Title: Trisha A. Taylor v. Greatway Insurance Company
Citation: 2001 WI 93
Docket Number: 1999AP001329
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 6, 2001

2001 WI 93 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
99-1329 
 
 
Complete Title 
of Case: 
 
Trisha A. Taylor,  
 
Plaintiff-Respondent-Petitioner, 
 
v. 
Greatway Insurance Company and Ross H. 
Hermanson,  
 
Defendants, 
American Family Mutual Insurance Company,  
 
Defendant-Appellant.  
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2000 WI App 64 
Reported at:  233 Wis. 2d 703, 608 N.W.2d 722 
(Published) 
 
 
Opinion Filed: 
July 6, 2001 
Submitted on Briefs: 
      
Oral Argument: 
November 28, 2000 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Rock 
 
JUDGE: 
Richard T. Werner 
 
 
JUSTICES: 
 
Concurred: 
      
 
Dissented: 
BRADLEY, J., dissents (opinion filed). 
 
 
ABRAHAMSON, C.J., and BABLITCH, J., join dissent. 
 
Not Participating:       
 
 
ATTORNEYS: 
For the plaintiff-respondent-petitioner there 
were briefs by James H. Fowler, III, Janesville, and oral 
argument by James H. Fowler, III. 
 
 
For the defendant-appellant there was a brief by 
David J. Pliner and Corneille Law Group, L.L.C., Madison, and 
 
2 
oral argument by David J. Pliner. 
 
 
An amicus curiae brief was filed by Robert L. 
Jaskulski and Domnitz, Mawicke & Goisman, S.C., Milwaukee, on 
behalf of the Wisconsin Academy of Trial Lawyers. 
 
2001 WI 93 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 99-1329 
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
Trisha A. Taylor,  
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
Greatway Insurance Company and Ross H.  
Hermanson,  
 
          Defendants, 
 
American Family Mutual Insurance Company,  
 
          Defendant-Appellant. 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed. 
 
¶1 
N. PATRICK CROOKS, J.   The petitioner, Trisha A. 
Taylor, (Taylor) seeks review of a published decision by the 
court of appeals, Taylor v. Greatway Insurance Co., 2000 WI App 
64, 233 Wis. 2d 703, 608 N.W.2d 722.  The court of appeals 
reversed a Rock County Circuit Court decision that denied a 
motion for summary judgment brought by American Family Mutual 
Insurance Company (American Family).  The circuit court, Judge 
Richard T. Werner presiding, held that Taylor was entitled to 
underinsured motorist (UIM) coverage under her two automobile 
FILED 
 
JUL 6, 2001 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 
99-1329 
 
 
2 
insurance policies with American Family for damages sustained 
when her husband was killed in an automobile accident with a 
vehicle driven by Ross Hermanson (Hermanson).  The circuit court 
determined that Taylor's reasonable expectations required UIM 
coverage, 
even 
though 
Hermanson's 
vehicle 
was 
not 
an 
underinsured vehicle as defined by American Family's policies.  
It held that the reducing clause1 in American Family's polices 
created illusory coverage and was therefore against public 
policy.  The court of appeals reversed, holding that Taylor was 
not entitled to UIM coverage because the vehicle driven by 
Hermanson was not an underinsured vehicle as defined by American 
Family's policies.  Taylor, 2000 WI App 64, ¶1.  The court of 
appeals did not address whether the reducing clause in American 
Family's policies created illusory UIM coverage.  Id. at ¶16.2 
¶2 
We affirm and hold that Taylor is not entitled to UIM 
coverage under her policies with American Family because the 
vehicle driven by Hermanson was not an underinsured vehicle as 
defined by American Family's policies.  Consequently, there is 
                     
1 A reducing clause in a UIM policy decreases the UIM 
coverage by "the amount paid to the insured by the underinsured 
tortfeasor."  Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, 
¶1, 236 Wis. 2d 113, 613 N.W.2d 557.   
2 The court of appeals affirmed the circuit court's judgment 
to award Taylor accidental death benefits under both American 
Family policies.  Taylor v. Greatway Ins. Co., 2000 WI App 64, 
¶2, 233 Wis. 2d 703, 608 N.W.2d 722.  We do not review the court 
of appeals decision regarding accidental death benefits, since 
that issue was not appealed to this court.  
No. 
99-1329 
 
 
3 
no need for us to address whether the reducing clause in those 
polices created illusory coverage. 
I 
¶3 
The facts of the instant case are not in dispute.  In 
September of 1993, a vehicle driven by Hermanson struck a 
vehicle driven by Taylor's husband, Paul Taylor.  Paul Taylor 
died as a result of the accident.  At the time of the accident, 
Hermanson had an automobile liability policy issued by Greatway 
Insurance Company (Greatway) with a $50,000 liability coverage 
limit.  Taylor settled with Greatway for $50,000.  It was 
stipulated that Taylor's damages exceeded $160,000. 
¶4 
Taylor filed a complaint against American Family 
seeking 
UIM 
coverage 
under 
her 
two 
automobile 
insurance 
policies.  Each policy contains UIM coverage with a $50,000 
limit.  Each policy defines an underinsured vehicle as:  
 
a motor vehicle which is insured by a liability bond 
or policy at the time of the accident which provides 
bodily injury liability limits less than the limits of 
liability of this Underinsured Motorists coverage.   
 
