
Plaintiffs-Respondents, 
 
v. 
West Bend Mutual Insurance Company,  
 
Defendant-Appellant, 
Simon Marquez, Viking Insurance Company  
of Wisconsin and Aetna Life Insurance  
Company – Aetna Health Plan,  
 
Defendants.  
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
Opinion Filed: 
June 30, 2000 
Submitted on Briefs: 
      
Oral Argument: 
April 25, 2000 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Racine 
 
JUDGE: 
Wayne J. Marik 
 
 
JUSTICES: 
 
Concurred: 
BRADLEY, J., concurs (opinion filed). 
 
 
ABRAHAMSON, C.J., joins concurrence. 
 
Dissented: 
      
 
Not Participating:       
 
 
 
ATTORNEYS: 
On behalf of defendant-appellant there were 
briefs (in the court of appeals and in the supreme court) by 
Rollin E. Krafft, West Bend, and oral argument by Rollin E. 
Krafft. 
 
 
2 
 
For plaintiffs-respondents there were briefs by 
Robert L. Jaskulski and Domnitz, Mawicke & Goisman, S.C., 
Milwaukee, and oral argument by Robert L. Jaskulski. 
 
 
An amicus curiae brief was filed by Noreen J. 
Parrett, James A. Friedman and La Follette Godfrey & Kahn, 
Madison, on behalf of the Wisconsin Insurance Alliance. 
 
 
An amicus curiae brief was filed by Mark L. 
Thomsen and Cannon & Dunphy, S.C., Brookfield, on behalf of the 
Wisconsin Academy of Trial Lawyers. 
 
2000 WI 73 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 98-2762 
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
Dustin Dowhower, a minor, by his Guardian 
ad Litem, Susan Rosenberg, Tamara Dowhower 
and Larry Dowhower, 
 
 
Plaintiffs-Respondents, 
 
 
v. 
 
West Bend Mutual Insurance Company, 
 
 
Defendant-Appellant, 
 
Simon Marquez, Viking Insurance Company of 
Wisconsin and Aetna Life Insurance Company 
– Aetna Health Plan, 
 
 
Defendants. 
 
 
 
APPEAL from a declaratory judgment of the Circuit Court for 
Racine County, Wayne J. Marik, Judge.  Reversed and cause 
remanded. 
 
¶1 
WILLIAM A. BABLITCH, J.   West Bend Mutual Insurance 
Company (West Bend) appeals the circuit court's judgment 
declaring that Wis. Stat. § 632.32(5)(i)1 (1995-96)1 violates the 
                     
1 All future references to the Wisconsin statutes are to the 
1995-96 volumes unless otherwise indicated.  
FILED 
 
JUN 30, 2000 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 
98-2762 
 
 
2 
substantive due process clause in Wis. Const. art. I, § 1,2 and 
U.S. Const. amend. XIV, § 1.3  Section 632.32(5)(i) authorizes 
the use of a type of reducing clause as a permissible provision 
in uninsured or underinsured motor vehicle insurance (UIM).  A 
reducing clause permits a setoff from the insured's UIM coverage 
the amount paid to the insured by the underinsured tortfeasor.  
The statute provides, in relevant part, 
 
(i) A policy may provide that the limits under the 
policy for uninsured or underinsured motorist coverage 
for bodily injury or death resulting from any one 
accident shall be reduced by any of the following that 
apply: 
 
1. 
Amounts paid by or on behalf of any person or 
organization that may be legally responsible for the 
bodily injury or death for which the payment is made.  
Wis. Stat. § 632.32(5)(i)1. 
¶2 
We conclude that the plaintiffs (the Dowhowers) have 
not established that Wis. Stat. § 632.32(5)(i)1 deprives them of 
a constitutionally protected right.  As a result, they have not 
met the predicate threshold for bringing a substantive due 
process claim.  Accordingly, we reverse the judgment of the 
circuit court. 
                     
2 Wisconsin Const. art. I, § 1 states:  "All people are born 
equally free and independent, and have certain inherent rights; 
among these are life, liberty and the pursuit of happiness; to 
secure these rights, governments are instituted, deriving their 
just powers from the consent of the governed."  
3 The Due Process Clause in the Fourteenth Amendment of the 
United States Constitution provides in relevant part, "nor shall 
any State deprive any person of life, liberty, or property, 
without due process of law." 
No. 
98-2762 
 
 
3 
Facts  
¶3 
The 
Dowhowers 
purchased 
automobile 
insurance, 
including 
UIM 
coverage, 
from 
West 
Bend. 
 
The 
policy's 
declaration page set forth the coverage and limits of liability. 
 For UIM coverage, the declaration stated "UNDERINSURED MOTORIST 
BODILY INJURY $50,000 EACH PERSON $100,000 EACH ACCIDENT."   
¶4 
The policy also contained an endorsement relating to 
the UIM coverage.  At the top, the endorsement stated "THIS 
ENDORSEMENT CHANGES THE POLICY.  PLEASE READ IT CAREFULLY."  On 
page two of the endorsement, the policy set forth, in relevant 
part, the following: 
LIMIT OF LIABILITY 
 
