Title: Dan Danbeck v. American Family Mutual Insurance Company

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2001 WI 91 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
99-1142 
 
 
Complete Title 
of Case: 
 
Dan Danbeck,  
 
Plaintiff-Respondent-Petitioner, 
 
v. 
American Family Mutual Insurance Company,  
 
Defendant-Appellant.  
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2000 WI App 26 
Reported at:  232 Wis. 2d 417, 605 N.W.2d 925 
(Published) 
 
 
Opinion Filed: 
July 6, 2001 
Submitted on Briefs: 
      
Oral Argument: 
November 1, 2000 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Dane 
 
JUDGE: 
Paul B. Higginbotham 
 
 
JUSTICES: 
 
Concurred: 
      
 
Dissented: 
BRADLEY, J., dissents (opinion filed). 
 
 
ABRAHAMSON, C.J., joins dissent. 
 
Not Participating:       
 
 
ATTORNEYS: 
For the plaintiff-respondent-petitioner there 
were briefs by Michael J. Luebke and Gingras, Cates & Luebke, 
S.C., Madison, and oral argument by Michael J. Luebke. 
 
 
For the defendant-appellant there was a brief by 
Ward I. Richter, John M. Christenson and Bell, Gierhart & Moore, 
S.C., Madison, and oral argument by Ann E. Curtiss. 
 
 
2 
 
An amicus curiae brief was filed by Michael Riley 
and Atterbury & Riley, S.C., Madison, on behalf of the Wisconsin 
Academy of Trial Lawyers. 
 
2001 WI 91 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 99-1142 
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
Dan Danbeck,  
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
American Family Mutual Insurance Company,  
 
 
          Defendant-Appellant. 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed. 
 
¶1 
DIANE S. SYKES, J.   This case involves an insurance 
dispute and requires us to interpret language in an underinsured 
motorist (UIM) policy that obligates the UIM carrier to pay 
benefits to its insured only after the underinsured motorist's 
liability limits "have been exhausted by payment of judgements 
or 
settlements." 
 
The 
question 
is 
whether 
the 
policy's 
exhaustion requirement can be satisfied by a settlement with the 
underinsured motorist's insurer for less than liability limits, 
plus a credit to the UIM carrier for the difference.  We 
conclude that the unambiguous language of the insurance policy 
FILED 
 
JUL 6, 2001 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 
99-1142 
 
 
2 
precludes exhaustion by way of "settlement plus credit" and 
therefore affirm the court of appeals. 
I 
¶2 
The relevant facts are undisputed.  Dan Danbeck was 
seriously injured when a car driven by George Horne struck his 
bicycle.  Horne had $50,000 of liability coverage through 
Country Mutual Insurance Company.   
¶3 
Danbeck 
was 
insured 
by 
American 
Family 
Mutual 
Insurance Company and had $100,000 of UIM coverage.1  The UIM 
policy issued by American Family specified the circumstances 
under which it would pay UIM benefits: 
 
[American Family] will pay compensatory damages for 
bodily injury which an insured person is legally 
entitled to recover from the owner or operator of an 
underinsured motor vehicle.  The bodily injury must be 
sustained by an insured person and must be caused by 
accident and arise out of the use of the underinsured 
motor vehicle. 
 
You must notify us of any suit brought to determine 
legal liability or damages.  Without our written 
consent we are not bound by any resulting judgment. 
 
We will pay under this coverage only after the limits 
of liability under any bodily injury liability bonds 
or 
policies 
have 
been 
exhausted 
by 
payment 
of 
judgements or settlements. 
¶4 
Danbeck settled with Country and Horne for $48,000 
($47,500 for bodily injury and $500 for the damage to his 
                     
1 In Wisconsin, UIM coverage is not mandatory.  Rather, 
Wisconsin law only requires that insurers notify policyholders 
of the 
availability of 
such coverage.  
See 
Wis. 
Stat. 
§ 632.32(4m) (1997-98).  Once an insured opts for UIM coverage, 
§ 632.32(4m) sets the minimum amount of coverage at $50,000.  
No. 
99-1142 
 
