Opinion ID: 1232510
Heading Depth: 3
Heading Rank: 2

Heading: The Relationship Between Ambiguity and the Reasonable Expectations of the Insured

Text: ¶ 41. Our first task when interpreting an insurance policy is to determine whether the policy is ambiguous. It is important to recognize that simply because the parties offer two different interpretations of paragraph b does not mean both interpretations are reasonable. See Ruff v. Graziano, 220 Wis. 2d 513, 524, 583 N.W.2d 185 (Ct. App. 1998) (citing Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 537, 514 N.W.2d 1 (1994)). The mere fact that a word has more than one dictionary meaning, or that the parties disagree about the meaning, does not necessarily make the word ambiguous if the court concludes that only one meaning applies in the context and comports with the parties' objectively reasonable expectations. Id. (quoting Sprangers, 182 Wis. 2d at 537) (emphasis added). ¶ 42. Judicial construction of insurance policies is both similar to and different from judicial construction of contracts. In general, [w]e apply the same rules of construction to the language in insurance policies as to the language in any other contract. Taylor, 245 Wis. 2d 134, ¶ 10 (citing Kremers-Urban Co. v. Am. Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984)). In both arenas, our goal is to give effect to the intent of the parties. Folkman, 264 Wis. 2d 617, ¶ 16. ¶ 43. Setting to one side the specific interpretive principles that apply to insurance policies, we note that courts have several means to address ambiguous contract language. For instance, a court faced with an ambiguous contract will select that construction which gives effect to each word or provision of the contract in preference to a construction which results in surplusage. Jones v. Jenkins, 88 Wis. 2d 712, 722, 277 N.W.2d 815 (1979). The court will also adopt a construction that will result in a reasonable, fair and just contract as opposed to one that is unusual or extraordinary. Id. Often the court will look to the purpose of the contract and the circumstances surrounding its execution to determine the intent. Id. at 723. ¶ 44. These principles are buttressed by the judicial maxim that [a]mbiguous wording will be construed against the drafter provided the contract is also construed as a whole.  Id. at 722 (emphasis added). This principle, which in the archaic parlance of the common law was known as contra proferentem (against the offeror), may be the transcendent principle for resolving ambiguous language in insurance policies. If an insurance policy is ambiguous, then the policy is to be interpreted against the drafter. See Donaldson v. Urban Land Interests, Inc., 211 Wis. 2d 224, 230, 564 N.W.2d 728 (1997). ¶ 45. A court that reviews a contract that is not an insurance policy has some latitude to deem an interpretation plausible and therefore reasonable because the court is specifically empowered to consider the consequences of the interpretation in determining which competing interpretation should govern. As this court once put it: the court may look to the consequences which could result should it adopt one construction as opposed to another, because where there is ambiguity the more reasonable meaning should be given on the probability that persons situated as the parties were would be expected to contract in that way as opposed to a way which works an unreasonable result. Lee v. Wis. Physicians Serv., 76 Wis. 2d 353, 359, 252 N.W.2d 24 (1977). ¶ 46. If a court deems an insurance policy ambiguous, however, the court is quite constrained in its resolution under the principles of contra proferentem. This cannot and does not mean, however, that a court must embrace any grammatically plausible interpretation that an insured might create for the purposes of litigation without regard to whether the consequences of that interpretation square with the reasonable expectations of insureds. ¶ 47. A court must be careful not to lose sight of the goal of judicial construction, which is to advance the reasonable expectations of the parties. Courts dealing with insurance policies must give especially keen attention to the expectations of insureds, so long as they do not abandon reasonableness in the process. Even the doctrine of contra proferentem incorporates the notion that the policy's terms should be interpreted as they would be understood from the perspective of a reasonable person in the position of the insured,  Donaldson, 211 Wis. 2d at 230, not simply adhere to any interpretation that is grammatically plausible and creates coverage for insureds. ¶ 48. If an insured advances a grammatically plausible interpretation, but that interpretation does not square with what the insured would have understood the policy to mean absent a monetary incentive, then that reading should be rejected as unreasonable. The tenets of insurance policy construction provide that there is ambiguity where a policy is susceptible to more than one reasonable interpretation. Folkman, 264 Wis. 2d 617, ¶ 13; Danbeck, 245 Wis. 2d 186, ¶ 10. ¶ 49. We look then at the reasonable expectations of the insured here. The primary definition of underinsured motor vehicle in this policy conveys to the insured that this policy follows the second view of UIM coverage. This policy is not the type that defines underinsured motor vehicle by comparing the insured's total damages to the tortfeasor's limits of liability. When, as here, a UIM policy defines underinsured motor vehicle with reference to the tortfeasor's limits of liability and the limits of UIM coverage, a reasonable insured should expect that UIM coverage to put the insured in the same position the insured would have occupied had the tortfeasor's liability limits been the same as the UIM limits. ¶ 50. In this instance, the drunk driver purchased $50,000 more in liability coverage than the Langridges purchased in UIM coverage. Thus, Nancy Langridge skips over paragraph a to paragraph b. Reasonable insureds should expect paragraph b to apply where multiple parties suffered bodily