Case Name: Michelle B. Wadzinski, individually and as personal representative of the Estate of Steven M. Wadzinski, Plaintiff-Appellant, v. Auto-Owners Insurance Company, Defendant-Respondent-Petitioner
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 2012-07-05
Citations: 342 Wis. 2d 311
Docket Number: No. 2009AP2752
Parties: Michelle B. Wadzinski, individually and as personal representative of the Estate of Steven M. Wadzinski, Plaintiff-Appellant, v. Auto-Owners Insurance Company, Defendant-Respondent-Petitioner.
Judges: ¶ 74. I am authorized to state that CHIEF JUSTICE SHIRLEY S. ABRAHAMSON joins this dissent.
Reporter: Wisconsin Reports Second
Volume: 342
Pages: 311–349

Head Matter:
Michelle B. Wadzinski, individually and as personal representative of the Estate of Steven M. Wadzinski, Plaintiff-Appellant, v. Auto-Owners Insurance Company, Defendant-Respondent-Petitioner.
Supreme Court
No. 2009AP2752.
Oral argument January 10, 2012.
Decided July 5, 2012.
2012 WI 75
(Also reported in 818 N.W.2d 819.)
For the defendant-respondent-petitioner there were briefs filed by Arthur E. Kurtz, Timothy M. Barber and Axley Brynelson, LLP, Madison, and oral argument by Arthur E. Kurtz.
For the plaintiff-appellant there were briefs filed by R. George Burnett and Liebmann, Conway, Olejniczak & Jerry, S.C., Green Bay, and oral argument by R. George Burnett.
Motion for reconsideration denied 9/28/12.

Opinion:
PATIENCE DRAKE ROGGENSACK, J.
¶ 1. This is a review of a published decision of the court of appeals. That court reversed the decision of the circuit court, which had granted summary judgment in favor of Auto-Owners Insurance Company. The sole question for review is whether a reasonable insured would read the Executive Umbrella insurance policy at issue here to afford $2,000,000 of uninsured motorist (UM) coverage.
¶ 2. This case arose from a fatal motorcycle accident in which Steven Wadzinski was struck and killed by an uninsured motorist. Mr. Wadzinski's wife, Michelle Wadzinski, seeks UM coverage under an umbrella insurance policy that Mr. Wadzinski's company carried on him at the time of his death. The primary dispute centers on the meaning of an endorsement to the Executive Umbrella policy, and whether that endorsement causes contextual ambiguity such that a reasonable insured would expect $2,000,000 of UM coverage under the policy. The circuit court held that the Executive Umbrella policy was clearly intended to provide only third-party liability coverage and granted summary judgment in favor of Auto-Owners. The court of appeals reversed the circuit court, concluding that the Executive Umbrella policy was contextually ambiguous, and therefore, the policy should be construed in favor of the insured to afford coverage.
¶ 3. We conclude that the Executive Umbrella policy at issue does not afford first-party UM coverage. The policy's grant of coverage unambiguously provides only excess third-party liability coverage. Further, the language and structure of the endorsement to the Executive Umbrella policy demonstrate that the endorsement reaffirms the umbrella policy's exclusion of first-party coverage. Additionally, an exception to that exclusion clarifies that the exclusion is not intended to interfere with first-party coverage in other Auto-Owners policies that are referred to in Schedule A. Accordingly, we conclude that the circuit court's summary judgment in favor of Auto-Owners was proper, and therefore, we reverse the decision of the court of appeals.
