In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 03-3702 & 03-3835

ALLSTATE INSURANCE COMPANY,

Plaintiff-Appellee, Cross-Appellant,

v.

DONNA E. KECA and TRISHA BONTEMPO,

Individually and as Guardian of Miranda Bontempo,

Defendants-Appellants, Cross-Appellees.

____________

Appeals from the United States District Court

for the Eastern District of Wisconsin.

No. 02 C 746—Rudolph T. Randa, Chief Judge.

____________

ARGUED APRIL 1, 2004—DECIDED MAY 20, 2004

____________

Before FLAUM, Chief Judge, and COFFEY and EVANS,

Circuit Judges.

FLAUM, Chief Judge. This appeal presents the question

whether an underinsured motorist (“UIM”) reducing clause

contained in the insurance policies held by the defendants

is enforceable under Wisconsin law, and if so, how the

clause applies. A severe automobile collision involving an

underinsured motorist and Donna E. Keca (“Keca”), Trisha

Bontempo (“Bontempo”) and Miranda Bontempo, a minor,

led to this action. In dispute is the amount of UIM benefits
2 Nos. 03-3702 & 03-3835

Keca and Bontempo (collectively “defendants”) are owed by

their insurer, Allstate Insurance Company (“Allstate”).

Before the district court, Allstate sought a declaratory

judgment that it owes no more than the $250,000 in UIM

benefits that it has already tendered to Keca and Bontempo

under the policies issued to them. The defendants appeal

the district court’s ruling allowing an offset from Allstate’s

coverage for the payment received by the defendants from

the tortfeasor’s insurance company. Allstate cross-appeals

the district court’s grant of summary judgment to the

defendants on the basis that the benefits Allstate paid to

Bontempo may not be offset from other coverage owed to

Keca by Allstate. For the reasons stated in this opinion, we

affirm the judgment of the district court. 

I. Background

On November 21, 2001, Trisha Bontempo was driving her

car in which her mother, Donna Keca, and four-year-old

daughter, Miranda Bontempo, were passengers. The

Bontempo vehicle was struck by a car driven by an intoxicated and underinsured motorist, Tina Cogley. The

Bontempos and Keca sustained serious injuries as a result

of the collision. It is undisputed that collectively their

medical bills are in excess of $449,000. As too often is the

case with reckless drivers, Cogley did not carry enough

insurance to cover the defendants’ injuries. The defendants

received only $50,000 under Cogley’s bodily injury liability.

At the time of the accident, both Keca and Bontempo were

holders of Allstate automobile insurance policies (the “Keca

policy” and the “Bontempo policy” or generally the “Allstate

policy”) which included UIM coverage. The Keca policy has

applicable UIM limits of $300,000 for each accident and the

Bontempo policy has applicable UIM limits of $100,000 for

each accident. Keca resides at the same address as the

Bontempos, making them “resident relatives” covered under
Nos. 03-3702 & 03-3835 3

each other’s insurance policies. It is undisputed that for the

accident at issue the Bontempo UIM coverage was primary

and the Keca UIM coverage was excess. Allstate has

tendered to the defendants $50,000 in UIM benefits under

the Bontempo policy and $200,000 in UIM benefits under

the Keca policy. 

Except as to coverage amounts, the Keca and Bontempo

policies are virtually identical. The policies are forty-seven

pages in length, including the main policy jacket and the

added endorsements. The “Auto Policy Declarations”

(“declarations”) page, containing a chart that reflects the

amounts of coverage, types of coverage, premiums, and

deductibles, appears at the beginning of each policy. The

declarations page sets forth the amount of UIM limits and

lists the documents that comprise the policy, including

Amendatory Endorsement form AU 1440-3 (“AU 1440-3”).

