Title: Alison M. Welin v. American Family Mutual Insurance Company

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2006 WI 81 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2004AP1513 
 
 
COMPLETE TITLE: 
 
 
Alison M. Welin, 
          Plaintiff-Appellant-Petitioner, 
     v. 
American Family Mutual Insurance Company, 
          Defendant-Respondent, 
Elizabeth A. Pyrzynski, Honeywell International 
and Acuity, 
          Defendants, 
Secura Insurance, 
          Defendant-Third-Party Plaintiff, 
     v. 
Joshua J. Opichka, Wausau Benefits and Hastings 
Mutual Insurance Company, 
          Third-Party Defendants. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at: 284 Wis. 2d 570, 699 N.W.2d 253 
(Ct. App. 2005-Unpublished) 
 
 
OPINION FILED: 
June 30, 2006   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 10, 2006   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Chippewa   
 
JUDGE: 
Benjamin D. Proctor   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiff-appellant-petitioner there were briefs by 
Stephanie L. Finn, Webster A. Hart, and Herrick & Hart, S.C., 
Eau Claire, and oral argument by Dennis M. Sullivan. 
 
For the defendant-respondent there was a brief by John A. 
Kramer, Michael J. Roman, and Zalewski, Klinner & Kramer, LLP, 
Wausau, and oral argument by John A. Kramer. 
 
 
 
2
An amicus curiae brief was filed by Matthew A. Biegert and 
Doar, Drill & Skow, S.C., New Richmond, on behalf of the 
Wisconsin Academy of Trial Lawyers. 
 
 
2006 WI 81
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2004AP1513  
(L.C. No. 
2003CV424) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Alison M. Welin,  
 
 
Plaintiff-Appellant-Petitioner, 
 
              v. 
 
American Family Mutual Insurance Company,  
 
 
Defendant-Respondent, 
 
Elizabeth A. Pyrzynski, Honeywell International  
and Acuity,  
 
 
Defendants, 
 
Secura Insurance,  
 
 
Defendant-Third- 
 
Party Plaintiff, 
 
              v. 
 
Joshua J. Opichka, Wausau Benefits and Hastings  
Mutual Insurance Company,  
 
 
Third-Party Defendants. 
 
FILED 
 
JUN 30, 2006 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
remanded.   
No. 
2004AP1513   
 
2 
 
¶1 
SHIRLEY S. ABRAHAMSON, C.J.   This is a review of an 
unpublished decision of the court of appeals affirming a summary 
judgment by the circuit court for Chippewa County, Benjamin D. 
Proctor, Judge.1  The summary judgment was in favor of American 
Family Mutual Insurance Company.  We reverse the decision of the 
court of appeals and remand the cause to the circuit court for 
further proceedings consistent with this opinion. 
¶2 
This case arises from an automobile accident.  The 
liability insurance policy covering Elizabeth A. Pyrzynski, the 
tortfeasor, provided for a $300,000 policy limit; American 
Family's underinsured motorist (UIM) coverage of Alison M. 
Welin, the plaintiff, had limits of $300,000 per person and 
$300,000 per occurrence.  The plaintiff's UIM coverage defined 
an underinsured motor vehicle as a motor vehicle that is insured 
with bodily injury liability limits less than the limits of 
liability of the UIM coverage.  
¶3 
The tortfeasor has insufficient liability coverage to 
pay for the damages to two people injured as a result of her 
negligence: the plaintiff, the driver of the other car involved 
in the accident; and Joshua Opichka, the tortfeasor's passenger 
at the time of the accident. 
¶4 
The plaintiff received $250,000 of the tortfeasor's 
$300,000 motor vehicle policy limit; the other person injured in 
the occurrence (not covered by the same UIM policy as the 
                                                 
1 Welin v. Am. Family Mut. Ins. Co., No. 2004AP1513, 
unpublished slip op. (Wis. Ct. App. May 24, 2005). 
No. 
2004AP1513   
 
3 
 
plaintiff) received $50,000 from the tortfeasor's insurer.  The 
plaintiff's damages exceeded $250,000, and she is seeking 
$50,000 from American Family, the difference between what she 
was paid by the tortfeasor's insurer and the limit of liability 
under her UIM coverage.  
¶5 
The issue presented is whether a UIM insurance 
policy's definition of an underinsured motor vehicle as a motor 
vehicle that is insured with bodily injury liability limits less 
than the limits of liability of the UIM policy without regard 
for the amount the injured person actually receives from the 
tortfeasor's 
insurer 
is 
a 
reducing 
clause 
prohibited 
by 
Wis. Stat. § 632.32(4m) and (5)(i).   
¶6 
The circuit court dismissed the plaintiff's claim for 
her UIM coverage against American Family on the ground that the 
tortfeasor's 
vehicle 
did 
not 
meet 
the 
definition 
of 
an 
underinsured motor vehicle in the plaintiff's UIM policy; the 
limits in the plaintiff's UIM policy were equal to the limits in 
the tortfeasor's liability policy (both $300,000 per person).  
The circuit court therefore granted summary judgment to American 
Family, concluding that the plaintiff's UIM policy did not cover 
the plaintiff under the facts of the instant case.  The court of 
appeals affirmed the judgment of the circuit court.   
¶7 
We conclude that prior cases upholding definitions of 
an underinsured motor vehicle similar to the one in the instant 
case remain good law for the issues they reached, but they do 
not resolve the issue presented by the instant case.  The prior 
cases, unlike the instant case, involved only one injured person 
No. 
2004AP1513   
 