In addition, each policy contains a reducing clause stating 
that:  
[t]he limits of liability of this coverage will be 
reduced by:  A payment made or amount payable by or on 
behalf of any person or organization which may be 
legally 
liable, 
or 
under 
any 
collectible 
auto 
liability insurance, for loss caused by an accident 
with an underinsured motor vehicle.   
¶5 
American Family moved for summary judgment claiming 
that Taylor was not entitled to UIM coverage.  American Family 
No. 
99-1329 
 
 
4 
argued that the vehicle driven by Hermanson was not an 
underinsured vehicle as defined by its policies.  It pointed out 
that Hermanson's automobile liability policy contained a $50,000 
coverage limit——one that was not less than the $50,000 limit in 
each of its policies. 
¶6 
In response to American Family's motion, Taylor argued 
that she was entitled to UIM coverage.  Taylor claimed that 
American Family's UIM coverage of $50,000 was illusory because 
of the reducing clause.  According to Taylor, the reducing 
clause created illusory coverage because she could never recover 
$25,000 of the $50,000 in UIM coverage under each policy, due to 
the requirement in Wis. Stat. § 344.33(2) (1993-94)3 that drivers 
have at least $25,000 in liability insurance.4  Therefore, Taylor 
argued that the fact that she could recover only $25,000 under 
each policy runs contrary to her reasonable expectations of 
$50,000 in UIM coverage under each policy.     
¶7 
The circuit court denied American Family's motion.  
The court held that Taylor was entitled to UIM coverage under 
her policies with American Family even though the vehicle driven 
by Hermanson did not satisfy the unambiguous definition of 
underinsured vehicle in American Family's policies.  The court 
determined that the reducing clause in American Family's 
                     
3 All subsequent references to the Wisconsin Statutes are to 
the 1993-94 version unless otherwise indicated.  
4 Wisconsin Stat. § 344.33(2) requires that an automobile 
liability insurance policy provide a minimum of $25,000 in 
coverage for bodily injury.  
No. 
99-1329 
 
 
5 
policies created illusory UIM coverage and was therefore against 
public policy.  The court also determined that Taylor's 
expectations of $50,000 in UIM coverage under each policy were 
reasonable and that she was entitled to the coverage she 
expected. 
¶8 
As noted, the court of appeals reversed the circuit 
court.  The court held that Taylor was not entitled to UIM 
coverage because the vehicle driven by Hermanson was not an 
underinsured vehicle as defined by American Family's policies.  
Taylor, 2000 WI App 64, ¶16.  Since it found that Taylor was not 
entitled to UIM coverage, the court did not address whether the 
reducing clause in the policies created illusory UIM coverage.  
Id.  The court of appeals stated that it would not review 
whether a reducing clause creates illusory UIM coverage under 
the circumstances presented in this case.  Here the policies 
compared the insured's UIM coverage limit to the other driver's 
liability limit, and the other driver's liability coverage limit 
was greater than the minimum amount of liability coverage 
required by Wis. Stat. § 344.33(2) and was not less than the 
insured's UIM coverage limit.  Id. at ¶15.  
II 
¶9 
We review the circuit court's denial of American 
Family's motion for summary judgment in the same manner as the 
circuit court, using the standards for summary judgment set 
No. 
99-1329 
 
 
6 
forth in Wis. Stat. § 802.08.5  Smith v. Katz, 226 Wis. 2d 798, 
805, 595 N.W.2d 345 (1999).  We benefit from the analysis of the 
circuit court and the court of appeals, however.  The issue 
presented by the instant case is whether Taylor is entitled to 
UIM coverage under the American Family policies.  To resolve 
this issue, we must interpret the language in American Family's 
insurance policies.  The interpretation of language in an 
insurance policy presents a question of law that we review de 
novo.  Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 810, 
456 N.W.2d 597 (1990). 
¶10 We apply the same rules of construction to the 
language in insurance policies as to the language in any other 
contract.  Kremers-Urban Co. v. American Employers Ins. Co., 119 
Wis. 2d 722, 735, 351 N.W.2d 156 (1984).  We construe 
ambiguities in coverage in favor of the insured and narrowly 
construe exclusions in coverage against the insurer.   Smith v. 
Atlantic Mut. Ins. Co., 155 Wis. 2d at 811.  The language of an 
insurance policy is ambiguous when it is "susceptible to more 
than one reasonable construction."  Id.  If the language in an 
insurance policy is ambiguous, we interpret that language by 
trying to determine "what a reasonable person in the position of 
the insured would have understood the words of the policy to 
                     
5 Wisconsin Stat. § 802.08(2) provides that a court shall 
grant 
a 
motion 
for 
summary 
judgment 
"if 
the 
pleadings, 
depositions, answers to interrogatories, and admissions on file, 
together with the affidavits, if any, show that there is no 
genuine issue as to any material fact and that the moving party 
is entitled to a judgment as a matter of law."  
No. 
99-1329 
 
 
7 
mean."  Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, ¶35, 
236 
Wis. 
2d 
113, 
613 
N.W.2d 
557. 
 
In 
addition, 
the 
interpretation of language in an insurance policy should advance 
the insured's reasonable expectations of coverage.  Kremers-
Urban, 119 Wis. 2d at 735.  However, we will apply the language 
of the policy and not engage in construction when the language 
of the policy is unambiguous.  Id. 
¶11 The result in the instant case is governed by our 
decision in Smith v. Atlantic Mutual Insurance Co.  The facts of 
Smith v. Atlantic Mutual Insurance Co. were almost identical to 
the facts presented by the instant case.  Smith was involved in 
an automobile accident with another driver.  Smith v. Atlantic 
Mut. Ins. Co., 155 Wis. 2d at 809-10.  The other driver had an 
automobile liability policy with a liability coverage limit of 
$50,000.  Id.  Smith had a UIM policy with a coverage limit of 
$50,000.  Id. at 810.  Smith's UIM policy defined underinsured 
vehicle as a vehicle "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."  Id. at 811.  Smith settled with the other 
driver's liability insurance for $50,000.  Id. at 810.  Smith 
then submitted a claim for UIM coverage.  Id.  Smith's insurer 
denied UIM coverage.  Id.  Smith then filed a lawsuit against 
her insurer.  Id.  The circuit court granted Smith's insurer's 
motion for summary judgment holding that the vehicle driven by 
the other driver was not an underinsured vehicle as defined by 
No. 
99-1329 
 
