Court Opinion

ID: 9850816
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:03:17.148208+00
Date Added: 2024-06-11T09:20:44.127412
License: Public Domain

SUNDBY, J.
(dissenting). In this case, we interpret provisions of the Wisconsin Insurance Security Fund Law, ch. 646, STATS. The purpose of the law is to protect an insured from excessive loss when its insurer is liquidated. Section 646.01(2)(a), Stats. The law creates an "insurance security fund" consisting of contributions from all insurers subject to ch. 646. Section 646.11(1), Stats. An insured whose insurer is in liquidation may file a claim against the fund if it is an unpaid claim for a loss insured under the insured's policy, and all of the statutory conditions are met. Section 646.31(1), Stats. The issue on appeal is whether when the insured collects part of its loss from another policy, its claim against the fund must be reduced by *851the amount the insured recovers or by the amount of the policy limits.
Wisconsin was one of the first states to enact an insurance security fund law. Laws of 1979, ch. 109, Preliminary Note. Wisconsin's Insurance Security Fund Law preceded development of the model act under the auspices of the National Association of Insurance Commissioners (NAIC). Id. However, the repeal and re-creation of Wisconsin's Security Fund Law in 1979 drew heavily on NAIC's Post-Assessment Property and Liability Insurance Guaranty Association Model Act. See Laws of 1979, ch. 109, § 14, Introductory Note.
NAIC's Model Act suggests an "exhaustion" requirement intended to insure that an insured will not recover twice — once from the collateral source and once from the fund. Post-Assessment Property and Liability Insurance Guaranty Association Model Act, NAIC Model Laws, Regulations and Guidelines § 12A (1995). Before a person having a claim against an insurer may recover from the fund, he or she must "exhaust" his or her right under any "collateral" policy.
The Model Act does not describe how an insured "exhaust[s]" his or her rights under the "collateral" policy. However, the majority of the courts which have addressed the exhaustion requirement have concluded that the insured is not required to litigate the insured's right to recover the policy limits of a "collateral" policy; a settlement negotiated in good faith satisfies the exhaustion requirement.
Chapter 646, Stats., does not impose an exhaustion requirement on an insured who makes a claim against the fund, but insures nonduplication of recovery by requiring that if the insured collects a portion of a loss claim from collateral sources, the amount col*852lected may not be claimed from the fund. Section 646.31(6)(a), STATS., provides:
COLLECTION FROM COLLATERAL SOURCES. The portion of a loss claim for which indemnification is provided by other benefits or advantages, which may not be included in the class of claims defined by s. 645.68(3), may not be claimed from the fund under this chapter.
The Wisconsin Insurance Security Fund argues that there must be deducted from a claim against the fund the policy limits of the "collateral" policy; not the amount recovered. I disagree. I conclude that a claim against the fund must be reduced only by the amount recovered from the collateral source, provided that amount is determined in good faith.
In Fireman's Fund Insurance Co. v. Pitco Frialator Co., 145 Wis. 2d 526, 532, 427 N.W.2d 417, 420 (Ct. App. 1988), we said:
We reiterate that the clear and unambiguous purpose of ch. 646 is to protect insureds from losses occasioned by the insolvency of their insurance company. ... [T]he Wisconsin Insurance Security Fund law is a remedial statute which must be construed to give effect to its leading idea and must be brought into harmony with its purpose.
This purpose is undercut if the insured whose insurer has become insolvent must have his or her claim reduced by the policy limits of a collateral insurance policy source, even if, realistically, such recovery is not possible except through litigation.
Section 646.31(6)(a), STATS., provides: "COLLECTION FROM COLLATERAL SOURCES. The portion of a loss claim for which indemnification is provided by other benefits or advantages, which may not be *853included in the class of claims defined by s. 645.68(3), may not be claimed from the fund under this chapter."
The majority considers the title to § 646.31(6), Stats., "appropriate[]." Maj. op. at 841. "Collect" means "to gather in or together, to collect taxes . . . ." The New Lexicon Webster's Encyclopedic Dictionary 192 (1991). Belongia "collected" $17,500 from his uninsured motorist coverage, not $30,000, the policy limits.
The majority relies on the "recovered or recoverable" language of § 645.68(3), Stats. It assumes that the policy limits of the collateral source are "recoverable." However, we do not know without a trial how much of the policy limits of Belongia's uninsured motorist coverage is "recoverable." It is unreasonable to force Belongia to litigate this issue solely to determine his claim against the fund.
The courts which have construed their state's insurance security fund laws have uniformly required that a claimant "exhaust" his or her rights to recover whatever is available under his or her own insurance policies before making a claim against the fund. However, they differ as to the effect of that "exhaustion" upon the parties' claim against the state's insurance security fund. The Michigan Supreme Court holds that where the insured negotiates a. settlement in good faith, only the settlement is deducted from the insured's claim, regardless of the policy limits. Watts v. Michigan Dep't of St., Motor Vehicle Accident Claims Fund, 231 N.W.2d 43, 45 (Mich. 1975). The court said that the fund's remedy for collusive settlements was to attack those settlements by affirmatively showing collusion or some other species of fraud. Id.1
*854In Wisconsin, there is no need to fear collusive settlements. Section 646.13(2), STATS., which prescribes the special duties and powers of the board of directors of Wisconsin's Insurance Security Fund provides: "The board may: (a) Review settlements, releases and judgments to which the insurer or its insureds were parties to determine the extent to which they may be properly contested." Thus, the board may review and determine the bona fides of any settlement. This authority is meaningless unless it applies to a collateral source settlement. There would be no incentive for the insured to negotiate a settlement with the collateral source insurer if his or her claim against the fund would always be reduced by the policy limits. I believe that limiting the deduction from the insured's claim against the fund to the amount actually recovered from the collateral insurance policy source is most faithful to the purposes of the Wisconsin Insurance Security Fund. Accordingly, I dissent.

 See Colorado Ins. Guar. Ass'n v. Harris, 827 P.2d 1139, 1142 (Colo. 1992) (the recovery the court allowed against the insurance fund was the difference between the policy limits of *854the uninsured motorist coverage and the fund's statutory limits); Hetzel v. Clarkin, 772 P.2d 800, 802 (Kan. 1989) ("Any amount payable on a covered claim under this act shall be reduced by the amount of any recovery under such insurance policy." (emphasis added)); Richard v. Johnson, 234 N.W.2d 22, 25 (N.D. 1975) (it is the general policy of the law to encourage good-faith settlements).