 
3 
bicycle).  Pursuant to Vogt v. Schroeder, 129 Wis. 2d 3, 383 
N.W.2d 876 (1986), Danbeck's attorney notified American Family 
of the pending settlement by letter.  The letter also stated 
that Danbeck intended to pursue a UIM claim and that American 
Family would be given credit for the full $50,000 limit of 
Horne's liability policy.2 
¶5 
American Family refused to pay Danbeck's claim.  The 
company took the position that UIM coverage was not available 
under its policy because Danbeck had settled for less than 
Horne's liability limit and therefore had not "exhausted" that 
limit within the meaning of the policy language.  Danbeck sued. 
¶6 
American Family moved for summary judgment.  The 
Circuit Court for Dane County, Paul B. Higginbotham, Judge, 
denied the motion on several grounds.  First, the circuit court 
applied Teigen v. Jelco of Wisconsin, Inc., 124 Wis. 2d 1, 367 
N.W.2d 806 (1985), which interpreted an exhaustion clause in a 
primary/excess 
insurance 
situation 
to 
allow 
exhaustion by 
settlement of less than policy limits.  Further, the circuit 
court found the exhaustion clause to be ambiguous and therefore 
construed it in favor of coverage.  See Vidmar v. Am. Family 
                     
2 This type of settlement is similar to what is typically 
known as a Loy agreement.  In Loy v. Bunderson, 107 Wis. 2d 400, 
320 N.W.2d 175 (1982), this court approved the use of such 
agreements, in which a primary insurer is allowed to settle for 
less than its policy limits and then is released from liability, 
while the excess insurer remains liable.  Loy approved the 
agreements in the context of primary/excess insurance in order 
to promote partial settlements.  We affirmed the use of these 
types of agreements in Teigen v. Jelco of Wisconsin, Inc., 124 
Wis. 2d 1, 367 N.W.2d 806 (1985).   
No. 
99-1142 
 
 
4 
Mut. Ins. Co., 104 Wis. 2d 360, 365, 312 N.W.2d 129 (1981).  The 
court 
also 
noted 
that 
allowing 
coverage 
under 
these 
circumstances would promote the purposes of UIM insurance, 
including compensating the victims of an underinsured motorist's 
negligence, and concluded that American Family's interpretation 
of the policy language violated public policy. 
¶7 
Accordingly, 
the 
circuit 
court 
interpreted 
the 
exhaustion clause to allow recovery of UIM benefits when the UIM 
policyholder settles his or her claim with the tortfeasor's 
insurer and credits the UIM carrier for the difference between 
the settlement amount and the tortfeasor's liability limits.  
The court then ordered mediation, and the parties agreed that 
Danbeck was entitled to $20,000.   
¶8 
American 
Family 
appealed 
the 
denial 
of 
summary 
judgment, and the court of appeals reversed.  The court focused 
on the policy language and concluded that the exhaustion clause 
unambiguously required the insured to exhaust the underinsured 
motorist's limits of liability by payment of full policy 
limitsin this case, $50,000.  The court held that the partial 
settlement and credit endorsed by the circuit court did not 
satisfy the policy's requirements for coverage.  Danbeck v. Am. 
Family Mut. Ins. Co., 2000 WI App 26, ¶¶7-9, 15, 232 Wis. 2d 
417, 605 N.W.2d 925 (Ct. App. 1999).   
No. 
99-1142 
 
 
5 
II 
¶9 
This is an appeal from the denial of a motion for 
summary judgment, which we review de novo, applying the same 
methodology as the circuit court.  Wis. Label Corp. v. 
Northbrook Prop. & Cas. Ins. Co., 2000 WI 26, ¶22, 233 Wis. 2d 
314, 607 N.W.2d 276.  Summary judgment is appropriate 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) (1997-98). 
¶10 The interpretation of an insurance contract is a 
question of law subject to de novo review.  Katze v. Randolph & 
Scott Mut. Fire Ins. Co., 116 Wis. 2d 206, 212, 341 N.W.2d 689 
(1984).  An insurance policy is construed to give effect to the 
intent of the parties, expressed in the language of the policy 
itself, which we interpret as a reasonable person in the 
position of the insured would understand it.  Garriguenc v. 
Love, 67 Wis. 2d 130, 134-35, 226 N.W.2d 414 (1975).  The words 
of an insurance policy are given their common and ordinary 
meaning.  Henderson v. State Farm Mut. Auto. Ins. Co., 59 
Wis. 2d 451, 457-59, 208 N.W.2d 423 (1973).  Where the language 
of the policy is plain and unambiguous, we enforce it as 
written, without resort to rules of construction or principles 
in case law.  Hull v. State Farm Mut. Auto. Ins. Co., 222 
Wis. 2d 627, 637, 586 N.W.2d 863 (1998).  This is to avoid 
rewriting the contract by construction and imposing contract 
No. 
99-1142 
 