A.  The limit of liability shown in the Schedule or in 
the Declarations for this coverage is our maximum 
limit of liability for all damages resulting from any 
one accident.  This is the most we will pay regardless 
of the number of: 
 
 
1.  "Insureds"; 
 
2.  Claims made; 
3.  Vehicles or premiums shown in the Schedule or 
 in the Declarations; or 
 
4.  Vehicles involved in the accident. 
 
B.  The limit of liability shall be reduced by all 
sums: 
 
1.  Paid because of the "bodily injury" by or on 
behalf of persons or organizations who may be 
legally responsible. 
¶5 
While crossing the street in April 1997 Dustin 
Dowhower was injured as a result of the negligence of a 
motorist.  Viking Insurance Company (Viking) insured the vehicle 
No. 
98-2762 
 
 
4 
that struck Dowhower.  Viking's policy carried a limit of 
$25,000 per person, or $50,000 per accident.   
¶6 
Viking paid its $25,000 policy limit to the Dowhowers. 
 Pursuant to Wis. Stat. § 632.32(5)(i) and the reducing clause 
in its policy, West Bend paid the Dowhowers $25,000, which was 
the $50,000 UIM bodily injury limit under the UIM policy, less 
the $25,000 paid by Viking.   
¶7 
The Dowhowers sought a judgment from the circuit court 
declaring unenforceable the reducing clause provision in the UIM 
policy and contending that Wis. Stat. § 632.32(5)(i) violated 
the United States and Wisconsin constitutions.  West Bend filed 
a motion to dismiss the action and counterclaimed for a 
declaration that it had paid all that it owed pursuant to 
§ 632.32(5)(i) and the policy language.   
¶8 
The Racine County Circuit Court, the Honorable Wayne 
J. Marik presiding, declared that Wis. Stat. § 632.32(5)(i)1 
violated the substantive due process provisions in the state and 
federal constitutions and that West Bend was obligated to 
provide $50,000 in UIM benefits to the Dowhowers.  West Bend 
appealed.   
¶9 
We accepted certification of the following question 
from the court of appeals:  Does the statute allowing reducing 
clauses 
for 
underinsured 
motorist 
coverage, 
Wis. 
Stat. 
§ 632.32(5)(i) violate substantive due process under the state 
and federal constitutions? 
Standard of Review 
No. 
98-2762 
 
 
5 
¶10 The constitutionality of a statute presents a question 
of law that we review de novo.  Riccitelli v. Broekhuizen, 227 
Wis. 2d 100, 119, 595 N.W.2d 397 (1999).  A statute is presumed 
to be constitutional, and, every presumption will be used to 
sustain the law if at all possible.  Gottlieb v. Milwaukee, 33 
Wis. 2d 408, 147 N.W.2d 655 (1967).  The challenger bears the 
heavy burden of overcoming that presumption.  Riccitelli, 227 
Wis. 2d at 119.   
¶11 In addition, this constitutional question arises from 
a declaratory judgment action.  "In a declaratory judgment 
action, the granting or denying of relief is a matter within the 
discretion of the circuit court."  Hull v. State Farm Mut. Auto. 
Ins. Co., 222 Wis. 2d 627, 635, 586 N.W.2d 863 (1998).  A 
discretionary decision will be sustained if it is not founded 
upon an error of law.  Id. at 635-36. 
Analysis 
¶12 The sole issue on review is whether Wis. Stat. 
§ 632.32(5)(i)1 violates substantive due process.  The Dowhowers 
challenged § 632.32(5)(i) as contrary to both the substantive 
due process components of the Fourteenth Amendment to the United 
States Constitution and of art. I, § 1, of the Wisconsin 
Constitution.  Our cases interpreting these constitutional 
provisions find no substantial difference between the due 
process protections provided in each document.  Reginald D. v. 
State, 193 Wis. 2d 299, 307, 533 N.W.2d 181 (1995). 
¶13 The due process clause in the Fourteenth Amendment to 
the United States Constitution is a guarantee of "'more than 
No. 
98-2762 
 