4 
 
who was paid the full amount of the tortfeasor's liability 
policy.   
¶8 
We further conclude that when a tortfeasor injures 
more than one person in a single occurrence and the injured 
persons are not insured under the same UIM policy, a definition 
of an underinsured motor vehicle that compares the injured 
person's UIM limits to the limits of a tortfeasor's liability 
policy without regard to the amount the injured person actually 
receives 
from 
the 
tortfeasor's 
insurer 
is 
invalid 
under 
Wis. Stat. § 632.32 (4m) and (5)(i).  The definition contravenes 
the purpose of UIM coverage under Wis. Stat. § 632.32(4m) and 
functions as an impermissible reducing clause when a tortfeasor 
injures more than one person in a single occurrence and the 
injured persons are not insured under the same UIM policy.2   
I 
¶9 
The following material facts about the automobile 
accident and the relevant insurance policies are undisputed.   
¶10 The tortfeasor fell asleep while driving.  Her car 
collided with a car driven by the plaintiff, who suffered 
serious 
injuries. 
 
Joshua 
Opichka, 
a 
passenger 
in 
the 
tortfeasor's car, was also seriously injured in the accident.     
¶11 The tortfeasor is totally responsible for all damages.  
Her liability insurance policy issued by Secura Insurance 
                                                 
2 We do not address the situation in which the injured 
persons are insured under the same UIM policy.  In the present 
case the plaintiff is insured under an American Family UIM 
policy and the other injured person, Joshua J. Opichka, is 
insured under a Hastings Mutual Insurance Co. UIM policy. 
No. 
2004AP1513   
 
5 
 
provides for bodily injury liability limits of $300,000 per 
person and $300,000 per accident. 
¶12 The plaintiff is insured under her father's insurance 
policy issued by American Family.  The policy includes an 
endorsement providing for UIM coverage with limits of $300,000 
per person and $300,000 per occurrence.  The UIM endorsement 
defines an underinsured motor vehicle in relevant part as 
follows: 
Underinsured motor vehicle means a motor vehicle which 
is insured by a liability bond or policy at the time 
of the accident which provides bodily injury liability 
limits less than the limits of liability of this 
Underinsured Motorists coverage. 
¶13 The plaintiff filed suit against the tortfeasor and 
the tortfeasor's insurance company.  She also filed suit against 
American Family, her UIM insurer, for the difference between any 
amount she was paid by the tortfeasor's insurer and the $300,000 
provided by her UIM policy with American Family. 
¶14 The parties stipulated that the plaintiff's damages 
were greater than $250,000 and that the tortfeasor's $300,000 
limits of liability would be shared between the two injured 
persons; the plaintiff received $250,000, and Opichka, $50,000.3 
¶15 Following the stipulation, American Family moved for 
summary judgment on the ground that its UIM endorsement was not 
                                                 
3 The parties also stipulated that Opichka's damages were 
greater than the $50,000.  On August 28, 2005, we ordered 
Opichka's petition for review of his case, Welin v. Pyrzynski, 
No. 2004AP2386, unpublished slip op. (Wis. Ct. App. June 16, 
2005), held in abeyance pending our decision in the instant 
case. 
No. 
2004AP1513   
 
6 
 
triggered because the tortfeasor's vehicle did not meet the 
definition 
of 
an 
underinsured 
motor 
vehicle 
under 
the 
plaintiff's policy.  The plaintiff contends that the definition 
of 
underinsured 
motor 
vehicle 
in 
American 
Family's 
UIM 
endorsement, under the circumstances of the instant case, is an 
impermissible reducing clause.  
II 
¶16 This case requires us to interpret and apply prior 
case law, Wis. Stat. § 632.32(4m) and (5)(i), and the insurance 
policy to undisputed facts.  The interpretation and application 
of case law and statutes to undisputed facts are ordinarily 
questions of law that this court decides independently of the 
circuit court and court of appeals but benefiting from their 
analyses. 
 
An 
interpretation 
of 
an 
insurance 
policy 
is 
ordinarily a question of law.4  Finally, because this case was 
decided on summary judgment and the material facts are not in 
dispute, we follow the standard of review set forth in Wis. 
Stat. § 802.08; we determine whether the circuit court correctly 
decided an issue of law in its decision on the summary judgment 
motion.5 
III 
¶17 We now consider whether American Family's definition 
of an underinsured motor vehicle is, under the facts of the 
                                                 
4 West Bend Mut. Ins. Co. v. Playman, 171 Wis. 2d 37, 40, 
489 N.W.2d 37 (1992). 
5 Prince v. Bryant, 87 Wis. 2d 662, 666, 275 N.W.2d 662 
(1979). 
No. 
2004AP1513   
 
7 
 
instant case, an impermissible reducing clause.  We begin by 
summarizing the parties' arguments. 
¶18 The plaintiff asserts that because the definition of 
an underinsured motor vehicle denies her all UIM coverage 
regardless of the sum paid her by the tortfeasor's liability 
policy, the policy definition is in effect a reducing clause 
prohibited by Wis. Stat. § 632.32(4m)(d) and (5)(i).6  The 
plaintiff urges that the amount of UIM coverage available to her 
should be the difference between what she has received from the 
tortfeasor's insurer and the $300,000 limit of liability in 
American Family's UIM endorsement. 
¶19 American Family, on the other hand, argues that the 
definition of an underinsured motor vehicle is just that, a 
definition serving as a threshold inquiry as to whether the UIM 
endorsement 
applies. 
 