 
6 
obligations that the parties did not undertake.  Gonzalez v. 
City of Franklin, 137 Wis. 2d 109, 122, 403 N.W.2d 747 (1987).  
Contract language is considered ambiguous if it is susceptible 
to more than one reasonable interpretation.  Donaldson v. Urban 
Land Interests, Inc., 211 Wis. 2d 224, 230-31, 564 N.W.2d 728 
(1997).  If the language is ambiguous, it is construed in favor 
of coverage.  Garriguenc, 67 Wis. 2d at 135.  In interpreting an 
insurance policy, the court may also consider the purpose and 
subject matter of the insurance.  Employers Health Ins. v. Gen. 
Cas. Co. of Wis., 161 Wis. 2d 937, 946, 469 N.W.2d 172 (1991).   
III 
¶11 The narrow issue in this case is whether a UIM 
insurer's obligation to pay UIM benefits to its insured is 
triggered when the insured settles with the tortfeasor's 
liability insurer for less than full liability limits and then 
credits the UIM carrier for the difference.  The determination 
of this issue turns on language in the insurance policy that 
requires payment of UIM benefits only "after the limits of 
liability under any bodily injury liability bonds or policies 
have been exhausted by payment of judgements or settlements."   
¶12 The parties dispute whether the language of the 
exhaustion clause is ambiguous.  American Family says the 
language unambiguously requires full payment of the tortfeasor's 
liability policy limits as a prerequisite to payment of UIM 
benefits.  Danbeck argues that the exhaustion clause is 
ambiguous because a reasonable insured might understand it to 
mean that a settlement that barred further claims and gave 
No. 
99-1142 
 
 
7 
credit for full payment of liability limits would effectively 
"exhaust" those limits. 
¶13 We agree with American Family and the court of appeals 
that while the "settlement plus credit" approach to exhaustion 
has the same practical effect as payment of full policy limits, 
it is not consistent with the plain language of the policy, 
which 
unambiguously 
requires 
exhaustion 
"by 
payment 
of 
judgements or settlements," not "settlement plus credit."3   
¶14 The exhaustion clause in the insurance policy sets 
forth these requirements for UIM coverage: the limits of the 
tortfeasor's bodily injury liability policy must be exhausted by 
payment of judgments or settlements.  The phrase "limits of 
liability" clearly refers to the total amount of liability 
coverage 
available 
under 
the 
tortfeasor's 
bodily 
injury 
liability insurance policy.  In this case, Horne carried $50,000 
of liability insurance.   
¶15 The term "exhaust" is also plain and unambiguous and 
has a readily ascertainable common and ordinary meaning.  The 
dictionary 
defines 
"exhaust" 
as: 
"to 
use 
up 
or 
consume 
                     
3 Our conclusion that the language of the UIM exhaustion 
clause is unambiguous is consistent with cases from other 
jurisdictions that have construed nearly identical language, 
either in the context of a UIM policy, a UIM statute, or both.  
See Robinette v. Am. Liberty Ins. Co., 720 F. Supp. 577, 580 
(S.D. Miss. 1989); Birchfield v. Nationwide Ins., 875 S.W.2d 
502, 503 (Ark. 1994); Farmers Ins. Exch. v. Hurley, 90 Cal. 
Rptr. 2d 697, 701 (Cal. Ct. App. 1999); Cont'l Ins. Co. v. Cebe-
Habersky, 571 A.2d 104, 106 (Conn. 1990); Lewis v. State Farm 
Mut. Auto. Ins. Co., 857 S.W.2d 465, 466-67 (Mo. Ct. App. 1993); 
Fed. Ins. Co. v. Watnick, 607 N.E.2d 771, 774 (N.Y. Ct. App. 
1992). 
No. 
99-1142 
 
 
8 
completely; 
expend 
the 
whole 
of . . . ." 
 