AU 1440-3 is a standalone document located at the end of

each policy that contains changes, amendments, and

additions to the provisions contained within the main policy

jacket. The heading at the top of page 1 of AU 1440-3

states, “This Endorsement Changes Your Policy—Keep It

With Your Policy”. AU 1440-3 contains—within five

pages—all the UIM-related provisions. The following basic

UIM coverage provisions are set forth on page 12 of AU

1440-3:

Part VII

Underinsured Motorists Coverage

Coverage SU

If your policy declarations indicates that you have this

coverage, we will pay those damages that an insured

person is legally entitled to recover from the owner or

operator of an underinsured auto because of bodily

injury sustained by an insured person. 
4 Nos. 03-3702 & 03-3835

The UIM “Limits of Liability” provision, set forth three

pages later, states that the coverage limit shown on the

policy declarations for “ ‘each accident’ is the maximum we

will pay for damages arising out of bodily injury to two or

more persons in any one motor vehicle accident.” The UIM

reducing clause, which appears immediately below the

Limits of Liability provision, states in part as follows:

The limit of Underinsured Motorists Coverage shall be

reduced by:

1. all amounts paid by or on behalf of any person or

organization that may be legally responsible for the

bodily injury for which the payment is made, including,

but not limited to, any amounts paid under the bodily

injury liability coverage of this or any other insurance

policy. . . . 

Based on these provisions, Allstate calculates the amount

it owes to the defendants as follows: the $50,000 received

from the tortfeasor, Cogley, was offset against the UIM

limits of both policies, leaving $50,000 in UIM benefits

under the Bontempo policy, which Allstate tendered, and

$250,000 in UIM benefits under the Keca policy. The

$50,000 in UIM benefits Allstate tendered under the

Bontempo policy was offset against the $250,000 UIM

coverage under the Keca policy, leaving $200,000 in UIM

benefits under that policy, which Allstate also tendered. It

is Allstate’s position that it has fulfilled its UIM coverage

obligations under the plain language of both insurance

policies. The defendants contend that the reduction clause

is unenforceable and they are entitled to $100,000 in UIM

benefits under the Bontempo policy and $300,000 in UIM

benefits under the Keca policy, for a combined total of

$400,000 in Allstate UIM benefits.

Allstate commenced this action seeking a declaratory

judgment that the UIM reducing clauses in the Keca and

Bontempo policies are enforceable, and therefore, no
Nos. 03-3702 & 03-3835 5

benefits beyond the $250,000 already tendered is owed to

the defendants by Allstate. The district court had jurisdiction over the action, pursuant to 28 U.S.C. § 1332(a),

because there was complete diversity of citizenship between

the parties, and the amount in controversy was in excess of

$75,000. Both parties filed motions for summary judgment.

In its order denying summary judgment to Allstate and

granting judgment in part to the defendants, the district

court rejected Allstate’s bid to reduce Keca’s UIM benefits

by the $50,000 paid under the Bontempo policy. However,

the district court also found that Allstate’s reducing clause

was not ambiguous in the context of the policy as a whole

and therefore approved the $50,000 reduction Allstate made

to each policy as a result of the payment tendered by

Cogley’s liability carrier. Allstate now appeals the former

decision, and the defendants appeal the latter.

II. Discussion

A federal court sitting in diversity has the obligation to

apply the law of the state as it believes the highest court of

the state would apply it if presented with the issue. See

Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087,

1090 (7th Cir. 1999). In this case, interpretation of

Allstate’s insurance policy is governed by the substantive

law of Wisconsin, the forum state. In Wisconsin, the

interpretation of an insurance contract and the conclusion

as to whether coverage exists are questions of law. See

Ledman v. State Farm Mut. Auto Ins. Co., 601 N.W.2d 312,

314 (Wis. Ct. App. 1999). We review grants of summary

judgment de novo to determine whether any genuine issue

of material fact exists and whether the moving party is

entitled to judgment as a matter of law. See Williams v.

Anderson, 959 F.2d 1411, 1413 (7th Cir. 1992). 
6 Nos. 03-3702 & 03-3835

A. Enforceability of Reducing Clause 

Prior to 1995, a number of Wisconsin courts found

reducing clauses void because they rendered purported UIM

coverage illusory. See, e.g., Kuhn v. Allstate Ins. Co., 510

N.W.2d 826, 827 (Wis. Ct. App. 1993). Courts deemed UIM

coverage subject to a reducing clause illusory because the

full coverage amount would never actually be paid by the

insurer (as the underinsured motorist would always be

contributing some portion of the payment). See, e.g., id. at

830. In 1995, the Wisconsin Legislature passed a statute,

Wis. Stat. § 632.32(5)(i), specifically allowing for UIM reducing clauses that operate to decrease the amount of the

insured’s total damages subject to UIM coverage from the

insurer by any amounts received from the underinsured

tortfeasor. Since the statute’s passage, considerable litigation relating to the validity and enforceability of reducing

clauses has continued to occur in Wisconsin courts. The

Wisconsin Supreme Court itself described UIM coverage as

a “ ‘legal iceberg,’ a seemingly straightforward area of the

law, which in fact can prove to be nettlesome to analyze.”