injury in the accident and the tortfeasor's limits of liability have been reduced or exhausted in payment to others suffering bodily injury. ¶ 51. In this case, an insured who suffered no bodily injury seeks to recover for her spouse's wrongful death after the tortfeasor's limits of liability for bodily injury had been fully paid. If we were to accept Nancy Langridge's reading of the policy, then every time a wife and husband were both insured under the same UIM coverage, the surviving spouse would always be able to assert per person UIM coverage unless the tortfeasor's policy limits exceeded the amount paid to the estate. To illustrate, if the drunk driver who killed Nancy Langridge's husband had $500,000 per person liability limits, and that entire amount was paid to William Langridge's estate, Nancy Langridge would be able to make the same argument she is making now. Payment to an estate [7] would never eliminate a wrongful death claim under paragraph b unless the tortfeasor did not pay out its limits of liability and had, say, $100,000 left. Mrs. Langridge's reading of the policy essentially transforms UIM into a form of life insurance for a spouse killed in an automobile accident. This is not consistent with a reasonable insured's understanding of the UIM policy. ¶ 52. Another way of saying this is that a tortfeasor's motor vehicle would likely be transformed into an underinsured motor vehicle whenever another insured had a wrongful death claim. This would untether the definition of underinsured motor vehicle from the concept it was intended to define. It would transform a policy embodying the second view of UIM coverage into a policy delivering the first view of UIM coverage. See ¶¶ 16, 17, supra. A reasonable insured would not expect that the definition of underinsured motor vehicle would shift so dramatically from one paragraph to another. ¶ 53. In contrast, State Farm's reading of the policythat the insured here must mean William Langridge, the insured who suffered the bodily injuryis contextually harmonious with the rest of the policy. If (1) persons other than William Langridge suffered bodily injury; (2) received payment from the tortfeasor's liability insurer; and (3) thereby reduced that policy's limits of liability such that the tortfeasor's limits of liability provided less coverage for an insured than the UIM policy, then the tortfeasor's vehicle would be underinsured. A rational consumer who purchases this coverage would not expect that the policy would provide an independent fund for wrongful death irrespective of the amount of coverage a tortfeasor has purchased, e.g., the first view of UIM coverage. ¶ 54. Accordingly, we conclude that there is only one reasonable reading of paragraph b. When this policy references payments to persons other than the insured, the insured can only reasonably refer to William Langridge. The Langridge policy is not ambiguous because the disputed provision is susceptible to only one reasonable interpretation. ¶ 55. To sum up, when we analyze the drunk driver's vehicle on the facts before us, we conclude that it was not an underinsured motor vehicle. The drunk driver's vehicle had a per person liability limit greater than the per person UIM limit in the Langridge policy and the drunk driver's per person limit of liability was completely paid out to the only insured who had an independent claim for bodily injury, William Langridge. Under the policy, Mrs. Langridge had a derivative claim for her husband's bodily injury. She had a right to pursue that derivative claim whether or not she suffered bodily injury, but only until the tortfeasor's per person limit of liability was exhausted. She did not have her own independent claim under the policy. Her interpretation of paragraph b to the contrary is unreasonable and in conflict with the expectation of a reasonable insured. Because the drunk driver's vehicle was not an underinsured motor vehicle, the Langridge policy provided no UIM coverage. Accordingly, the decision of the court of appeals is affirmed. By the Court. The decision of the court of appeals is affirmed. ¶ 56. DIANE S. SYKES, J., did not participate. ¶ 57. ANN WALSH BRADLEY, J. ( dissenting ). The majority concludes that the policy unambiguously provides no coverage to Nancy Langridge for her wrongful death claim. Its essential analysis for this conclusion is limited to only three paragraphs sandwiched in the middle of the opinion. Because I believe that the three paragraphs of analysis do not support the majority's conclusion and that any ambiguity should be construed against State Farm, I respectfully dissent. ¶ 58. Initially, the focus of this case was whether Langridge had to sustain bodily injury in order to collect on her claim. [1] State Farm denied Langridge's claim on the basis that she was not involved in the accident. When asked to clarify, State Farm explained that Langridge was not entitled to coverage under the policy because she did not sustain her own bodily injuries in the accident. ¶ 59. The circuit court awarded summary judgment to State Farm, subscribing to its then unambiguous interpretation of the policy. It determined that Langridge could not collect on her claim because the insured attempting to claim underinsured motorist coverage must have suffered a bodily injury. ¶ 60. The court of appeals affirmed the judgment of the circuit court. It too concluded that Langridge must have sustained a bodily injury herself . . . because under the policy only those who suffered bodily injury may recover. State Farm Mut. Auto. Ins. Co. v. Langridge, No. 02-3353-FT, unpublished order at 3 (Wis. Ct. App. June 4, 2003). ¶ 61. Now State Farm changes its course. Although successful at both the circuit court and court of appeals, it now concedes that the language of the policy should be interpreted to provide that Langridge did not have to suffer bodily injury in order to recover under the policy. Indeed, in this court, State Farm advances a different argument altogether, maintaining that Langridge cannot collect on her claim because the definition of an underinsured motor vehicle is not met. ¶ 62. The provision in dispute is paragraph b of the underinsured motor vehicle definition. That definition provides in relevant part: Underinsured Motor Vehicle  means a land motor vehicle. . . . 