Title: Orlowski v. State Farm Mut. Auto. Ins. Co.

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2012 WI 21 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2009AP2848 
COMPLETE TITLE: 
 
Lindy Orlowski, 
          Petitioner-Respondent, 
     v. 
State Farm Mutual Automobile Insurance Company, 
          Respondent-Appellant. 
 
 
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
OPINION FILED: 
March 7, 2012   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 10, 2012 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee 
 
JUDGE: 
Dennis P. Moroney 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
 
For the petitioner-respondent there was a brief by Kevin J. 
Kukor, Keith R. Stachowiak, and M. Josef Zimmermann and Murphy & 
Prachthauser, S.C., Milwaukee and oral argument by Keith R. 
Stachowiak. 
 
For the respondent-appellant there were briefs by Thomas E. 
Goss, Jr. and Mueller, Goss & Possi, S.C., Milwaukee and oral 
argument by Thomas E. Goss, Jr. 
 
 
An amicus curiae brief was filed by Mark L. Thomsen, Edward 
E. Robinson, and Brett E. Eckstein, Cannon & Dunphy, S.C., 
Brookfield, for the Wisconsin Association for Justice, and oral 
argument by Edward E. Robinson. 
 
 
2012 WI 21
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2009AP2848 
(L.C. No. 
2009CV2601) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Lindy Orlowski, 
 
          Petitioner-Respondent, 
 
     v. 
 
State Farm Mutual Automobile Insurance Company, 
 
          Respondent-Appellant. 
 
 
 
FILED 
 
MAR 7, 2012 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
 
APPEAL from an order of the Circuit Court for Milwaukee 
County, Dennis P. Moroney, Judge.  Affirmed.   
 
¶1 
N. PATRICK CROOKS, J.   This case is before this court 
on certification by the court of appeals, pursuant to Wis. Stat. 
§ (Rule) 809.61 (2009-10).  It concerns the proper measure of 
damages in an action to recover under an injured party's 
underinsured motorist (UIM) coverage.  We resolve this question 
in the context of the limited scope of review of an arbitration 
panel's decision.   
¶2 
In this case, the injured party, Lindy Orlowski 
(Orlowski), submitted a claim to State Farm Mutual Automobile 
No. 
2009AP2848   
 
2 
 
Insurance Company (State Farm) under her UIM coverage after 
exhausting the policy limits of the underinsured motorist.  
Pursuant to the arbitration provision in the UIM coverage 
portion of her policy, Orlowski and State Farm submitted the 
question of damages to an arbitration panel.  The panel 
concluded that the court of appeals decision in Heritage Mutual 
Insurance Company v. Graser, 2002 WI App 125, 254 Wis. 2d 851, 
647 N.W.2d 385, precluded Orlowski from recovering under her UIM 
coverage the value of medical expenses that were written off by 
her medical provider.1   
¶3 
Orlowski petitioned the circuit court for modification 
of the arbitration award pursuant to Wis. Stat. § 788.11 (2007-
08),2 arguing that the panel erroneously relied on Graser.  The 
circuit court for Milwaukee County, the Honorable Dennis P. 
Moroney presiding, agreed and modified the arbitration award to 
include the value of the written-off medical expenses.  The 
court of appeals certified the case to this court because it 
perceived an irreconcilable conflict between Graser's holding 
that the collateral source rule has no application in UIM cases 
and this court's precedent on the law of damages and the 
collateral source rule.  Further, the court of appeals noted 
                                                 
1 The written-off medical expenses constitute the value of 
medical expenses that were waived or forgiven by Orlowski's 
medical provider as a result of negotiated discounts between the 
medical 
provider 
and 
Orlowski's 
health 
insurer, 
United 
Healthcare. 
2 All subsequent references to the Wisconsin Statutes are to 
the 2007-08 version unless otherwise indicated. 
No. 
2009AP2848   
 
3 
 
that Orlowski's policy required the arbitration panel to award 
the amount that she was "legally entitled to collect" from the 
underinsured motorist, which is controlled by this court's 
precedent on the collateral source rule and tort damages.   
¶4 
We reaffirm what our prior precedent has clearly 
established: an injured party is entitled to recover the 
reasonable value of medical services, which, under the operation 
of the collateral source rule, includes written-off medical 
expenses.  We overrule Graser to the extent that it holds that 
the collateral source rule has no application in cases involving 
UIM coverage.  The arbitration panel's decision in this case was 
properly modified by the circuit court pursuant to Wis. Stat. § 
788.10 and § 788.11 because the arbitrators exceeded their 
authority by failing to fully review and apply this court's 
decisions on the collateral source rule and the law of damages.  
Such review and application was required by the questions 
submitted from the policy language directing the panel to award 
Orlowski the amount that she was "legally entitled to collect" 
from the underinsured motorist.   
¶5 
Therefore, we affirm the circuit court's decision 
modifying 
the 
arbitration 
panel's 
award 
to 
include 
the 
reasonable value of Orlowski's medical services. 
I. BACKGROUND 
 