American 
Family 
asserts 
that 
its 
definition of an underinsured motor vehicle has been upheld in 
prior cases and that the plaintiff's actual recovery from the 
tortfeasor's insurer is irrelevant.  If the tortfeasor's vehicle 
does not meet the definition of an underinsured motor vehicle in 
American Family's UIM endorsement, American Family reasons, UIM 
                                                 
6 The plaintiff also asks us to determine whether American 
Family's definition of an underinsured motor vehicle renders her 
coverage illusory and to determine that the policy in the 
present case is rendered ambiguous by the "Special Notice to 
Policy Holders" contained in the plaintiff's policy, which 
served the purpose of offering underinsured motorist coverage.  
Because we determine that in cases when there is more than one 
injured party covered by separate UIM policies a limit-to-limit 
definition of underinsured motor vehicle functions as an 
impermissible reducing clause, we need not address these issues.   
No. 
2004AP1513   
 
8 
 
coverage does not apply and there can be no impermissible 
reducing clause.   
¶20 We agree with the plaintiff.  We first set forth an 
overview of UIM coverage.  Next we examine our prior UIM cases 
upon which the parties rely.  We then turn to Wis. Stat. 
§ 632.32(4m), 
governing 
UIM 
coverage, 
and 
§ 632.32(5)(i), 
governing reducing clauses in UIM policies.  We conclude that 
American Family's definition of an underinsured motor vehicle is 
an invalid reducing clause under the facts of the instant case. 
A 
¶21 To put the present case in perspective we must examine 
the theory of UIM coverage adopted in Wisconsin and the validity 
of American Family's definition of an underinsured motor 
vehicle.   
¶22 The statutes do not require or define UIM coverage.  
Section 632.32(4m)(d) provides that if an insured accepts UIM 
coverage, the insurer shall include coverage in limits of at 
least $50,000 per person and $100,000 per accident.  In other 
words, once the insured buys a UIM policy the statute sets the 
minimum amount of coverage.  Wisconsin Stat. § 632.32(4m)(d) 
provides in relevant part as follows: 
(d) If an insured who is notified under par. (a)1. 
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 under par. 
(a)2., the insurer shall include the coverage under 
the renewed policy in limits of at least $50,000 per 
person and $100,000 per accident.   
No. 
2004AP1513   
 
9 
 
¶23 The UIM endorsement under which the plaintiff was 
insured had limits of $300,000 per person and $300,000 per 
accident.   
¶24 This court has identified two approaches to UIM 
coverage.  Under one view, UIM coverage compensates an insured 
accident victim when the insured's damages exceed the recovery 
from the at-fault driver.  The UIM coverage is for a set dollar 
amount above and beyond the liability limits of the at-fault 
driver.  Under this view, UIM coverage operates as a separate 
fund, over and above the amount paid by the tortfeasor's 
insurance, available up to the limit of the UIM policy for the 
payment of the insured's uncompensated damages.7 
¶25 According to this view, UIM coverage compares the 
dollar value of the damages suffered by the holder of the UIM 
policy to the amount the injured person is reimbursed by the 
tortfeasor.  If the amount of the tortfeasor's reimbursement to 
the injured person is less than the injured person's damages, 
the UIM policy makes up the difference, up to the limit of that 
UIM policy. 
¶26 Under a second view of UIM coverage, UIM coverage is 
designed to put the insured in the same position he or she would 
                                                 
7 State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, 
¶16, 275 Wis. 2d 35, 683 N.W.2d 75; Badger Mut. Ins. Co. v. 
Schmitz, 2002 WI 98, ¶17, 255 Wis. 2d 61, 647 N.W.2d 223; Taylor 
v. Greatway Ins. Co., 2001 WI 93, ¶¶32-35, 245 Wis. 2d 134, 628 
N.W.2d 916 (Bradley, J., dissenting); 3 Irwin E. Schermer & 
William J. Schermer, Automobile Liability Insurance § 40.01 (4th 
ed. 2004).  
No. 
2004AP1513   
 
10 
 
have occupied had the tortfeasor's liability limits been the 
same as the UIM limits purchased by the insured.  Under this 
"limits-to-limits" view, an insured purchases a predetermined, 
fixed level of insurance coverage made up of payments from both 
the at-fault driver's liability policy and the injured person's 
UIM policy.8   
¶27 The cases have viewed Wis. Stat. § 632.32(4m) as 
allowing insurance companies to write policies adopting either 
the first or the second view of UIM coverage.9  Accordingly, the 
definition of an underinsured motor vehicle contained in the 
American Family UIM policy in the present case, adopting the 
second view of UIM coverage, has been upheld and applied in a 
number of cases.  
¶28 The plaintiff does not seek to disturb the limits-to-
limits definition of an underinsured motor vehicle when the sole 
injured party recovers the entire limit of liability of the at-
                                                 
8 Langridge, 275 Wis. 2d 35, ¶17 (quoting Badger Mut. Ins. 
Co. 
v. 
Schmitz, 
2002 
WI 
98, 
¶18, 
255 
Wis. 2d 61, 
647 
N.W.2d 223); Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶33, 
255 Wis. 2d 61, 647 N.W.2d 223 (quoting Dowhower v. West Bend 
Mut. 
Ins. 
Co., 
2000 
WI 
73, 
¶17, 
236 
Wis. 2d 113, 
613 
N.W.2d 557). 
See Schmitz, 255 Wis. 2d 61, ¶33 ("[T]he legislature made 
clear that the second theory of UIM coverage, in which the 
insured is purchasing a fixed amount of coverage, is not invalid 
per se.").  
9 See, e.g., Langridge, 275 Wis. 2d 35, ¶35; Praefke v. 
Sentry Ins. Co., 2005 WI App 50, ¶¶7, 12-13, 279 Wis. 2d 325, 
694 N.W.2d 442 (limits-to-limits coverage invokes the second 
view that UIM coverage "is a 'predetermined, fixed' sum made up 
of payments from both policies"). 
No. 
2004AP1513   
 
