Court Opinion

ID: 9690465
Source: CourtListenerOpinion
Date Created: 2023-08-24 19:13:52.477573+00
Date Added: 2024-06-11T09:03:04.615906
License: Public Domain

DAVID T. PROSSER, J.
¶ 72. (concurring). I write separately to address American Family's policy. In my view, American Family's reducing clause would not pass muster on these facts — irrespective of any statute— because it is at war with the reasonable expectation of its insured.
¶ 73. In interpreting insurance policies, courts apply the same rules of interpretation that apply to contracts generally. Folkman v. Quamme, 2003 WI 116, ¶ 12, 264 Wis. 2d 617, 665 N.W.2d 857. The objective in interpreting insurance policies is to give effect to the intent of the parties. State Farm Mut. Auto. Ins. Co. v. *162Langridge, 2004 WI 113¶ 13, 275 Wis. 2d 35, 683 N.W.2d 75. "To do so, we give the words in the insurance policy their common and ordinary meaning, that is, the meaning a reasonable person in the position of the insured would have understood the words to mean." Id., ¶ 14. If the text of the policy is unambiguous, "it is enforced as written, without resort to rules of construction or applicable principles of case law." Folkman, 264 Wis. 2d 617, ¶ 13.
¶ 74. When interpreting an insurance policy courts begin by determining whether the policy is ambiguous. Langridge, 275 Wis. 2d 35, ¶ 41. An insurance policy is ambiguous if it is "susceptible to more than one reasonable interpretation." Id., ¶ 48 (internal citations omitted). Ambiguity in an insurance policy may arise in different ways. First, the language of the disputed provision may be ambiguous because the import of the words is uncertain or the impact of the words is uncertain with respect to unusual facts. Second, a provision that is unambiguous when viewed in isolation may become ambiguous when considered in the context of the entire policy.1 Folkman, 264 Wis. 2d 617, ¶ 19.
¶ 75. The Shiras argue the reducing clause in their son's policy is ambiguous because it does not state that the uninsured motorist coverage limits will be reduced by the payment of worker's compensation benefits "to anyone." Because the policy lacked the phrase "to anyone," the Shiras contend American *163Family's interpretation of its policy is contrary to the reasonable expectations of an insured.
¶ 76. In response, American Family argues that because the reducing clause in the policy mirrors Wis. Stat. § 632.32(5)(i), which they contend is unambiguous, an insured could not reasonably expect to have coverage under the facts of this case.
¶ 77. We have previously held that reducing clauses that mirror Wis. Stat. § 632.32(5)(i) can be contextually ambiguous. Dowhower v. West Bent Mut. Ins. Co.„ ¶¶ 33, 36, 236 Wis. 2d 113, 613 N.W.2d 557; Schmitz v. Badger Mut. Ins. Co., 2000 WI 73, ¶ 49, 255 Wis. 2d 61, 647 N.W.2d 223. However, contextual ambiguity in those cases involved such factors as organization, labeling, explanation, inconsistency, omission, and the text of other provisions in the policy. See Folkman, 264 Wis. 2d 617, ¶ 19.
¶ 78. Here the reducing clause produces a result that is completely at odds with the reasonable expectation of an insured, because the insured would expect that reductions in uninsured policy limits would be based on payments made to or on behalf of the insured, the insured's heirs, or the insured's estate. This is why the court of appeals upheld the reducing clause in a case where worker's compensation payments were paid to an insured and the payments exceeded the insured's uninsured motorist policy limits. See Myers v. Gen. Cas. Co. of Wis., 2005 WI App 49, 279 Wis. 2d 432, 694 N.W.2d 723.
¶ 79. The reducing clause in this policy is ambiguous because it is susceptible to more than one reasonable interpretation on the particular facts of this case. This is because the overall purpose of the policy is to provide coverage for the insured, the insured's heirs, or the insured's estate in the event of the insured's death, *164at a level determined by the insured when purchasing the policy. Most of the time, a literal reading of the reducing clause is completely consistent with this purpose.
¶ 80. A reasonable insured could not he expected to anticipate that coverage might vary dramatically depending on whether the insured was married or single, whether the insured had dependents, or whether the insured was working or vacationing at the time of a fatal automobile accident. If Scott Shira had been traveling in Minnesota to attend a sporting event instead of conducting business, his estate would have received full coverage.
¶ 81. As long as an interpretation is reasonable, insurance policy terms "should be interpreted as they would he understood from the perspective of a reasonable person in the position of the insured[.]" Langridge, 275 Wis. 2d 35, ¶ 47 (internal citations omitted). A rational consumer in Scott's position would not expect that the uninsured motorist coverage for which he paid money could be reduced to nothing even though neither he nor his estate or his heirs had received any compensation for his injuries.
¶ 82. The court has repeatedly held that a policy is consistent with the reasonable expectations of an insured where it clearly sets forth that the insured purchased a fixed level of recovery that is arrived at by combining payments from all sources. See Taylor v. Greatway Ins. Co., 2001 WI 93, ¶ 25, 245 Wis. 2d 134, 628 N.W.2d 916; Dowhower, 236 Wis. 2d 113, ¶ 33. Under American Family's interpretation, however, the reducing clause would not only deny an insured a fixed level of recovery but also do so without mentioning the *165possibility that uninsured motorist limits could be reduced even though the insured or the insured's estate received nothing.