¶6 
On December 30, 2004, Orlowski was involved in a motor 
vehicle accident caused by an underinsured driver.  Orlowski 
recovered damages up to the limits of the underinsured driver's 
insurance.  Orlowski had health insurance coverage with United 
No. 
2009AP2848   
 
4 
 
Healthcare, which paid a portion of Orlowski's medical expenses 
as a result of the accident.  She also had an automobile 
insurance policy with State Farm including UIM coverage.   
¶7 
After exhausting the underinsured motorist's coverage, 
Orlowski submitted a claim to State Farm to recover under her 
UIM coverage.  Pursuant to the UIM coverage portion of her 
policy, an arbitration panel was selected to decide two 
questions: "1. Is the insured legally entitled to collect 
damages from the owner or driver of the uninsured motor vehicle 
or underinsured motor vehicle; and 2. If so, in what amount?"3   
¶8 
The arbitration panel awarded Orlowski $11,498.55 for 
medical services provided to her as a result of the accident: 
$9,498.55 for the medical lien claimed by United Healthcare and 
$2,000 for Orlowski's out-of-pocket medical expenses.4  The 
arbitration panel did not include in its award the amount of 
Orlowski's medical expenses that had been written off by her 
medical provider because of discounts through her health 
                                                 
3 The arbitration clause in the UIM coverage portion of 
Orlowski's policy provides that the arbitration panel must 
answer these two questions.  While Orlowski's policy was not 
submitted to the arbitration panel, both of the parties' 
arguments are premised on the fact that the arbitration panel 
was asked to answer only these two questions and also, as a 
result of State Farm's arguments, asked to decide whether 
Heritage Mutual Insurance Company v. Graser, 2002 WI App 125, 
254 Wis. 2d 851, 647 N.W.2d 385, applied.  (State Farm Br. at 9-
10; Orlowski Br. at 6-7.) 
4 Orlowski was also awarded $2,325 for unreimbursed wage 
loss and $42,500 for past and future pain, suffering and 
disability.   
No. 
2009AP2848   
 
5 
 
insurance coverage with United Healthcare.5  The panel did not 
include these written-off medical expenses in its award because 
it concluded that the court of appeals decision in Graser, 254 
Wis. 2d 851, provided that the collateral source rule did not 
apply to UIM claims and thus did not allow Orlowski to recover 
these expenses.  At Orlowski's request, the arbitration panel 
submitted a supplemental decision concluding "that the necessary 
and reasonable value of the medical services provided to Mrs. 
Orlowski as a result of the accident is [$72,985.94]."  The 
dispute in this case is over the $61,487.39 in medical expenses 
that were written off by Orlowski's medical provider——the 
difference between the reasonable value of medical expenses and 
the $11,498.55 in medical expenses that the panel awarded to 
Orlowski.  
¶9 
Orlowski petitioned the Milwaukee County Circuit Court 
for modification of the arbitration award pursuant to Wis. Stat. 
                                                 
5 Written-off medical expenses constitute the expenses 
"written off" or waived by a medical provider as a result of 
negotiated discounts between health insurers and the medical 
provider.  See Koffman v. Leichtfuss, 2001 WI 111, ¶21, 246 
Wis. 2d 31, 630 N.W.2d 201 ("The modern health care system 
employs a myriad of health care finance arrangements.  As part 
of the system, negotiated and contracted discounts between 
health care providers and insurers are increasingly prevalent.  
Pursuant to these agreements, an insurer's liability for the 
medical expenses billed to its insured is often satisfied at 
discounted rates, with the remainder being 'written-off' by the 
health care provider."). Written-off medical expenses are the 
difference between the amount billed for medical services and 
the amount that the medical insurer pays to satisfy the 
patient's liability.   
No. 
2009AP2848   
 
6 
 
§ 788.11.6  Orlowski argued that the arbitration award must be 
modified because the arbitration panel improperly interpreted 
and relied on Graser, 254 Wis. 2d 851.  State Farm argued that 
Orlowski had not provided any basis upon which the circuit court 
could modify the award in accordance with Wis. Stat. § 788.10 
and § 788.11.  Further, State Farm asserted that the arbitration 
panel properly applied Graser. 
¶10 The circuit court, the Honorable Dennis P. Moroney 
presiding, modified the arbitration decision to award Orlowski 
the full reasonable value of medical expenses, $72,985.94.7  The 
circuit court stated that the court of appeals decision in 
                                                 
6 Wisconsin Stat. § 788.11 (2007-08) provides in relevant 
part:  
Modification of award. (1) In either of the following 
cases the court in and for the county wherein the 
award was made must make an order modifying or 
correcting the award upon the application of any party 
to the arbitration: 
(a) Where there was an evident material miscalculation 
of figures or an evident material mistake in the 
description of any person, thing or property referred 
to in the award; 
(b) Where the arbitrators have awarded upon a matter 
not submitted to them unless it is a matter not 
affecting the merits of the decision upon the matters 
submitted; 
(c) Where the award is imperfect in matter of form not 
affecting the merits of the controversy. 
7 The 
circuit 
court 
confirmed 
the 
remainder 
of 
the 
arbitration panel's 
decision awarding Orlowski $2,325 for 
unreimbursed wage loss and $42,500 for past and future pain, 
suffering and disability. 
No. 
2009AP2848   
 