Badger Mut. Ins. Co. v. Schmitz, 647 N.W.2d 223, 227 (Wis.

2002) (quoting Dowhower v. W. Bend Mut. Ins. Co., 613

N.W.2d 552, 562 (Wis. 2000)).

In Dowhower, the Wisconsin Supreme Court concluded

that Wis. Stat. § 632.32(5)(i) does not violate substantive

due process under the state or federal constitutions. Id. at

565. It also held that the type of reducing clauses authorized by the statute are neither ambiguous nor against

public policy. Id. at 562. Two years later, in Schmitz, the

Wisconsin Supreme Court explained that although a

reducing clause may itself be clear, courts must still

consider whether it is unambiguous in the context of the

entire policy. 647 N.W.2d at 233. In that case, the court

invalidated an otherwise unambiguous reducing clause that

did not, when viewed in the context of the entire policy,

clearly set forth that the insured was purchasing a fixed
Nos. 03-3702 & 03-3835 7

level of UIM recovery arrived at by combining payments

from all sources. Id. at 238. In reaching this decision, the

court stated that the reducing clause “must be crystal clear

in the context of the whole policy.” Id. at 233. 

Focusing on the “crystal clarity” language, a number of

appellate courts post-Schmitz invalidated reducing clauses

after finding that they were contextually ambiguous. See

Gohde v. MSI Ins. Co., 661 N.W.2d 470, 471 (Wis. Ct. App.

2003); Dowhower v. Marquez, 659 N.W.2d 57, 59 (Wis. Ct.

App. 2003); Hanson v. Prudential Prop. & Cas. Ins. Co., 653

N.W.2d 915, 916 (Wis. Ct. App. 2002). However, this trend

was short-lived—the Wisconsin Supreme Court put the

breaks on expansive interpretations of the ambiguity

standard in the case Folkman v. Quamme, 665 N.W.2d 857,

866-70 (Wis. 2003). Folkman itself did not involve a UIM

reducing clause, but the opinion provided an extensive

discussion of such clauses. The Folkman court observed

that the “crystal clear” language it used in Schmitz had

produced the “unintended effect” of “alter[ing] the analytical

focus” in a series of court of appeals decisions. Id. at 868-69.

The court went on to emphasize that perfection in

draftsmanship was not the standard by which policies

should be measured. Id. at 869. Rather, the court explained

that “[t]o prevent contextual ambiguity, a policy should

avoid inconsistent provisions, provisions that build up false

expectations, and provisions that produce reasonable

alternative meanings.” Id. The court admonished that

“[f]erreting through a policy to dig up ambiguity should not

be judicially rewarded because this sort of ambiguity is

insufficient. Rather, inconsistencies in the context of a

policy must be material to the issue in dispute and be of

such a nature that a reasonable insured would find an

alternative meaning.” Id.

After Folkman was released, the Wisconsin Supreme

Court summarily vacated and remanded a series of appellate court decisions for further consideration in light of
8 Nos. 03-3702 & 03-3835

Folkman. See Gohde v. MSI Ins. Co., 668 N.W.2d 556 (Wis.

2003); Dowhower v. Marquez, 668 N.W.2d 735 (Wis. 2003);

Van Erden v. Sobczak, 668 N.W.2d 735 (Wis. 2003). Relying

on the directives from Folkman, courts reviewing two of

these three vacated cases changed their prior positions and

found the reducing clauses at issue to be contextually

unambiguous. See Gohde v. MSI Ins. Co., No. 01-2121, 2004

Wisc. App. LEXIS 252, at *11 (Wis. Ct. App. Mar. 23, 2004)

(policy not susceptible to more than one reasonable interpretation and language not contextually ambiguous); Van

Erden v. Sobczak, No. 02-1595, 2004 Wisc. App. LEXIS 40,

at **16-17 (Wis. Ct. App. Feb. 17, 2004) (UIM coverge

reducing clause clear and unambiguous). But see Dowhower

v. Marquez, 674 N.W.2d 906, 908 (Wis. Ct. App. 2003) (UIM

provisions contextually ambiguous). An additional postFolkman appellate court decision, Commercial Union

Midwest Ins. Co. v. Vorbeck, 674 N.W.2d 665, 676 (Wis. Ct.