11 
 
fault driver.  The issue the plaintiff presents is whether the 
limits-to-limits definition of an underinsured motor vehicle 
functions as an impermissible reducing clause when applied to 
multiple claimants covered under different UIM policies.   
B 
¶29 American Family contends that our prior cases control 
the outcome of the present case.  These cases uphold the 
definition of an underinsured motor vehicle used in the American 
Family UIM policy in the present case.   
¶30 In Taylor v. Greatway Insurance Co.10 (which relies on 
Smith v. Atlantic Mutual Insurance Co.),11 the policy (like the 
policy in the present case) defined an underinsured motor 
vehicle as a motor vehicle with liability limits less than the 
limits of liability provided for in the plaintiff's underinsured 
motorist policy.12  The Taylor court held that the policy 
                                                 
10 Taylor, , 245 Wis. 2d 134, ¶13 (citing Smith v. Atlantic 
Mut. Ins. Co., 155 Wis. 2d 808, 811, 814, 456 N.W.2d 597 
(1990)).    
11 Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 811, 
814, 456 N.W.2d 597 (1990). 
In Smith the limit of the insured's UIM policy was $50,000 
and the limit of the responsible person's liability policy was 
also $50,000.  There was only one injured person in Smith.  The 
UIM insured had available the full limits of the responsible 
person's liability policy and was paid the full limits of that 
policy. 
12 The definition of an underinsured motor vehicle in the 
underinsured motorist endorsement in the present case is 
identical to the definition at issue in the American Family 
policy issued in the Taylor case. 
No. 
2004AP1513   
 
12 
 
definition was unambiguous and that the injured person was not 
entitled 
to 
underinsured 
motorist 
coverage 
because 
the 
tortfeasor's vehicle was not an underinsured vehicle as defined 
by the 
injured person's 
UIM policy; 
the 
limits of the 
underinsured motorist policy were identical to (not less than) 
the liability limits in the tortfeasor's policy.13      
¶31 In the Taylor and Smith cases only one injured person 
was involved.  The injured persons in Taylor and in Smith each 
received the full amount of the at-fault driver's insurance 
limit of liability.  A limits-to-limits definition of an 
underinsured motor vehicle did not have the effect of reducing 
the coverage provided by the UIM policy in those cases.14   
¶32 Thus, in Taylor and Smith, the sole injured person was 
reimbursed by the amount of the predetermined, fixed level of 
insurance provided in the UIM policy by payment from the at-
fault driver's full limits of liability.  
¶33 The 
plaintiff's 
predetermined, 
fixed 
level 
of 
insurance coverage in the present case under the UIM policy was 
$300,000, payable by either the tortfeasor's insurer, the 
                                                 
13 Taylor, 245 Wis. 2d 134, ¶28. 
14 Unlike the present case, in Taylor the insured did "not 
argue that any section, or combination of sections, in each UIM 
policy issued by American Family violate[d] Wis. Stat. § 631.43 
or any other statute."  Taylor, 245 Wis. 2d 134, ¶13.  The issue 
in Taylor was whether a reasonable insured would understand the 
Greatway policy to be a limits-to-limits or limits-to-damages 
underinsured motorist policy.  This case, on the other hand, 
addresses 
whether 
a 
limits-to-limits 
underinsured 
motorist 
policy is permissible when there are multiple claimants with 
separate UIM policies.  
No. 
2004AP1513   
 
13 
 
plaintiff's UIM policy, or both.  By virtue of the parties' 
stipulation in the present case, the plaintiff received only 
$250,000 of the tortfeasor's liability limit.  Were we to accept 
American Family's argument, the plaintiff would not recover a 
predetermined, fixed level of insurance coverage.15   
¶34 The tortfeasor's vehicle in the present case became 
underinsured because the tortfeasor's insurer made payments to 
injured persons other than the plaintiff.  The tortfeasor's 
insurance company's payment to the plaintiff was less than the 
plaintiff's UIM limits.  To put the plaintiff in the same 
position she would have been in had the tortfeasor's liability 
limits as to her been the same as the UIM limits she purchased, 
she must receive $50,000 from American Family to bring her 
recovery to $300,000. 
¶35 Thus, the issue presented in the instant case is 
different from the one presented in Taylor and Smith.  Because 
Taylor and Smith are distinguishable from the present case, 
those cases do not resolve the present dispute.  Taylor is 
instructive, however, about the nature of UIM policies under the 
                                                 
15 Under the circumstances of the present case, if American 
Family's position is adopted, the plaintiff would have been 
better off had the tortfeasor had no liability insurance.  With 
liability limits for uninsured motorist coverage of at least 
$300,000 (the liability limit she purchased for underinsured 
motorist coverage), the plaintiff would have recovered $300,000 
from her uninsured motorist policy with American Family had the 
tortfeasor had no liability insurance.  Yet, under American 
Family's theory of the instant case, she recovers only $250,000 
with UIM coverage and a partially insured tortfeasor.  This 
result does not make any sense. 
No. 
2004AP1513   
 
14 
 
statute.  A UIM policy must provide "a fixed level of UIM 
recovery that will be arrived at by combining payments made from 
all sources."16       
¶36 American Family also calls our attention to State Farm 
Mutual Automobile Insurance Co. v. Langridge, 2004 WI 113, 275 
Wis. 2d 35, 683 N.W.2d 75, in which the court commented on the 
multiple-claimant situation in a way that American Family 
construes as favorable to it.  In Langridge, the UIM policy 
provided "coverage for an insured when a tortfeasor becomes 
functionally underinsured by virtue of payments to others, in 
that the tortfeasor's remaining coverage to compensate the 
insured is less than the insured's own UIM limits."17  Quoting 
Arnold P. Anderson's text, Wisconsin Insurance Law at 4.3(E)(4th 
ed. 1998), the Langridge court commented that in a UIM policy 
using American Family's definition of an underinsured motor 
vehicle, the "'payment to other injured parties that reduces the 
coverage available to an insured below the UIM limits will 
usually not trigger UIM coverage.'"18   
                                                 