I. BACKGROUND
¶ 4. On August 3, 2006, Steven Wadzinski was struck and killed by an uninsured motorist while he was riding a motorcycle. At the time of the accident, Mr. Wadzinski was the Chief Executive Officer of Pecard Chemical Company, Inc., which had purchased multiple insurance policies through Auto-Owners. In the Commercial Auto Insurance policy (No. 41-321-013-00), Pecard Chemical is the named insured. That policy's grant of coverage provides $1,000,000 in third-party automobile liability coverage, as well as first-party coverage for UM and underinsured motorist (UIM) benefits. Each line of coverage (UM & UIM) affords $150,000 per person or $300,000 per occurrence of first-party coverage. The total premium for the Commercial Auto policy is $1,371.84. Pecard Chemical is also the named insured under the Commercial Umbrella policy (No. 96-886-558-00), which policy's grant of coverage provides up to $5,000,000 in third-party liability coverage. The annual premium for the Commercial Umbrella policy is $2,923. The Commercial Umbrella policy specifically excludes UM and UIM coverage.
¶ 5. In a third Auto-Owners policy, the Executive Umbrella policy, Mr. Wadzinski is the named insured. The Executive Umbrella policy shares a policy number with the Commercial Umbrella policy under which Pecard Chemical is the named insured. The Executive Umbrella policy, whose language is now at issue, provides $2,000,000 in excess coverage over the underlying policies that are listed in Schedule A. Those underlying policies are a Comprehensive Personal Liability policy (not at issue here) and an Automobile Liability policy with a $500,000 minimum coverage requirement. The annual premium for the Executive Umbrella policy is $234.
¶ 6. After Mr. Wadzinski's death, Auto-Owners paid Wadzinski's estate the limits of the Commercial Auto policy's UM coverage, $150,000. When Auto-Owners refused the estate's claim for payment of $2,000,000 of UM benefits under the Executive Umbrella policy, Mrs. Wadzinski, individually and as the representative of Mr. Wadzinski's estate, brought suit against Auto-Owners.
¶ 7. The provision in the Executive Umbrella policy at the center of the parties' dispute is an endorsement captioned "Exclusion of Personal Injury to Insureds Following Form." That endorsement provides as follows: "We do not cover personal injury to you or a relative. We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A." The policies listed in Schedule A were issued by Auto-Owners.
¶ 8. The parties brought competing motions for summary judgment on the issue of UM coverage under the Executive Umbrella policy. Auto-Owners asserted that the Executive Umbrella policy "clearly and unambiguously excludes an additional claim for UM coverage." Wadzinski argued that the Executive Umbrella policy, when read as a whole, is ambiguous and that a reasonable insured would expect $2,000,000 in UM coverage under the policy. After briefing and argument, the Brown County Circuit Court granted summary judgment in favor of Auto-Owners. The court concluded that it was "[o]bviously[,] blatantly, unambiguously clear" that the Executive Umbrella policy provided only third-party liability coverage and no first-party coverage. Wadzinski appealed.
¶ 9. The court of appeals reversed the circuit court's grant of summary judgment. Wadzinski v. Auto-Owners Ins. Co., 2011 WI App 47, ¶ 1, 332 Wis. 2d 379, 797 N.W.2d 910. The court of appeals concluded that the Executive Umbrella policy was contextually ambiguous, and therefore, an insured reading the policy and endorsements could reasonably expect the policy to afford $2,000,000 of first-party UM coverage. Auto-Owners petitioned this court for review, which we granted.
II. DISCUSSION
A. Standard of Review
¶ 10. The circuit court interpreted the insurance contract and granted Auto-Owners' motion for summary judgment on the question of whether the Executive Umbrella policy affords coverage for losses caused by uninsured motorists. Insurance contract interpretation is a question of law that we review independently of decisions of the circuit court and court of appeals, while benefitting from their analyses. Acuity v. Bagadia, 2008 WI 62, ¶ 12, 310 Wis. 2d 197, 750 N.W.2d 817. Whether an insurance contract is ambiguous is also a question of law for our independent determination. Id., ¶ 13. When reviewing summary judgment, we apply the same methodology as the circuit court to determine whether, under Wis. Stat. § 802.08(2) (2009-10), the moving party is entitled to judgment as a matter of law. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987).