 
8 
the insurer's policy.  Id.  The court of appeals affirmed and 
Smith appealed.  Id. 
¶12 We concluded that Smith was not entitled to UIM 
coverage.  Id. at 809.  The starting point of our inquiry was 
the definition of underinsured vehicle in Smith's UIM policy.  
Id. at 811.  We determined that the definition of underinsured 
vehicle in Smith's UIM policy was unambiguous.  Id.  Because the 
definition was unambiguous, we applied the plain terms of the 
policy.  Id.  We concluded that the vehicle driven by the other 
driver was not an underinsured vehicle as defined by Smith's UIM 
policy because the $50,000 limit of the other driver's liability 
policy was equal to, not less than, the $50,000 limit of Smith's 
UIM policy.  Id.  Because the vehicle driven by the other driver 
was not an underinsured vehicle, we concluded that Smith was not 
entitled to UIM coverage.  Id.  Consequently, we did not address 
whether the reducing clause in Smith's insurer's policy created 
illusory UIM coverage.  Id. at 814. 
¶13 We follow our analysis in Smith v. Atlantic Mutual 
Insurance Co. to determine whether Taylor is entitled to UIM 
coverage under her policies with American Family.  We therefore 
start our inquiry with the definition of underinsured vehicle in 
American Family's policies.  Like the definition of underinsured 
vehicle in Smith v. Atlantic Mutual Insurance Co., we conclude 
that the definition of underinsured vehicle in American Family's 
policies is unambiguous.  155 Wis. 2d at 811.  The definition 
clearly requires that an underinsured vehicle must have a 
liability coverage limit less than the limit of Taylor's UIM 
No. 
99-1329 
 
 
9 
coverage.  As we did in Smith v. Atlantic Mutual Insurance Co., 
we apply the plain terms of the unambiguous definition.  Id.  
Hermanson's liability coverage limit is $50,000.  Taylor's UIM 
coverage limit in each of her policies issued by American Family 
is $50,000.  Hermanson's $50,000 liability coverage limit is 
equal to, not less than, Taylor's $50,000 UIM coverage limit in 
each policy.6  The vehicle driven by Hermanson is not an 
underinsured vehicle as defined by American Family's policies.  
Taylor is therefore not entitled to UIM coverage under her 
policies with American Family.  As a result, we do not address 
whether the reducing clause in American Family's policies 
creates illusory coverage, just as we did "not reach the issue 
regarding to what extent the policy's reducing clause may affect 
[the UIM coverage]" in Smith v. Atlantic Mutual Insurance Co.,  
155 Wis. 2d at 814. 
¶14 Taylor contends that she is entitled to UIM coverage. 
She asks us to proceed with our analysis beyond the unambiguous 
definition of underinsured vehicle and conclude that the 
reducing clause in American Family's policies created illusory 
UIM coverage.  Taylor argues that she expected to receive 
$50,000 
in 
UIM 
coverage 
and 
that 
this 
expectation 
was 
reasonable.  According to Taylor, the reducing clause runs 
contrary to her reasonable expectations of UIM coverage because 
                     
6 We compare the limits of the insured's UIM policies 
individually to determine whether the other vehicle satisfies a 
policy definition of underinsured motorist.  Krech v. Hanson, 
164 Wis. 2d 170, 172-73, 473 N.W.2d 600 (Ct. App. 1991).  
No. 
99-1329 
 
 
10
the reducing clause will always decrease her UIM coverage by 
$25,000.  She claims that the reducing clause will always 
decrease Taylor's UIM coverage by $25,000 because vehicles are 
required by Wis. Stat. § 344.33(2) to have at least $25,000 in 
liability coverage.  Therefore, Taylor argues that $25,000 of 
the $50,000 in UIM coverage is illusory.  Consequently, Taylor 
asks us to fulfill her reasonable expectations of coverage and 
conclude that she is entitled to $50,000 in UIM coverage under 
each of her policies with American Family.  
¶15 We decline Taylor's request to proceed with a detailed 
analysis beyond the unambiguous definition of underinsured 
vehicle in American Family's policies.  Because the vehicle 
driven by Hermanson is not an underinsured vehicle, Taylor is 
not entitled to UIM coverage.  There is no need to address 
whether the reducing clause in American Family's policies 
created illusory coverage.   
¶16 The cases cited by Taylor in support of her illusory 
coverage argument do not govern the result of the instant case. 
 We will address each of those cases, relied upon by Taylor, in 
order to show their inapplicability under the circumstances 
presented by this case. 
¶17 Taylor relies upon Sweeney v. General Casualty Co. of 
Wisconsin, 220 Wis. 2d 183, 582 N.W.2d 735 (Ct. App. 1998) and 
Kuhn v. Allstate Insurance Co., 181 Wis. 2d 453, 510 N.W.2d 826 
(Ct. App. 1993), aff'd, 193 Wis. 2d 50, 532 N.W.2d 124 (1995), 
to support the proposition that a court may proceed beyond 
unambiguous policy provisions, which preclude coverage, to find 
No. 
99-1329 
 
