Title: Badger Mutual Insurance Company v. Dennis Schmitz
Citation: 2002 WI 98
Docket Number: 2000AP002682
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 10, 2002

2002 WI 98 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
00-2682 
 
 
COMPLETE TITLE: 
 
 
Badger Mutual Insurance Company,  
 
Plaintiff, 
 
v. 
Dennis Schmitz,  
 
Defendant-Respondent-Petitioner, 
The American Hardware Insurance Group,  
 
Defendant-Appellant, 
Valerie Schmitz and SCI Management Corp.,  
 
Defendants. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  247 Wis. 2d 497, 633 N.W.2d 278 
(Ct. App. 2001-Unpublished) 
 
 
OPINION FILED: 
July 10, 2002   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
March 6, 2002   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Outagamie   
 
JUDGE: 
James T. Bayorgeon   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
CROOKS, J., dissents (opinion filed). 
WILCOX and SYKES, JJ., join dissent.   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the defendant-respondent-petitioner there were briefs 
by Russell T. Golla, and Anderson, Shannon, O'Brien, Rice & 
Bertz, Stevens Point, and oral argument by Russell T. Golla. 
 
For the defendant-appellant there was a brief by Keith W. 
Kostecke and Menn, Teetaert & Beisenstein, Ltd., Appleton, and 
oral argument by Keith W. Kostecke. 
 
An amicus curiae brief was filed by Lynn R. Laufenberg and 
Laufenberg & Hoefle, S.C., Milwaukee, and Robert L. Jaskulski 
and Domnitz, Mawicke & Goisman, S.C., Milwaukee, on behalf of 
the Wisconsin Academy of Trial Lawyers. 
 
 
2
 
 
2002 WI 98 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  00-2682  
(L.C. No. 
99 CV 293) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Badger Mutual Insurance Company,  
 
          Plaintiff, 
 
     v. 
 
Dennis Schmitz,  
 
          Defendant-Respondent-Petitioner, 
 
The American Hardware Insurance Group,  
 
          Defendant-Appellant, 
 
Valerie Schmitz and SCI Management Corp.,  
 
          Defendants. 
 
FILED 
 
JUL 10, 2002 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.   Reversed.   
 
¶1 
DAVID T. PROSSER, J.   This is a review of an 
unpublished decision of the court of appeals1 that reversed a 
decision of the circuit court for Outagamie County, James T. 
Bayorgeon, Judge.  There are two issues before the court. 
                                                 
1 Badger Mut. Ins. Co. v. Schmitz, unpublished slip op. 
(Wis. Ct. App. July 31, 2001). 
No. 00-2682   
 
2 
 
¶2 
First, does this court's decision in Dowhower v. West 
Bend Mutual Insurance Co., 2000 WI 73, 236 Wis. 2d 113, 613 
N.W.2d 557, preclude a court from finding that an unambiguous 
clause reducing the underinsured motorists (UIM) liability of an 
insurer, is ambiguous in the context of a specific policy? 
¶3 
Second, if the answer to the first question is "no," 
is the reducing clause in the policy before the court ambiguous 
in the context of the entire policy, thereby rendering the 
reducing clause illusory and unenforceable? 
¶4 
This case involves an automobile liability insurance 
policy that provided UIM coverage and had a reducing clause that 
conforms to Wis. Stat. § 632.32(5)(i) (1999-2000).2  The statute 
reads in part: 
(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. 
Wis. Stat. § 632.32(5)(i). 
¶5 
The reducing clause in the policy in question provided 
that the limit of UIM liability would be reduced by payments 
made to the insured by or on behalf of parties legally 
responsible for damages caused by an underinsured motorist.  In 
this case, after the insured suffered injuries in an accident 
                                                 
2 All subsequent references to the Wisconsin statutes are to 
the 1999-2000 volumes unless otherwise indicated. 
No. 00-2682   
 
3 
 
involving an underinsured motorist, and after the insured 
received payments from the underinsured motorist, the insurer 
applied the reducing clause in the insured's policy to reduce 
its liability to its insured by the amount of the payments 
received from the underinsured motorist. 
¶6 
The insured moved for a judgment declaring the UIM 
provisions invalid.  The circuit court granted the declaratory 
judgment, determining that the insurance policy was illusory and 
unenforceable.  The court of appeals reversed, holding that the 
policy was unambiguous and could not be deemed illusory. 
¶7 
After a thorough review of the insurance policy in 
question, we determine that while the reducing clause complies 
with the provision in Wis. Stat. § 632.32(5)(i), its limitation 
on UIM coverage is ambiguous in the context of the entire 
policy.  We believe that a reasonable insured would not realize 
or expect that the insured's recovery under the UIM provision of 
the policy would be reduced by the payments received from the 
underinsured motorist.  Thus, in the context of the entire 
policy, the reducing clause is ambiguous and renders the UIM 
coverage illusory.  We further conclude that the inquiry 
undertaken by the circuit court was wholly consistent with the 
inquiry contemplated in the Dowhower decision.  Accordingly, we 
reverse the decision of the court of appeals. 
I. FACTS 
¶8 
The facts of this case are undisputed.  On November 
22, 1997, Dennis Schmitz was injured in a single vehicle 
accident.  Schmitz was riding as a guest passenger in a 1997 
No. 00-2682   
 
4 
 
Chevrolet pick-up truck traveling southbound on U.S. Highway 441 
in Appleton.  The vehicle slid on a patch of ice and rolled 
over.  Schmitz sustained injuries in the accident and was 
rendered a quadriplegic. 
¶9 
The driver of the truck, Valerie Johnson, was insured 
by Badger Mutual Insurance Company (Badger Mutual).3  Her 
automobile insurance policy contained a liability limit of 
$100,000 per person.  Badger Mutual commenced this action 
seeking a declaration of its rights, duties and obligations with 
respect to the liability insurance proceeds it wished to pay in 
settlement of Schmitz's personal injury claim. 
¶10 Schmitz himself had an automobile insurance policy 
issued 
by 
American 
Merchants 
Casualty 
Company4 
(American 
Merchants) which included UIM coverage with a liability limit of 
$250,000 per person.  Schmitz filed a cross-claim against 
American Merchants, asserting that the vehicle in which he was a 
passenger was an underinsured motor vehicle as defined in the 
American Merchants policy and that he was "entitled to the 
                                                 
3 The insurance policy was issued to Valerie Johnson.  By 
the time this action was commenced, Valerie Johnson had become 
Valerie Schmitz. 
4 In the complaint filed by Badger Mutual, the American 
Hardware Insurance Group (AHIG) is a named defendant.  American 
Merchants Casualty Company (American Merchants), a member of the 
AHIG, acknowledges that AHIG was "incorrectly named" and that 
American Merchants is the correct name of the insurer named as 
defendant.  Both parties refer to the insurer as American 
Merchants in their briefs and we will refer to the insurer as 
American Merchants in this opinion. 
No. 00-2682   
 
5 
 
entirety of the $250,000 per-person limit of liability set forth 
in that policy." 
¶11 In its answer, American Merchants acknowledged that 
the vehicle in question was an underinsured motor vehicle under 
its policy and "admit[ted] that Schmitz will be entitled to 
underinsured motorists coverage" under the American Merchants 
policy.  It denied, however, that Schmitz was entitled to the 
entire 
$250,000 
per-person 
limit 
of 
liability. 
 