B. Insurance Policy Interpretation
¶ 11. An insurance policy is a contract, and a court's primary purpose in interpreting a contract for insurance is to give effect to the intentions of the parties. Folkman v. Quamme, 2003 WI 116, ¶ 12, 264 Wis. 2d 617, 665 N.W.2d 857. The parties' intentions are presumed to be expressed in the language of the policy. Id., ¶ 12-13. We construe the policy language from the perspective of a reasonable insured, giving the words used their common and ordinary meaning. Stubbe v. Guidant Mut. Ins. Co., 2002 WI App 203, ¶ 8, 257 Wis. 2d 401, 651 N.W.2d 318. On the other hand, where the policy language at issue "is susceptible to more than one reasonable construction," it is ambiguous. Id. Where ambiguity exists in a grant of coverage, we will construe the policy against the drafter, and in favor of the reasonable expectations of the insured. Folkman, 264 Wis. 2d 617, ¶ 16-17.
¶ 12. However, the principle that ambiguities will be construed in favor of the insured is not without limits. Primarily, this rule of construction applies to determine the breadth of initial grants of coverage. Accordingly, ambiguities in a grant of coverage are construed broadly in favor of affording coverage. Acuity, 310 Wis. 2d 197, ¶ 13. This benefits the insured. Ambiguities in exclusions to a grant of coverage are construed narrowly, thereby limiting the exclusion. Frost v. Whitbeck, 2001 WI App 289, ¶ 9, 249 Wis. 2d 206, 638 N.W.2d 325. This also favors the insured. However, a reasonable insured is presumed to understand that an exclusion in an insurance policy limits, rather than confers, coverage. Bulen v. W. Bend Mut. Ins. Co., 125 Wis. 2d 259, 263, 371 N.W.2d 392 (Ct. App. 1985). Stated otherwise, clauses of exclusion subtract from coverage, rather than add to coverage. Id.
¶ 13. Further, where an insurance policy's initial grant of a type of coverage is clear, a court will not interpret an ambiguity in an exception to an exclusion to operate as a grant of an additional type of coverage. See Jaderborg v. Am. Family Mut. Ins. Co., 2000 WI App 246, ¶ 17,239 Wis. 2d 533, 620 N.W.2d 468 ("Coverage cannot be established by an exception to an exclusion.") (citing Arnold E Anderson, Wisconsin Insurance Law § 1.9B (4th ed. 1998)). An exclusion must be read in conjunction with the policy's initial grant of coverage because it is on that initial grant of coverage that the exclusion operates. An " 'exception to an exclusion [from coverage] does not, standing alone, create coverage unless the claim is cognizable under the general grant of coverage.'" Jaderborg, 239 Wis. 2d 533, ¶ 17 (citation omitted).
¶ 14. These principles simply reflect the traditional three-part inquiry into questions of insurance coverage. When determining whether a policy provides coverage, a court first looks to the initial grant of coverage. See Estate of Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶ 22, 311 Wis. 2d 548, 751 N.W.2d 845. "If the court determines that the policy was not intended to cover the claims asserted, the inquiry ends." Id. If the court determines that the initial grant of coverage does cover the type of claim presented, the second step requires the court to examine the policy's exclusions to determine whether coverage has been withdrawn by an exclusion. See Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶ 24, 268 Wis. 2d 16, 673 N.W.2d 65. Third, if coverage for the claim has been withdrawn by an exclusion, the court examines any exceptions to that exclusion that might reinstate coverage for the claim. See id.
¶ 15. Two aspects of this established inquiry are particularly relevant here. First, a policy's initial grant of coverage is a separate analysis that precedes examination of a policy exclusion and exceptions to the exclusion. Second, when we examine exclusions and their exceptions, we do so with a slightly modified focus because the analysis of whether an exclusion or an exception applies presumes that the claim comes within the initial grant of coverage. Under this method of inquiry, exclusions are construed narrowly. Additionally, an exception to an exclusion cannot create coverage where the policy's initial grant of coverage does not provide that type of coverage. See id.