7 
 
Graser failed to give appropriate weight to the "concept of 
people buying [UIM insurance] for their own protection" to be 
"made whole" after being injured in an accident caused by an 
underinsured driver.  The circuit court emphasized that allowing 
Orlowski to recover the full reasonable value of medical 
services, including written-off medical expenses, is less about 
the collateral source rule and more about giving her the benefit 
of what she contracted for.  The circuit court stated that under 
Wisconsin law, insureds "have a right to at least be covered to 
the extent of what they bargained for."  The circuit court 
limited Graser's applicability to only those cases involving 
recovery based on a waived subrogation right.  The circuit court 
concluded that the arbitration panel's interpretation of Graser 
improperly limits the collateral source rule.  The circuit court 
concluded that the arbitration panel's decision represented a 
manifest disregard of the law.  
¶11 State Farm appealed and the court of appeals certified 
the case to this court for review.  The court of appeals was 
concerned that the way in which the arbitration panel applied 
Graser was in conflict with this court's precedent and the 
questions asked of the panel from the UIM coverage portion of 
Orlowski's policy with State Farm.  The court of appeals 
specifically asked this court to resolve "how Wisconsin Supreme 
Court law in collateral source cases such as Koffman v. 
Leichtfuss, 2001 WI 111, 246 Wis. 2d 31, 630 N.W.2d 201, and 
Leitinger v. DBart, Inc., 2007 WI 84, 302 Wis. 2d 110, 736 
N.W.2d 1, [affects] our holding in Heritage Mut. Ins. Co. v. 
No. 
2009AP2848   
 
8 
 
Graser, 2002 WI App 125, 254 Wis. 2d 851, 647 N.W.2d 385, where 
we held that collateral source law is inapplicable to any UIM 
policy."  We accepted the certification. 
II. ANALYSIS 
A. Issues and Standard of Review 
 
¶12 This court must address two issues to resolve this 
case.  The first is whether the collateral source rule allows 
the recovery of written-off medical expenses in a claim under an 
insured's UIM coverage.  This presents a question of law that 
this court reviews de novo.  See Leitinger, 302 Wis. 2d 110, 
¶20. 
¶13 The second question we must answer is whether the 
arbitration panel's award must be modified in this case.  The 
scope of judicial review of an arbitration decision is very 
limited.  Racine Cnty. v. Int'l Ass'n of Machinists and 
Aerospace Workers Dist. 10, AFL-CIO, 2008 WI 70, ¶11, 310 
Wis. 2d 508, 751 N.W.2d 312.  "The role of the court in 
reviewing an arbitration award is essentially supervisory in 
nature.  We are to ensure that the parties received what they 
bargained for when they agreed to resolve their disputes through 
final and binding arbitration.  Courts are guided by the 
statutory standards in Wis. Stat. §§ 788.108 . . . and 788.119 
                                                 
8 Wisconsin Stat. § 788.10 provides in relevant part: 
Vacation of award, rehearing by arbitrators. (1) In 
either of the following cases the court in and for the 
county wherein the award was made must make an order 
vacating the award upon the application of any party 
to the arbitration:  
No. 
2009AP2848   
 
9 
 
and by the standards developed at common law."  Baldwin-
Woodville Area Sch. Dist. v. W. Cent. Educ. Ass'n-Baldwin 
Woodville Unit, 2009 WI 51, ¶20, 317 Wis. 2d 691, 766 N.W.2d 591 
(citations and footnotes omitted).  The common law standards for 
overturning an arbitration award have been developed in our case 
law based on the standards in both Wis. Stat. § 788.10 and 
§ 788.11, and in this case are applied to Orlowski's request to 
modify the arbitration panel's decision.  See Baldwin-Woodville, 
317 Wis. 2d 691, ¶¶20-21; Racine Cnty., 310 Wis. 2d 508, ¶¶11, 
33; Emp'rs Ins. of Wausau v. Certain Underwriters at Lloyd's 
London, 202 Wis. 2d 673, 680, 552 N.W.2d 420 (Ct. App. 1996). 
¶14 "If the panel exceeded its power, we must modify or 
vacate the award."  Emp'rs Ins. of Wausau, 202 Wis. 2d at 680.  
"An arbitrator exceeds his or her powers when the arbitrator 
demonstrates either 'perverse misconstruction' or 'positive 
                                                                                                                                                             
(a) Where the award was procured by corruption, fraud 
or undue means;  
(b) Where there was evident partiality or corruption 
on the part of the arbitrators, or either of them;  
(c) Where the arbitrators were guilty of misconduct in 
refusing to postpone the hearing, upon sufficient 
cause shown, or in refusing to hear evidence pertinent 
and material to the controversy; or of any other 
misbehavior by which the rights of any party have been 
prejudiced;  
(d) Where the arbitrators exceeded their powers, or so 
imperfectly executed them that a mutual, final and 
definite award upon the subject matter submitted was 
not made.  
9 See supra ¶9 n.6. 
No. 
2009AP2848   
 