It 
"affirmatively allege[d] that the applicable limit of liability 
must be reduced by the sums paid Schmitz by Badger Mutual 
Insurance Company." 
¶12 American Merchants' claim of reduction in its $250,000 
liability relied on a reducing clause in the policy, which reads 
in part: "The limit of liability shall be reduced" by all sums 
"paid because of the 'bodily injury' by or on behalf of persons 
or organizations who may be legally responsible."  American 
Merchants applied this clause to reduce the $250,000 UIM limit 
of liability by the $100,000 that Schmitz received from Badger 
Mutual.  Thus, American Merchants paid Schmitz only $150,000 on 
the policy.  As a result, Schmitz filed a motion for summary 
declaratory 
judgment 
against 
American 
Merchants, 
seeking 
recovery of the full $250,000 limit of liability of his UIM 
coverage. 
¶13 After 
extensive 
briefing 
by 
the 
parties, 
Judge 
Bayorgeon acknowledged that the reducing clause in the American 
Merchants 
policy 
conformed 
to 
the 
requirements 
of 
Wis. Stat. § 632.32(5)(i).  He determined, however, that the 
No. 00-2682   
 
6 
 
reducing clause failed to clearly set forth that UIM payments 
would be reduced by sums paid by others, "so that there is no 
mistake, confusion or illusion with respect to what is being 
provided for the premium being paid."  Judge Bayorgeon concluded 
that, "The contract is illusory and therefore unenforceable."  
Consequently, the circuit court granted Schmitz's motion for 
summary declaratory judgment. 
¶14 On appeal, the court of appeals reversed in a 
unanimous, unpublished, per curiam opinion.  Badger Mut. Ins. 
Co. v. Schmitz, unpublished slip op. (Wis. Ct. App. July 31, 
2001).  The court noted that, "A policy that contains an 
unambiguous reducing provision under [Wis. Stat. § 632.32(5)(i)] 
is valid and enforceable, and may no longer be deemed illusory."  
Id. at ¶4 (citing Sukala v. Heritage Mut. Ins. Co., 2000 WI App 
266, ¶¶15-20, 240 Wis. 2d 65, 622 N.W.2d 457).  It determined 
that the American Merchants policy "sets forth an unambiguous, 
enforceable reducing clause, limiting [American Merchants'] 
liability in this case."  Id. at ¶1.  Accordingly, the court 
concluded that the policy was not illusory or unenforceable and 
it reversed the order of the circuit court. 
¶15 Schmitz appealed and we granted his petition for 
review. 
II. ANALYSIS 
A.  Overview of UIM Coverage and Reducing Clauses 
¶16 We have described UIM coverage as a "'legal iceberg,' 
a seemingly straightforward area of the law, which in fact can 
prove to be nettlesome to analyze."  Dowhower, 2000 WI 73, ¶22.  
No. 00-2682   
 
7 
 
Over the years, there has been much uncertainty surrounding the 
purpose and function of UIM coverage.  The confusion has 
produced a torrent of litigation, much of it centered on whether 
reducing clauses render UIM coverage illusory. 
¶17 There are two conflicting theories regarding the 
purpose and function of UIM coverage.  Under the first theory, 
the purpose of UIM coverage is to compensate an insured accident 
victim when the insured's damages exceed the recovery from the 
at-fault driver (or other responsible party).  See Taylor v. 
Greatway Ins. Co., 2001 WI 93, ¶32, 245 Wis. 2d 134, 628 
N.W.2d 916 (Bradley, J., dissenting) (citing Wood v. American 
Family Mut. Ins. Co., 148 Wis. 2d 639, 655, 436 N.W.2d 594 
(1989), overruled on other grounds by Matthiesen v. Continental 
Cas. Co., 193 Wis. 2d 192, 532 N.W.2d 729 (1995); Kaun v. 
Industrial Fire & Cas., 148 Wis. 2d 662, 671, 436 N.W.2d 321 
(1989)).  According to this theory, UIM coverage operates as a 
separate fund, available for the payment of the insured's 
uncompensated 
damages. 
 
3 
Irwin 
E. 
Schermer, 
Automobile 
Liability Insurance § 57.01, at 57-2 (3d ed. 1995).  The insured 
purchases coverage for his or her damages in a set dollar amount 
"above and beyond the liability limits of the at-fault driver."  
Taylor, 2001 WI 93, ¶35 (Bradley, J., dissenting). 
¶18 The second theory is that "the purpose of underinsured 
motorist coverage is solely to put the insured in the same 
position as he [or she] would have occupied had the tortfeasor's 
liability limits been the same as the underinsured motorist 
limits purchased by the insured."  Dowhower, 2000 WI, ¶18 
No. 00-2682   
 
8 
 
(quoting 3 Irwin E. Schermer, Automobile Liability Insurance § 
57.01, at 57-2 (3d ed. 1995)).  Under this theory, UIM coverage 
operates as a predetermined, fixed level of insurance coverage 
including payment from both the at-fault driver's liability 
insurance and the insured's own UIM coverage.  See Kaun, 148 
Wis. 2d at 674-75 (Steinmetz, J., dissenting). 
¶19 The impact of the two theories is often seen in the 
application of reducing clauses.  To illustrate, suppose an 
insured suffered damages totaling $200,000.  Suppose further 
that the at-fault driver had liability insurance with a $100,000 
limit and the insured had UIM coverage with a $150,000 limit. 
¶20 Under the first theory of UIM coverage, a reducing 
clause operates 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.  Hence, $200,000 in 
damages minus a $100,000 payment from the tortfeasor leaves 
$100,000 in uncompensated damages, or $100,000 liability for the 
insurer.   
¶21 Under the second theory, a reducing clause reduces the 
amount of the insurer's liability by the amount recovered from 
the at-fault driver.  Hence, $150,000 total liability minus a 
$100,000 payment from the tortfeasor leaves $50,000 liability 
for the insurer. 
¶22 The first theory fully compensates the insured, while 
the 
second 
theory 
leaves 
the 
insured 
with 
$50,000 
in 
uncompensated damages. 
No. 00-2682   
 
