Opinion ID: 1232510
Heading Depth: 2
Heading Rank: 1

Heading: Overview of UIM Coverage and Underinsured Motor Vehicle

Text: ¶ 16. In Schmitz, we noted two schools of thought concerning UIM coverage. 255 Wis. 2d 61, ¶ 17. Under the first view, UIM coverage operates as a separate fund to compensate an insured accident victim when the insured's damages exceed the recovery from the at-fault driver (or other responsible party). Id. (citing Taylor, 245 Wis. 2d 134, ¶ 32 (Bradley, J., dissenting); Kaun v. Indus. Fire & Cas., 148 Wis. 2d 662, 671, 436 N.W.2d 321 (1989)). If the policy at issue in this case were written to reflect this view, the Langridges' $100,000 per person UIM coverage would be available to compensate Nancy Langridge for a claim linked to her husband's wrongful death. ¶ 17. Under the second view, UIM coverage is designed 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. Schmitz, 255 Wis. 2d 61, ¶ 18 (quoting Dowhower v. W. Bend Mut. Ins. Co., 2000 WI 73, ¶ 18, 236 Wis. 2d 113, 613 N.W.2d 557). If the UIM policy at issue were drafted to conform to this view, the UIM coverage and the tortfeasor's liability policy conjunctively would offer a predetermined, fixed level of insurance coverage made up of payments from both policies. Id. (citing Kaun, 148 Wis. 2d at 674-75 (Steinmetz, J., dissenting)). ¶ 18. In recent years, the legislature has authorized policies embodying the latter view, and courts have recognized the legitimacy of these policies. Dowhower, 236 Wis. 2d 113, ¶ 33; Taylor, 245 Wis. 2d 134, ¶ 25; Schmitz, 255 Wis. 2d 61, ¶ 73. Yet, insurers need not draft, and consumers need not purchase, automobile insurance policies with this type of coverage. An insurer could offer coverage that embodies the first view of UIM insurance, and that insurer could and would charge a higher premium to account for the likelihood of larger and more frequent payments to insureds. ¶ 19. Defined terms play a large role in bounding the scope of a policy's coverage. Insurers may define underinsured motor vehicle to reflect either the first or second view of UIM coverage. As one treatise notes, [p]olicies vary in their definitions of an underinsured motor vehicle. The most crucial difference is whether the definition is based on the underinsured motorist motor vehicle policy limits or on the damages sustained by the insured. Arnold P. Anderson, Wisconsin Insurance Law, § 4.3(A) (4th ed. 1998). This difference is crucial because it significantly impacts the expectations of insureds. ¶ 20. When a UIM policy defines underinsured motor vehicle by comparing the insured's damages to the tortfeasor's liability coverage, an insured would expect the policy to conform to the first view of UIM coverage. That is, since the policy considers a vehicle under-insured when the tortfeasor's liability coverage is inadequate to fully compensate the insured, the insured could reasonably expect that the entire available limit of the policy would be available to cover part or all of the difference between the tortfeasor's liability limits and the insured's damages. ¶ 21. However, when a UIM policy defines an underinsured motor vehicle by comparing the tortfeasor's limits of liability to the insured's limits of UIM coverage, the insured ought reasonably to expect that the second, more common, view of UIM coverage is in effect. Specifically, an insured who reads the second definition in a policy ought reasonably to expect that the insurer promises only to insure for the difference between the insured's higher UIM limit and the tortfeasor's lower liability limit. An insured who enters into the second kind of UIM policy should not reasonably expect the policy to operate under the first view of UIM coverage.