10 
 
misconduct,' when the arbitrator manifestly disregards the law, 
when the award is illegal, or when the award violates a strong 
public policy."  Racine Cnty., 310 Wis. 2d 508, ¶11.  Whether an 
arbitration decision must be modified or vacated presents a 
question of law that this court reviews de novo.  Id. 
¶15 Because the scope of the arbitration panel's authority 
is informed by the arbitration clause in the UIM coverage 
portion of Orlowski's policy, we also interpret that policy 
language.  The interpretation of an insurance contract is a 
question of law that this court reviews de novo.  State Farm 
Mut. Auto. Ins. Co. v. Gillette, 2002 WI 31, ¶24, 251 
Wis. 2d 561, 641 N.W.2d 662.   
B. The Operation of the Collateral Source Rule in UIM Cases 
 
¶16 We begin by examining the central question certified 
to this court by the court of appeals, whether the holding in 
Graser, that the collateral source rule has no application in 
actions to recover under UIM coverage, is sound.  There are 
several legal doctrines and policies at play that we must 
examine to determine how they operate in UIM cases. 
 
¶17 In Wisconsin, our well-established rule of damages 
regarding the recovery of medical expenses allows an injured 
plaintiff to recover "the reasonable value of the medical 
treatment reasonably required by the injury."  Leitinger, 302 
Wis. 2d 110, ¶¶22-23; accord Koffman, 246 Wis. 2d 31, ¶27; 
Ellsworth v. Schelbrock, 2000 WI 63, ¶15, 235 Wis. 2d 678, 611 
N.W.2d 764.  The operation of the subrogation doctrine, while 
not directly implicated in this case, is relevant in many cases 
No. 
2009AP2848   
 
11 
 
involving the recovery of medical damages.  "In the insurance 
context, subrogation is a derivative right that permits an 
insurer to step into the shoes of the insured and to pursue 
recovery from the tortfeasor to the extent of the insurer's 
payments to the subrogor (the insured)."  Fischer v. Steffen, 
2011 WI 34, ¶31, 333 Wis. 2d 503, 797 N.W.2d 501. 
 
¶18 Within our law on damages we have adopted the 
collateral source rule, which provides that "a plaintiff's 
recovery cannot be reduced by payments or benefits from other 
sources."  Koffman, 246 Wis. 2d 31, ¶29; accord Fischer, 333 
Wis. 2d 503, ¶30; Leitinger, 302 Wis. 2d 110, ¶26; Ellsworth, 
235 Wis. 2d 678, ¶¶6-7.  The policy justifications for the 
collateral source rule have been summarized in a number of ways.  
Each case emphasizes the policies relevant in that particular 
case.  In this case, we highlight three policies central to the 
collateral source rule.  First, is to deter a tortfeasor's 
negligent conduct "by placing the full cost of the wrongful 
conduct on the tortfeasor."  Fischer, 333 Wis. 2d 503, ¶30; 
accord Leitinger, 302 Wis. 2d 110, ¶33.  Second, is to fully 
compensate the injured party.  Leitinger, 302 Wis. 2d 110, ¶31 
("The collateral source rule protects plaintiffs by guarding 
against the potential misuse of collateral source evidence to 
deny the plaintiff full recovery to which he is entitled."); see 
also Fischer, 333 Wis. 2d 503, ¶34.  Third, is to allow the 
insured to receive the benefit of the premiums paid for coverage 
that he or she had the foresight to purchase.  Voge v. Anderson, 
181 Wis. 2d 726, 733, 512 N.W.2d 749 (1994); Koffman, 246 
No. 
2009AP2848   
 
12 
 
Wis. 2d 31, ¶40; Leitinger, 302 Wis. 2d 110, ¶¶44-45; Fischer, 
333 Wis. 2d 503, ¶30.     
 
¶19 In Graser, 254 Wis. 2d 851, the court of appeals was 
confronted with the interplay of the collateral source rule, the 
law on damages and the subrogation doctrine in the context of a 
claim to recover under UIM coverage.  Galina Graser (Graser) 
brought suit against her UIM insurer to recover damages for 
injuries that her son received when his bicycle was struck by an 
underinsured motorist.  Id., ¶¶1-5.  Graser sought to recover 
medical damages under her UIM coverage, including the value of 
medical services paid by her health insurer for which that 
insurer waived its subrogation right.  Id.    
¶20 At issue in Graser was whether Graser could recover 
from her UIM insurer the value of her health insurer's waived 
subrogation claim based on the collateral source rule.  The 
court of appeals examined the policy basis of the collateral 
source rule and distinguished this court's decision in Koffman 
and its own precedent in Anderson v. Garber, 160 Wis. 2d 389, 
466 N.W.2d 221 (Ct. App. 1991), both negligence cases, from UIM 
cases on this basis.  Graser, 254 Wis. 2d 851, ¶¶13-16.  In 
distinguishing Graser from negligence actions, the court of 
appeals relied heavily on its conclusion that the policy of 
deterring negligent conduct, obviously relevant in negligence 
actions against the tortfeasor, is not present in UIM cases 
against the injured party's own insurer.  Id., ¶16.  The court 
of appeals also noted that Graser did not cite a single case 
holding that "an insurer's subrogated claim can revert to the 
No. 
2009AP2848   
 