9 
 
¶23 If the insured had $300,000 in damages and the same 
policies were in place, the first theory would require the 
insurer to pay out all $150,000 in coverage, leaving the insured 
with $50,000 in uncompensated damages because the insured did 
not buy enough coverage.  The second theory would not increase 
the insurer's liability: $150,000 total liability minus a 
$100,000 payment from the tortfeasor leaves $50,000 of liability 
for the insured.  The insured would be left with $150,000 in 
uncompensated damages. 
¶24 Wisconsin appellate courts have been asked in case 
after case to interpret UIM policies and to apply reducing 
clauses in light of the two contradictory theories of UIM 
coverage.  Not surprisingly, in virtually every case, the 
insurer 
has 
asserted 
that 
UIM 
coverage 
functions 
as 
a 
predetermined, fixed level of insurance coverage including 
payment from both the at-fault driver's liability insurance and 
the insured's own UIM coverage, and the reducing clause reduces 
the limit of UIM liability.  Correspondingly, in virtually every 
case, the insured has asserted that UIM coverage is intended as 
excess coverage available when an insured's damages exceed the 
recovery from the at-fault driver, and the reducing clause 
decreases the insured's covered damages. 
B.  Reducing Clauses Prior to 1995 
¶25 This 
court 
first 
examined 
reducing 
clauses 
in 
automobile insurance policies in the context of uninsured 
motorist (UM) coverage.  Leatherman v. American Family Mut. Ins. 
Co., 52 Wis. 2d 644, 190 N.W.2d 904 (1971).  The court in 
No. 00-2682   
 
10 
 
Leatherman held that a reducing clause contained in UM coverage 
was valid and not against public policy.  Id. at 651.  The 
policy at issue in Leatherman predated the statutory mandate of 
UM coverage. 
¶26 In 1971 
the legislature 
required 
all 
automobile 
insurance policies issued in Wisconsin to contain UM coverage.  
§ 1, ch. 28, Laws of 1971.  This court made clear, once UM 
coverage became mandatory, that reducing clauses in policies 
were illegal as applied to UM provisions.  Nicholson v. Home 
Ins. Co., 137 Wis. 2d 581, 594, 405 N.W.2d 327 (1987).  The 
legislative objective in mandating UM coverage is to require 
that the insured receive the proceeds of the UM coverage free 
from any reductions.  Id. at 604. 
¶27 In the context of UIM coverage, this court interpreted 
reducing clauses as reducing the amount of the insured's total 
damages by the amount of payments received by the insured from 
the underinsured tortfeasor.  Kaun, 148 Wis. 2d at 665; Wood, 
148 Wis. 2d at 654.  To do otherwise, we concluded, would result 
in the insurer never paying the policy limits of its UIM 
policies.  Kaun, 148 Wis. 2d at 669-70; Wood, 148 Wis. 2d at 
653.  Shortly after these two decisions, however, the court of 
appeals gave a different interpretation to a reducing clause in 
a policy by distinguishing its language from the language in 
Kaun and Wood.  Smith v. Atlantic Mut. Ins. Co., 151 
Wis. 2d 542, 444 N.W.2d 465 (Ct. App. 1989), aff'd on other 
grounds, 155 Wis. 2d 808, 456 N.W.2d 597 (1990). 
No. 00-2682   
 
11 
 
¶28 In Smith, the court of appeals reasoned that the UIM 
policies in Kaun and Wood used the ambiguous phrase "amounts 
payable," but the reducing clause in Smith reduced the "limit of 
liability," not the "amounts payable," and thus required a 
different interpretation.  Smith, 151 Wis. 2d at 547-48.  The 
fact that the reducing clause for underinsured motorist coverage 
meant that the insurer would never pay the full UIM limits of 
its policy was never discussed in Smith.  But the court of 
appeals used that concern as a basis to find reducing clauses 
void in subsequent cases. 
¶29 In the first such case, the court held that UIM 
coverage under which no benefits would ever be paid was illusory 
and against public policy.  Hoglund v. Secura Ins., 176 
Wis. 2d 265, 271, 500 N.W.2d 354 (Ct. App. 1993).  In Hoglund, 
the insured had $25,000 of UIM coverage, but statutes mandated 
that Wisconsin drivers must have at least $25,000 in liability 
coverage.  Thus, the court found that the reducing clause was 
void because it rendered the coverage illusory: if the reducing 
clause were applied, Hoglund would never recover under her 
$25,000 UIM policy.  Id. at 270. 
¶30 After Hoglund, the court of appeals continued to find 
reducing clauses illusory.  In Kuhn v. Allstate Insurance Co., 
181 Wis. 2d 453, 510 N.W.2d 826 (Ct. App. 1993), aff'd on other 
grounds, 193 Wis. 2d 50, 532 N.W.2d 124 (1995), the court held 
that it was unreasonable for an insured with $50,000 of UIM 
coverage to expect never to qualify for the stated limits.  The 
court concluded that "a representation that there is $50,000 in 
No. 00-2682   
 
12 
 
UIM coverage that will never be paid is illusory."  Id. at 465.  
Consequently, the court held that the reducing clause was void 
because it rendered the purported UIM coverage illusory and 
contrary to public policy.  Id. at 463.5 
C.  Wisconsin Stat. § 632.32(5)(i) 
¶31 In 
1995, 
in 
response 
to 
these 
decisions, 
the 
legislature created a statute expressly permitting reducing 
clauses that decrease UM or UIM payments by the amounts 
recovered from other sources.  It enacted 1995 Wis. Act 21, § 4, 
which created Wis. Stat. § 632.32(5)(i) (1995-96), effective 
July 15, 1995.  Section 632.32(5)(i) states in relevant part 
that: 
(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. 
Wis. Stat. § 632.32(5)(i). 
¶32 The purpose behind 1995 Wis. Act 21 was stated 
explicitly by the drafters of 1995 S.B. 6, the bill that 
resulted in 1995 Wis. Act 21: 
                                                 
5 In 1995, this court in Matthieson v. Continental Casualty 
Co., 193 Wis. 2d 192, 532 N.W.2d 729 (1995), "applied the 
stacking statute [Wis. Stat. § 631.43(1) (1993-94)] to void all 
reducing clauses in UIM policies even if not ambiguous."  Arnold 
P. Anderson, Wisconsin Insurance Law § 4.1 (4th ed. 1998). 
No. 00-2682   
 
13 
 
This 
bill 
overturns 
a 
series 
of 
Wisconsin 
appellate court decisions which have held that a motor 
vehicle insurance policy may not prohibit stacking of 
uninsured or underinsured motorist coverage or any 
other coverage provided by the policy. . . .  
. . . .  
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. 
Legislative Reference Bureau Drafting File for 1995 Wis. Act 21, 
Analysis by the Legislative Reference Bureau of 1995 S.B. 6. 
¶33 In 
Dowhower, 
we 
recognized 
the 
intent 
of 
the 
legislature in creating Wis. Stat. § 632.32(5)(i).  Dowhower, 
2000 WI 73, ¶17. We stated that: "The language . . . is 
unambiguous. . . . The statute plainly allows a motor vehicle 
insurance contract to state that the maximum amount that the 
insurer will pay under the policy will be setoff by amounts paid 
by a tortfeasor."  In other words, the 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. 
¶34 Even after the passage of Wis. Stat. § 632.32(5)(i), 
however, cases came to Wisconsin appellate courts on the issue 
of the validity and enforceability of reducing clauses.  For 
instance, in 1998 the court of appeals held in Sweeney v. 
General Casualty Co., 220 Wis. 2d 183, 197, 582 N.W.2d 735 (Ct. 
App. 1998), that a specific reducing clause rendered UIM 
coverage illusory.  The reducing clause at issue in Sweeney 
provided that "The limit of liability shall be reduced by all 
sums paid because of the 'bodily injury' by or on behalf of 
No. 00-2682   
 