¶ 16. Furthermore, although we will resolve coverage and exclusion ambiguities in favor of an insured's reasonable expectations, this interpretive method does not require us to "simply adhere to any interpretation that is grammatically plausible and creates coverage for insureds." State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶ 47, 275 Wis. 2d 35, 683 N.W.2d 75. A term that is potentially ambiguous when read in isolation may be clarified by reference to the policy as a whole, and we will, therefore, examine the effect of individual terms within the context of the entire policy when resolving claimed ambiguities. See Blum v. 1st Auto & Cas. Ins. Co., 2010 WI 78, ¶ 20, 326 Wis. 2d 729, 786 N.W.2d 78.
¶ 17. In addition to the language used in the policy, we will look to the purpose of the particular insurance and the kind of coverage that a reasonable person in the insured's position would expect under the policy. See id., ¶ 23-28. Accordingly, where one potential interpretation of an allegedly ambiguous term or phrase would contravene the purpose of the insuring agreement or would expand coverage beyond the kind of coverage contemplated in the policy, such interpretation will be rejected as unreasonable. See id., ¶ 31-32.
¶ 18. Language in an insurance policy's grant of coverage may be ambiguous such that an insured may reasonably expect the terms to mean that coverage is provided for the claim, or that an exclusion from coverage is inapplicable. See Vandenberg v. Cont'l Ins. Co., 2001 WI 85, ¶ 40, 244 Wis. 2d 802, 628 N.W.2d 876. Alternatively, language that is seemingly clear may be made ambiguous in the context of the policy as a whole. Folkman, 264 Wis. 2d 617, ¶ 19. This "contextual ambiguity" arises when a policy provision that may at first seem unambiguous becomes susceptible to more than one reasonable meaning when read in the context of other policy language. Id., ¶ 21. Asserted contextual ambiguities also may be disproved by examination of the policy as a whole. See Blum, 326 Wis. 2d 729, ¶ 32.
¶ 19. For example, under the "Coverages" section of the Executive Umbrella policy, only one type of coverage is afforded: third-party liability. The policy states that Auto-Owners "will pay on behalf of the insured the ultimate net loss in excess of the retained limit which the insured becomes legally obligated to pay as damages because of personal injury or property damage."
¶ 20. UM coverage is first-party coverage; it is a different type of coverage than third-party liability coverage. First-party coverage does not come within the policy's statement that it will pay that "which the insured becomes legally obligated to pay as damages," because the phrase describes only third-party liability coverage. Furthermore, first-party coverage requires a specific grant of that type of coverage in order to add to the third-party liability coverage initially granted. See Muehlenbein v. W. Bend Mut. Ins. Co., 175 Wis. 2d 259, 266-67, 499 N.W.2d 233 (Ct. App. 1993) (concluding that a court first considers the type of coverage afforded). Auto-Owners' grant of coverage unambiguously, and exclusively, provides third-party coverage.
¶ 21. The question then becomes whether the endorsement that contains an exception to an exclusion of first-party coverage provides a grant of an additional type of coverage, i.e., first-party coverage. As we have explained above, the initial grant of coverage in the Executive Umbrella policy is for third-party liability coverage; on that point, there is no dispute between the parties. If the policy did not include an endorsement captioned "Exclusion of Personal Injury to Insureds Following Form" and its exception to that exclusion, there would be no argument made that the policy affords more than third-party liability coverage.
¶ 22. Accordingly, we begin by examining the words used in the endorsement's exclusion and the exclusion's exception. We do so in the context of the policy in which they appear:
EXCLUSION OF PERSONAL INJURY TO INSUREDS FOLLOWING FORM
We do not cover personal injury to you or a relative. We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A.
(Emphasis added.)
¶ 23. The caption to the endorsement gives notice that what is to follow is an exclusion from coverage for the insured's first-party personal injury claims. However, interpretation of an insurance policy cannot rest on a caption alone; the entire policy provision must be considered. See Ott v. All-Star Ins. Corp., 99 Wis. 2d 635, 645, 299 N.W.2d 839 (1981).