13 
 
plaintiff-insured in an action to recover under a UIM policy."  
Id.  For these reasons, the court of appeals concluded that 
Graser could not recover the medical expenses paid by her health 
insurer for which her insurer waived its subrogation right.  Id.  
The court of appeals went on to hold that "the collateral source 
rule, which finds its genesis in tort law, is inapplicable to 
claims made by an insured under his or her UIM policy."  Id., 
¶1. 
¶21 State Farm argues that the above language in Graser 
explicitly precludes the operation of the collateral source rule 
to a recovery under UIM coverage, and thus, precludes an insured 
from recovering written-off medical expenses from his or her UIM 
insurer.  State Farm asserts that there is no conflict between 
Graser and this court's precedent.  According to State Farm, 
Graser properly distinguished this court's case law in the 
negligence 
context 
and 
concluded 
that 
the 
public 
policy 
rationale 
behind 
the 
collateral 
source 
rule, 
to 
deter 
tortfeasors, is not relevant where an injured party seeks to 
recover from his or her UIM insurer.   
¶22 Orlowski argues that Graser was wrongly decided and 
must be overruled because it ignored this court's precedent,  
the UIM policy language here and the reasonable expectations of 
an insured in purchasing UIM coverage.  Further, Orlowski 
asserts that Graser is internally inconsistent because the court 
of appeals stated that the collateral source rule does not apply 
in UIM cases, despite the fact that part of Graser's recovery 
that was upheld by the court of appeals included written-off 
No. 
2009AP2848   
 
14 
 
medical expenses.  Orlowski directs us to other public policies 
underlying the collateral source rule——giving an insured the 
benefit from premiums paid and fully compensating the injured 
party——that she argues justify its application in UIM cases.  
State Farm's position on the public policy rationale behind the 
collateral source rule is too narrow, Orlowski argues. 
¶23 We conclude that the policy distinction between 
negligence and UIM cases upon which the court of appeals relied 
does not justify diverging from our case law and limiting the 
collateral source rule.  The holding in Graser that was 
addressed to the specific factual scenario in that case is not 
implicated here, where the dispute centers on written-off 
medical expenses and not a waived subrogation right.10  The 
potentially troublesome language in Graser is the court of 
appeals' sweeping statement that "the collateral source rule, 
which finds its genesis in tort law, is inapplicable to claims 
made by an insured under his or her UIM policy."  254 
Wis. 2d 851, ¶1.  This holding is at odds with Wisconsin law on 
damages, the collateral source rule, and the purpose and 
function of UIM coverage.   
¶24 We have explained that the proper measure of medical 
damages is "the reasonable value of medical services rendered."  
Koffman, 246 Wis. 2d 31, ¶27.  In Koffman, this court held that 
                                                 
10 Orlowski's health insurer, United Healthcare, maintained 
its subrogated interest in Orlowski's recovery under her UIM 
coverage.  United Healthcare received its subrogated interest, 
$9,498.55, in the arbitrators' award. 
No. 
2009AP2848   
 
15 
 
a plaintiff could recover the reasonable value of medical 
services, which was the amount billed for medical services 
related to the tortious conduct, including the written-off 
medical expenses, and not limited to what was paid for those 
services.  Id., ¶2.  In Leitinger, decided after Graser, we 
explained the import of Koffman: "[T]he collateral source rule 
is specifically designed to prevent a discount received by a 
plaintiff's insurance company from affecting the plaintiff's 
recovery of the reasonable value of medical services rendered."  
Leitinger, 302 Wis. 2d 110, ¶44.  The Leitinger court concluded 
that by operation of the collateral source rule, parties were 
precluded from introducing evidence of the amount actually paid 
for medical services to prove the reasonable value of such 
services.  Id., ¶75.  While these were not UIM cases, we did not 
limit these principles of the law of damages or the collateral 
source rule to solely negligence actions.  Rather, our case law 
on the collateral source rule has relied on several public 
policy considerations that are implicated whether the injured 
party is seeking recovery under UIM coverage or in a negligence 
action against the tortfeasor.  See, e.g., Koffman, 246 
Wis. 2d 31, ¶¶29-32, 40; Leitinger, 302 Wis. 2d 110, ¶¶26-34.      
¶25 As we explained above, the collateral source rule 
furthers several public policy considerations, including the 
deterrence of negligent conduct, fully compensating injured 
parties and giving the insured the benefit of premiums he or she 
paid.   See supra ¶18.  It appears that the court of appeals in 
Graser, 254 Wis. 2d 851, ¶¶15-16, gave too much weight to the 
No. 
2009AP2848   
 