2. whose limits of liability for bodily injury liability: a. are less than the limits of liability of this coverage; or b. have been reduced by payments to persons other than the insured to less than the limits of liability of this coverage. (Emphasis added). ¶ 63. Langridge maintains that the vehicle driven by the drunk driver meets the policy's definition of an underinsured motor vehicle. Specifically, she asserts that paragraph b of the definition renders the drunk driver's vehicle underinsured as to her. Langridge notes that she is insured under the policy and that the drunk driver's liability limits were paid to persons other than her, namely her husband. ¶ 64. State Farm contends that Langridge is attempting to split her husband's bodily injury claim into two in order to obtain coverage under the policy. Although it acknowledges that Langridge could qualify as the insured under the plain language of paragraph b, it argues that the provision must be read in context of the whole policy. Based upon such context, State Farm submits that the only relevant question is whether the drunk driver was underinsured as to Langridge's husband. Because he was not, it reasons, the drunk driver cannot be underinsured as to Langridge. ¶ 65. In concluding that the disputed language of the policy is unambiguous and that it precludes recovery for Langridge, the majority engages in substantial extraneous discussion. From the sheer volume of discussion, a red flag arises, suggesting that if it takes that much discussion to conclude that a single sentence in a policy is clear and unambiguous, something is suspect. ¶ 66. The analysis of the majority is suspect with good cause. Although it maintains that the language is not ambiguous, the majority engages in a lengthy discussion, describing what a court does if the language is deemed ambiguous. Majority op., ¶¶ 43-46. This discussion serves to mask the inadequate reasoning of its conclusion. ¶ 67. At this point, it may be best for the reader to turn back to the three paragraphs of analysis which underpin the majority's conclusion. These paragraphs, 38, 39, and 40, comprise the total analysis set forth in Section D.1, which interprets the pivotal policy provision at issue in this case. According to the majority, the outcome of this case turns on whether `the insured' in paragraph `b' could reasonably refer to Nancy Langridge. Id., ¶ 37. ¶ 68. In paragraph 38, the majority observes that if paragraph b had referred to AN insured instead of THE insured, there would be no issue in this case. Although this is true, it is completely beside the point. The language of paragraph b is the insured. While State Farm could have very easily drafted its policy language differently so as to preclude Langridge's claim (e.g., requiring that an insured suffer his or her own bodily injury in order to recover), it chose not to do so. ¶ 69. In paragraph 39, the majority notes that if Langridge were not a named insured, she could make a claim representing the estate under paragraph a. Again, this analysis misses the mark. All agree that Langridge is a named insured. Her claim of wrongful death is independent of her husband's estate. Thus, the only relevant inquiry is whether the plain language of paragraph b renders the drunk driver's vehicle underinsured as to her. ¶ 70. Finally, in paragraph 40, the majority asks, [H]ow can [Langridge] expect an interpretation of the policy that an insured who suffers no bodily injury has an independent claim equal to the claim of a surviving insured who actually suffers bodily injury? This question, of course, echoes the earlier misinterpretations of the circuit court and court of appeals. State Farm has now abandoned the position that bodily injury is required to state a claim; the majority should do the same. ¶ 71. On its face, State Farm's policy appears to provide coverage for Langridge's wrongful death claim. There is no dispute that she is insured under the policy. Rather, the dispute centers on whether Langridge can meet the definition of underinsured motor vehicle under paragraph b. That paragraph refers to a land motor vehicle whose limits of liability for bodily injury have been reduced by payments to persons other than the insured to less than the limits of liability of this coverage. ¶ 72. Here, Langridge is the insured. The limits of liability for bodily injury have been reduced by payments to persons other than Langridge, that is, by payments to her husband for his conscious pain and suffering. Additionally, the limits of liability of the drunk driver have been reduced to less than the limits of liability of the coverage. The policy limits of the drunk driver were exhausted via the payment to Langridge's husband. ¶ 73. I believe that the more reasonable interpretation of the language of paragraph b is as stated above. Even if, as State Farm asserts, it is reasonable to interpret the insured in paragraph b as referring to Langridge's husband rather than to Langridge, then we are left with two reasonable interpretations of this policy language. Words or phrases of an insurance policy are ambiguous if they are susceptible to more than one reasonable construction. Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶ 51, 255 Wis. 2d 61, 647 N.W.2d 223. If the policy language is ambiguous, we construe it against the drafter. Id. I therefore conclude that Langridge is entitled to coverage under our traditional canons of construction. ¶ 74. In sum, the majority once again invokes the mantra of unambiguous policy language to defeat an insured's reasonable expectation of recovery. Its decision to do so boils down to three paragraphs of weak and unsupportable analysis. I determine that the policy provision at issue is ambiguous and should be construed against State Farm. Accordingly, I respectfully dissent.