 
6 
fair process.'"  County of Sacramento v. Lewis, 523 U.S. 833, 
840 (1998) (quoting Washington v. Glucksberg, 521 U.S. 702, 719 
(1997)).  The due process clause contains "a substantive sphere 
as well, 'barring certain government actions regardless of the 
fairness of the procedures used to implement them.'"  Id. 
(quoting Daniels v. Williams, 474 U.S. 327, 331 (1986)).   
¶14 The 
threshold inquiry when 
analyzing 
an alleged 
violation of substantive due process is whether the challenger 
has established a deprivation of a liberty or property interest 
protected by the Constitution.  Penterman v. Wisconsin Elec. 
Power Co., 211 Wis. 2d 458, 480, 565 N.W.2d 521 (1997).   
¶15 Relying upon Wipperfurth v. U-Haul Co. of Western 
Wisconsin, Inc., 101 Wis. 2d 586, 297 N.W.2d 65 (1981) and the 
authority cited therein, the Dowhowers contend the freedom to 
contract without fraud or deception is both a liberty and 
property right arising from the due process clause.  They allege 
that Wis. Stat. § 632.32(5)(i)1 unconstitutionally deprives them 
of this right.  For the purposes of this case we will assume, 
without deciding, that the Dowhowers have identified and set 
forth a liberty or property interest that is constitutionally 
protected.  However, the Dowhowers have not established that the 
statute has deprived them of that right.  Therefore, we conclude 
that the state has not inflicted a palpable injury on the 
No. 
98-2762 
 
 
7 
Dowhowers.  As a result, substantive due process is not 
triggered.4 
¶16 The Dowhowers' argument, as we understand it, is that 
Wis. 
Stat. 
§ 632.32(5)(i)1 
authorizes 
fraudulent 
insurance 
coverage because it permits the insurer to set forth within the 
policy that its UIM limit of liability is $50,000, even though 
the maximum amount of coverage that the insurance company will 
expend on a single claim will be less than $50,000.5  The 
Dowhowers contend that the statute permits the insurance policy 
to omit an explanation that the UIM liability limit is reached 
by combining all sources of payment.  As a result, the Dowhowers 
assert that the UIM coverage in the policy is rendered illusory 
by the reducing clause.  Based upon rulings by the courts that 
declared illusory UIM coverage to be void as contrary to public 
policy, 
the 
Dowhowers 
assert 
that 
the 
statute 
is 
unconstitutional because it authorizes illusory UIM coverage.  
As a result, the Dowhowers contend that the statute deprives 
them of their right to contract free of fraud and is a violation 
of substantive due process. 
                     
4 Because the Dowhowers have not established the deprivation 
of a constitutionally protected right, we need not address the 
parties' arguments as to whether Wis. Stat. § 632.32(5)(i)1 was 
supported by a rationale basis.  
5 The litigants dispute whether there are any circumstances 
under which the full UIM policy limits would be tendered.  In 
its reply brief West Bend contends that in some multi-claimant 
situations the Dowhowers would recover the full $50,000 UIM 
policy limit from the insurer.   
No. 
98-2762 
 
 
8 
¶17 To evaluate this contention we consider the language 
of Wis. Stat. § 632.32(5)(i)1.  "The court must interpret a 
statute, if at all possible, in a manner that will preserve the 
statute as a constitutional enactment."  Demmith v. Wisconsin 
Judicial Conference, 166 Wis. 2d 649, 666 n.13, 480 N.W.2d 502 
(1992). 
 
The 
language 
of 
§ 632.32(5)(i) 
is 
unambiguous.  
Wisconsin Stat. ch. 632 regulates specific lines of insurance 
contracts.  Section 632.32 specifically addresses provisions of 
motor vehicle insurance policies.  Subsection (5) is titled 
"PERMISSIBLE PROVISIONS."  Pursuant to § 632.32(5)(i), "[a] policy 
may provide that the limits under the policy . . . shall be 
reduced 
by . . . [a]mounts 
paid 
by 
or 
on 
behalf 
of 
any 
person . . . that may be legally responsible" for causing death 
or injury.  The statute plainly allows a motor vehicle insurance 
contract to state that the maximum amount that the insurer will 
pay under the policy will be setoff by amounts paid by a 
tortfeasor.  This is not an endorsement of illusory contracts 
but the codification of a reduction coverage reducing clause.  
¶18 Pursuant to a reduction coverage reducing clause, 
payments by the tortfeasor are setoff from the injured insured's 
UIM coverage limits.  With this approach "the purpose of 
underinsured motorist coverage is solely to put the insured in 
the same position he [or she] would have occupied had the 
tortfeasor's liability limits been the same as the underinsured 
motorist limits purchased by the insured."  3 Irvin E. Schermer, 
Automobile Liability Insurance § 57.01, p. 57-2 (3d ed. 1995).  
Wisconsin Stat. § 632.32(5)(i)1 establishes that this type of 
No. 
98-2762 
 