Random 
House 
Unabridged Dictionary 678 (2d ed. 1993).  Accordingly, to 
"exhaust" the tortfeasor's liability policy limits, the full 
$50,000 must be expended in total or used up completely. 
¶16 Finally, the exhaustion clause specifies that only one 
manner of exhaustion will trigger the obligation to pay UIM 
benefits: exhaustion "by payment of judgements or settlements." 
 Danbeck argues that the term "payment" can be understood in 
more than one way: payment of full policy limits, or payment of 
less than full policy limits plus a credit in favor of the UIM 
carrier for the difference.   
¶17 However, 
a 
"settlement 
plus 
credit" 
does 
not 
constitute "payment" of liability limits as that term is 
commonly and ordinarily understood.  It is true that a 
settlement of this nature bars further claim against the 
tortfeasor's insurer and protects the UIM carrier against 
liability for the difference between the settlement amount and 
the tortfeasor's full policy limits.  But it plainly does not 
exhaust the tortfeasor's policy limits by payment of those 
limits, as required by the UIM policy. 
¶18 A "payment" is "1. something that is paid; an amount 
paid; compensation; recompense.  2. the act of paying . . . ."  
Random House Unabridged Dictionary 1424 (2d ed. 1993).  The 
court of appeals concluded that, in the context of this UIM 
exhaustion clause, the term "payment" is susceptible of only one 
reasonable meaning: "compensation paid by the liability insurer 
and received by the insured."  Danbeck, 2000 WI App 26, ¶9.  We 
No. 
99-1142 
 
 
9 
agree.  And here, the liability insurer, Country, paid only 
$48,000 which did not exhaust Horne's $50,000 liability limits 
by payment of those limits.   
¶19 Danbeck's argument that the exhaustion clause is 
ambiguous arises primarily out of his reading of Teigen.  We 
reject this argument for two reasons.  First, it turns our 
traditional ambiguity analysis on its head.  As we have noted, 
the fundamental principles of contract interpretation do not 
permit resort to case law to create ambiguity where the contract 
language is clear on its face.  Second, Teigen is inapplicable 
because it did not concern the interpretation of an exhaustion 
clause in a UIM policy.   
¶20 Teigen arose in the context of a primary/excess 
insurance dispute.  The exhaustion clause at issue in the case 
established the outer limits of the primary insurer's duty to 
defend.  Specifically, the policy clause in question stated that 
the insurer was not obligated "to defend any suit after the 
applicable limit of the company's liability has been exhausted 
by payment of judgments or settlements."  Teigen, 124 Wis. 2d at 
8.  This court held that the primary insurer's duty to defend 
was fully discharged"exhausted" within the meaning of this 
clauseby a settlement for less than full policy limits, plus 
the execution of a Loy [Loy v. Bunderson, 107 Wis. 2d 400, 320 
N.W.2d 175 (1982)] release.  Teigen, 124 Wis. 2d at 8-9.  
Notably, the opinion did not address whether the policy language 
was ambiguous.  Instead, the decision in Teigen was based 
No. 
99-1142 
 
 
10
primarily on general public policy considerations supporting 
partial settlements.  Id. at 7-8, 12. 
¶21 It is unquestionably true that partial settlements, 
and Loy-type agreements effectuating them, serve the interests 
of the parties and promote judicial economy and therefore have 
been approved by the courts.  In Teigen we noted that:   
 
The desirability of Loy−type agreements lies in the 
encouragement of partial settlements in future cases, 
thereby fostering effective and expeditious resolution 
of lawsuits.  Partial settlements not only benefit the 
parties involved, but the justice system as a whole.  
Further, we reemphasize that "public interest requires 
that a plaintiff be permitted to settle claims against 
some of the exposed parties without releasing others." 
 [Loy, 107 Wis. 2d] at 425, 320 N.W.2d 175.  Accord, 
Pierringer v. Hoger, 21 Wis. 2d 182, 124 N.W.2d 106 
(1963), and Swanigan v. State Farm Ins. Co., 99 
Wis. 2d 179, 299 N.W.2d 234 (1980). 
Teigen, 124 Wis. 2d at 7-8.  However, this public policy, as 
important as it is, cannot supersede unambiguous policy language 
or impose obligations under the contract which otherwise do not 
exist.  The generalized public policy favoring settlements is 
No. 
99-1142 
 