¶ 83. In fact, the policy is written in such a way that the insured is reasonably led to expect that coverage limits will he reduced only by payments that he actually receives. The Quick Reference page states: "This policy is a legal contract between you (the policyholder) and the company.... The policy details the rights and duties of you and your insurance company." This language combined with the very nature of insurance, where an insurer assumes financial responsibility for defined risks and losses suffered by an insured, establishes an expectation of contract benefits that is contrary to American Family's interpretation. Absent an explicit warning, an insured would not expect that payments from one third party to another third party could affect the contractual relationship the insured has with the insurer and give the insurer a windfall.
¶ 84. The second paragraph within the uninsured motorist portion of the policy, which sets forth American Family's general obligation, states:
We will pay compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle. The bodily injury must be sustained by an insured person and must be caused by accident and arise out of the use of the uninsured motor vehicle.
Based on this paragraph, a reasonable insured would expect American Family ("We") to have to pay the Shiras. Scott suffered bodily injury — death—as that term is defined by the policy. Scott's death was caused by the driver of an uninsured motor vehicle. The Shiras are insured persons as that term is defined by the *166policy.2 Therefore, a reasonable insured would expect American Family to pay compensatory damages to the Shiras.
¶ 85. Finally, the immediate context of the reducing clause does nothing to dispel this expectation. In its entirety, the reducing provision states:
The limits of liability of this coverage will be reduced by:
1. A payment made by the owner or operator of the uninsured motor vehicle or organization which may be legally liable.
2. A payment under the Liability coverage of this policy.
3. A payment made or amount payable because of bodily injury under any workers' compensation or disability benefits law or any similar law.
Clearly, the first example — a payment made by an owner or operator legally responsible — contemplates a scenario in which the insured receives payment. Similarly, the second example — a payment under the policy's liability coverage — contemplates a scenario in which an injured person would otherwise receive duplicate pay*167ments under both the liability and uninsured motorist portions of the policy. A look at the liability portion of the policy confirms this expectation. It states: "Any amount payable under this coverage to or for an injured person will be reduced by any payment made to that person under the Uninsured Motorist coverage of this policy." This language creates an expectation of symmetry between the liability and uninsured motorist coverages that if payment is made under one portion of the policy, payment under the other portion will be reduced by that amount.
¶ 86. Thus it is after two subparts in which uninsured motorist limits can be reduced only by payments to the insured that the insured reaches the portion of the policy in dispute. Given the context in which the worker's-compensation reducing clause appears, we conclude that a reasonable insured would reasonably expect that the uninsured motorist coverage limits would be reduced only by the worker's compensation benefits that the insured, the insured's heirs, or the insured's estate actually received.
¶ 87. The court has held that a policy is contrary to the reasonable expectations of an insured and offers illusory coverage where the policy does not "clearly set forth that the insured is purchasing a fixed level of UIM recovery arrived at by combining payments from all sources." Schmitz, 255 Wis. 2d 61, ¶ 75. A fortiori, a policy in which a reducing clause is effective before the insured ever receives the amount of the uninsured motorist limits from all sources, and which contains no mention of this possibility, is contrary to the reasonable expectations of an insured. If such a reducing clause were allowed by Wis. Stat. § 632.32(5)(i)2., I would hold that to counter the reasonable expectations of an insured the uninsured motorist policy would have to state *168explicitly that the limits would he reduced by worker's compensation benefits paid to the Fund, not just to the insured.
¶ 88. I am authorized to state that Justice PATIENCE DRAKE ROGGENSACK joins this opinion.

 Although to date we have applied principles of contextual ambiguity only when evaluating underinsured motorist coverage, there is no reason that contextual ambiguity cannot arise in relation to reducing clauses in uninsured motorist coverage. See Myers v. Gen. Cas. Co. of Wis., 2005 WI App 49, ¶ 18, 279 Wis. 2d 432, 694 N.W.2d 723.

 In relevant part, the policy defines an insured person as "[a]nyone ... entitled to recover damages due to bodily injury to you, a relative, or another occupant of your insured car." The circuit court ruled, and American Family did not appeal, that under Minnesota law the Shiras would be legally entitled to recover from the uninsured motorist.
As Arnold Anderson explains, the Shiras are Class III insureds; that is, "someone who has a derivative claim based on injury to a Class I [named insured] or Class II [occupancy insured] insured." Arnold E Anderson, Wisconsin Insurance Law § 4.18 (5th ed. 2004).