 
9 
reduction coverage is a permissible provision in an automobile 
insurance policy.   
¶19 Although 
we 
find 
the 
statute 
unambiguous, 
the 
Dowhowers argue that Wis. Stat. § 632.32(4m) supports their 
contention that the statute perpetuates an illusion as to the 
amount that can be recovered from a UIM policy.  Section 
632.32(4m)(a)2 
requires insurance carriers 
to 
provide the 
insured with a notice of the availability of UIM coverage.  
Section 632.32(4m)(d) states that if an insured accepts UIM 
coverage "the insurer shall include the coverage under the 
policy just delivered to the insured in limits of at least 
$50,000 per person and $100,000 per accident."  The Dowhowers 
contend that a reasonable insured will expect to qualify for 
$50,000 from their UIM policy.  We disagree. 
¶20 When the statutes are read together, they provide that 
an insured, who is purchasing UIM coverage containing a 
provision such as that permitted by Wis. Stat. § 632.32(5)(i)1, 
is purchasing a predetermined level of coverage against injury 
sustained from an underinsured motorist.  Wisconsin Stat. 
§ 632.32(4m)(d) provides that underinsured motorist coverage 
must be issued with limits of at least $50,000 per person.  In 
turn, § 632.32(5)(i)1 provides that the UIM policy limit shall 
be reduced by amounts paid by a tortfeasor.  In total, these 
statutes establish that the UIM coverage limit purchased by the 
insured is reached by the combination of contributions from all 
legally responsible sources.  The type of reducing clause 
No. 
98-2762 
 
 
10
authorized in § 632.32(5)(i)1 is neither ambiguous nor contrary 
to public policy.   
¶21 We conclude, therefore, that the language of the 
statute does not deprive the Dowhowers of a constitutionally 
protected right. 
¶22 This court, as well as the court of appeals, has 
previously 
considered 
various 
elements 
of 
UIM 
insurance 
contracts, such as the definition of underinsured motorist or 
whether a reducing clause results in illusory coverage.  While 
reducing clauses have in some instances rendered UIM coverage 
illusory, we have not held that reducing clauses are per se 
contrary to public policy.  Nevertheless, we recognize that 
underinsured motorist coverage presents something of a "'legal 
iceberg,'"6 a seemingly straightforward area of the law, which in 
fact can prove to be nettlesome to analyze. Several cases 
illustrate this conclusion. 
¶23 In Wood v. American Family Mutual Insurance, 148 
Wis. 2d 639, 436 N.W.2d 594 (1989), overruled on other grounds, 
Matthiesen v. Continental Casualty Co., 193 Wis. 2d 192, 532 
N.W.2d 729 (1995), we examined a reducing clause contained in a 
contract for UIM coverage and concluded that the phrase "amounts 
                     
6  French v. New Jersey Sch. Bd. Ass'n Ins. Group, 694 A.2d 
1008, 1009 (N.J. 1997) (quoting Cynthia M. Craig and Daniel J. 
Pomeroy, New Jersey Auto Insurance Law § 26.1 at 339 (1997)).  
In French, the New Jersey Supreme Court stated that as UIM 
coverage has grown in importance in auto insurance law, it has 
become "an infinitely complex and troublesome area" of law.  Id.  
 
No. 
98-2762 
 
 
11
payable" within the clause was ambiguous.  As a result, we 
construed the words in accord with "what a reasonable person in 
the position of the insured would have understood the words to 
mean."  Wood, 148 Wis. 2d at 652.  We determined that if 
"amounts payable" under the UIM policy were offset by the 
payment made from the underinsured driver's liability policy, 
the UIM insurance company will never pay the limits of its UIM 
policy.  Id. at 653.  In Wood, we noted that when the insured's 
UIM policy limit is the same as the statutory minimum liability 
limit for a motor vehicle policy, i.e., $25,000 and $25,000, 
application of a reducing clause to the insured's UIM limits 
results in zero coverage.  Id. at 653.  We characterized this as 
an illusion.  Id.  It was then held that UIM coverage was:  
 
available for that margin between the amount received 
by the respondent from the underinsured driver's 
liability policy and the actual damages suffered by 
the respondent.  We find that a reasonable person in 
the position of an insured would understand the words 
"amounts payable" to be the equivalent of damages 
compensable because when purchasing UIM coverage, we 
believe that a reasonable insured expects to be 
protected against a loss caused by another that is not 
covered 
by 
the 
underinsured 
driver's 
liability 
coverage. 
Id. at 654.  We concluded that this court's previous statements 
regarding 
the 
purpose 
of 
UIM 
coverage 
supported 
our 
interpretation of the policy, stating that "[t]he purpose of UIM 
coverage is to compensate the victim of an underinsured 
motorist's negligence where the third party's liability limits 
are not adequate to fully compensate the victim for his or her 
injuries."  Id.   
No. 
98-2762 
 