 
11
insufficient to justify voiding or refusing to enforce the clear 
language of the policy in this case.4 
¶22 As this contract is written, UIM benefits are owed 
only when the tortfeasor's liability insurance is insufficient 
to cover the UIM policyholder's damages.  According to the plain 
language of the policy, that insufficiency does not arise unless 
and until the full limits of the tortfeasor's policy are paid 
out. 
In 
other 
words, 
the 
tortfeasor 
"motorist" 
is 
not 
"underinsured" as a definitional matter until his or her policy 
limits are fullynot partiallypaid.  Thus, although the public 
policy supporting partial settlements still figures prominently 
in our jurisprudence, it does not supplant the plain language of 
the insurance contract.  To choose an interpretation that 
furthers the public policy of encouraging settlements but 
contradicts the clear language of the contract would be to 
                     
4 The dissent is concerned that "an insured may unknowingly 
be the subject of agreements between the UIM and liability 
carriers" in that "the UIM insurer may offer to underwrite a 
portion of the settlement costs in order to avoid a larger 
payout under the UIM endorsement," and refers another case heard 
this term in which this fact pattern occurred.  Dissent at ¶37. 
However, in Danner v. Auto Owners Insurance, 2001 WI 90, ___ 
Wis. 2d ___, ___ N.W.2d ___, also issued today, we hold, among 
other things, that such collusive conduct on the part of a UIM 
carrier, 
undertaken 
to 
defeat 
a 
UIM 
insured's 
otherwise 
available UIM coverage, may give rise to a bad faith claim under 
Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 271 
N.W.2d 368 (1978). 
No. 
99-1142 
 
 
12
substitute our policy preferences regarding UIM insurance for 
the agreement of the parties.5   
¶23 Danbeck also argues pursuant to Ranes v. American 
Family Mutual Insurance Co., 212 Wis. 2d 626, 634, 569 N.W.2d 
359 (Ct. App. 1997), that it is the public policy of this state 
to provide insurance coverage "as long as the insured's failure 
to perform under the terms of the insurance contract has not 
resulted in prejudice to the insurer."  Ranes concerned a notice 
of settlement provision in a UIM policy and the consequences of 
an insured's failure to give notice to the UIM carrier of a 
settlement with the tortfeasor.  Id. at 630-31.  The insurance 
policy in Ranes did not specifically address the issue of the 
insurer's duty to pay UIM benefits where the insured has failed 
to give notice of settlement.  In the absence of specific 
                     
5 The dissent argues that the exhaustion clause in this case 
is 
inherently 
ambiguous 
because 
we 
have 
interpreted 
it 
differently than the exhaustion clause in Teigen.  But as we 
have noted, the policies and the exhaustion clauses in each case 
are 
actually 
quite 
different, 
despite 
the 
similarity 
in 
language.  Teigen concerned an exhaustion clause in a primary 
insurance policy that specified when the insurer's duty to 
defend its insured was satisfied and at an end.  This case, in 
contrast, concerns an exhaustion clause in a UIM policy (in a 
sense, an excess policy, as the dissent notes) that specifies 
when the UIM insurer's duty to pay is triggered, or, stated 
differently, when the tortfeasor motorist is "underinsured" 
according to the terms of the policy.  This distinction makes 
Teigen inapplicable; it does not create ambiguity in this 
contract.  If Teigen had concerned the interpretation of 
language in the excess carrier's policy that specified when 
excess coverage was triggered, it might well be applicable here. 
 But it did not. 
No. 
99-1142 
 
 
13
contract language, the court of appeals looked to public policy 
to resolve the question.  Id. at 630-34. 
¶24 By contrast, the insurance policy in this case 
contains explicit, unambiguous language specifying that the UIM 
carrier's duty to pay does not arise until exhaustion within the 
meaning of the policy has occurred.  Therefore, and once again, 
we are not at liberty to rewrite the insurance contract to 
achieve the public policy invoked in Ranes.  
¶25 In summary, we conclude that the unambiguous language 
of the exhaustion clause in the UIM policy in this case requires 
the insured to exhaust the tortfeasor's liability limits by 
payment of full policy limits in order to trigger the duty to 
pay UIM benefits.  Accordingly, because Danbeck's settlement 
with Horne's insurer was not for full policy limits, he is not 
eligible for UIM benefits under his policy with American Family. 
By the Court.—The decision of the court of appeals is 
affirmed. 
 