¶ 24. The statements in the endorsement about what "we do not cover" or what "we will cover" are statements of Auto-Owners' obligations under the Executive Umbrella policy and Auto-Owners' obligations under the additional policies listed in Schedule A. Stated otherwise, the "Comprehensive Personal Liabil ity" policy and the "Automobile Liability" policy, listed in Schedule A of the Executive Umbrella policy, were issued by Auto-Owners. Therefore, no other vendor of insurance has any impact on the interpretation of the endorsement at issue here and no other vendor will make payments under either of the underlying policies described in Schedule A.
¶ 25. The language of the endorsement is helpful in other ways too. The first sentence of the endorsement provides that, "We do not cover personal injury to you or a relative." The Executive Umbrella policy defines "we": " We,' 'us' or 'our' means the Company providing this insurance." A reasonable insured would therefore understand that "we" refers to Auto-Owners. There can be no misunderstanding that first-party coverage is not created by the first sentence of the endorsement.
¶ 26. The second sentence of the endorsement provides, "We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A." Again, "We" refers to Auto-Owners. "Such injury" refers back to "personal injury to you or a relative" in the first sentence. By so referring, the phrase assures that the first sentence does not interfere with an independent obligation for first-party coverage that was undertaken in a policy listed in Schedule A and issued by Auto-Owners. The nature of that independent obligation is explained as: "to the extent that insurance is provided by an underlying policy listed in Schedule A." Accordingly, any obligation that Auto-Owners has for first-party coverage under a policy that it issued and that is listed in Schedule A will be honored, notwithstanding the lack of first-party coverage in the Executive Umbrella.
¶ 27. It follows then that the statement, "We will cover such injury to the extent that insurance is provided by an underlying policy listed in schedule A," is reasonably interpreted as Auto-Owners' assurance to its insured that even though the Executive Umbrella policy does not provide first-party coverage, that lack of coverage for first-party claims does not interfere with Auto-Owners' agreed-upon coverage for first-party claims when such coverage is afforded by a policy listed in Schedule A of the Executive Umbrella policy. The exception can have no other meaning and remains consistent with the grant of $2,000,000 third-party liability coverage in the Executive Umbrella policy while also maintaining Auto-Owners' obligation in Auto-Owners' Automobile Liability policy listed in Schedule A.
¶ 28. Wadzinski argues that it would be illogical for the Executive Umbrella policy to require the insured to keep the underlying Automobile Liability policy "in full effect" unless the full panoply of coverage under the Commercial Auto policy, including UM coverage, were afforded under the Executive Umbrella policy. In particular, Wadzinski relies on the endorsement caption's use of the phrase "following form" to suggest that the endorsement could reasonably be interpreted as incorporating the UM coverage from the Commercial Auto policy. Therefore, we examine the meaning of "following form" and its use in the Executive Umbrella policy.
¶ 29. "Following form" is an insurance industry term of art that is typically understood by insurance professionals to suggest that an excess or umbrella policy incorporates the terms of another underlying policy. See 23 Eric Mills Holmes, Holmes' Appleman on Insurance § 145.1 (2d ed. interim vol. 2003) [hereinafter Holmes' Appleman § 145.1]. Following form policies are typically very short, in that they simply state their adoption of underlying policy terms, usually without much else. See Johnson Controls, Inc. v. London Mkt., 2010 WI 52, ¶ 34 & n.7, 325 Wis. 2d 176, 784 N.W.2d 579, reconsid. denied, 2011 WI 1, 330 Wis. 2d 443, 793 N.W.2d 71 (citing Holmes' Appleman § 145.1). This practice is intended to ensure that the same terms of coverage are maintained between primary and excess levels of insurance. See 15 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 220:32 n.31 (3d ed. 2005 & Supp. 2011). Nonetheless, following form policies regularly include terms and provisions that afford distinct coverage or exclusions from those provided in the underlying policy. See Holmes' Appleman § 145.1.