 
12
¶24 In Smith v. Atlantic Mutual Insurance Co., 155 Wis. 2d 
808, 456 N.W.2d 597 (1990), the policy at issue did not contain 
the ambiguous "amount payable" language considered in Wood.  
Instead, the policy stated "that it is the 'limit of liability' 
that is reduced."  Smith, 155 Wis. 2d at 814 n.1.  Our decision 
in Smith turned upon the policy's unambiguous definition of 
"underinsured motor vehicle."  Smith's UIM policy defined an 
underinsured motor vehicle as a vehicle with an insurance 
liability limit that was less than the limit of liability in 
Smith's policy.  The limit of Smith's UIM coverage was $50,000. 
 The other vehicle in the accident had a liability limit of 
$50,000.  Therefore the other vehicle was not an underinsured 
vehicle because it had liability limits equal to, and not less 
than, Smith's $50,000 limits of UIM coverage.  Id. at 811.   
¶25 Subsequently the court of appeals held in Hoglund v. 
Secura Insurance, 176 Wis. 2d 265, 500 N.W.2d 354 (Ct. App. 
1993), that although the UIM policy definition of underinsured 
motor vehicle unambiguously excluded the tortfeasor's car, the 
definition rendered the UIM coverage illusory.  The tortfeasor's 
insurance liability limit was $25,000, the statutory minimum 
under Wis. Stat. § 344.33(2).  The injured insured's policy 
defined "underinsured motor vehicle" as a vehicle with policy 
limits of $25,000 or less.  The court of appeals determined that 
Hoglund was paying for coverage that she could never collect 
upon because all insured Wisconsin drivers will have at least 
$25,000 of coverage.  The court of appeals remanded the case for 
No. 
98-2762 
 
 
13
further consideration of the insured's reasonable expectations 
regarding the UIM coverage.  Id. at 272. 
¶26 As these cases illustrate, when the UIM provision of 
an insurance policy has limits of liability equal to the 
statutory minimum for third-party liability insurance, coverage 
has been held to be illusory if the insured had a reasonable 
expectation that coverage would be provided.  Wisconsin Stat. 
§ 344.33(2) continues to require minimum liability coverage of 
$25,000.  However, in 1995 Wis. Act 21, § 3, the legislature 
created Wis. Stat. § 632.32(4m), which sets forth in relevant 
part: 
 
(4m) Underinsured motorist coverage. 
 
 . . .  
 
(d) If an insured [under a policy that goes into 
effect after October 1, 1995] accepts underinsured 
motorist coverage, the insurer shall include the 
coverage under the policy just delivered to the 
insured in limits of at least $50,000 per person and 
$100,000 per accident.  For any insured who accepts 
the coverage after notification [on a policy in effect 
on October 1, 1995], the insurer shall include the 
coverage under the renewed policy in limits of at 
least $50,000 per person and $100,000 per accident. 
¶27 In addition to the illusory coverage issue addressed 
in Hoglund, illusory UIM coverage has also been found where a 
reduction clause will result in the insured receiving some, but 
never all, of the policy's stated coverage.  This issue was 
reviewed in Sweeney v. General Casualty Co., 220 Wis. 2d 183, 
582 N.W.2d 735 (Ct. App. 1998).   
No. 
98-2762 
 
 
14
¶28 The Sweeneys were in an auto accident and asserted 
that they had sustained $150,000 in damages.  Id. at 185.  The 
other vehicle in the accident was insured by a policy that 
provided a $50,000 liability limit for bodily injury.  This 
policy paid $50,000 to the Sweeneys.  Id.  The Sweeney vehicle 
carried UIM coverage with a $100,000 per accident limit.  Id.  
The Sweeneys sought the entire $100,000 because although their 
damages were $150,000, the other vehicle paid only $50,000.  
General Casualty tendered to the Sweeneys $50,000, asserting 
that the $50,000 paid by the other vehicle was setoff from the 
UIM policy limit of $100,000 by operation of a reducing clause 
in the policy.  Id.  The reducing clause in the UIM policy 
provided that "'[t]he limit of liability shall be reduced by all 
sums paid because of the "bodily injury" by or on behalf of 
persons or organizations who may be legally responsible.'"  Id. 
¶29 The court of appeals held that this reducing clause 
was invalid because it caused the UIM coverage to become 
illusory.  Id. at 184.  In its analysis of the issue, the court 
of appeals concluded that the controlling rule was articulated 
in Kuhn v. Allstate Insurance Co., 181 Wis. 2d 453, 510 N.W.2d 
826 (Ct. App. 1993)(Kuhn I), aff'd on other grounds, 193 Wis. 2d 
50, 532 N.W.2d 124 (1995).  Sweeney, 220 Wis. 2d at 193.     
¶30 In Kuhn I, Kuhn was injured by an underinsured driver 
and sustained damages in excess of $100,000.  Kuhn, 181 Wis. 2d 
at 457.  The tortfeasor's insurer paid Kuhn $25,000, the bodily 
injury liability limit under the policy.  Id.  Pursuant to a 
reducing clause in Kuhn's UIM policy, Kuhn's UIM insurer sought 
No. 
98-2762 
 