 
11
that coverage exists.  In both cases, the court of appeals held 
that the reducing clause in question was invalid because it 
rendered the UIM coverage illusory.  Sweeney, 220 Wis. 2d at  
184; Kuhn, 181 Wis. 2d at 457.    
¶18 Both cases are distinguishable from the instant case. 
There was no question in either case that the vehicle that 
caused the accident was an underinsured vehicle as defined by 
the relevant policy language.  Sweeney, 220 Wis. 2d at 188; 
Kuhn, 181 Wis. 2d  at 462.  By contrast, there is no question in 
the instant case that the vehicle driven by Hermanson is not an 
underinsured vehicle as defined by American Family's policies.  
Consequently, based on her reliance on these cases, Taylor 
cannot establish entitlement to UIM coverage under her policies 
with American Family.   
¶19  Taylor relies upon Hoglund v. Secura Insurance Co., 
176 Wis. 2d 265, 500 N.W.2d 354 (Ct. App. 1993), to support the 
proposition that a court may proceed beyond an unambiguous 
policy definition of underinsured vehicle to determine that a 
reducing clause creates illusory coverage.  In Hoglund, the 
court of appeals held that an unambiguous definition of 
underinsured vehicle created illusory UIM coverage.  176 Wis. 2d 
at 269.  Hoglund was injured in an accident with another driver. 
 Id. at 267.  Hoglund's UIM policy had a $25,000 coverage limit. 
 Id. at 267-68.  The other driver had a liability policy with a 
coverage limit of $25,000, the minimum amount required by Wis. 
No. 
99-1329 
 
 
12
Stat. § 344.33(2).  Id. at 267.7  An underinsured vehicle, 
according to the unambiguous definition in Hoglund's policy, 
must have liability coverage with a limit less than Hoglund's 
UIM coverage limit.  Id. at 269.  The court determined that 
Hoglund's UIM coverage was illusory because the other driver's 
liability coverage limit, the minimum amount required by 
§ 344.33(2), could never be less than Hoglund's UIM coverage 
limit.  Id.  As a result, Hoglund could never recover under her 
UIM coverage so long as her UIM coverage limit is the same as 
the 
minimum 
amount 
of 
liability 
coverage 
required 
by 
§ 
344.33(2).  Id. at 270.  The court then remanded the case to the 
trial court to "reform the UIM coverage" to match Hoglund's 
reasonable expectations.  Id. at 272.8  
                     
7 The relevant language of Wis. Stat. § 344.33(2) provides 
that: 
A 
motor 
vehicle 
policy 
of 
liability 
insurance shall insure the person named 
therein using any motor vehicle with the 
express or implied permission of the owner, 
against loss from the liability imposed by 
law 
for 
damages 
arising 
out 
of 
the 
maintenance or use of the motor vehicle 
within the United States of America or the 
Dominion of Canada, subject to the limits 
exclusive 
of 
interests 
and 
costs, 
with 
respect to each 
such motor 
vehicle 
as 
follows:  $25,000 because of bodily injury 
to or death of one person in any one 
accident . . ..   
8 The court of appeals followed Hoglund v. Secura Insurance 
Co., 176 Wis. 2d 265, 500 N.W.2d 354 (Ct. App. 1993), in 
Allstate Insurance Co. v. Gifford, 178 Wis. 2d 341, 504 N.W.2d 
370 (Ct. App. 1993), and Meyer v. Classified Insurance Co., 
Inc., 192 Wis. 2d 463, 531 N.W.2d 416 (Ct. App. 1995).  In 
No. 
99-1329 
 
 
13
¶20 Hoglund does not govern the result of the instant case 
for two reasons.  First, the court of appeals in Hoglund held 
that the insurance policy definition of underinsured vehicle, in 
combination with the minimum liability coverage requirement of 
Wis. Stat. § 344.33(2), created illusory UIM coverage.  176 Wis. 
2d at 269.  In the instant case, Taylor asks us to proceed 
beyond the unambiguous definition of underinsured vehicle and 
conclude that the reducing clause creates illusory coverage.  
Second, there was no possibility under the circumstances in 
Hoglund that the insured driver could recover under her UIM 
                                                                  
Gifford, Gifford was injured in an automobile accident with 
another driver.  178 Wis. 2d at 344.  Gifford had UIM coverage 
with a limit of $25,000.  Id. at 347.  The other driver had 
liability coverage with a limit of $25,000, the minimum amount 
required by Wis. Stat. § 344.33(2).  Id. at 347-49.  Gifford's 
UIM policy contained an unambiguous definition of underinsured 
vehicle almost identical to the definition in Hoglund.  Id. at 
347.  The court held that Gifford's UIM coverage was illusory 
because Gifford, like Hoglund, could never recover under his UIM 
policy.  Id. at 349-50.  The court then remanded the case to the 
trial court to determine Gifford's reasonable expectations of 
coverage.  Id. at 350.  In Meyer, Meyer was injured in an 
automobile accident with another driver.  192 Wis. 2d at 466.  
Meyer had UIM coverage with a limit of $25,000.  Id.  The other 
driver had liability coverage with a limit of $100,000.  Id.  
Meyer's UIM policy contained an unambiguous definition of 
underinsured vehicle almost identical to the definitions in 
Hoglund and Gifford.  Id. at 467.  The court held that Meyer's 
UIM coverage was illusory because Meyer, like Hoglund and 
Gifford, could never recover under her UIM policy.  Id. at 468. 
 The court also held that the remand in Hoglund was improper 
because 
the 
determination 
of 
an 
insured's 
reasonable 
expectations of coverage presents a question of law reviewed 
independently from the trial court.  Id. at 468-69.  The court 
concluded that, under these circumstances, an insured reasonably 
expects $25,000 in UIM coverage when the insured pays for 
$25,000 in UIM coverage.  Id. at 469.   
 