¶ 30. A "stand-alone" policy may be contrasted with a "following form" policy. "A stand-alone excess policy is an independent insuring agreement." Id. Accordingly, the terms "stand-alone" and "following form" refer to the type of insuring agreement as a whole, rather than to a method of defining terms within the policy. See id. Here, there is no question that the Executive Umbrella policy is a stand-alone policy, not a following form policy. However, Wadzinski argues that the endorsement is a following form endorsement. This makes little sense, as the term is one that is applied to policies as a whole, not to endorsements to a standalone policy.
¶ 31. Furthermore, the use of "following form" in the caption to the endorsement does not create a contextual ambiguity. First, as we have noted, without the contested endorsement, only third-party coverage is afforded in the Executive Umbrella policy. Second, the exclusionary language of the Personal Injury endorsement reaffirms the Executive Umbrella's limited third-party liability coverage, rather than granting a new type of coverage. See Muehlenbein, 175 Wis. 2d at 269.
¶ 32. Wadzinski also points to the "Maintenance of Underlying Insurance" provision in the Executive Umbrella policy as support for the argument that "following form" is intended to incorporate such underlying coverage wholesale. This argument misperceives the nature of umbrella coverage and ignores the plain meaning of the "Maintenance of Underlying Insurance" provision in the Executive Umbrella policy.
¶ 33. The "Maintenance of Underlying Insurance" provision instructs the insured that "You must keep each policy described in Schedule A in full effect during the term of this policy. . If you fail to do so, we shall be liable only to the extent we would have been liable had you complied." The provision did not require that Wadzinski maintain any amount of UM coverage in the Executive Umbrella policy. Rather, the provision requires that an insured maintain the type of coverage actually contemplated under the umbrella, i.e., third-party liability coverage, not necessarily all conceivable types of coverage.
¶ 34. The argument that the underlying insurance provision mandates UM benefits also is circular. It assumes that the extent to which Auto-Owners "would have been liable" already includes coverage for UM benefits. For example, if Wadzinski had decreased the UM coverage under the Commercial Auto policy, but maintained the separate $1,000,000 in comprehensive liability coverage under the Commercial Auto policy, it seems that the "Maintenance of Underlying Insurance" provision would have been complied with as to the third-party coverage under the Executive Umbrella policy. See Etter v. State Farm Mut. Auto. Ins. Co., 2008 WI App 168, ¶ 13-15, 314 Wis. 2d 678, 761 N.W.2d 26 (concluding that the requirement that underlying liability insurance be maintained did not require insured to maintain UM coverage where the umbrella policy did not otherwise contemplate UM coverage). Accordingly, we cannot conclude that the requirement of underlying insurance contributes to any contextual ambiguity in regard to first-party coverage.
¶ 35. Accordingly, although the meaning of the term "following form" has been artfully argued by Wadzinski, such argument does not have sufficient force to contravene the plain language that specifies the type of coverage afforded under the endorsed Executive Umbrella policy. See Holmes' Appleman § 145.1.
¶ 36. Wadzinski also relies on Stubbe, wherein the court of appeals concluded that the umbrella policy at issue did afford first-party UIM coverage. The court of appeals reasoned that because the umbrella policy made multiple explicit references to the underlying UIM coverage, including showing that it was a covered provision on the declarations page, the policy was ambiguous as to the initial grant of coverage. Stubbe, 257 Wis. 2d 401, ¶ 10-12. That ambiguity caused the court to conclude that the insured was entitled to coverage. Id., ¶ 15. The Executive Umbrella policy, however, makes no references to UM coverage. Therefore, Stubbe provides no support for the position Wadzinski takes, given the terms of the Executive Umbrella policy that we are called upon to interpret.