 
15
to setoff the $25,000 recovery from the tortfeasor from the UIM 
policy's $50,000 per person liability limit.  Id. at 462-63.  
The court of appeals in Kuhn I found the reducing clause to 
render the UIM coverage illusory because the "insured will 
receive some but never all of the $50,000 coverage."  Id. at 
464.  The Kuhn I decision quoted Wood for the proposition that 
the "UIM coverage is effective where there is a tortfeasor with 
liability coverage inadequate in amount for the injuries 
caused."  Id. at 464 (quoting Wood, 148 Wis. 2d at 653).   
¶31 Applying the Kuhn I holding in Sweeney, the court of 
appeals found the reducing clause in the Sweeney's policy 
invalid because it rendered the UIM coverage illusory.  Sweeney, 
220 Wis. 2d at 193.  The analysis in Sweeney did not address 
Wis. Stat. § 632.32(5).   
¶32 The state of the law was summed up in a concurrence to 
Sweeney by Judge Deininger who wrote in part: 
 
I 
have 
difficulty 
understanding 
what 
public 
policy is served by our present and prior holdings on 
the issue presented.  We insist here and in Kuhn I 
that an insurance policy may not be written so as to 
guarantee that a certain dollar amount of insurance 
coverage will be available to compensate an insured 
when he or she is injured in an accident caused by 
another driver, if the policy provides that the 
specified sum will be paid in part by the tortfeasor's 
insurer and in part by the insured's own company.  
Yet, the coverage in question may be written, with 
judicial blessing, so as to limit the compensation 
available to the insured to the same fixed sum, 
provided it is paid entirely by the tortfeasor's 
insurer.  The legislature apparently does not share 
this court's view that policy language such as the 
reducing clause at issue here violates public policy. 
 Section 632.32(5)(i)1, STATS., effective July 15, 
No. 
98-2762 
 
 
16
1995, now permits a motor vehicle insurance policy to 
"provide 
that 
the 
limits 
under 
the 
policy 
for 
uninsured 
and 
underinsured 
motorist 
coverage 
for 
bodily 
injury . . . shall 
be 
reduced 
by . . .  
[a]mounts paid by or on behalf of any person or 
organization that may be legally responsible for the 
bodily injury . . . for which the payment is made." 
Id. at 199. 
¶33 When we consider these cases in conjunction with Wis. 
Stat. § 632.32(5)(i)1, we conclude that an insurer may reduce 
payments made pursuant to a UIM policy by amounts received from 
other legally responsible persons or organizations, provided 
that the policy clearly sets forth that the insured is 
purchasing a fixed level of UIM recovery that will be arrived at 
by combining payments made from all sources. 
¶34 The rules for interpreting insurance contracts are 
well established: 
 
Insurance contracts are controlled by the same 
rules 
of 
construction 
as 
are 
applied 
to 
other 
contracts. 
 
Ambiguities 
in 
coverage 
are 
to 
be 
construed in favor of coverage, while exclusions are 
narrowly construed against the insurer.  Words or 
phrases are ambiguous when they are susceptible to 
more than one reasonable construction.  However, when 
the terms of an insurance policy are plain on their 
face, 
the 
policy 
must 
not 
be 
rewritten 
by 
construction. 
Smith, 155 Wis. 2d at 810-11 (internal citations omitted).   
¶35 We recognize that a reducing clause may be ambiguous 
within the context of the insurance contract.  If the terms of 
the policy are ambiguous, then the court may attempt "to 
determine what a reasonable person in the position of the 
insured would have understood the words of the policy to mean." 
No. 
98-2762 
 
 
17
 Taylor v. Greatway Insurance Co., 2000 WI App 64, ¶8, 233 
Wis. 2d 703, 608 N.W.2d 722.  At oral argument, the Dowhowers 
argued 
that 
before 
considering 
the 
constitutional 
issue 
presented here, the threshold question for analysis should be 
whether the reducing clause in West Bend's policy is ambiguous. 
 Five members of the court, Chief Justice Abrahamson, Justices 
Bablitch, Wilcox, Bradley and Crooks, remand this action to the 
circuit court for consideration of whether within the context of 
the insurance contract the reducing clause is ambiguous.  Two 
members of the court, Justices Prosser and Sykes, find the 
contract unambiguous as it relates to the reducing clause.   
¶36 In sum, we hold that Wis. Stat. § 632.32(5)(i)1 on its 
own terms does not deprive the Dowhowers of any state or federal 
constitutional right to enter into insurance contracts without 
fraud, and, as a result, it does not present a substantive due 
process violation.  We remand the case to the circuit court to 
address whether the language of the contract is ambiguous and, 
if so, whether a reasonable person in the position of the 
insured would have understood the policy to mean that the 
$50,000 limit in UIM coverage was to be a maximum recovery from 
all sources. 
By the Court.—The judgment of the circuit court is 
reversed, and the cause is remanded to the circuit court. 
 
