Court Opinion

ID: 9655934
Source: CourtListenerOpinion
Date Created: 2023-08-23 19:26:06.909612+00
Date Added: 2024-06-11T18:13:23.760095
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 29. (dissenting). Reasonable insureds believe that an underinsured motorist endorsement provides coverage when an at-fault driver's liability insurance cannot fully compensate the insured's damages. Such a belief is supported by this court's oft-stated purpose of UIM coverage. Because the relevant provisions of the policies at issue in this case are inconsistent with the stated purpose of UIM coverage and contrary to the reasonable expectations of the insured, I respectfully dissent.
¶ 30. This case presents us with the opportunity to review both the definition of underinsured motor vehicle and the reducing clause appearing in the UIM endorsements. The majority, focusing on the definition of underinsured motor vehicle, concludes that the language is unambiguous and that "the vehicle driven by Hermanson was not an underinsured vehicle as defined by American Family's policies." Majority op. at ¶ 2. Having reached this conclusion, the majority determines that it need not examine the reducing clause.
¶ 31. Both the definition of underinsured motor vehicle and the operation of the reducing clause in these policies are inconsistent with the purposes of these clauses. Both are also contrary to the reasonable expectations of the insured. Yet, the majority sacrifices the purpose of the coverage and the reasonable expec*155tations of the insured at the altar of an unambiguous definition. In essence, the majority declares that regardless of whether the definition is consistent with the purpose of UIM coverage, regardless of whether it is contrary to the reasonable expectations of the insured, and regardless of whether the definition of underinsured motor vehicle makes sense, it -will be enforced if the language is unambiguous.
¶ 32. To illustrate the infirmity of the majority's approach, I turn first to an examination of the purpose of UIM coverage. This court has previously acknowledged that the purpose of UIM coverage is to compensate the victim of an underinsured motorist's negligence when the third party's liability limits are not adequate to fully compensate the damages of the victim. We have stated:
"[Ujnder insurance benefits constitute the insurance coverage for damages in excess of the tortfeasor's insurance coverage.". . ."[T]he limit of the underinsurer's liability is for the amount of damages suffered by the insured in excess of the liability limits of the tortfeasor."
Wood v. American Family Mut. Ins. Co., 148 Wis. 2d 639, 655, 436 N.W.2d 594 (1989), overruled on other grounds, Matthiesen v. Continental Cas. Co., 193 Wis. 2d 192, 532 N.W.2d 729 (1995); Kaun v. Industrial Fire & Cas., 148 Wis. 2d 662, 671, 436 N.W.2d 321 (1989).
¶ 33. Although the purpose of UIM remains a constant, it has apparently gone unnoticed by our courts that there are two definitions of underinsured motor vehicle. One is inconsistent with the stated purpose of UIM and the reasonable expectations of the insureds, while the other is consistent with them. In some of the policies addressed by this court and the *156court of appeals in the past decade, an underinsured motor vehicle is defined as one insured by a policy with liability limits less than the insured's UIM coverage limits (limits of coverage). In others an underinsured motor vehicle is defined, as one would reasonably expect, by comparison of the at-fault driver's liability limits with the damages sustained by the insured (limits of damages).
¶ 34. In the two policies at issue in today's case an underinsured motor vehicle is defined by the limits of coverage:
[A] motor vehicle which is insured by a liability bond or policy at the time of the accident which provides bodily injury liability limits less than the limits of liability of this Underinsured Motorists Coverage. (Emphasis added.)
¶ 35. The problem with this definition lies in the fact that no ordinary citizen purchasing UIM coverage would anticipate it. A reasonable insured would not expect his or her damages to be wholly irrelevant to the determination of whether an at-fault driver is considered underinsured. An insured with $200,000 in damages would be surprised to learn that an at-fault driver with liability limits of $100,000 does not meet the definition of underinsured when the insured's UIM limits are also $100,000. When purchasing UIM coverage, reasonable insureds believe they are purchasing coverage for their damages in a set dollar amount above and beyond the liability limits of the at-fault driver.
¶ 36. This problematic "limits of coverage" definition of underinsured motor vehicle is in stark contrast with the definition found in other policies. Some insurers have issued policies with a definition that comports *157with the purpose of UIM and the reasonable expectations of the insured. In a handful of cases before this court and the court of appeals the policy at issue contained a "limits of damages" definition of underinsured motor vehicle:
"Underinsured motor vehicle means a motor vehicle which is insured by a liability bond or policy at the time of the accident which provides bodily injury limits less than the damages an insured person is legally entitled to recover."
Matthiesen, 193 Wis. 2d at 197 (emphasis added); Fairbanks v. American Family Mut. Ins. Co., 181 Wis. 2d 838, 841, 512 N.W.2d 230 (1994).