14 
 
persons or organizations who may be legally responsible."  Id. 
at 185.  No claim was made that the reducing clause was contrary 
to Wis. Stat. § 632.32(5)(i).  Because the accident occurred in 
1993, before the statute, the majority opinion did not address 
the new statute.  The court instead reasoned that the holding in 
Kuhn—that a UIM coverage limit of $50,000 that would never be 
paid 
rendered 
the 
coverage 
illusory——applied 
because 
that 
decision had not been reversed or called into question by the 
supreme court.  Id. at 197.  Consequently, the court of appeals 
held that the reducing clause in the insurance policy rendered 
the $100,000 UIM coverage illusory.  Id. 
D.  Dowhower 
¶35 Two 
years 
ago, 
this 
court 
addressed 
the 
constitutionality 
and 
import 
of 
Wis. Stat. § 632.32(5)(i).  
Dowhower, 2000 WI 73.  The plaintiffs in Dowhower argued that 
§ 632.32(5)(i) 
is 
unconstitutional 
because 
it 
authorizes 
fraudulent, illusory UIM coverage.  We disagreed, concluding 
that the statute does not violate substantive due process under 
the state and federal constitutions.  Id. at ¶2. 
¶36 We also determined that the type of reducing clause 
authorized in § 632.32(5)(i) is neither ambiguous nor against 
public policy.  Id. at ¶20.  We noted that "[w]hile reducing 
clauses have in some instances rendered UIM coverage illusory, 
we have not held that reducing clauses are per se contrary to 
public policy."  Id. at ¶22.  We further stated that when a UIM 
policy 
contains 
a 
reducing 
clause 
conforming 
to 
Wis. Stat. § 632.32(5)(i), 
an 
insured 
is 
"purchasing 
a 
No. 00-2682   
 
15 
 
predetermined level of coverage against injury sustained from an 
underinsured motorist."  Id. at ¶20. 
¶37 After discussing the holdings in several of the pre-
§ 632.32(5)(i) UIM cases outlined in this opinion, we concluded 
that: 
When we consider these cases in conjunction with 
Wis. Stat. § 632.32(5)(i), we conclude that an insurer 
may reduce payments made pursuant to a UIM policy by 
amounts 
received 
from 
other 
legally 
responsible 
persons or organizations, provided that 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. 
Id. at ¶33 (emphasis added).  Significantly, we also recognized 
that "a reducing clause may be ambiguous within the context of 
the insurance contract."  Id. at ¶35 (emphasis added). 
¶38 Implicit in our determination that reducing clauses 
would be valid only if they "provided that 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" was a recognition that the reasonable insured might 
not understand, intuitively, the scope of his or her UIM 
coverage.  We signaled in Dowhower that UIM insurers that reduce 
UIM payments by amounts paid from other sources, are required to 
make clear to purchasers of UIM coverage that they are 
purchasing coverage that will put them in the same position they 
would be in if the underinsured tortfeasor had liability limits 
equal to the amount of UIM coverage the insured purchased.  
Insureds will then understand that if they want to be assured of 
No. 00-2682   
 
16 
 
having, say, $200,000 in total available coverage, they will 
have to purchase UIM coverage with a $200,000 limit. 
¶39 In her concurring opinion, Justice Bradley emphasized 
the requirement that reducing clauses and automobile policies as 
a whole be written so as to clearly inform insureds of exactly 
what coverage their UIM provisions afford them: 
The legislature was aware of the concerns over 
deception voiced by Wisconsin courts.  Although it 
authorized 
reducing 
clauses 
under 
Wis. Stat. § 632.32(5)(i)1, the legislature envisioned 
clear policies without a hint of illusion to protect 
consumers from fraudulent practices.  It did not 
authorize deception in the implementation of the 
statute. 
Id. at ¶50 (Bradley, J., concurring). 
E.  Post-Dowhower Cases 
¶40 Since we issued our decision in Dowhower, the court of 
appeals has decided numerous cases involving UIM coverage and 
reducing clauses.  In 2000, the court of appeals decided Sukala, 
2000 WI App 266, a case in which plaintiffs challenged the 
validity of the reducing clauses in two UIM provisions.  The 
court "conclude[d] that under § 632.32(5)(i) and Dowhower, UIM 
reducing clauses like those at issue here can no longer be 
considered to render coverage illusory."  Id. at ¶15. 
¶41 The Sukala court further stated: "We read the Dowhower 
court's statements to mean either that (1) unambiguous UIM 
reducing clauses can no longer be considered 'illusory' or (2) 
asking whether unambiguous UIM reducing clauses are illusory is 
no longer a valid inquiry."  Id. at ¶19. 
No. 00-2682   
 
17 
 
¶42 In essence, we agree with this analysis.  But then the 
court proceeded to an ambiguous and misleading conclusion: 
We conclude that under Dowhower and the declared 
public 
policy 
of 
the 
legislature 
in 
Wis. Stat. 
§ 632.32(5)(i), UIM reducing clauses complying with 
§ 632.32(5)(i) cannot render UIM coverage "illusory."  
Once we have concluded that the UIM provisions of a 
policy are unambiguous, as we have here, then our 
inquiry is at an end. 
Id. at ¶20.  In the quoted language, the Sukala court shifted 
terms, moving from the reducing clause to "the UIM provisions of 
the policy," although the two could easily be read as one and 
the same.  A policy in which all "the UIM provisions" are 
unambiguous is different from a policy in which only the 
reducing clause is unambiguous.  In any event, the concluding 
sentence implies that once the reducing clause is found to be 
unambiguous, the inquiry is at an end.  That is incorrect 
because Dowhower contemplates 
consideration 
of 
the 
entire 
policy. 
¶43 In 2001, in Estate of Dorschner v. State Farm Mutual 
Automobile Insurance Co., the court of appeals reinforced the 
impact of Sukala, stating:  
In that case the court found the reducing clause, 
which 
mimicked 
the 
language 
of 
the 
authorizing 
statute, 
was 
clearly 
unambiguous. . . . The 
court 
concluded that under Dowhower and the declared public 
policy 
of 
the 
legislature 
in 
Wis. 
Stat. 
§ 632.32(5)(i), reducing clauses that comply with the 
statute cannot render UIM coverage illusory.  "Once we 
have concluded that the UIM provisions of a policy are 
unambiguous, as we have here, then our inquiry is at 
an end." 
No. 00-2682   
 