16 
 
deterrence rationale, at the expense of the other public 
policies served by the collateral source rule that are still 
relevant in the UIM context.   
¶26 Ensuring that a person injured by tortious conduct is 
fully compensated is no less important in a UIM case than it is 
in a negligence action.  We reiterated in a significant UIM case 
the importance of compensating those injured by tortious 
conduct.  Gillette, 251 Wis. 2d 561, ¶¶64-65.  In reaching our 
conclusion in Gillette that the Wisconsin law of damages should 
control in a UIM case where choice-of-law was at issue, we noted 
that "[a]lthough the deterrent purpose of tort law is not 
furthered by applying the Wisconsin law of damages to the 
present case, the compensatory purpose of tort law is furthered 
by applying the Wisconsin law of damages."  Id., ¶¶64, 67 
(footnote omitted)(emphasis added).  We noted that this result 
furthered 
"Wisconsin's 
significant 
interests 
in 
fully 
compensating victims of ordinary negligence."  Id., ¶65. 
¶27 Allowing an insured to reap the benefits of the 
premiums he or she paid is particularly relevant to the recovery 
of written-off medical expenses under UIM coverage.  To ensure 
full coverage, the injured party has paid two premiums: (1) to a 
health insurer for coverage for medical expenses including the 
benefit of having some of those medical expenses written off by 
the medical provider, and (2) to an automobile insurer to be 
indemnified for damages, including medical expenses, caused by 
an underinsured motorist.  State Farm asserts that applying the 
collateral source rule in this case, where Orlowski seeks to 
No. 
2009AP2848   
 
17 
 
recover under her UIM coverage, would give her a "windfall" or 
double recovery.  To the contrary, Orlowski has paid a premium 
to United Healthcare for the benefit of coverage for medical 
expenses, and to State Farm to recover the reasonable value of 
her medical expenses under her UIM coverage.  Since Orlowski has 
paid a premium for both of these policies, she should receive 
the benefit from both. 
¶28 State Farm argues that we should uphold Graser because 
"the foundation for the court's holding [in Graser] was public 
policy considerations."  Such an argument is too narrow and thus 
unsound, and we now overrule Graser to the extent that it 
created a blanket rule that the collateral source rule does not 
apply to an injured party's UIM action.11       
C. The Arbitration Panel's Award 
¶29 We next address whether the arbitration panel's award 
must be modified in this case.  The circuit court modified 
Orlowski's award to include the full reasonable value of medical 
expenses, including those written off by her medical provider.  
State Farm argues that the circuit court exceeded the limited 
                                                 
11 Graser's fact-specific holding, that a health insurer's 
waived subrogation claim does not revert to the insured for the 
purpose of a UIM recovery, is not implicated here.  Arnold P. 
Anderson's treatise on insurance contains a concise summary of 
his narrow reading of Graser that is not affected by our 
decision in this case: "[W]hen subrogation does not exist, the 
risk of double recovery may defeat application of the collateral 
source rule."  Arnold P. Anderson, Wisconsin Insurance Law § 
4.61, at 64 (6th ed. 2010).  Only Graser's broad language——that 
the collateral source rule is not applicable to a UIM recovery——
must be overruled in this case.  Therefore, we do not address 
the validity of Graser's fact-specific holding. 
No. 
2009AP2848   
 
18 
 
scope of judicial review of arbitration decisions by modifying 
the panel's award.  State Farm emphasizes that reviewing courts 
may not substitute their judgment for that of the arbitration 
panel 
and 
asserts 
that 
the 
arbitration 
panel 
correctly 
interpreted the law in a manner consistent with its UIM policy.  
State Farm further argues that a reduction clause, specifically 
subsection 2.b. in the limits of liability section of Orlowski's 
UIM coverage, allows the recovery of damages "sustained, but not 
recovered," which State Farm contends excludes written-off 
medical expenses. 
¶30 Orlowski argues that the arbitrators exceeded the 
scope of their authority because the questions asked of the 
panel from the UIM policy directed the arbitrators to award her 
what she was "legally entitled to collect" from the tortfeasor, 
which includes all damages available under Wisconsin tort law.  
Additionally, 
Orlowski 
asserts 
that 
the 
arbitrators' 
interpretation of Graser was a manifest disregard of the law 
because 
Graser 
is 
factually 
and 
legally 
distinguishable.  
Finally, Orlowski argues that subsection 2.b. in the limits of 
liability of her UIM coverage does not preclude her recovery of 
written-off medical expenses. According to Orlowski, if this 
subsection were interpreted as such it would be an invalid 
reducing clause as it is not authorized by Wis. Stat. § 
632.32(5)(i).12 
                                                 
12 Wisconsin Stat. § 632.32(5)(i) provides: 
A policy may provide that the limits under the policy 
for uninsured or underinsured motorist coverage for 
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2009AP2848   
 
19 
 
¶31 Arbitrators' authority is circumscribed by the terms 
of the contractual agreement to arbitrate and any other issues 
that the parties agree to submit to arbitration.  Maryland Cas. 
Co. v. Seidenspinner, 181 Wis. 2d 950, 956, 512 N.W.2d 186 (Ct. 
App. 1994); Emp'rs Ins. of Wausau, 202 Wis. 2d 673, 680-81.  
State Farm asked the arbitration panel to exclude written-off 
medical expenses from the award based on Graser.  Orlowski 
disputed that Graser applied and argued that even if it did, 
Graser permitted the recovery of written-off medical expenses.13   
¶32 The arbitration clause in the UIM coverage portion of 
Orlowski's policy14 directed the arbitration panel to decide two 
questions.  Specifically, the policy provides: 
                                                                                                                                                             