No. 
99-1329 
 
 
14
policy because the policy defined an underinsured vehicle as a 
vehicle with liability limits less than the limits of the UIM 
coverage and because Hoglund had a UIM coverage limit of 
$25,000, the minimum amount for liability insurance required by 
§ 344.33(2).  176 Wis. 2d at 270.  In the instant case, Taylor 
has a UIM coverage limit of $50,000, an amount greater than the 
minimum amount of liability coverage required by § 344.33(2).  
As a result, it is possible for another driver to have a 
liability coverage limit less than Taylor's UIM coverage limit 
and, therefore, satisfy the American Family policy definition of 
underinsured vehicle.  
¶21 Taylor contends that the American Family definition of 
underinsured vehicle, when combined with the reducing clause, 
violates public policy.  Taylor argues that the definition and 
reducing clause operate together to guarantee that $25,000 of 
the $50,000 in UIM coverage promised by American Family will 
never be paid.  According to Taylor, a promise of coverage that 
will never be paid is illusory coverage that violates public 
policy.   
¶22 Taylor cites Rodey v. Stoner, 180 Wis. 2d 309, 509 
N.W.2d 316 (Ct. App. 1993), to support the proposition that a 
court may conclude that an insurance policy's unambiguous 
definition of underinsured motor vehicle, in combination with 
other provisions of the insurance policy, violates public 
policy.  Rodey was injured in a single-car accident while a 
passenger in his own vehicle.  Rodey, 180 Wis. 2d at 311.  Rodey 
received $50,000 from the vehicle's liability insurer.  Id.  
No. 
99-1329 
 
 
15
Rodey was also insured by his mother's and stepfather's UIM 
insurance due to the fact that he lived with his mother and 
stepfather.  Id.  The UIM insurer denied Rodey coverage because 
his vehicle was not an underinsured vehicle as defined by the 
policy and because the policy's drive-other-car exclusion9 
prohibited coverage.  Id.  The court of appeals held that the 
policy definition of underinsured motor vehicle, when combined 
with 
the 
drive-other-car 
exclusion, 
violated 
Wis. 
Stat. 
§ 631.43(1).10 
¶23 Rodey does not govern the result in the instant case. 
 First, the Wisconsin legislature overruled the Rodey decision 
by enacting Wis. Stat. § 632.32(5)(j) which made "drive-other-
car exclusions" valid.  Roehl v. American Family Mut. Ins. Co., 
                     
9 The "drive-other-car exclusion" in the UIM insurance 
policy prohibited coverage for vehicles not insured by the 
policy that are owned by the insured, a relative of the insured, 
or another person living in the insured's household.  Rodey v. 
Stoner, 180 Wis. 2d 309, 313, 509 N.W.2d 316 (Ct. App. 1993).   
  
10 Wisconsin Stat. § 631.43 prohibits reducing clauses when 
two policies promise to indemnify the insured against the same 
loss.  Rodey, 180 Wis. 2d at 314.  That section states, in 
pertinent part: 
Other insurance provisions. 
(1) General.  When 2 or more policies 
promise to indemnify an insured against the 
same loss, no "other insurance" provisions 
of the policy may reduce the aggregate 
protection of the insured below the lesser 
of the actual insured loss suffered by the 
insured 
or 
the 
total 
indemnification 
promised by the policies if there were no 
"other insurance" provisions. 
No. 
99-1329 
 
 
16
222 Wis. 2d 136, 143, 585 N.W.2d 893 (Ct. App. 1998).  Second, 
Rodey involved a statutory challenge to an insurance policy 
definition and a reducing clause.  Taylor does not argue that 
any section, or combination of sections, in each UIM policy 
issued by American Family violates Wis. Stat. § 631.43 or any 
other statute.  Taylor does argue that the reducing clause in 
each 
policy 
violates 
public 
policy 
by 
creating 
illusory 
coverage.  As we held in Smith v. Atlantic Mutual Insurance Co., 
here we do not address whether the reducing clause creates 
illusory UIM coverage because Taylor, by policy definition, is 
not entitled to UIM coverage in the first instance.  The vehicle 
driven by Hermanson was not an underinsured vehicle under the 
policy definition. 
¶24 The Wisconsin Academy of Trial Lawyers (WATL) asks us 
in its amicus brief to conclude that the language in American 
Family's policies creates illusory coverage and is against 
public policy.  WATL argues that the reducing clause in each 
policy is invalid because the policy does not clearly state that 
the limit of Taylor's UIM coverage is reached by combining 
contributions from all sources, including Hermanson's liability 
coverage.  Because the reducing clause is unclear, WATL asks us 
to conclude that American Family's UIM coverage is ambiguous 
and, therefore, asks us to construe the policy in favor of 
Taylor.  To support its argument, WATL cites Dowhower v. West 
Bend Mutual Insurance Co., 2000 WI 73, 236 Wis. 2d 113, 613 
No. 
99-1329 
 
 
17
N.W.2d 557.11  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."  2000 WI 73, ¶33.  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)1.12  Id.   
¶25 We conclude that the language in each of American 
Family's policies at issue satisfies the requirements of 
Dowhower.  Each policy clearly sets forth that Taylor purchased 
a fixed level of UIM recovery that is arrived at by combining 
payments from all sources, including payments from Hermanson's 
liability coverage.  Taylor has two policies issued by American 
Family, one that is 14 pages long and one that is 15 pages long. 
                     
11 In Dowhower, the insureds claimed that the statute that 
authorizes the use of a reducing clause in UIM policies, Wis. 
Stat. § 632.32(5)(i)1, violated their substantive due process 
right to contract without fraud or deception.  2000 WI 73, ¶15. 
 We 
held 
that 
the 
insureds 
failed 
to 
establish 
that 
§ 632.32(5)(i)1 deprived them of a right protected by the 
Constitution.  Id.  
12 Wisconsin Stat. § 632.32(5)(i)1 (1995-96) provides: 
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: 
 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.  
No. 
99-1329 
 