18 
 
Dorschner v. State Farm Mut. Auto. Ins. Co., 2001 WI App 117, 
¶11, 244 Wis. 2d 261, 628 N.W.2d 414 (quoting Sukala, 2000 WI 
App 266, ¶20). 
¶44 However, in Taylor, 2001 WI 93, this court again 
emphasized the Dowhower requirement that the policy must be 
unambiguous in its relevant language for a reducing clause to be 
valid. 
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 reached this 
conclusion after considering the case law regarding 
UIM coverage in conjunction with the statute that 
authorizes reducing clauses in UIM policies, Wis. 
Stat. § 632.32(5)(i)1. 
Id. at ¶24 (citations omitted).  In Taylor, the court decided 
that a reducing clause was valid after examining it in the 
context of the whole policy.  Id. at ¶¶25-26. 
¶45 In her dissent in Taylor, Justice Bradley asserted 
that UIM coverage, as authorized by Wis. Stat. § 632.32(5)(i), 
does not meet the expectations of a reasonable insured.  Id. at 
¶35 (Bradley, J., dissenting).  She added that, "While I do not 
question the validity of a statutorily authorized reducing 
clause, I do question the validity of a policy crafted around 
the reducing clause in such a way as to defeat the reasonable 
expectations of the insured."  Id. at ¶45 (emphasis added). 
¶46 Although Justice Bradley's statement was not part of 
the majority opinion, it reflects the reasoning in Dowhower that 
reducing clauses must be crystal clear in the context of the 
No. 00-2682   
 
19 
 
whole policy.  Otherwise, insureds are not likely to understand 
what they are purchasing. 
F.  Application of Dowhower and Wis. Stat. § 632.32(5)(i) 
¶47 In this case, the circuit court declared that the 
reducing clause contained in the policy issued to Schmitz was 
void and unenforceable.  The court relied on Sweeney.  Judge 
Bayorgeon 
wrote 
that 
he 
did 
not 
interpret 
Wis. Stat. § 632.32(5)(i) to be a "blanket endorsement" of 
reducing clauses.  He viewed the reducing clause in the context 
of the entire policy and determined that the policy failed to 
clearly set forth that UIM payments would be reduced by sums 
paid by others, "so that there is no mistake, confusion or 
illusion with respect to what is being provided for the premium 
being paid."  He concluded that, "The contract is illusory and 
therefore unenforceable." 
¶48 The court of appeals reversed, determining that the 
UIM coverage was not illusory.  It reasoned that the "provision 
is not fairly susceptible to an interpretation that would allow 
Schmitz to recover the full $250,000 policy limit over and above 
the $100,000 received from the party responsible for his 
injuries."  See Schmitz, unpublished slip op. at ¶5.  It 
concluded by quoting Sukala to the effect that: 
[U]nder Dowhower and the declared public policy of the 
legislature in Wis. Stat. § 632.32(5)(i), UIM reducing 
clauses complying with § 632.32(5)(i) cannot render 
UIM coverage 'illusory.'  Once we have concluded that 
the UIM provisions of a policy are unambiguous, as we 
have here, then our inquiry is at an end. 
Id. at ¶7. 
No. 00-2682   
 
20 
 
¶49 In fact, the teaching of Dowhower and Taylor is quite 
the contrary.  These cases direct a reviewing court to examine 
an unambiguous reducing clause in the context of the entire 
policy 
to 
determine 
whether 
the 
coverage 
provided 
is 
understandable 
and 
clear. 
 
If 
the 
coverage 
provided 
is 
misleading and unclear, the policy is ambiguous, or worse, and 
the clause reducing UIM coverage is not enforceable.  Dowhower, 
2000 WI 73, ¶33; Taylor, 2001 WI 93, ¶¶24, 26.  With this 
principle in mind, we will examine the UIM policy issued by 
American Merchants to Schmitz. 
1.  Standard of Review 
¶50 The construction or interpretation of an insurance 
policy presents a question of law to which we apply de novo 
review.  Hull v. State Farm Mut. Auto. Ins. Co., 222 
Wis. 2d 627, 636, 586 N.W.2d 863 (1998); Gen. Cas. Co. v. Hills, 
209 Wis. 2d 167, 175, 561 N.W.2d 718 (1997). 
¶51 We first must determine whether the insurance contract 
is ambiguous.  Words or phrases of an insurance contract are 
ambiguous if they are susceptible to more than one reasonable 
construction.  Dowhower, 2000 WI 73, ¶34.  Unambiguous language 
in an insurance contract must not be rewritten by construction.  
Smith, 155 Wis. 2d at 811.  However if the policy is ambiguous, 
we construe such ambiguities against the insurer.  Brunson v. 
Ward, 2000 WI 89, ¶12, 245 Wis. 2d 163, 629 N.W.2d 140.  To 
construe ambiguous language in an insurance policy, we attempt 
to determine "what a reasonable person in the position of the 
insured would have understood the words of the policy to mean."  
No. 00-2682   
 
21 
 
Taylor, 2001 WI 93, ¶10 (quoting Dowhower, 2000 WI 73, ¶35).  We 
are conscious that our interpretation of ambiguous language in 
an insurance policy "should advance the insured's reasonable 
expectations of coverage."  Id. (citing Kremers-Urban Co. v. Am. 
Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 
(1984)). 
2.  The Policy Language 
¶52 The 
"Personal 
Auto 
Policy" 
issued 
by 
American 
Merchants to Schmitz is 29 pages long.6  The second page is a 
"Quick Reference Index Sheet" that lists, among other things, 
the declarations page and Parts A through F of the policy.  The 
"Quick Reference Index Sheet" shows that Uninsured Motorists 
Coverage is in Part C.  Underinsured Motorists Coverage is not 
mentioned. 
¶53 The third page, the declarations page, lists the type 
of coverages the policy provides:  Liability, Medical Payments, 
Uninsured Motorists, and Damage To Your Auto.  For each of these 
four coverages, the liability limits, deductible, and cost are 
included.  The third page also includes, under "Additional 
endorsements 
and 
forms 
made 
part 
of 
this 
policy," 
"See 
Endorsement 3-4044."   
                                                 
6 The policy is presented as Exhibit A in the circuit court 
record.  In Exhibit A, the pages appear in a different order 
than in Schmitz's appendix.  The court understands that the 
policy is accurately presented in the appendix. 
The pages of the policy are not numbered sequentially.  We 
therefore refer to the pages in the order in which they appear. 
No. 00-2682   
 
22 
 
¶54 The fourth page——"3-4044"——states the policy number 
and then lists the "Forms on this Policy."  Eleven form numbers 
follow.  The last of the 11 form numbers is "PP0428 1295."  This 
form number later appears under the heading "Underinsured 
Motorists Coverage-Wisconsin." 
¶55 The 
fifth 
page 
is 
entitled 
"Availability 
Of 
Underinsured Motorists Coverage——Wisconsin."  The text on the 
page reads in its entirety: 
Wisconsin Insurance Law (Section 632.32) require [sic] 
we notify you of the availability of underinsured 
motorists coverage.  The law does not require you 
purchase this coverage; however, the law does require 
we 
offer 
you 
the 
opportunity 
to 
purchase 
this 
coverage.  If you have purchased this coverage, please 
disregard this notice. 
What is underinsured motorists coverage? 
If you are involved in an accident in which the other 
driver is legally at-fault, the at-fault driver's 
insurance policy has the obligation to pay for your 
bodily injury damages and bodily injury damages to 
passengers in your car.  The at-fault driver may not 
have enough liability insurance to pay all the bodily 
injury damages you and your passengers have sustained.  
To 
protect 
yourself 
and 
others 
in 
your 
car, 
underinsured motorists coverage is available to you.  
This coverage will pay the remainder of the bodily 
injury damages up to the limit of liability you select 
for underinsured motorists coverage.  
For additional information, or if you desire to 
purchase this coverage, please contact your sales 
representative (emphasis added). 
¶56 The sixth page is the definitions page.  It does not 
define "underinsured motorist" or "reducing clause." 
No. 00-2682   
 