¶ 37. Our interpretation of the Executive Umbrella policy rests on established analyses for determining whether an insurance policy is contextually ambiguous. See Folkman, 264 Wis. 2d 617, ¶ 29. In Folkman, we stated that "any contextual ambiguity in an insurance policy must be genuine and apparent on the face of the policy, if it is to upset the intentions of an insurer embodied in otherwise clear language." Id. Accordingly, an insurance policy will not be deemed contextually ambiguous "simply because the insured has offered a remotely possible second interpretation." Id., ¶ 31 (quoting Hause v. Bresina, 2002 WI App 188, ¶ 8, 256 Wis. 2d 664, 649 N.W.2d 736 (internal quotation and citation omitted). We hold to these principles here.
¶ 38. Our construction of the Executive Umbrella policy and its endorsement also is supported by interpretations of similar insurance provisions in multiple cases before the court of appeals. Collectively, these cases provide that an unambiguous initial grant of third-party coverage will not be undone by an exclusion, see Jaderborg, 239 Wis. 2d 533, ¶ 17; that an endorsement that includes both an exclusion and an exception to the exclusion will not be read to overcome the initial grant of coverage, see Muehlenbein, 175 Wis. 2d at 265-66; and that the requirement of maintaining underlying automobile liability insurance does not translate into a corresponding requirement that UM coverage be maintained, see Etter, 314 Wis. 2d 678, ¶ 13-15.
¶ 39. In accordance with these principles, we conclude that the Executive Umbrella policy's grant of coverage provides only one type of coverage: excess third-party liability coverage. Read in context, neither the exclusion of first-party coverage nor its exception that reaffirms Auto-Owners' underlying obligations can be read to rewrite the umbrella policy's unambiguous grant of third-party coverage. Accordingly, we conclude that Wadzinski's Executive Umbrella policy cannot reasonably be construed to afford $2,000,000 of UM coverage.
III. CONCLUSION
¶ 40. We conclude that the Executive Umbrella policy at issue does not afford first-party UM coverage. The policy's grant of coverage unambiguously provides only excess third-party liability coverage. Further, the language and structure of the endorsement to the Executive Umbrella policy demonstrate that the endorsement reaffirms the umbrella policy's exclusion of first-party coverage. Additionally, an exception to that exclusion clarifies that the exclusion is not intended to interfere with first-party coverage in other Auto-Owners policies that are referred to in Schedule A. Accordingly, we conclude that the circuit court's summary judgment in favor of Auto-Owners was proper, and therefore, we reverse the decision of the court of appeals.
By the Court. — The decision of the court of appeals is reversed.
Wadzinski v. Auto-Owners Ins. Co., 2011 WI App 47, 332 Wis. 2d 379, 797 N.W.2d 910.
The Honorable William M. Atkinson of Brown County presided.
The underlying facts of this case are not in dispute.
The Commercial Auto policy also includes other types of coverage not relevant here.
The Commercial Umbrella policy's UM exclusion provided that coverage under the policy did not apply to "[bjodily injury or property damage arising out of uninsured motorist, under-insured motorist, automobile no-fault, personal injury protection or any other similar law." The parties do not dispute that this exclusion precludes recovery of payments for UM coverage under the Commercial Umbrella policy.
All subsequent references to the Wisconsin Statutes are to the 2009-10 version unless otherwise indicated.
This corresponds to the logical and objectively reasonable inquiry in which an insured will engage when examining his or her policy: Is there coverage under this policy? Is coverage somehow excluded? Are there any exceptions to that exclusion that might reinstate coverage?
Although the factor of policy cost will not be dispositive in ascertaining the parties' intentions, the amount paid for coverage may lend support to the conclusion that potentially ambiguous terms should be construed one way rather than another. Cf. Gen. Star Indent. Co. v. Bankr. Estate of Lake Geneva Sugar Shack, Inc., 215 Wis. 2d 104, 120-21, 572 N.W.2d 881 (Ct. App. 1997) (relatively low premium for insurance policy buttressed conclusion that parties did not contemplate policy to cover more substantial risks).