App. 2003), also determined that the UIM reducing clause

at issue was unambiguous. 

Accordingly, in Folkman, the Wisconsin Supreme Court

clarified that “crystal clear” is not the standard for reviewing UIM reducing clauses in insurance contracts, and

following this clarification, the appellate courts have been

more reluctant to invalidate such clauses. While Schmitz

may have caused a momentary rush at the intermediate

level towards finding contextual ambiguity, Folkman has

clearly turned back this tide. The defendants submit that

the law on this issue is in a state of flux in Wisconsin and

request that we certify the issue of whether Allstate’s UIM

reducing clause is enforceable to the Wisconsin Supreme

Court. However, we conclude that the rules of decision in

this case have been clearly set out by the Wisconsin Supreme Court in Schmitz and Folkman and nothing would be

gained through certification. 

Against this backdrop, we now turn to the Allstate policy.

The declarations page in the policy specifically lists
Nos. 03-3702 & 03-3835 9

“Underinsured Motorists Insurance for Bodily Injury” and

the monetary limits for such coverage. The defendants

argue that ambiguity is created because there is no indication on the declarations page that the UIM maximum

coverage may be subject to further limitations due to the

reducing clause appearing later in the policy. However,

Wisconsin courts have expressly, and wisely, rejected this

argument. See, e.g., Sukala v. Heritage Mut. Ins. Co., 622

N.W.2d 457, 461 (Wis. Ct. App. 2000) (“A declarations page

is intended to provide a summary of coverage and cannot

provide a complete picture of coverage under a policy.”). The

declarations page in the Allstate policy lists many coverages

(e.g., bodily injury, property damage) without describing all

applicable coverage benefits and restrictions set forth in the

policy jacket and endorsements. A detailed description on

the declarations page of all of the policy’s coverage benefits

and restrictions would arguably only create confusion. 

After the declarations page, UIM coverage is not mentioned again for nearly forty pages, at which point the UIM

endorsement is found within AU 1440-3. The defendants

argue that ambiguity arises from the omission of references

to UIM coverage on various pages throughout the policy

appearing before the UIM endorsement. We disagree.

Insurers routinely add new coverages to their insureds’

policies by way of endorsement. Wisconsin courts have

found that the fact that UIM provisions appear in an

endorsement instead of the policy jacket does not create

ambiguity. See, e.g., Vorbeck, 674 N.W.2d at 673-74 (finding

UIM reducing clause added to policy by endorsement

unambiguous). Even though it appears toward the end of

the policy, a reasonable insured would have no problem

locating the UIM endorsement. Moreover, the fact that all

provisions relating to UIM coverage, including the reducing

clause, are set forth in the separate, standalone endorsement arguably makes the coverage easier for insureds to

locate and understand than if the UIM provisions were

spread throughout various sections of the policy.
10 Nos. 03-3702 & 03-3835

Although it is undisputed that the reducing clause itself

is unambiguous, defendants argue that other provisions

included in the UIM endorsement as well as the endorsement’s structure create confusion and ambiguity. Again, we

disagree. The Limits of Liability subsection of the UIM

endorsement explains that the coverage limit shown on the

declarations page ($300,000 per accident for Keca, $100,000

per accident for Bontempo) is the “maximum that we will

pay for damages arising out of bodily injury . . . .” The

reducing clause is located directly below the “Limits of

Liability” subsection. Thereafter, the “If There Is Other

Insurance” subsection appears and states in part: “If more

than one policy applies on a primary basis to an accident

involving your insured auto, we will bear our proportionate

share with other collectible underinsured motorists insurance . . . . If the insured person was in, on, getting into or

out of a vehicle you do not own which is insured for this

coverage under another policy, we will pay up to your policy

limits only after all other collectible insurance has been

exhausted.” 

A reasonable insured reading these provisions would

understand that the insured purchased a fixed level of UIM

recovery which will be arrived at by combining payments

made from all sources. See Schmitz, 647 N.W.2d at 231. It

would be clear to the insured that the UIM coverage limits

are subject to a reduction, thereby putting the insured on

notice that the full policy limits may not be payed out from

the insurer. The policy is reasonably orderly and logical.