23 
 
¶57 The twenty-third page of the policy is entitled "Split 
Underinsured Motorists Limits."  It states that the policy 
provides "$250,000 each person," and "$500,000 each accident."  
Under "Underinsured Motorists Coverage," the schedule states: 
The 
first 
paragraph 
of 
the 
Limit 
of 
Liability 
provision 
in 
the 
Underinsured 
Motorists 
Coverage 
Endorsement is replaced by the following: 
LIMIT OF LIABILITY 
The limit of liability shown in the Schedule or in the 
Declarations 
for 
each 
person 
for 
Underinsured 
Motorists Coverage is our maximum limit of liability 
for all damages, including damages for care, loss of 
services or death, arising out of "bodily injury" 
sustained by any one person in any one accident.  
Subject to this limit for each person, the limit of 
liability shown in the Schedule or in the Declarations 
for each accident for Underinsured Motorists Coverage 
is our maximum limit of liability for all damages for 
"bodily injury" resulting 
from any one 
accident 
(emphasis added). 
¶58 At the top of the twenty-seventh page are the words: 
"This 
Endorsement 
Changes 
the 
Policy. 
 
Please 
Read 
It 
Carefully." 
 
Underneath 
this 
advisory 
are 
the 
words 
"Underinsured Motorists Coverage-Wisconsin."  Under "Insuring 
Agreement," paragraph "C" states in part: 
"Underinsured 
motor vehicle" means 
a 
land 
motor 
vehicle or trailer of any type to which a bodily 
injury liability bond or policy applies at the time of 
the accident but its limit for bodily injury liability 
is less than the limit of liability for this coverage. 
¶59 On the next page, the twenty-eighth page, under "Limit 
of Liability," paragraph "B" reads: 
The limit of liability shall be reduced by all sums: 
No. 00-2682   
 
24 
 
 
1.  Paid because of the "bodily injury" by or on 
behalf of persons or organizations who may be legally 
responsible.  This includes all sums paid under Part 
A; and 
2.  Paid or payable because of the "bodily 
injury" under any of the following or similar law: 
 
a.  Workers' compensation law: or 
 
b.  Disability benefits law. 
C.  No one will be entitled to receive duplicate 
payments for the same elements of loss under this 
coverage and Part A, Part B or Part C of this policy. 
D.  We will not make a duplicate payment under this 
coverage for any element of loss for which payment has 
been made by or on behalf of persons or organizations 
who may be legally responsible. 
E.  We will not pay for any element of loss if a 
person is entitled to receive payment for the same 
element of loss under any of the following or similar 
law: 
1.  Workers' compensation law: or 
2.  Disability benefits law. 
The material on the twenty-seventh, twenty-eighth, and twenty-
ninth pages of the policy makes up Form "PP 04 28 12 95," which 
we believe is the same as "PP0428 1295" referred to on the 
fourth page of the policy. 
3.  The Ambiguity of the UIM provisions 
¶60 In interpreting the policy language, we begin with the 
reducing clause on the twenty-eighth page, which provides that: 
B. The limit of liability shall be reduced by all 
sums: 
1. Paid because of the "bodily injury" by or on 
behalf of persons or organizations who may be 
No. 00-2682   
 
25 
 
legally responsible.  This includes all sums paid 
under Part A; and 
2. Paid or payable because of the "bodily injury" 
under any of the following or similar law: 
a. Workers' compensation law; or 
b. Disability benefits law.  
¶61 There is no dispute that this reducing clause is in 
conformity with Wis. Stat. § 632.32(5)(i).  Thus, the reducing 
clause itself is not ambiguous or contrary to public policy.  
Dowhower, 2000 WI 73, ¶20.  If we looked only at the reducing 
clause and not at the policy as a whole, our inquiry would be at 
an end.  See Sukala, 2000 WI App 266, ¶20.  However, language in 
an insurance policy may be ambiguous in the context of the 
entire insurance contract.  See Taylor, 2001 WI 93, ¶26 (citing 
Dowhower, 2000 WI 73, ¶35).  Here, the policy as a whole, and 
the "Availability of Underinsured Motorists Coverage——Wisconsin" 
form in particular, create ambiguity. 
¶62 First, we note that the declarations page, which is 
generally the portion of an insurance policy to which the 
insured looks first, does not mention UIM coverage at all.  It 
mentions only UM coverage.  One consequence is that there is no 
place on the declarations page to explain that the policy's UIM 
liability will be reduced by payments from other sources.  There 
is no place to alert the insured that although the insured could 
receive the full limit of uninsured motorists coverage from the 
insurer, there is no possibility of receiving the full limit of 
underinsured 
motorists 
coverage 
from 
the 
insurer. 
 
The 
reasonable insured would look to the declarations page for the 
No. 00-2682   
 
26 
 
total premium and the breakdown of the premium by type of 
coverage.  There is no separately-listed cost for underinsured 
motorist coverage on the declarations page or any other page. 
¶63 Second, 
there 
is 
no 
reference 
to 
Underinsured 
Motorists Coverage on the "Quick Reference Index Sheet."  If, on 
a hunch, the insured turned to Part C——"Uninsured Motorists 
Coverage"——anticipating a discussion of Underinsured Motorists 
Coverage under the subheading "Other Insurance," the insured 
would be disappointed. 
¶64 Third, the twenty-third page contains the "Split 
Underinsured Motorists Limits," which might be characterized as 
a declarations page for underinsured motorists liability limits.  
This page states limits of $250,000 for each person capped by 
$500,000 for each accident.  The schedule reads in relevant 
part:  
The limit of liability shown in the Schedule or in the 
Declarations 
for 
each 
person 
for 
Underinsured 
Motorists Coverage is our maximum limit of liability 
for all damages . . . . 
This is the most we will pay regardless of the number 
of: 
1.  "Insureds;" 
2.  Claims made; 
3.  Vehicles or premiums shown in the Declarations; or 
4.  Vehicles involved in the accident  
¶65 The "Schedule" on the twenty-third page fails to 
inform that these dollar limits represent combined payments from 
all sources and will never be paid by the insurer because of the 
No. 00-2682   
 