 
18
 The first page of each policy, the declarations page, lists the 
coverage limits of the policy, including the $50,000 limit for 
UIM coverage.  The first page of each policy also includes an 
instruction to "please read your policy" that is located on the 
top of the page in bold letters.  Page 3 of each policy includes 
an instruction for the insured to read the policy carefully.  
Pages 11 and 12 constitute the underinsured motorist coverage 
endorsement of both policies.13  The underinsured motorist 
endorsement of each policy instructs the insured to keep the 
endorsement with the rest of the policy.  This instruction is on 
the top of the first page of the endorsement in bold letters.  
The definition for underinsured vehicle is located in both 
policies on page 1 of the endorsement.  The reducing clause for 
UIM coverage is located in both policies on page 2 of the 
endorsement.  When we read the whole policy carefully, as noted 
on the first and third pages, we find that the policy clearly 
sets forth that Taylor purchased a fixed level of UIM recovery 
that is arrived at by combining payments from all sources, 
including payments from Hermanson's liability coverage. 
¶26 We recognized in Dowhower that the language in an 
insurance policy can be ambiguous within the context of the 
whole policy.  Id. at ¶35.  When the language of an insurance 
policy is ambiguous, we interpret that language by attempting 
"to determine what a reasonable person in the position of the 
                     
13 An endorsement is an amendment to an insurance policy.  
Black's Law Dictionary 548 (7th ed. 1999).  
No. 
99-1329 
 
 
19
insured would have understood the words of the policy to mean." 
 Id. (citations omitted)    
¶27 The definition of underinsured vehicle in American 
Family's policy is unambiguous within the context of the entire 
policy.  We find nothing in the rest of American Family's policy 
that 
obscures 
the 
unambiguous 
definition 
of 
underinsured 
vehicle.  Besides the definition of underinsured vehicle on page 
11 of each policy, there are only two other references to UIM 
coverage in each policy.  First, the limit of Taylor's UIM 
coverage set forth on page one provides part of the definition 
of underinsured vehicle that requires the underinsured vehicle 
to have a liability coverage limit less than the limit of 
Taylor's UIM coverage.  Second, the reducing clause set forth on 
page 12 only applies after a vehicle has satisfied the 
definition of underinsured vehicle.  The reducing clause does 
not affect the definition itself.  There is no language anywhere 
in the policy that calls into question the fact that an 
underinsured vehicle is one that has liability coverage limits 
less than the policy's UIM coverage limit.  As a result, the 
definition of underinsured vehicle in each policy is unambiguous 
within the context of the entire policy.  Because the definition 
of underinsured vehicle in each of American Family's policies is 
unambiguous standing on its own and in the context of the whole 
policy, we do not need to engage in construction to determine 
Taylor's reasonable expectations of coverage.  Kremers-Urban, 
119 Wis. 2d at 735.      
III 
No. 
99-1329 
 
 
20
¶28 In summary, we hold that Taylor is not entitled to UIM 
coverage 
under 
her 
policies 
with 
American 
Family. 
 
The 
definition of underinsured vehicle in each of American Family's 
policies at issue is unambiguous.  We apply the plain terms of 
this unambiguous definition to conclude that the vehicle driven 
by Hermanson was not an underinsured vehicle.  Because Taylor, 
by definition in each policy, is not entitled to UIM coverage, 
there is no need to address whether the reducing clause in each 
policy creates illusory UIM coverage.  Accordingly, we affirm 
the judgment of the court of appeals.   
By the Court.—The decision of the court of appeals is 
affirmed. 
 
 
99-1329.awb 
 
1 
¶29 ANN 
WALSH 
BRADLEY, 
J. (dissenting). 
 
Reasonable 
insureds believe that an underinsured motorist endorsement 
provides coverage when an at-fault driver's liability insurance 
cannot fully compensate the insured's damages.  Such a belief is 
supported by this court's oft-stated purpose of UIM coverage.  
Because the relevant provisions of the policies at issue in this 
case are inconsistent with the stated purpose of UIM coverage 
and contrary to the reasonable expectations of the insured, I 
respectfully dissent. 
¶30 This case presents us with the opportunity to review 
both the definition of underinsured motor vehicle and the 
reducing clause appearing in the UIM endorsements.  The 
majority, focusing on the definition of underinsured motor 
vehicle, concludes that the language is unambiguous and that 
"the vehicle driven by Hermanson was not an underinsured vehicle 
as defined by American Family's policies."  Majority op. at ¶2. 
 Having reached this conclusion, the majority determines that it 
need not examine the reducing clause.   
¶31 Both the definition of underinsured motor vehicle and 
the operation of the reducing clause in these policies are 
inconsistent with the purposes of these clauses.  Both are also 
contrary to the reasonable expectations of the insured.  Yet, 
the majority sacrifices the purpose of the coverage and the 
reasonable expectations of the insured at the altar of an 
unambiguous definition.  In essence, the majority declares that 
regardless of whether the definition is consistent with the 
purpose of UIM coverage, regardless of whether it is contrary to 
99-1329.awb 
 
2 
the reasonable expectations of the insured, and regardless of 
whether the definition of underinsured motor vehicle makes 
sense, it will be enforced if the language is unambiguous.   
¶32 To 
illustrate 
the 
infirmity 
of 
the 
majority's 
approach, I turn first to an examination of the purpose of UIM 
coverage.  This court has previously acknowledged that the 
purpose of UIM coverage is to compensate the victim of an 
underinsured motorist's negligence 
when 
the 
third party's 
liability limits are not adequate to fully compensate the 
damages of the victim.  We have stated: 
 
"[U]nderinsurance benefits constitute the insurance 
coverage for damages in excess of the tortfeasor's 
insurance 
coverage." . . . "[T]he 
limit 
of 
the 
underinsurer's liability is for the amount of damages 
suffered by the insured in excess of the liability 
limits of the tortfeasor."   
Wood v. American Family Mut. Ins. Co., 148 Wis. 2d 639, 655, 436 
N.W.2d 594 (1989), overruled on other grounds, 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).   
 