 
 
 
No. 
98-2762 
 
 
18
 
No. 98-2762.awb 
 
1 
¶37 ANN WALSH BRADLEY, J. (concurring).   I agree with the 
majority that the Dowhowers have failed to establish that Wis. 
Stat. § 632.32(5)(i)1 deprives 
them 
of a 
constitutionally 
protected right.  I write separately, however, because I 
conclude that the policy is ambiguous.  It fails to convey 
clearly to a reasonable person in the position of the insured 
that the insurance company is not obligated to pay the full 
$50,000 limits.   
¶38 Wisconsin Stat. § 632.32(5)(i)1 grants insurers the 
right to reduce their limits of liability by the sums paid by or 
on behalf of the tortfeasor.  Reducing clauses are not per se 
deceptive.  However, for any particular reducing clause to pass 
muster under Wis. Stat. § 632.32(5)(i)1, the policy must clearly 
explain to the insured that the insured's recovery will be the 
aggregate of all sums paid from all sources up to the insurer's 
limit of liability.  West Bend's policy fails to comply with 
this requirement.  
¶39 The West Bend policy issued to the Dowhowers does not 
 clearly and unequivocally inform them that the insurer's 
$50,000 limit of liability will be reduced by any and all 
amounts paid to the Dowhowers by the tortfeasor.  Instead, the 
policy conveys inconsistent messages that would befuddle a 
reasonable insured in the Dowhowers' position and would lead the 
insured to expect full coverage from West Bend in the amount of 
$50,000.  
¶40 First and foremost, on the Declaration page of the 
policy West Bend lists its underinsured motorist coverage as 
No. 98-2762.awb 
 
2 
"$50,000 EACH PERSON $100,000 EACH ACCIDENT."  Arguably, the 
Declaration page is the most crucial section of the policy for 
the typical insured because it specifies the various types of 
coverage purchased by the insured, followed by the limit of 
liability for each, and also provides the respective premiums.  
¶41 Insurance contracts are construed to comport with the 
reasonable expectations of the insured.  Sweeney v. General Cas. 
Co., 220 Wis. 2d 183, 194, 582 N.W.2d 735 (Ct. App. 1998) 
(quoting Matthiesen v. Continental Cas. Co., 193 Wis. 2d 192, 
203-04, 532 N.W.2d 729 (1995)).  Insureds often examine only the 
Declaration page to verify that they have been provided the 
coverage for which they contracted.  
¶42 Examining the Declaration page in West Bend's policy, 
a reasonable policyholder comes to the conclusion that the 
insurer will provide underinsured motorist coverage in the 
amount of $50,000 per person.  Absent is any reference to a 
potential reduction in the amount.  The Declaration page creates 
an illusion of coverage because it misrepresents West Bend's 
liability as $50,000, when in reality the insurer will rarely, 
if ever, disburse the full amount by virtue of the reducing 
clause found elsewhere in its policy.  
¶43 Those policyholders who are more curious and perhaps 
more savvy may look beyond the Declaration page in search of a 
detailed explanation of their underinsured motorist coverage.  
An examination of the policy's Table of Contents will not dispel 
the insured's expectation of coverage in the amount of $50,000. 
No. 98-2762.awb 
 
3 
¶44 The Table of Contents lists numerous types of coverage 
and clearly directs the insured to pages in the policy which set 
forth the "limit of liability" on each type of coverage.  
Although a specific "limit of liability" is listed for uninsured 
motorist coverage, medical payment coverage, liability coverage, 
and damage to your auto coverage, noticeably absent is any 
listing of a limitation of liability for underinsured motorist 
coverage. Thus, a reasonable insured would not anticipate any 
reduction of the coverage guaranteed in the Declaration. 
¶45 To conclude otherwise, a reasonable insured would be 
required to look beyond the Declaration page which gives an 
insured an expectation of a full $50,000, and beyond the Table 
of Contents, which gives a reasonable insured an expectation of 
no limitation of underinsured coverage, and beyond the eleven-
page policy, and beyond the first endorsement--notice of payment 
plan options, and beyond the three-page second endorsement--
amendment 
of 
policy 
provisions, 
and 
beyond 
the 
third 
endorsement--punitive or exemplary damages exclusion, and beyond 
the fourth endorsement--notice of an insured right to file a 
complaint, 
and 
beyond 
the 
three-page 
fifth 
endorsement--
important notice regarding coverage changes, and beyond the 
sixth endorsement--windshield repair notice, and beyond the 
seventh 
endorsement--important 
notice 
regarding 
coverage 
changes, and beyond the eighth endorsement--split liability 
limits, and beyond the ninth endorsement--waiver of deductible, 
and beyond the tenth endorsement--split uninsured motorist 
limits, and beyond the two-page eleventh endorsement--uninsured 
No. 98-2762.awb 
 