 
99-1142.awb 
 
1 
¶26 ANN WALSH BRADLEY, J. (dissenting). Can reasonable 
minds differ?  This is the tried and true test for determining 
ambiguity.  In the case at hand, the majority examines the 
exhaustion clause at issue and concludes that the phrase 
"exhausted 
by 
payment 
of 
judgments 
or 
settlements" 
is 
susceptible to only one reasonable interpretation and is 
therefore unambiguous.  Such a conclusion is essential to the 
majority's holding.   
¶27 Yet, sixteen years ago this court examined that exact 
language——word for word——and interpreted the phrase to mean the 
opposite of what the majority espouses today.  Teigen v. Jelco 
of Wisconsin, Inc., 124 Wis. 2d 1, 8, 367 N.W.2d 806 (1985).  
Apparently, reasonable minds can differ.  Undoubtedly, the 
language at issue is ambiguous.   
¶28 Nevertheless, the majority persists in its conclusion. 
Its 
decision 
begins 
and 
ends 
with 
the 
policy 
language, 
concluding that the exhaustion clause unambiguously requires 
full payment of the at-fault driver's liability limits in order 
to trigger the UIM insurer's obligations.  The majority 
concludes that a settlement plus credit cannot constitute a 
"payment" under the exhaustion clause.   
¶29 I would instead acknowledge that the language is 
ambiguous 
and 
apply 
the 
principles 
of 
insurance 
policy 
construction which require it to be construed against the 
insurer.  Additionally, I would acknowledge both our case law 
and public policy require a construction of the exhaustion 
clause that allows an insured to "settle and credit." 
99-1142.awb 
 
2 
¶30 This court's interpretation of the same language in 
Teigen belies the majority's contention that the language of the 
exhaustion clause is unambiguous.  In Teigen, the court examined 
a third-party liability policy that terminated the insurer's 
duty to defend when the insurer's liability was "exhausted by 
payment of judgments or settlements."  Id. at 8.  A majority of 
this court, emphasizing the word "settlements," concluded that 
under that policy language liability was exhausted by virtue of 
a settlement and Loy release.  
¶31 Today the majority, emphasizing the word "payment" in 
the same phrase, concludes that there may be no exhaustion under 
the same language where an insured settles and credits under a 
Loy-type agreement.  The majority now reads the language to 
unambiguously require payment of the full policy limits for 
there to be exhaustion.  The ambiguity inherent in these 
conflicting interpretations does not implicate the question of 
whether Teigen was correctly or incorrectly decided or whether 
it is distinguishable.  The simple fact of the Teigen majority's 
contrary interpretation is a testament to the ambiguity.   
¶32 We do not need more than the ambiguity inherent in 
these competing interpretations to resolve this case.  This case 
should be simply a matter of applying the rule that the 
ambiguous language should be construed against the insurer and 
in favor of coverage.  Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 
N.W.2d 621 (1992).  However, in addition to the application of 
this rule of policy construction, a decision allowing for 
exhaustion where an insured enters a settle and credit agreement 
99-1142.awb 
 
3 
is required under our precedent and as a matter of public 
policy.  While the majority's determination that the language is 
unambiguous implicitly entails the conclusion that the Teigen 
majority's reading is unreasonable, I conclude that the Teigen 
majority's reading is not only reasonable, but it is correct and 
is binding precedent. 
¶33 As 
the 
majority 
notes, 
the 
settle 
and 
credit 
arrangement entered into by Danbeck and the at-fault driver's 
liability insurer is similar to a Loy agreement.  Majority op. 
at n.2.  Under Loy v. Bunderson, 107 Wis. 2d 400, 320 N.W.2d 175 
(1982), a primary insurer may settle with an insured for less 
than the policy limits in exchange for being released from 
liability without affecting the excess insurer's liability.  As 
in Teigen, the question in this case is whether there is 
exhaustion under such an agreement where the policy requires 
"exhaustion by payment of judgments or settlements."  Try as it 
might to distinguish Teigen, the distinctions the majority draws 
are distinctions without a difference.   
¶34 The majority asserts that "Teigen is inapplicable 
because it did not concern the interpretation of an exhaustion 
clause in a UIM policy."  Majority op. at ¶19.  We are not told, 
however, why the question should be answered differently in the 
UIM context than in the context of a primary/excess insurance 
dispute.  What is UIM but excess insurance to the at-fault 
driver's liability insurance?   
¶35 Moreover, 
the Teigen 
court 
itself 
dismissed the 
distinction the majority attempts to draw.  The court rejected 
99-1142.awb 
 
