Opinion ID: 1740396
Heading Depth: 3
Heading Rank: 1

Heading: The reducing clause in the policy issued by State Farm

Text: ¶ 22 General principles of contract construction control the interpretation of an insurance contract. Taylor v. Greatway Ins. Co., 2001 WI 93, ¶ 10, 245 Wis.2d 134, 628 N.W.2d 916 (citing Kremers-Urban Co. v. Am. Employers Ins. Co., 119 Wis.2d 722, 735, 351 N.W.2d 156 (1984)). Discerning and giving effect to the intent of the parties is the objective. Sprangers v. Greatway Ins. Co., 182 Wis.2d 521, 536, 514 N.W.2d 1 (1994). Toward that end, courts give the common, ordinary meaning to the policy language (i.e., what the reasonable person in the insured's position would understand it to mean). Folkman, 264 Wis.2d 617, ¶ 17, 665 N.W.2d 857. Any ambiguity that may exist is construed in favor of the insured, while exclusions in coverage are narrowly construed against the insurer. Id., ¶ 16, 665 N.W.2d 857 (citing Smith v. Atlantic Mut. Ins. Co., 155 Wis.2d 808, 811, 456 N.W.2d 597 (1990)). Ambiguity arises if the language of the policy is susceptible to more than one reasonable construction. Id. The resulting interpretation of the policy's language should advance the insured's reasonable expectations of coverage. Taylor, 245 Wis.2d 134, ¶ 10, 628 N.W.2d 916. ¶ 23 The reducing clause in the case states the following: The most we will pay is the lesser of: a. the limits of liability of this coverage reduced by any of the following that apply: (1) the amount paid to the insured by or on behalf of any person or organization that may be legally responsible for the bodily injury; or (2) the amount paid or payable under any worker's compensation or disability benefits law; or b. the amount of damages sustained, but not recovered. The provision indicates that payments to an insured from any legally responsible person will reduce the limit of UIM liability when the language is given its common, ordinary meaning. ¶ 24 Similar to the use of legally responsible in § 632.32(5)(i)1., subsection 1 limits the scope of the reducing clause to payments received by an insured from those legally responsible. A reasonable person in the position of the insured would read that language to mean that the limits of UIM liability would be reduced by payment an insured received by those who may have caused the accident. Nothing in the language of the reducing clause indicates that the payor's UIM status would prevent his or her payment from falling within the scope of the reducing clause. ¶ 25 Section b of the reducing clause does not affect the limits of UIM liability. Rather, it provides that State Farm will pay for only uncompensated damages. It is a windfall prevention provision, which has been deemed valid previously. Calbow v. Midwest Sec. Ins. Co., 217 Wis.2d 675, 682, 579 N.W.2d 264 (Ct.App.1998). ¶ 26 The reducing clause unambiguously complies with § 632.32(5)(i)1. Based on the common, ordinary language, a reasonable person in the insured's position would understand the clause to have the effect of reducing the UIM liability limit by payments made to an insured by or on behalf of those legally responsible for the accident at issue, regardless of their UIM status.