4 
motorist coverage, and beyond the twelfth endorsement--split 
underinsured motorist limits, until finally arriving at the 
bottom 
of 
the 
second 
page 
of 
the 
three-page 
thirteenth 
endorsement--underinsured motorist coverage, to find a "limit of 
liability" section that includes several provisions. 
¶46 The first provision states that West Bend's limit of 
liability comports with the limit set forth in the Declaration. 
 This signals to the policyholder that West Bend will pay the 
entire 
amount 
of 
$50,000 
guaranteed 
by 
the 
Declaration.  
However, the next provision represents the reducing clause and 
states that the limit of liability will be reduced by all sums 
paid by or on behalf of the tortfeasor.  The two provisions 
taken together are inconsistent with other sections of West 
Bend's policy.  
¶47 Even people who do read their insurance policies often 
do not understand these contracts.  Jeffrey W. Stempel, Law of 
Insurance Contract Disputes § 4.04, 4-17 (2d ed. Supp. 2000) 
(citing Restatement (Second) of Contracts § 211 cmt. b (1981)). 
 Viewed in conjunction, the two endorsement provisions, the 
Declaration, 
and 
the 
Table 
of 
Contents 
illustrate 
the 
policyholder's difficulty in fully comprehending the extent of 
underinsured motorist coverage.  The inconsistency among the 
separate sections of West Bend's policy renders the policy 
ambiguous.   
¶48 Ambiguities 
in 
insurance 
contracts 
are 
construed 
against the insurer and in favor of coverage.  Smith v. Atlantic 
Mut. Ins. Co., 155 Wis. 2d 808, 811, 456 N.W.2d 597 (1990); 
No. 98-2762.awb 
 
5 
Filing v. Commercial Union Midwest Ins. Co., 217 Wis. 2d 640, 
647, 
579 
N.W.2d 65 (Ct. 
App. 1998). 
 Accordingly, the 
underinsured motorist provisions should be construed against 
West Bend, and the Dowhowers should be entitled to their 
guaranteed recovery of the full $50,000. 
¶49 Otherwise, West Bend benefits from an insurance policy 
that perpetrates an illusion of full coverage upon unsuspecting 
policyholders who do not meticulously read or fully comprehend 
the entirety of their insurance policies.  The illusion of the 
West Bend policy lies in that insureds will receive some of the 
$50,000 but rarely ever the full amount guaranteed by the 
Declaration. 
¶50 The legislature was aware of the concerns over 
deception voiced by Wisconsin courts.  Although it authorized 
reducing 
clauses 
under 
Wis. 
Stat. 
§ 632.32(5)(i)1, 
the 
legislature envisioned clear policies without a hint of illusion 
to protect consumers from fraudulent practices.  It did not 
authorize deception in the implementation of the statute.   
¶51 I 
agree 
with 
the 
majority 
that 
the 
Dowhowers' 
constitutional claim lacks merit.  Although the insureds have 
attempted to label this case as a substantive due process case, 
it is not.  To trigger substantive due process, there must be a 
constitutionally protected right and a deprivation of that 
right.  The right asserted by the Dowhowers, the freedom to 
contract without fraud or deception, is tenuous. 
¶52 Additionally, the Dowhowers have failed to demonstrate 
that Wis. Stat. § 632.32(5)(i)1 deprives them of that asserted 
No. 98-2762.awb 
 
6 
right.  By enacting the statute, the legislature has granted 
insurers the right to reduce their limits of liability by the 
sums paid by or on behalf of the tortfeasor.  Whether or not one 
agrees with the legislature is of no consequence.  Wisconsin 
Stat. 
§ 632.32(5)(i)1 
does 
not 
provide 
for 
an 
illusory, 
fraudulent, or deceptive policy. 
¶53 The majority opinion discusses prior underinsured 
motorist cases at length.  Majority op. at ¶¶ 22-32.  However, 
the purpose of this discussion remains unclear because the 
majority fails to address what role, if any, prior case law has 
played in the resolution of this case.  Furthermore, the 
majority is silent as to what effect, if any, Wis. Stat. 
§ 632.62(5)(i)1 and the holding in this case have on the 
precedential value of prior case law. 
¶54 In 
sum, 
Wis. 
Stat. 
§ 632.32(i)1 
authorizes 
the 
offsetting of underinsured motorist coverage when the insureds 
have recovered from sources other than the insurer.  There is 
nothing illusory about a well-drafted and clear reducing clause, 
one that specifically and unequivocally guarantees that the 
insured's recovery will be from all sources.  The policy setting 
forth underinsured motorist coverage must clearly convey that 
the insured is stipulating to partial recovery from the 
tortfeasor's liability coverage.  The West Bend policy fails to 
satisfy this mandate.  Nevertheless, to avoid a splintered 
decision with questionable precedential value, I join in the 
remand to the circuit court for consideration of whether within 
No. 98-2762.awb 
 
7 
the context of the insurance policy the reducing clause is 
ambiguous. 
¶55 I am authorized to state that SHIRLEY S. ABRAHAMSON, 
CHIEF JUSTICE, joins this concurrence.  
 
 
 
No. 98-2762.awb 
 
1