16 Taylor, 245 Wis. 2d 134, ¶¶24-25 ("In Dowhower, we held 
that a reducing clause in an UIM policy is valid so long as '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.' . . . We conclude that the 
language in each of American Family's policies at issue 
satisfies the requirements of Dowhower."). 
See also Schmitz, 255 Wis. 2d 61, ¶33. 
17 Langridge, 275 Wis. 2d 35, ¶35. 
18 Langridge, 275 Wis. 2d 35, ¶35 (emphasis in Langridge, 
not Anderson). 
No. 
2004AP1513   
 
15 
 
¶37 The same sentence appears in the 2004 version of the 
Anderson text, and the operative word in the sentence is 
obviously "usually."  Anderson cites no Wisconsin case resolving 
the issue of payment to multiple claimants.  Anderson notes that 
there is a division of authority on whether payment to other 
injured parties that reduces coverage available to an insured 
below the insured's UIM limits will trigger UIM coverage.  When 
a policy or state statute defines an underinsured motor vehicle 
as the American Family policy does, cases seem to go both ways.19 
¶38 Finally, American Family (and the decision of the  
court of appeals in the present case) relies on Praefke v. 
Sentry Insurance Co., 2005 WI App 50, 279 Wis. 2d 325, 694 
N.W.2d 442, a recent court of appeals case with facts similar to 
the present case.  In Praefke, Roger Praefke was driving his own 
vehicle when he was seriously injured in an accident with a 
vehicle driven by Thomas Grandstaff, the sole negligent person.  
A passenger in Grandstaff's vehicle was killed.   
¶39 Grandstaff's vehicle had a $100,000 liability policy; 
$75,000 was paid to Praefke and $25,000 to the estate of 
Grandstaff's deceased passenger.  Praefke's UIM policy with 
                                                 
19 See, e.g., cases cited in 1 Arnold P. Anderson, Wisconsin 
Insurance Law § 4.31 (Dec. 2004); 3 Schermer & Schermer, supra 
note 7, § 40.10; 24 Eric Mills Holes, Appleman on Insurance 2d 
§ 147.5[D] (2004); 3 Alan I. Widiss, Uninsured and Underinsuerd 
Motorist Insurance § 35.5 (rev. 2d ed. 2001); Lee R. Russ, 
Annotation, Right to Recover Under Uninsured or Underinsured 
Motorist 
Insurance 
for 
Injuries 
Attributable 
to 
Joint 
Tortfeasors, One of Whom Is Insured, 24 A.L.R. 4th 63, § 7 
(1983) (Supp. 1999). 
No. 
2004AP1513   
 
16 
 
Sentry Insurance provided $100,000 UIM limits of liability per 
person and a definition of an underinsured motor vehicle 
substantially similar to the definition at issue in the present 
case. 
¶40 The 
court 
of 
appeals 
concluded 
that 
because 
Grandstaff's vehicle was not an underinsured motor vehicle under 
the terms of the UIM motorist policy, Praefke could not recover 
from Sentry Insurance.20   
¶41 The court of appeals in Praefke did not consider 
whether Wis. Stat. § 632.32(4m) and (5)(i) rendered the policy 
definition of an underinsured motor vehicle an impermissible 
reducing clause.21  The Praefke court never got beyond the 
definition of an underinsured motor vehicle.  Accordingly, 
Praefke does not resolve the issue presented in the instant case 
with multiple claimants in which the plaintiff argues that the 
                                                 
20 Praefke, 279 Wis. 2d 325, ¶¶12-13. 
21 Praefke's brief argued that, when read as a whole, his 
policy was ambiguous as to whether the reducing clause included 
in 
his 
underinsured 
motorist 
endorsement 
applied 
to 
the 
underinsured motorist coverage.  Nowhere in his court of appeals 
brief did Praefke argue that the definition of underinsured 
motorist itself constituted an impermissible reducing clause. 
Praefke argued that because the purpose of UIM coverage is 
to 
provide 
a 
predetermined, 
fixed 
level 
of 
coverage, 
a 
reasonable insured would understand that the definition of an 
underinsured motor vehicle would operate to compare the UIM 
policy limits with the amounts actually paid by the at-fault 
driver's insurer.  
No. 
2004AP1513   
 
17 
 
definition 
of 
an 
underinsured 
motor 
vehicle 
contravenes 
§§ 632.32(4m) and (5)(i) under the facts of the present case.22  
¶42 The cases upon which American Family relies assist in 
our resolution of the issue presented in the instant case, but 
they do not resolve the instant case.  These cases hold that the 
                                                 
22 We disagree with the court of appeals' decision in the 
present case that Praefke is controlling.  In Praefke, the court 
of appeals considered only whether the language of the policy 
definition of an underinsured motor vehicle was ambiguous.  The 
court of appeals did not address the issue raised in the instant 
case but not raised in Praefke: whether the definition of an 
underinsured motor vehicle constitutes an impermissible reducing 
clause.  We therefore need not overturn Praefke.  It is limited 
to its holding that the limits-to-limits definition of an 
underinsured motorist was unambiguous in that case.   
 