None of the provisions are inconsistent. The policy does not

set up roadblocks that would confuse reasonable insureds

as they attempt to navigate their way through the policy.

We are unpersuaded by the fragmented comparisons that

the defendants draw between the Allstate policy and the

policies determined to be ambiguous in Schmitz, supra, and

Hanson v. Prudential Prop. & Cas. Ins. Co., 653 N.W.2d 915

(Wis. Ct. App. 2002) (a case the supreme court criticized in
Nos. 03-3702 & 03-3835 11

Folkman). The defendants present us with a laundry list of

alleged infirmities found within the Allstate policy, but this

sort of “[f]erreting through a policy to dig up ambiguity”

was rejected in Folkman. 665 N.W.2d at 869. Simply put,

Allstate’s policy does not create a maze for its insured that

is organizationally complex and plainly contradictory, as

was the case in Schmitz.

B. Application of Reducing Clause

The next question we consider is whether Allstate is

allowed to reduce the UIM limits of the Keca policy by the

$50,000 in UIM limits it tendered under the Bontempo

policy. Again, the reducing clause in the Keca and

Bontempo policies states that UIM coverage shall be

reduced by:

1. all amounts paid by or on behalf of any person or

organization that may be legally responsible for the

bodily injury for which they payment is made, including, but not limited to, any amounts paid under the

bodily injury liability coverage of this or any other

insurance policy. 

(emphasis added).

Finding that Allstate may not offset benefits paid under

the Bontempo policy from payments it owes to Keca, the

district court accepted the reasoning of a Wisconsin appellate court decision that addressed a similar question. See

Janssen v. State Farm Mut. Auto. Ins. Co., 643 N.W.2d 857

(Wis. Ct. App. 2002). Janssen held that language in a

reducing clause similar to the one at issue in this case did

not permit the insurer to reduce its liability for uninsured

motorist (“UM”) coverage. Allstate argues that we are not

bound by Janssen, since it is a lower state court decision,

and the Wisconsin Supreme Court has not yet ruled on the

issue. However, in situations where a state supreme court
12 Nos. 03-3702 & 03-3835

has not reached an issue, the rulings of the intermediate

court control, unless there is a persuasive indication that

the highest court would decide the issue differently. See

Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087,

1090 (7th Cir. 1999). See also Liberty Mut. Ins. Co. v.

Triangle Indus., Inc., 957 F.2d 1153, 1156 (4th Cir. 1992)

(noting that in circumstances where a state’s highest court

has not spoken on an issue decisions from “the state’s

intermediate appellate court decisions ‘constitute the next

best indica of what state law is,’ although such decisions

‘may be disregarded if the federal court is convinced by

other persuasive data that the highest court of the state

would decide otherwise.’ ”) (quoting 19 Charles A. Wright,

Arthur R. Miller & Edward Cooper, Federal Practice &

Procedure § 4507, at 94-95 (1982)). In this case, we are not

persuaded that the Wisconsin Supreme Court would take a

position different from the one set forth in Janssen. 

The court in Janssen supported its decision with precedent set by the Wisconsin Supreme Court in Employers

Health Ins. v. General Cas. Co., 409 N.W.2d 172, 177 (Wis.

1991). Employer’s Health held that the plaintiff’s

subrogation clause that referred to a “responsible third

party,” clearly meant “a party responsible for the insured’s

injury and not to an insurer providing uninsured motorist

coverage to the insured.” Id. Adopting this reasoning, the

Janssen court concluded that the phrase “responsible third

party” was similar to the term “legally responsible.” 643

N.W.2d at 863. After drawing this comparison, the Janssen

court held that the term “legally responsible” did not

encompass “contractually responsible” (i.e., UM/UIM

carriers) parties. Id. Therefore, the UM carrier was not

entitled to reduce benefits by payments from other UM/UIM

policies. Id.

In the absence of authority from Wisconsin’s highest court

or a compelling indication that it would hold to the contrary, there is no reason for us to deviate from this reasoned
Nos. 03-3702 & 03-3835 13

position. Accordingly, the district court correctly required

Allstate to pay an additional $50,000 in UIM benefits under

the Keca policy.

III. Conclusion

For the reasons stated above, we AFFIRM the judgment on

the district court. 

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—5-20-04