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.  
2. 
Amounts 
paid 
or 
payable 
under 
any 
worker's 
compensation law.  
3. Amounts paid or payable under any disability 
benefits laws. 
13 The parties dispute whether the scope of the arbitration 
panel's authority permitted it to address and apply Graser.  We 
do not need to address further whether the arbitration panel was 
permitted to examine and apply Graser because we conclude that 
the arbitration panel's decision must be modified not only 
because of its reliance on Graser, but more significantly 
because it failed to apply this court's precedent on the 
collateral source rule and damages in the manner required by the 
questions submitted to it. 
14 Orlowski's policy includes the relevant underinsured 
motorist coverage: 
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2009AP2848   
 
20 
 
Deciding Fault and Amount 
Two questions must be decided by agreement between the 
insured and us: 
1. Is the insured legally entitled to collect damages 
from the owner or driver of the uninsured motor 
vehicle or underinsured motor vehicle; and 
2. If so, in what amount? 
If there is no agreement, these questions shall be 
decided by arbitration upon written request of the 
insured or us. 
(Italics and bolding in original omitted.) 
¶33 We interpret the arbitration clause in Orlowski's 
insurance policy as we would any other contract, and the 
objective is to give effect to the parties' intent.  State Farm 
Mut. Auto. Ins. Co. v. Bailey, 2007 WI 90, ¶22, 302 Wis. 2d 409, 
734 N.W.2d 386.  Courts interpret a policy consistent with the 
common, ordinary meaning of the language——in other words, "what 
the reasonable person in the insured's position would understand 
it to mean."  Id.  As we stated previously, our review is de 
novo.  Gillette, 251 Wis. 2d 561, ¶24.  
¶34 The arbitration clause in Orlowski's policy directed 
the arbitration panel to decide, first, whether Orlowski was 
"legally entitled to collect damages from" an underinsured 
                                                                                                                                                             
We will pay damages for bodily injury an insured is 
legally entitled to collect from the owner or driver 
of an underinsured motor vehicle.  The bodily injury 
must be caused by accident arising out of the 
operation, maintenance or use of an underinsured motor 
vehicle.   
(Emphasis added and italics in original omitted.) 
No. 
2009AP2848   
 
21 
 
motorist.  If so, the award is governed by the second question: 
"in what amount?"  The second question clearly refers to the 
first.  Thus, a reasonable insured would read the arbitration 
clause to require the panel, if it answers the first question in 
the affirmative, to award the "amount" that the injured insured 
is "legally entitled to collect" from the underinsured motorist.   
The common, ordinary meaning of the amount that an insured is 
legally entitled to collect from the underinsured motorist is 
the amount that he or she could recover in a tort action against 
the underinsured motorist.  In Gillette, we interpreted the same 
language——"legally entitled to collect"——in the context of the 
UIM policy at issue in that case to mean that "an insurance 
company will compensate an insured for damages for bodily injury 
that the insured actually incurs up to the amount of damages for 
which a driver of an underinsured motor vehicle is liable under 
the applicable law up to the policy's liability limits."  Id., 
¶48.  Similarly, in this case, the amount that the insured is 
legally entitled to collect from the driver of an underinsured 
motor vehicle is based on the policy language construed in 
conformity with Wisconsin's tort law on damages including the 
collateral source rule. 
¶35 Our relevant precedent is outlined above in greater 
detail, but we reiterate a few central principles.  In Leitinger 
we explained that "[t]he proper measure of damages for medical 
treatment rendered in a personal injury action is the reasonable 
value of the medical treatment reasonably required by the 
injury."  302 Wis. 2d 110, ¶23.  We further explained that 
No. 
2009AP2848   
 
22 
 
"[t]he value of medical services made necessary by the tort can 
ordinarily be recovered although they have created no liability 
or expense to the injured person."  Id.  Consistent with these 
principles and the operation of the collateral source rule, we 
have repeatedly held that an insured may recover the full 
reasonable value of medical services including the value of any 
written-off medical expenses.  See, e.g., Ellsworth, 235 
Wis. 2d 678, ¶22; Koffman, 246 Wis. 2d 31, ¶56; Leitinger, 302 
Wis. 2d 110, ¶75.   
¶36 Contrary to the questions submitted to the arbitrators 
and extensive precedent from this court that guides how those 
questions should be answered, the arbitration panel did not 
award the reasonable value of medical expenses.  The arbitration 
panel concluded "that the collateral source rule does not apply 
as per the case of Heritage Mut. Ins. Co. v Graser," and on that 
basis did not award Orlowski the full reasonable value of 
medical services, which it determined in a supplemental decision 
was $72,985.94.  Instead, the panel awarded Orlowski $11,498.55 
for medical services provided to her as a result of the 
accident.  The panel excluded $61,487.39 from the award, the 
amount of the written-off medical expenses.     
¶37 The arbitration panel's decision to exclude written-
off medical expenses from Orlowski's award was based almost 
entirely on its interpretation of Graser.  The only reasonable 
conclusion to draw from the panel's reliance on Graser and its 
refusal to award Orlowski the reasonable value of medical 
expenses as case law requires is that the panel failed to review 
No. 
2009AP2848   
 