¶33 Although the purpose of UIM remains a constant, it has 
apparently gone unnoticed by our courts that there are two 
definitions of underinsured motor vehicle.  One is inconsistent 
with the stated purpose of UIM and the reasonable expectations 
of the insureds, while the other is consistent with them.  In 
some of the policies addressed by this court and the court of 
appeals in the past decade, an underinsured motor vehicle is 
defined as one insured by a policy with liability limits less 
99-1329.awb 
 
3 
than the insured's UIM coverage limits (limits of coverage).  In 
others an underinsured motor vehicle is defined, as one would 
reasonably expect, by comparison of the at-fault driver's 
liability limits with the damages sustained by the insured 
(limits of damages). 
 
¶34 In the two policies at issue in today's case an 
underinsured motor vehicle is defined by the limits of coverage: 
 
[A] motor vehicle which is insured by a liability bond 
or policy at the time of the accident which provides 
bodily injury liability limits less than the limits of 
liability of this Underinsured Motorists Coverage. 
(Emphasis added.) 
 
¶35 The problem with this definition lies in the fact that 
no ordinary citizen purchasing UIM coverage would anticipate it. 
 A reasonable insured would not expect his or her damages to be 
wholly irrelevant to the determination of whether an at-fault 
driver is considered underinsured.  An insured with $200,000 in 
damages would be surprised to learn that an at-fault driver with 
liability limits of $100,000 does not meet the definition of 
underinsured when the insured's UIM limits are also $100,000.  
When purchasing UIM coverage, 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. 
¶36 This problematic "limits of coverage" definition of 
underinsured motor vehicle is in stark contrast with the 
definition found in other policies.  Some insurers have issued 
policies with a definition that comports with the purpose of UIM 
and the reasonable expectations of the insured.  In a handful of 
99-1329.awb 
 
4 
cases before this court and the court of appeals the policy at 
issue contained a "limits of damages" definition of underinsured 
motor vehicle: 
 
"Underinsured motor vehicle means a motor vehicle 
which is insured by a liability bond or policy at the 
time of the accident which provides bodily injury 
limits less than the damages an insured person is 
legally entitled to recover." 
Matthiesen, 193 Wis. 2d at 197 (emphasis added); Fairbanks v. 
American Family Mut. Ins. Co., 181 Wis. 2d 838, 841, 512 N.W.2d 
230 (1994).  
¶37 I cannot join the majority in the enforcement of the 
"limits of coverage" definition of underinsured motor vehicle in 
the case at hand.  I acknowledge that as a general matter 
insurance 
contracts 
are 
subject 
to 
the 
same 
rules 
of 
construction as other contracts.  Whirlpool Corp. v. Zeibert, 
197 Wis. 2d 144, 152, 539 N.W.2d 883 (1995).  However, we have 
repeatedly explained that the reasonable expectations of the 
insured 
is 
the 
touchstone 
of 
coverage 
determinations.  
Carrington v. St. Paul Fire & Marine Ins. Co., 169 Wis. 2d 211, 
226, 485 N.W.2d 267 (1992).  Additionally, we have specifically 
stated that UIM insurance contracts must be construed according 
to the reasonable expectations of the insured.  Matthiesen, 193 
Wis. 2d at 204; Kuhn v. Allstate Ins. Co., 193 Wis. 2d 50, 60, 
532 N.W.2d 124 (1995); Kaun, 148 Wis. 2d at 670-71; Wood, 148 
Wis. 2d at 652.   
¶38 Because the majority's construction and enforcement of 
the "limits of coverage" definition is so contrary to those 
99-1329.awb 
 
5 
expectations, our maxims regarding the reasonable expectations 
of the insured and our stated understandings of the purpose of 
UIM coverage ring hollow today.  Only the "limits of damages" 
definition can be plainly construed and enforced in a manner 
consistent 
with 
the 
purpose 
of 
UIM 
and 
the 
reasonable 
expectations of the insured.  
 
¶39 The 
combination 
of 
a 
reasonable 
insured's 
understanding of UIM coverage and this court's statements 
regarding the purpose of that coverage together with the "limits 
of coverage" definition conveys inconsistent messages that would 
befuddle a reasonable insured.  An endorsement containing the 
"limits of coverage" definition cannot clearly and unequivocally 
inform an insured that the UIM coverage they have purchased 
applies only where the at-fault driver carries liability 
insurance in an amount less than that found in the declarations 
page.   
 
¶40 The majority relies on this court's determination in 
Smith v. Atlantic Mutual Ins. Co., 155 Wis. 2d 808, 456 N.W.2d 
597 (1990), that the "limits of coverage" definition is 
unambiguous 
and 
that 
failure 
to 
satisfy 
it 
prevents 
consideration 
of 
other 
underlying 
deceptions 
in 
a 
UIM 
endorsement.  However, the Smith court did not address the 
reasonable expectations of the insured when construing the 
language of the definition.  
 
¶41 I note that the decision in Smith was issued before 
the tide of UIM litigation in the 1990s revealed UIM's many 
traps.  The Smith court declined to address "hypothetical" 
99-1329.awb 
 
6 
situations of illusory coverage and inequitable results.  155 
Wis. 2d at 813-14.  The subsequent body of UIM case law reveals 
that those problems were soon no longer hypothetical, but were 
real 
and 
tangible 
instances 
of 
deception 
perpetrated 
on 
Wisconsin insureds.14  I do not believe this case involves a 
hypothetical instance of the deception of UIM coverage, because 
any objectively reasonable insured in the shoes of Trisha Taylor 
would anticipate that her UIM endorsement would have provided 
coverage when the at-fault driver carried liability insurance 
insufficient to cover her damages.   
 