We note, however, that the court of appeals concluded in 
its second opinion on reconsideration of Opichka's case (Welin 
v. Pyrzynski, No. 2004AP2386, unpublished slip op. (Wis. Ct. 
App. June 16, 2005)) that the Praefke case did control Opichka's 
case (whose facts are substantially similar facts to those in 
the instant case), even though the Praefke court did not address 
the reducing clause argument.  The court of appeals commented, 
however, that Opichka's arguments (which are similar to the 
plaintiff's arguments in the present case) were persuasive and 
suggested that courts and litigants would benefit from this 
court's review of those arguments.  See Welin v. Pyrzynski, No. 
2004AP2386, unpublished slip op. (Wis. Ct. App. June 16, 2005) 
(second opinion in Opichka's case). 
 
The court of appeals in its first decision in Opichka's 
case 
determined 
that 
although 
Taylor 
controlled 
the 
interpretation of the policy language, Taylor did not address 
the relationship between the statutory purpose of underinsured 
motorist coverage, the reducing clause statute, and the multiple 
injured parties situation.  The court of appeals concluded that 
the 
limits-to-limits 
definition 
of 
an 
underinsured 
motor 
vehicle, when there are two injured parties with separate UIM 
policies, functions as an impermissible reducing clause.  See 
Welin v. Pyrzynski, No. 2004AP2386, unpublished slip op. (Wis. 
Ct. App. April 21, 2005) (first opinion in Opichka's case, 
withdrawn on motion for reconsideration May 17, 2005). 
No. 
2004AP1513   
 
18 
 
limits-to-limits definition of an underinsured motor vehicle in 
the policy should, under the UIM statute, be applied as written 
when one injured party recovers the full limits of the at-fault 
driver's liability policy.  We therefore turn to Wis. Stat. 
§ 632.32(5)(i), 
authorizing 
reducing 
clauses, 
to 
determine 
whether the limits-to-limits definition of an underinsured motor 
vehicle contravenes the statute under the circumstances of the 
present case. 
C 
¶43 The 
plaintiff 
contends 
that 
American 
Family's 
definition 
of 
an 
underinsured 
motor 
vehicle 
under 
the 
circumstances of the present case constitutes a hidden reducing 
clause 
and 
contravenes 
Wis. Stat. § 632.32(5)(i), 
which 
identifies the three permissible reducing clauses in a policy of 
uninsured or underinsured motorist coverage as follows: 
(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. 
2. 
Amounts 
paid 
or 
payable 
under 
any 
worker's 
compensation law. 
3. Amounts paid or payable under any disability 
benefits laws. 
¶44 The 
only 
permissible 
reducing 
clause 
arguably 
applicable in the present case allowing a reduction of limits 
under a UIM policy is subdivision 1. of § 632.32(5)(i).  
No. 
2004AP1513   
 
19 
 
Subdivision 1 allows an insurance policy to provide that the 
limits under the policy for UIM coverage for bodily injury 
resulting from any one accident may be reduced by the amounts 
paid by the insurer of the person who may be legally responsible 
for the bodily injury for which the payment is made.  The 
definition of an underinsured motor vehicle is not listed under 
§ 632.32(5)(i) as a permissible basis on which to reduce UIM 
limits.      
¶45 American Family's UIM endorsement contains a reducing 
clause substantially incorporating the words of Wis. Stat. 
§ 632.32(5)(i)1.  The reducing clause states: 
The limits of liability of this coverage will be 
reduced by: 
1. A payment made or amount payable by or on behalf of 
any person or organization which may be legally 
liable, or under 
any 
collectible 
auto 
liability 
insurance, for loss caused by an accident with an 
underinsured motor vehicle. 
¶46 The plaintiff argues that in the present case the 
effect of American Family's definition of an underinsured motor 
vehicle and its reducing clause is to permit the limits under 
her UIM policy for bodily injury (which are $300,000) to be 
reduced by $300,000 (the limits of the tortfeasor's liability), 
a sum larger than the amounts paid her by the tortfeasor's 
insurer, namely $250,000.  This $300,000 reduction violates the 
very language of Wis. Stat. § 632.32(5)(i)1., which limits the 
reduction to the amounts paid by the tortfeasor's insurer for 
the bodily injury for which the payment is made.  Instead the 
American Family policy reduces the plaintiff's UIM coverage by 
No. 
2004AP1513   
 
20 
 
the amount of the tortfeasor's liability limits.  Furthermore, 
the UIM endorsement does not comply with the purpose of UIM 
limits-to-limits coverage under § 632.32(4m), that is, it does 
not furnish the UIM insured with a predetermined, fixed level of 
insurance coverage. 
¶47  The legislative history of 1995 Wis. Act 21 (1995 
Senate Bill 6) adopting Wis. Stat. § 632.32(5) demonstrates that 
the statute restricts reductions to the liability limits to 
amounts paid to the UIM insured.  The Legislative Reference 
Bureau's Analysis of the bill explains that the purpose of 
subdivision 1. of Wis. Stat. § 632.32(5)(i) is to permit 
reducing clauses based on amounts received by an injured person 
covered by an uninsured or underinsured motorist policy from 
other sources, including amounts paid by a person legally 
responsible.  
The 
Legislative Reference Bureau's Analysis 
attached to the bill available to all legislators states: 
The bill also permits motor vehicle insurance policies 
to reduce the limits payable under the policy for 
uninsured 
or 
underinsured 
motorist 
coverage 
by 
payments received from other sources.  Payments for 
bodily injury or death may be reduced by amounts paid 
by a person who is legally responsible . . . .23 
                                                 