23 
 
and apply our case law to resolve the specific, limited 
questions that the policy's arbitration clause directed it to 
answer.  While our review of arbitration decisions is very 
limited, 
it 
is 
not 
meaningless; 
"arbitration 
awards 
are 
ultimately subject to the governing law."  Lukowski v. Dankert, 
184 Wis. 2d 142, 151, 515 N.W.2d 883 (1994).  We will reverse 
the decision of the arbitrators when the arbitrators fail to 
examine and apply the relevant law.  We have done so recently 
when an arbitrator made her decision without considering the 
relevant case law and statutes.  Racine Cnty., 310 Wis. 2d 508, 
¶¶33-37.      
¶38 We are mindful that the purpose of our review is "to 
ensure that the parties received what they bargained for when 
they agreed to resolve their disputes through final and binding 
arbitration."  Baldwin-Woodville, 317 Wis. 2d 691, ¶20.  As we 
have previously explained, in agreeing to binding arbitration 
"the parties had a legitimate expectation that the governing law 
would be followed and applied properly."  Lukowski, 184 
Wis. 2d at 152.  "When there is no contractual language that 
would allow for the arbitrator's construction, there is no 
reasonable foundation for the award."  Baldwin-Woodville, 317 
Wis. 2d 691, ¶23. 
¶39 In this case, the arbitrators exceeded their authority 
and 
manifestly 
disregarded 
the 
law 
without 
a 
reasonable 
foundation by not fully reviewing and applying this court's 
decisions on the collateral source rule.  The panel's seemingly 
exclusive reliance on Graser, resulting in a failure to award 
No. 
2009AP2848   
 
24 
 
written-off medical expenses, cannot be reconciled with its 
obligation to answer the questions submitted to the arbitration 
panel that required it to examine tort law on the collateral 
source rule and medical damages.  Given our case law and the 
questions submitted to the panel, there is no reasonable 
foundation upon which the arbitrators could have failed to 
include written-off medical expenses in the award.  Therefore, 
the award of the arbitration panel must be modified because the 
panel exceeded its authority and manifestly disregarded the law 
when it failed to award the reasonable value of medical services 
without a reasonable legal basis.15   
                                                 
15 As noted previously, State Farm argues that subsection b 
of the reducing clause in the "Limits of Liability" section of 
Orlowski's policy, including only damages "sustained, but not 
recovered," precludes the recovery of written-off medical 
expenses.  State Farm asserts that this clause provides a basis 
to affirm the arbitration panel's decision.  However, as we 
explained above, the arbitration clause in Orlowski's policy 
directed the panel to determine the amount that Orlowski was 
"legally entitled to collect" from the underinsured motorist.  
In this case, the amount of the award is controlled by our case 
law on the collateral source rule and damages, as well as the 
language of the policy concerning what she was "legally entitled 
to collect."  The arbitration clause did not ask the arbitration 
panel to decide the effect of the reducing clause.  Both parties 
asserted before this court that a copy of Orlowski's policy was 
not submitted to the panel.  While parties to arbitration may 
submit additional issues to arbitrators to decide, the parties 
did not ask the panel to determine the effect of the reducing 
clause on the limits of liability in Orlowski's policy in this 
case.  See Milwaukee Prof'l Firefighters, Local 215, IAFF, AFL-
CIO v. City of Milwaukee, 78 Wis. 2d 1, 16, 253 N.W.2d 481 
(1977).  Therefore, because we review the decision of the 
arbitration panel, which was not asked to go beyond the scope of 
the questions submitted to determine the limits of Orlowski's 
policy, we do not address the effect of the reducing clause any 
further. 
No. 
2009AP2848   
 
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III. CONCLUSION 
¶40 We reaffirm what our prior precedent has clearly 
established: an injured party is entitled to recover the 
reasonable value of medical services, which, under the operation 
of the collateral source rule, includes written-off medical 
expenses.  We overrule Graser to the extent that it holds that 
the collateral source rule has no application in cases involving 
UIM coverage.  The arbitration panel's decision in this case was 
properly modified by the circuit court pursuant to Wis. Stat. 
§ 788.10 and § 788.11 because the arbitrators exceeded their 
authority by failing to fully review and apply this court's 
decisions on the collateral source rule and the law of damages.  
Such review and application was required by the questions 
submitted from the policy language directing the panel to award 
Orlowski the amount that she was "legally entitled to collect" 
from the underinsured motorist.   
¶41 Therefore, we affirm the circuit court's decision 
modifying 
the 
arbitration 
panel's 
award 
to 
include 
the 
reasonable value of Orlowski's medical services. 
By the Court.—The order of the circuit court is affirmed.  
 
No. 
2009AP2848   
 
 
 
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