27 
 
policy's reducing clause.  Because the "maximum" limits of 
liability are described as the "most" American Merchants will 
pay, they imply that these limits are attainable. 
¶66 Finally, 
we 
examine 
the 
document 
entitled 
"Availability of Underinsured Motorists Coverage——Wisconsin," 
which is located on the fifth page.  The document states that 
the insurer must notify the insured of the availability of UIM 
coverage, but that the insured does not have to buy it.  It 
states "If you have purchased this coverage, please disregard 
this notice."  It also explains that "This coverage will pay the 
remainder of the bodily injury damages up to the limit of 
liability you select for underinsured motorists coverage."  
American Merchants asserts that this document is not part of the 
policy and does not modify the policy as an endorsement would.  
It also claims that a reasonable insured who had already 
purchased UIM coverage would do what the document says——
"disregard this notice."  The court of appeals agreed with this 
argument, noting that this page was not part of the policy's 
terms" 
and 
"specifically 
informed 
policyholders 
with 
UIM 
coverage, such as Schmitz, to disregard the information it 
provided."  See Schmitz, unpublished slip op. at ¶6. 
¶67 Schmitz, on the other hand, asserts that a reasonable 
insured would read the definition of UIM coverage and assume 
that the policy he or she had purchased utilized the same 
definition. 
¶68 We note that the notice of availability document, 
#511-8822 0996, is specifically listed on the fourth page of the 
No. 00-2682   
 
28 
 
policy, under "Forms on this policy."  It is the second listed 
form.  We think that a reasonable insured, reading the fourth 
page, would expect the notice of availability to be part of the 
policy.   
¶69 As to the portion of the notice reading "If you have 
purchased this coverage, please disregard this notice," we note 
that pursuant to Wis. Stat. § 632.32(4m)(a)1, the notice must 
contain "written notice of availability of underinsured motorist 
coverage, including a brief description of the coverage."  We 
think the words "If you have purchased this coverage, please 
disregard this notice" clearly means to inform the insured to 
disregard the notice in terms of the availability of UIM 
coverage, not the description of the coverage.  The availability 
of coverage is relevant to prospective insureds, but the 
description of the coverage is relevant to both prospective 
insureds and current insureds.   
¶70 We believe a reasonable insured, reading the notice, 
would understand that he or she should disregard the notice if 
he or she has already purchased UIM coverage.  However, the 
explanation in the notice is the most readily understandable 
definition of UIM coverage in the policy.  It appears to tell a 
prospective insured that if he or she purchases UIM coverage, 
the coverage will pay the remainder of the bodily injury damages 
up to the limit of liability the person selects. 
¶71 We do not see why an insured would think that the UIM 
coverage being offered to persons who do not have UIM coverage 
will be different from the UIM coverage the insured has already 
No. 00-2682   
 
29 
 
purchased.  Moreover, the definition of UIM coverage in the 
notice of availability form is likely to be what an average 
insured understands.  See Taylor, 2001 WI 93, ¶35 (Bradley, J., 
dissenting) ("reasonable insureds believe they are purchasing 
coverage for their damages in a set dollar amount above and 
beyond the liability limits of the at-fault driver"). 
¶72 To sum up, the American Merchants policy is a maze 
that is organizationally complex and plainly contradictory.  It 
sends several false signals to the insured.  It is not user-
friendly.  The notice of availability of UIM coverage, together 
with the "maximum of liability" listed on the declarations page 
and on the split UIM limits page, combine to create confusion, 
ambiguity, and illusory coverage in the context of the entire 
policy.  This renders an otherwise unambiguous, although poorly 
labeled, 
reducing 
clause 
unenforceable. 
 
Under 
the 
circumstances, the circuit court performed the correct analysis 
and properly granted Schmitz summary judgment in his case 
against American Merchants.  This determination was necessary to 
advance the insured's reasonable expectation of coverage. 
III.  SUMMATION 
¶73 The Dowhower decision recognizes the validity of the 
second theory of underinsured motorists coverage and assumes 
that it will be written into most Wisconsin automobile insurance 
policies.  It upholds a reducing clause that conforms to 
Wis. Stat. § 632.32(5)(i), "provided that the policy [in which 
the reducing clause appears] clearly sets forth that the insured 
is purchasing a fixed level of UIM recovery that will be arrived 
No. 00-2682   
 
30 
 
at by combining payments made from all sources."  Dowhower, 2000 
WI 73, ¶33.  This formulation opens the entire policy to 
examination.  When the policy as a whole fails to set forth a 
clear, understandable description of the underinsured motorists 
coverage being purchased, "a reducing clause may be ambiguous 
within the context of the insurance contract."  Id. at ¶35. 
¶74 The Dowhower decision creates a quandary for the 
judiciary because it does not provide a bright line rule for 
courts to apply.  As a practical matter, every automobile 
insurance policy with an underinsured motorists reducing clause 
becomes a potential battleground over contextual ambiguity.  
This prospect is disheartening.  The public interest will not be 
served by interminable litigation——at great cost——over issues 
that 
could 
be 
resolved 
easily 
by 
conspicuous 
forthright 
explanations from insurers.  The public interest will be served 
when insurance buyers are given materials to make informed 
choices about the desired limit of their underinsured motorists 
coverage.  The burden should be on insurers to show that 
insureds have been put in a position to make informed choices.  
Wisconsin courts should not be expected to become parties to 
consumer deception by enforcing reducing clauses that have not 
been fully and fairly explained. 
IV. CONCLUSION 
¶75 We conclude that although the reducing clause in the 
UIM provisions of the insurance policy issued by American 
Merchants to Dennis Schmitz comports with the requirements of 
Wis. Stat. § 632.32(5)(i), it does not, when viewed in the 
No. 00-2682   
 
31 
 
context of the entire policy, clearly set forth that the insured 
is purchasing a fixed level of UIM recovery arrived at by 
combining payments from all sources.  The reducing clause is 
therefore ambiguous and unenforceable, and renders the UIM 
coverage illusory.  Accordingly, we reverse the decision of the 
court of appeals and reinstate the judgment of the circuit court 
granting Schmitz's motion for summary declaratory judgment. 
By the Court.—The decision of the court of appeals is 
reversed. 
 
 
No.  00-2682.npc 
 
1 
 
¶76 N. PATRICK CROOKS, J.   (dissenting).  I cannot join 
the majority's opinion because in examining the insurance 
contract as a whole, the majority completely ignores the 
unambiguous UIM reducing clause.  I would affirm the court of 
appeals' decision because when the unambiguous UIM reducing 
clause is read together with the rest of the policy, I conclude 
that the reducing clause is not susceptible to more than one 
interpretation.  Accordingly, I respectfully dissent.7 
¶77 In one breath the majority concludes that the UIM 
reducing clause here is unambiguous and not contrary to public 
policy 
since 
it 
complies 
with 
Wis. Stat. § 632.32(5)(i).  
Majority op. at ¶61.  In the next breath, however, the majority 
concludes that, although unambiguous, the reducing clause is 
unenforceable because it creates illusory coverage in the 
context of the entire policy.  Id. at ¶72.  I cannot join the 
majority's analysis because when examining the policy as a 
whole, it completely ignores the unambiguous UIM reducing 
clause.  The majority draws its conclusion based on several 
other portions of the policy, interpreted separately and 
independently from the unambiguous UIM reducing clause at issue.  
To me, the majority's approach is contrary to Dowhower v. West 
                                                 