23 Drafting Record for 1995 Wis. Act 21, re: S.B. 6, located 
at the Wisconsin Legislative Reference Bureau, Madison, Wis. 
(emphasis added).  For a discussion of the Legislative Reference 
Bureau's analysis of bills, see State ex rel. Kalal v. Circuit 
Court for Dane County, 2004 WI 58, ¶69, 271 Wis. 2d 633, 681 
N.W.2d 110 (Abrahamson, C.J., concurring).   
See generally 1 Anderson, supra note 19, §§ 3.47-.52 
(discussing the reducing clause provisions of Wis. Stat. 
§ 632.32(5)(i) enacted by 1995 Wis. Act 21).  
No. 
2004AP1513   
 
21 
 
¶48 We 
must 
read 
Wis. 
Stat. 
§ 632.32(5)(i) 
with 
§ 632.32(4m).  Dowhower and Badger Mutual are instructive, 
although in those cases the UIM coverage had been triggered and 
only the validity of the reducing clause was at issue.  These 
cases help explain that the purpose of UIM coverage under Wis. 
Stat. § 632.32(4m), along with the application of Wis. Stat. 
§ 632.32(5)(i) 
governing 
reducing 
clauses, 
renders 
the 
definition of an underinsured motor vehicle invalid in the 
present case.   
¶49 We have explained numerous times that the insured's 
purpose 
in 
purchasing 
a 
UIM 
policy 
is 
to 
purchase 
a 
predetermined, fixed level of UIM recovery that is arrived at by 
combining payments from all sources.   
¶50 The Dowhower case explained that when Wis. Stat. 
§ 632.32(4m)(d) and (5)(i) 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. . . . 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."24  In discussing the validity of a 
reducing clause, we stated in Dowhower (and quoted Dowhower with 
approval in Taylor) that a reducing clause in a UIM policy would 
be valid only if "the policy clearly sets forth that the insured 
                                                 
24 Dowhower, 236 Wis. 2d 113, ¶20. 
No. 
2004AP1513   
 
22 
 
is purchasing a fixed level of UIM recovery that will be arrived 
at by combining payments made from all sources."25   
¶51 Badger 
Mutual 
emphasized 
that 
the 
purpose 
of 
underinsured motorist coverage is to permit a prudent insured to 
purchase a predetermined, fixed amount of coverage that he or 
she will receive (up to the damages incurred) from all available 
sources, including the tortfeasor's liability insurance and his 
or her own underinsured motorist policy.26  We said in Badger 
Mutual that "[i]nsureds will then understand that if they want 
to be assured of having, say, $200,000 in total available 
coverage, they will have to purchase UIM coverage with a 
$200,000 limit."27 
¶52 Our analysis of UIM coverage in these three cases 
reflects that the underlying purpose of the underinsured 
motorist statute is not to permit limits-to-limits coverage as 
such, but rather, to allow UIM policies that furnish an insured 
a predetermined, fixed level of coverage for an accident from a 
combination of the tortfeasor's insurance and the UIM insurance.  
When only one person is injured by the tortfeasor, comparing the 
tortfeasor's limits to the underinsured motorist limits supports 
this statutory purpose.  In Badger Mutual, Dowhower, and Taylor 
there was only one claimant.  Were we to allow the plaintiff, 
under the circumstances of the present case, to receive a 
                                                 
25 Id., ¶33.  See Taylor, 245 Wis. 2d 134, ¶¶24-25. 
26 Schmitz, 255 Wis. 2d 61, ¶¶36-38. 
27 Id., ¶38. 
No. 
2004AP1513   
 
23 
 
payment from the tortfeasor's insurer that is less than the 
plaintiff's UIM coverage and not have the plaintiff's UIM 
coverage be triggered, the plaintiff would not have purchased a 
predetermined, fixed level of $300,000 coverage from some 
combination of sources of payment.  Furthermore, the plaintiff's 
recovery would be reduced by an amount not permitted under Wis. 
Stat. § 632.32(5)(i). 
¶53 Considering that the injured persons had separate UIM 
policies, and considering the purpose of UIM insurance, the 
narrow statutorily permitted reducing clauses, and the language 
of the reducing clause in the plaintiff's policy, we conclude 
that this insurance policy defining an underinsured motor 
vehicle by comparing underinsured motorist coverage limits to 
the 
limits 
of 
a 
tortfeasor's 
liability 
policy 
without 
considering the amount actually available to the insured from 
the tortfeasor's liability policy contravenes the concept that 
the UIM insured purchases a predetermined, fixed amount of 
coverage and operates as a hidden reducing clause.   
¶54 American Family argues that its definition of an 
underinsured motor vehicle is not a reducing clause; it is 
nothing more than an unambiguous definition of underinsured 
motorist coverage.  American Family argues that reducing clauses 
under Wis. Stat. § 632.32(5)(i) have a known and accepted 
meaning.  Reducing clauses in UIM policies reduce the limits of 
the UIM policy by amounts paid from accepted sources such as 
liability 
payments, 
worker's 
compensation 
payments, 
and 
disability payments.  As such, American Family argues, reducing 
No. 
2004AP1513   
 
24 
 
clauses have a function that is separate and distinct from the 
triggering definition of UIM coverage.      
¶55 We are not persuaded by American Family's argument.  
American Family's labeling a provision as a definition does not 
prevent us from analyzing the consequences of the provision to 
determine its validity.28  A proper analysis of an insurance 
policy considers the effect of a provision in a policy, not its 
characterization in the policy.29  Thus, in Mau v. North Dakota 
Insurance Reserve Fund, 2001 WI 134, ¶33, 248 Wis. 2d 1031, 637 
N.W.2d 45, although an occupancy requirement was contained in 
the policy's definition of a "named insured" and was not stated 
as an exclusion, the definition produced the same result as an 
exclusion, and we treated it as an exclusion. 
¶56 In the present case, the effect of American Family's 
definition of an underinsured motor vehicle as applied to the 
facts of the present case is to reduce UIM coverage to an 
insured when two or more persons covered by separate UIM 
policies are injured in a single occurrence.  The definition of 
                                                 