4 
the excess insurer's attempt to distinguish Loy on the ground 
that the insurance relationship was different than that found in 
Loy.  The court explained that the controlling factor is not the 
nature of the insurance relationship, but is the public policy 
in encouraging settlement: 
 
If the issue of the existence of a true primary/excess 
insurance 
situation had 
been fundamental 
to our 
reasoning behind the Loy principle, then our holding 
in Loy would not control in the present suit.  
However, that is not the case.  The rationale behind 
our affirmance of the "Loy Release/Covenant Not To 
Sue" is not anchored to the issue of whether a true 
primary/excess 
insurance 
situation 
exists. 
 
The 
desirability of Loy-type 
agreements lies 
in the 
encouragement of partial settlements in future cases, 
thereby fostering effective and expeditious resolution 
of lawsuits. 
Teigen, 124 Wis. 2d at 7.  Under the proper application of this 
precedent, the court would acknowledge that the validity of a 
Loy-type agreement is not anchored to the type of policy at 
issue, but is a consequence of the public policy that we seek to 
foster.  
¶36 Unfortunately, by 
invoking 
the supposed lack of 
ambiguity to avoid consideration of the policy of encouraging 
settlement, the majority not only fails to promote that policy, 
but indeed frustrates it.  The loss of all potential UIM 
recovery is a strong disincentive to settlement.  In cases where 
an injured party is represented by counsel, who after today's 
decision will be expected to know the harsh consequences of such 
a settlement, we should have no reason to anticipate settlement 
where there is the potential for UIM recovery. 
99-1142.awb 
 
5 
¶37 The most unfortunate aspect of the majority opinion is 
the harsh result unwitting Wisconsin insureds will bear.  While 
we can expect to see settlement deterred where an injured party 
is represented by counsel, those individuals without the advice 
of counsel will most certainly be unaware of today's decision.  
These injured parties may unwarily agree to settle and credit at 
the expense of any potential UIM recovery.  Additionally, such 
an insured may unknowingly be the subject of agreements between 
the UIM and liability carriers.  To facilitate settlement, the 
UIM insurer may offer to underwrite a portion of the settlement 
costs in order to avoid a larger payout under the UIM 
endorsement.  The suggestion of such agreements has been brought 
before the court this very term. 
¶38 As a result of today's decision, we can now add the 
UIM exhaustion clause to the growing list of inequitable UIM 
endorsement provisions that persist under the current state of 
UIM.  In my dissent in Taylor v. Greatway Insurance Co., 2001 WI 
93, ___ Wis. 2d ___, ___ N.W.2d ___ (Bradley, J. dissenting), I 
explained the ways in which the definition of underinsured motor 
vehicle 
and 
the 
reducing 
clause 
defeat 
the 
reasonable 
expectations of Wisconsin insureds and the purpose of UIM 
coverage.  Dan Danbeck is one of the few insureds to reach this 
court whose prospects of recovery under a UIM endorsement have 
escaped those pitfalls.  However, by invoking the mantra of 
unambiguous policy language the majority once again defeats an 
insured's prospects of recovery under a UIM endorsement.  
99-1142.awb 
 
6 
¶39 I would conclude that not only is the exhaustion 
clause ambiguous and subject to construction against the insurer 
but also that our precedent and public policy require a 
construction under which a settle and credit agreement is deemed 
to exhaust the at-fault driver's liability limits.  Accordingly, 
I respectfully dissent.   
¶40 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON joins this dissent. 
 
 
99-1142.awb 
 
1