As applicable here, the definition of "retained limit" provides that Auto-Owners' liability under the Executive Umbrella does not arise until "the limits of liability.. . for each policy listed or insurance described in Schedule A" are exceeded. Again, this is an affirmation of third-party liability coverage.
As early as 1987, the Wisconsin Insurance Commissioner exempted umbrella policies from the statutoiy requirement that all automobile liability policies afford UM coverage. See Wis. Admin. Code § INS 6.77(4)(a) (Jan. 2012); see also Wis. Stat. § 632.32(1) and (4)(a)l. (2005-06) (requiring that all auto policies include UM coverage, "[e]xcept as otherwise provided," Wis. Stat. § 632.32(1) (2005-06)). Wadzinski does not assert here that UM coverage was required in umbrella policies at the time of the accident, and we therefore do not address the issue further.
The Executive Umbrella policy's "Insuring Agreement" provides general guidance in interpreting the policy. It states:
We agree to provide insurance subject to all the terms of this policy. In return, you must pay the premium and comply with all the policy terms.
This policy applies to personal injury and property damage which occur during the policy period as shown in the Declarations. The limits of our liability and the premium are also shown in the Declarations.
Accordingly, the Insuring Agreement's references to the relevant policy provisions affirm that the policy provides coverage for injuries or property damage suffered by third-parties, not injuries or property damage suffered by the insured.
The policy's grant of coverage states that Auto-Owners "will pay on behalf of the insured the ultimate net loss in excess of the retained limit which the insured becomes legally obligated to pay as damages because of personal injury or property damage." This is an unambiguous statement of third-party liability coverage.
Including an endorsement to clarify the limited scope of coverage is a valid and permissible use of an endorsement. Muehlenbein v. W. Bend Mut. Ins. Co., 175 Wis. 2d 259, 268-69, 499 N.W.2d 233 (Ct. App. 1993). A provision that simply reaffirms existing coverage is not rendered meaningless by its repetition; rather, the reiteration serves to strengthen the conclusion that first-party UM coverage was not afforded under the Executive Umbrella policy See id.
Additionally, Wadzinski argues that Wis. Stat. § 632.32(6)(b) prohibits Auto-Owners from disclaiming coverage for its own insured under the Executive Umbrella policy because that statute forbids an insurer from excluding from coverage "[A]ny person who is a named insured." As discussed above, the Insurance Commissioner exempted umbrella policies from the requirement of affording UM coverage, so an umbrella
policy that does not afford UM coverage will not be in violation of § 632.32(6)(b) because no such coverage need be provided under an umbrella policy.
Moreover, Wis. Stat. § 632.32(6)(b)'s prohibition against excluding named insureds from coverage further supports our reading of the endorsement as merely reaffirming Auto-Owners' obligation to maintain UM coverage in its underlying policy. Without the second sentence of the endorsement, the policy might be interpreted as running afoul of § 632.32(6)(b)'s prohibition; that sentence, however, clarifies that Auto-Owners honors its obligations in the underlying policy and under the statute.
Wadzinski points to numerous other provisions in the body of the Executive Umbrella policy as supporting the argument that the policy and endorsement are contextually ambiguous and that first-party coverage should, therefore, be afforded. As discussed above, we conclude that the provisions in the unendorsed body of the policy clearly and exclusively provide third-party coverage. We focus, therefore, on the Personal Injury endorsement as the only provision that could potentially upset the contextually clear grant of third-party coverage in the Executive Umbrella policy.
In its opening brief to this court, counsel for Wadzinski stated that "Ambiguous policies always create coverage," citing Kaun v. Indus. Fire & Cas. Ins. Co., 148 Wis. 2d 662, 669, 436 N.W.2d 321 (1989). While the cited case spoke broadly of the rule of construing ambiguous insurance policies in favor of coverage, the proposition counsel has stated is not a correct statement of the law, as we have explained above.