Court Opinion

ID: 9689873
Source: CourtListenerOpinion
Date Created: 2023-08-24 18:49:02.917584+00
Date Added: 2024-06-11T18:18:52.613623
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 26. (dissenting). Can reasonable minds differ? This is the tried and true test for determining ambiguity. In the case at hand, the majority examines the exhaustion clause at issue and concludes that the phrase "exhausted by payment of judgments or settlements" is susceptible to only one reasonable interpretation and is therefore unambiguous. Such a conclusion is essential to the majority's holding.
¶ 27. Yet, sixteen years ago this court examined that exact language — word for word — and interpreted the phrase to mean the opposite of what the majority espouses today. Teigen v. Jelco of Wisconsin, Inc., 124 Wis. 2d 1, 8, 367 N.W.2d 806 (1985). Apparently, reasonable minds can differ. Undoubtedly, the language at issue is ambiguous.
¶ 28. Nevertheless, the majority persists in its conclusion. Its decision begins and ends with the policy language, concluding that the exhaustion clause unambiguously requires full payment of the at-fault driver's *201liability limits in order to trigger the UIM insurer's obligations. The majority concludes that a settlement plus credit cannot constitute a "payment" under the exhaustion clause.
¶ 29. I would instead acknowledge that the language is ambiguous and apply the principles of insurance policy construction which require it to be construed against the insurer. Additionally, I would acknowledge both our case law and public policy require a construction of the exhaustion clause that allows an insured to "settle and credit."
¶ 30. This court's interpretation of the same language in Teigen belies the majority's contention that the language of the exhaustion clause is unambiguous. In Teigen, the court examined a third-party liability policy that terminated the insurer's duty to defend when the insurer's liability was "exhausted by payment of judgments or settlements." Id. at 8. A majority of this court, emphasizing the word "settlements," concluded that under that policy language liability was exhausted by virtue of a settlement and Loy release.
¶ 31. Today the majority, emphasizing the word "payment" in the same phrase, concludes that there may be no exhaustion under the same language where an insured settles and credits under a Loy-type agreement. The majority now reads the language to unambiguously require payment of the full policy limits for there to be exhaustion. The ambiguity inherent in these conflicting interpretations does not implicate the question of whether Teigen was correctly or incorrectly decided or whether it is distinguishable. The simple fact of the Teigen majority's contrary interpretation is a testament to the ambiguity.
¶ 32. We do not need more than the ambiguity inherent in these competing interpretations to resolve *202this case. This case should be simply a matter of applying the rule that the ambiguous language should be construed against the insurer and in favor of coverage. Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621 (1992). However, in addition to the application of this rule of policy construction, a decision allowing for exhaustion where an insured enters a settle and credit agreement is required under our precedent and as a matter of public policy. While the majority's determination that the language is unambiguous implicitly entails the conclusion that the Teigen majority's reading is unreasonable, I conclude that the Teigen majority's reading is not only reasonable, but it is correct and is binding precedent.
¶ 33. As the majority notes, the settle and credit arrangement entered into by Danbeck and the at-fault driver's liability insurer is similar to a Loy agreement. Majority op. at n.2. Under Loy v. Bunderson, 107 Wis. 2d 400, 320 N.W.2d 175 (1982), a primary insurer may settle with an insured for less than the policy limits in exchange for being released from liability without affecting the excess insurer's liability. As in Teigen, the question in this case is whether there is exhaustion under such an agreement where the policy requires "exhaustion by payment of judgments or settlements." Try as it might to distinguish Teigen, the distinctions the majority draws are distinctions without a difference.
¶ 34. The majority asserts that "Teigen is inapplicable because it did not concern the interpretation of an exhaustion clause in a UIM policy." Majority op. at ¶ 19. We are not told, however, why the question should be answered differently in the UIM context than in the context of a primary/excess insurance dis*203pute. What is UIM but excess insurance to the at-fault driver’s liability insurance?
¶ 35. Moreover, the Teigen court itself dismissed the distinction the majority attempts to draw. The court rejected the excess insurer's attempt to distinguish Loy on the ground that the insurance relationship was different than that found in Loy. The court explained that the controlling factor is not the nature of the insurance relationship, but is the public policy in encouraging settlement:
If the issue of the existence of a true primary/excess insurance situation had been fundamental to our reasoning behind the Loy principle, then our holding in Loy would not control in the present suit. However, that is not the case. The rationale behind our affirmance of the "Loy Release/Covenant Not To Sue" is not anchored to the issue of whether a true primary/excess insurance situation exists. The desirability of Loy-type agreements lies in the encouragement of partial settlements in future cases, thereby fostering effective and expeditious resolution of lawsuits.
Teigen, 124 Wis. 2d at 7. Under the proper application of this precedent, the court would acknowledge that the validity of a Loy-type agreement is not anchored to the type of policy at issue, but is a consequence of the public policy that we seek to foster.
¶ 36. Unfortunately, by invoking the supposed lack of ambiguity to avoid consideration of the policy of encouraging settlement, the majority not only fails to promote that policy, but indeed frustrates it. The loss of all potential UIM recovery is a strong disincentive to settlement. In cases where an injured party is represented by counsel, who after today's decision will be expected to know the harsh consequences of such a *204settlement, we should have no reason to anticipate settlement where there is the potential for UIM recovery.
¶ 37. The most unfortunate aspect of the majority opinion is the harsh result unwitting Wisconsin insureds will bear. While we can expect to see settlement deterred where an injured party is represented by counsel, those individuals without the advice of counsel will most certainly be unaware of today's decision. These injured parties may unwarily agree to settle and credit at the expense of any potential UIM recovery. Additionally, such an insured may unknowingly be the subject of agreements between the UIM and liability carriers. To facilitate settlement, the UIM insurer may offer to underwrite a portion of the settlement costs in order to avoid a larger payout under the UIM endorsement. The suggestion of such agreements has been brought before the court this very term.
¶ 38. As a result of today's decision, we can now add the UIM exhaustion clause to the growing list of inequitable UIM endorsement provisions that persist under the current state of UIM. In my dissent in Taylor v. Greatway Insurance Co., 2001 WI 93, 245 Wis. 2d 134, 628 N.W.2d 916 (Bradley, J. dissenting), I explained the ways in which the definition of underin-sured motor vehicle and the reducing clause defeat the reasonable expectations of Wisconsin insureds and the purpose of UIM coverage. Dan Danbeck is one of the few insureds to reach this court whose prospects of recovery under a UIM endorsement have escaped those pitfalls. However, by invoking the mantra of unambiguous policy language the majority once again defeats an insured's prospects of recovery under a UIM endorsement.
¶ 39. I would conclude that not only is the exhaustion clause ambiguous and subject to construc*205tion against the insurer but also that our precedent and public policy require a construction under which a settle and credit agreement is deemed to exhaust the at-fault driver's liability limits. Accordingly, I respectfully dissent.
¶ 40. I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON joins this dissent.