28 Mau v. North Dakota Ins. Reserve Fund, 2001 WI 134, ¶33, 
248 
Wis. 2d 1031, 
637 
N.W.2d 45 
("Although 
the 
occupancy 
requirement is part of the definition of named insured, for our 
analysis, we treat the definition the same as an exclusion.  The 
purpose of the occupancy requirement is to exclude coverage for 
persons not occupying the Alamo rental car.  The occupancy 
requirement, 
therefore, 
produces 
the 
same 
result 
as 
an 
exclusion.").  But see 1 Anderson, supra note 19, § 4.24 
(suggesting that Wisconsin case law supports the proposition 
that if the policy is not triggered in the first place, one does 
not get to any reducing clause issues). 
29 Klinger v. Prudential Prop. & Cas. Ins. Co., 2005 WI App 
105, ¶16, 282 Wis. 2d 535, 700 N.W.2d 290.  
No. 
2004AP1513   
 
25 
 
an underinsured motor vehicle does not provide the UIM insured 
with a predetermined, fixed UIM coverage and functions as a 
reducing clause, reducing UIM coverage provided to a UIM insured 
based not on payments to the insured but on payments made by the 
tortfeasor's insurance to other persons.  Yet Wis. Stat. 
§ 632.32(5)(i)1. permits reduction of limits of liability under 
UIM coverage only by amounts paid to the insured.    
¶57 In sum, we conclude that the definition of an 
underinsured motor vehicle in the policy at issue functions, 
under the circumstances of the instant case, to reduce coverage 
below the predetermined, fixed amount of coverage purchased by 
the named insured.  Because the reduction contravenes the 
purpose of UIM coverage and is not for amounts paid by a legally 
responsible person to the named insured, the provision is not 
authorized by Wis. Stat. § 632.32(4m) and (5)(i).  We conclude 
that "tying the availability of UIM coverage to the amount of 
the tortfeasor's liability limits, even when a portion of those 
funds are paid to another claimant [who is not insured under the 
same UIM policy], is not consistent with any theory of UIM 
coverage that has been recognized by Wisconsin courts or 
approved by the legislature."30  
D 
¶58 Having concluded that the policy definition of an 
underinsured motor vehicle in the plaintiff's policy serves, 
                                                 
30 Welin v. Pyrzynski, No. 2004AP2386, unpublished slip op., 
¶24 (Wis. Ct. App. Apr. 21, 2005) (first Opichka opinion, 
withdrawn on motion for reconsideration May 17, 2005). 
No. 
2004AP1513   
 
26 
 
under the circumstances of the instant case, as an impermissible 
reducing clause, we must now turn to the remedy.  Under Wis. 
Stat. 
§ 631.15(3m), 
when 
an 
insurance 
policy 
violates 
a 
statutory provision, the remedy is to enforce the policy as 
though it conformed to the statutory requirement.31   
¶59 In the present case, to conform to Wis. Stat. 
§ 632.32(4m) and (5)(i)1., the plaintiff's policy must be read 
to define an underinsured motor vehicle as an insured motor 
vehicle whose limits of liability paid or payable to the 
plaintiff are less than the limits of liability in the 
plaintiff's UIM policy because the tortfeasor's insurer has made 
payments to another claimant who does not share the plaintiff's 
UIM coverage. 
¶60 Under this definition, the tortfeasor's vehicle is 
underinsured because the tortfeasor's insurer has paid $250,000 
to the plaintiff, which is less than the tortfeasor's limits of 
liability and less than the plaintiff's UIM policy's stated 
limits of $300,000.  Thus, the plaintiff is able to recover 
                                                 
31 Wis. Stat. § 631.15 Contract rights under noncomplying 
policies. 
(1) Enforcement of policy terms. Except as otherwise 
specifically 
provided 
by 
statute, 
a 
policy 
is 
enforceable against the insurer according to its 
terms, even if it exceeds the authority of the 
insurer. 
(3m) Enforcement of statute and rule requirements. A 
policy that violates a statute or rule is enforceable 
against the insurer as if it conformed to the statute 
or rule.  
No. 
2004AP1513   
 
27 
 
$50,000 from American Family, the difference between her $300,000 
UIM policy and the $250,000 recovered from the tortfeasor's 
liability policy. 
* * * * 
¶61 We conclude that when a tortfeasor injures more than 
one person in a single occurrence and the injured persons are 
not insured under the same UIM policy, a definition of an 
underinsured motor vehicle that compares the injured person's 
UIM limits to the limits of a tortfeasor's liability policy 
without regard to the amount the injured person actually 
receives from the tortfeasor's insurer is invalid under Wis. 
Stat. § 632.32(4m) and (5)(i).  The definition contravenes the 
purpose of UIM coverage under Wis. Stat. § 632.32(4m) and 
functions as an impermissible reducing clause when a tortfeasor 
injures more than one person in a single occurrence and the 
injured persons are not insured under the same UIM policy. 
¶62 We further conclude that prior cases upholding similar 
definitions of an underinsured motor vehicle remain good law for 
the issues they reached but do not resolve the issue presented 
in the instant case.  The prior cases, unlike the instant case, 
involved only one injured person and the injured person was paid 
the full amount of the tortfeasor's liability policy.   
By the Court.—The decision of the court of appeals is 
reversed and the cause is remanded. 
No. 
2004AP1513   
 
 
 
1