¶42 Fixing the definition of underinsured motor vehicle 
will bring us only halfway to remedying the deceptive nature of 
UIM coverage, for it is the reducing clause that wreaks the most 
havoc on the reasonable expectations of the insured.  Even if a 
definition of underinsured motor vehicle that an insured would 
                     
14  The most disturbing of all the problems posed by the 
"limits of coverage" definition was the sale of illusory UIM 
coverage.  The court of appeals explained that this problem 
arose with the sale of UIM endorsements providing coverage 
limits of $25,000. Meyer v. Classified Ins. Co., 192 Wis. 2d 
463, 531 N.W.2d 416 (Ct. App. 1995); Hoglund v. Secura Ins. Co., 
176 Wis. 2d 265, 500 N.W.2d 354 (Ct. App. 1993).  Because Wis. 
Stat. § 344.33 requires liability limits of at least $25,000, no 
insured at-fault Wisconsin driver could ever be underinsured.  
Moreover, if an out-of-state driver were insured only to the 
minimum liability limits required by another state's financial 
responsibility law and those limits were less than those 
required by Wis. Stat. § 343.44, that driver was by the terms of 
standard UM and UIM policies considered uninsured.  In such a 
situation it was impossible for an insured to recover under UIM. 
 While 
this 
specific 
problem 
has 
been 
mitigated 
by 
§ 632.32(4m)(d), 
which 
requires 
minimum 
UIM 
coverage 
of 
$50,000/$100,000, UIM coverage, as I explain below, remains an 
illusion in most cases. 
99-1329.awb 
 
7 
reasonably anticipate appears in a policy, the reducing clause 
in most cases acts to wipe away that which an insured would 
reasonably expect to recover.   
 
¶43 In examining the reducing clause, I again turn first 
to the purpose of such a clause.  It is commonly understood that 
the purpose of a reducing clause is to prevent double recovery. 
 As Couch on Insurance explains: 
 
Generally, 
public 
policy 
requires 
that 
setoff 
provisions 
in 
connection 
with 
uninsured 
and 
underinsured 
motorist 
coverage 
apply 
only 
where 
necessary to prevent double recovery.   
Lee R. Russ & Thomas F. Segalla, 12 Couch on Insurance § 171.23 
(3d ed. 1998).  In today's case, and in most cases before us, 
the insurer cannot argue in good faith that the reducing clause 
is working to prevent a double recovery. 
 
¶44 Here, it is uncontested that Trisha Taylor's damages 
exceed $150,000.  Yet, despite two UIM policies each providing 
for $50,000 in coverage on the declarations page, the reducing 
clause would operate in this case to erase any recovery under 
the UIM endorsements.  In the position of a reasonable insured 
the UIM coverage in this instance is worthless.  A reasonable 
insured would anticipate $100,000 in coverage above and beyond 
the $50,000 paid out by the tortfeasor's liability insurer.  The 
reducing clauses in these policies serve not to prevent double 
recovery, but rather serve to prevent recovery in the first 
instance.   
 
¶45 While I do not question the validity of a statutorily 
authorized reducing clause, I do question the validity of a 
99-1329.awb 
 
8 
policy crafted around the reducing clause in such a way as to 
defeat the reasonable expectations of the insured.  As stated in 
the concurrence in Dowhower v. West Bend Mutual Insurance Co., 
2000 WI 73, ¶50, 236 Wis. 2d 113, 613 N.W.2d 557 (Bradley, J., 
concurring): 
 
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. 
 
¶46 Reducing clauses, as employed in the policies before 
us, all but eliminate coverage in a large number of cases.  As a 
practical matter, it is only when UIM coverage limits reach 
fairly high dollar amounts that we can expect to consistently 
see actual recovery of UIM proceeds.  Even then, however, 
recovery would never be in the amount stated on the declaration 
sheet.   
 
¶47 It can be said with certainty that under all policies, 
the first $25,000 of all UIM coverage is not truly "coverage" at 
all.  By operation of Wis. Stat. § 344.33, an underinsured 
driver will always have at least $25,000 in liability coverage. 
 Moreover, because the reducing clause tends to render worthless 
the lower levels of UIM coverage, it has the harshest effects on 
those who can only afford to purchase the lower limits of UIM 
coverage.  I do not believe that the legislature intended to 
authorize a reducing clause that renders worthless the UIM 
coverage sold to Wisconsin insureds. 
99-1329.awb 
 
9 
 
¶48 While a reducing clause serves a legitimate function 
in a framework in which it operates to prevent double recovery, 
under the current state of UIM law it functions to thwart the 
reasonable 
expectations 
of 
Wisconsin 
insureds. 
 
The 
UIM 
endorsements in the case at hand are devoid of any mechanism by 
which the reducing clause works only to prevent double recovery, 
and as such should be construed in a manner consistent with that 
purpose and the reasonable expectations of an insured.  
 
¶49 Having concluded that the provisions at issue in this 
case operate in contravention of the reasonable insured's 
expectations and the purposes of those provisions, I join the 
court of appeals in requesting that the legislature provide a 
statutory definition of underinsured motor vehicle.  The 
definition should reflect the purpose of UIM coverage and the 
reasonable expectations of the Wisconsin insured.  Likewise, I 
urge the legislature to examine the ramifications of the 
reducing clause authorized by Wis. Stat. § 632.32(5)(i)1 when it 
operates in conjunction with other policy provisions. 
 
¶50 In sum, this court should no longer ignore the 
disparity between the commonly held conception of underinsured 
motorist coverage and the terms of the UIM endorsements brought 
before us in all too frequent litigation.  Were the majority to 
reach the correct result in this case, it would acknowledge that 
a reasonable insured would find the "limits of coverage" 
definition in the policies before us to be counterintuitive.  It 
would also acknowledge that the reducing clause, while valid as 
a means of avoiding double recovery, has been adapted as a means 
99-1329.awb 
 
10
of avoiding reasonably anticipated UIM coverage.  The majority 
in this case does neither.  Rather, it sanctions the "limits of 
coverage" definition and avoids any discussion of the operation 
of the reducing clause.  Accordingly, I respectfully dissent.   
 
¶51 I am authorized to state that Chief Justice SHIRLEY S. 
ABRAHAMSON and Justice WILLIAM A. BABLITCH join this dissent.