7 The majority apparently, but not explicitly, overrules the 
holding in Sukala v. Heritage Mutual Insurance Co., 2000 WI App 
266, ¶20, 240 Wis. 2d 65, 622 N.W.2d 457, that "[o]nce we have 
concluded 
that 
the 
UIM 
provisions 
of 
a 
policy 
are 
unambiguous . . . then our inquiry is at an end."  See also 
Estate of Dorschner v. State Farm Mut. Auto. Ins. Co., 2001 WI 
App 117, ¶12, 244 Wis. 2d 261, 628 N.W.2d 414.  If the majority 
intends to overrule or withdraw language from Sukala, it should 
do so explicitly, or appropriately distinguish Sukala so as not 
to create confusion. 
No.  00-2682.npc 
 
2 
 
Bend Mutual Ins. Co., 2000 WI 73, 236 Wis. 2d 113, 613 
N.W.2d 557, and Taylor v. Greatway Ins. Co., 2001 WI 93, 245 
Wis. 2d 134, 628 N.W.2d 916, and violates our rules of contract, 
including insurance contract, interpretation.   
¶78 Beginning at paragraph 62, the majority opinion goes 
to great length to discuss various pages of the policy as either 
not referencing UIM coverage, see majority op. at ¶¶62-63, or 
characterizing UIM coverage in a manner that the majority finds 
"organizationally complex," "plainly contradictory" and "not 
user-friendly."  Id. at ¶¶64-65, 72.  The majority, however, 
never analyzes those sections together with, or in relationship 
to, the unambiguous UIM reducing clause.  Furthermore, the 
majority simply concludes that the discussed provisions render 
an otherwise unambiguous reducing clause unenforceable, see id. 
at ¶72, but fails to explain how the whole contract is ambiguous 
or susceptible to more than one construction. 
¶79 I agree with the majority that Dowhower and Taylor 
recognized that language in an insurance policy can be ambiguous 
within the context of the whole policy.  Those cases do not, 
however, 
hold——or 
even 
suggest——that 
when 
examining 
the 
insurance policy as a whole, the unambiguous UIM reducing clause 
should be completely ignored.  To the contrary, in Taylor, we 
examined the policy as a whole in relation to the definition of 
underinsured vehicle.  See 2001 WI 93, ¶27 (comparing the 
definition to other policy provisions and concluding that 
"nothing in the rest of [the] policy [] obscures the unambiguous 
definition of underinsured vehicle").   
No.  00-2682.npc 
 
3 
 
¶80 Moreover, focusing on the unambiguous UIM reducing 
clause when examining the context of the insurance policy is 
consistent with our rules of contract interpretation.  The 
unambiguous UIM reducing clause should be read together with the 
rest of the policy, to determine if the reducing clause is 
susceptible of more than one construction.  See Estate of 
Dorschner v. State Farm Mut. Auto. Ins. Co., 2001 WI App 117, 
¶12, 244 Wis. 2d 261, 628 N.W.2d 414 ("Nor do we find that the 
antistacking clause, when read together with the rest of the 
policy, is susceptible to more than one construction.").  In 
addition, "[W]hen the terms of an insurance policy are plain on 
their face, the policy must not be rewritten by construction."  
Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 811, 456 
N.W.2d 597 (1990).  
¶81 Applying the above analysis here, I conclude that the 
unambiguous reducing clause remains unambiguous, or as the 
majority requires "understandable and clear."  See majority op. 
at ¶49.  Granted, like many insurance contracts, the American 
Merchants policy issued to Schmitz is long and complex with many 
clauses 
and 
endorsements. 
 
Contrary 
to 
the 
majority's 
conclusion, however, complexity alone does not render the policy 
ambiguous. 
 See Heater 
v. 
Fireman's 
Fund 
Ins. Co., 30 
Wis. 2d 561, 565, 141 N.W.2d 178 (1966); Hause v. Bresina, No. 
01-3041, 2002 Wisc. App. LEXIS 671, *3 (Wis. Ct. App. June 11, 
2002); Hinrichs v. American Family Mut. Ins. Co., 2001 WI App 
114, ¶15, 244 Wis. 2d 191, 629 N.W.2d 44.   
No.  00-2682.npc 
 
4 
 
¶82 In 
concluding 
that 
the 
UIM 
reducing 
clause 
is 
unenforceable, the majority finds five areas of the policy where 
the explanation of UIM coverage could be clearer, see majority 
op. at ¶¶62-70, but seems to base its conclusion largely on the 
document 
entitled 
"Availability 
of 
Underinsured 
Motorists 
Coverage——Wisconsin."  Id. at ¶61.  The majority concludes that 
the definition of UIM coverage in this notice is the "most 
readily understandable definition of UIM coverage in the 
policy," and that this definition apparently creates confusion 
for a reasonable insured because it differs from the actual UIM 
coverage in the policy.  Id. at ¶70.  The majority seems to hold 
that by stating in the notice that "[UIM] coverage will pay the 
remainder of the bodily injury damages up to the limit of 
liability the person selects," the UIM reducing clause is 
rendered ambiguous. 
¶83 I disagree.  When the availability of UIM coverage 
notice is read together with the unambiguous UIM reducing 
clause, it is clear that UIM coverage is reduced by all sums 
paid by or on behalf of persons or organizations legally 
responsible.  The policy unambiguously states that UIM coverage 
is only coverage up to the limit of liability the person 
selects.  When examined together, therefore, the unambiguous UIM 
reducing clause remains unambiguous, nor does the notice 
provision render the UIM coverage illusory.  The American 
Merchants 
policy 
follows 
the 
statutory 
language 
in 
Wis. Stat. § 632.32(5)(i), and comports with Dowhower because it 
"clearly sets forth that the insured is purchasing a fixed level 
No.  00-2682.npc 
 
5 
 
of UIM recovery that will be arrived at by combining payments 
made from all sources."  2000 WI 73, ¶33.  I conclude that the 
UIM reducing clause is unambiguous on its face, as well as in 
the context of the entire policy.  The majority errs by 
rewriting the policy through judicial construction. 
¶84 Finally, I find it necessary to comment on the 
majority's summation that "Dowhower [] creates a quandary for 
the judiciary because it does not provide a bright line rule for 
courts to apply."  Majority op. at ¶74.  The majority further 
writes, "As a practical matter, every automobile insurance 
policy with an underinsured motorists reducing clause becomes a 
potential battleground over contextual ambiguity."  Id.  Rather, 
I believe the majority opinion has created exactly what it has 
criticized here——a quandary.  The majority has searched for, and 
subsequently has created, ambiguity in a policy where it 
otherwise did not exist.  It has done so by ignoring the 
unambiguous UIM reducing clause at issue.  As a practical 
matter, the majority has created confusion for insurers, 
consumers, and the courts of this state, because now a clear and 
unambiguous UIM reducing clause has been wholly ignored in order 
to conclude that such clause is ambiguous in the context of the 
policy as a whole.  I cannot join in this analysis; therefore, I 
respectfully dissent. 
¶85 I am authorized to state that Justices JON P. WILCOX 
and DIANE S. SYKES join this dissent. 
 
 
No.  00-2682.npc 
 
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No.  00-2682.npc 
 
 
 
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