¶ 37. I cannot join the majority in the enforcement of the "limits of coverage" definition of underinsured motor vehicle in the case at hand. I acknowledge that as a general matter insurance contracts are subject to the same rules of construction as other contracts. Whirlpool Corp. v. Zeibert, 197 Wis. 2d 144, 152, 539 N.W.2d 883 (1995). However, we have repeatedly explained that the reasonable expectations of the insured is the touchstone of coverage determinations. Carrington v. St. Paul Fire & Marine Ins. Co., 169 Wis. 2d 211, 226, 485 N.W.2d 267 (1992). Additionally, we have specifically stated that UIM insurance contracts must be construed according to the reasonable expectations of the insured. Matthiesen, 193 Wis. 2d at 204; Kuhn v. Allstate Ins. Co., 193 Wis. 2d 50, 60, 532 N.W.2d 124 (1995); Kaun, 148 Wis. 2d at 670-71; Wood, 148 Wis. 2d at 652.
¶ 38. Because the majority's construction and enforcement of the "limits of coverage" definition is so contrary to those expectations, our maxims regarding the reasonable expectations of the insured and our *158stated understandings of the purpose of UIM coverage ring hollow today. Only the "limits of damages" definition can be plainly construed and enforced in a manner consistent with the purpose of UIM and the reasonable expectations of the insured.
¶ 39. The combination of a reasonable insured's understanding of UIM coverage and this court's statements regarding the purpose of that coverage together with the "limits of coverage" definition conveys inconsistent messages that would befuddle a reasonable insured. An endorsement containing the "limits of coverage" definition cannot clearly and unequivocally inform an insured that the UIM coverage they have purchased applies only where the at-fault driver carries liability insurance in an amount less than that found in the declarations page.
¶ 40. The majority relies on this court's determination in Smith v. Atlantic Mutual Ins. Co., 155 Wis. 2d 808, 456 N.W.2d 597 (1990), that the "limits of coverage" definition is unambiguous and that failure to satisfy it prevents consideration of other underlying deceptions in a UIM endorsement. However, the Smith court did not address the reasonable expectations of the insured when construing the language of the definition.
¶ 41. I note that the decision in Smith was issued before the tide of UIM litigation in the 1990s revealed UIM's many traps. The Smith court declined to address "hypothetical" situations of illusory coverage and inequitable results. 155 Wis. 2d at 813-14. The subsequent body of UIM case law reveals that those problems were soon no longer hypothetical, but were real and tangible instances of deception perpetrated on Wisconsin *159insureds.1 .1 do not believe this case involves a hypothetical instance of the deception of UIM coverage, because any objectively reasonable insured in the shoes of Trisha Taylor would anticipate that her UIM endorsement would have provided coverage when the at-fault driver carried liability insurance insufficient to cover her damages.
¶ 42. Fixing the definition of underinsured motor vehicle will bring us only halfway to remedying the deceptive nature of UIM coverage, for it is the reducing clause that wreaks the most havoc on the reasonable expectations of the insured. Even if a definition of underinsured motor vehicle that an insured would reasonably anticipate appears in a policy, the reducing clause in most cases acts to wipe away that which an insured would reasonably expect to recover.
¶ 43. In examining the reducing clause, I again turn first to the purpose of such a clause. It is com*160monly understood that the purpose of a reducing clause is to prevent double recovery. As Couch on Insurance explains:
Generally, public policy requires that setoff provisions in connection with, uninsured and underinsured motorist coverage apply only where necessary to prevent double recovery.
Lee R. Russ & Thomas F. Segalla, 12 Couch on Insurance § 171.23 (3d ed. 1998). In today's case, and in most cases before us, the insurer cannot argue in good faith that the reducing clause is working to prevent a double recovery.
¶ 44. Here, it is uncontested that Trisha Taylor's damages exceed $150,000. Yet, despite two UIM policies each providing for $50,000 in coverage on the declarations page, the reducing clause would operate in this case to erase any recovery under the UIM endorsements. In the position of a reasonable insured the UIM coverage in this instance is worthless. A reasonable insured would anticipate $100,000 in coverage above and beyond the $50,000 paid out by the tortfeasor's liability insurer. The reducing clauses in these policies serve not to prevent double recovery, but rather serve to prevent recovery in the first instance.
¶ 45. While I do not question the validity of a statutorily authorized reducing clause, I do question the validity of a policy crafted around the reducing clause in such a way as to defeat the reasonable expectations of the insured. As stated in the concurrence in Dowhower v. West Bend Mutual Insurance Co., 2000 WI 73, ¶ 50, 236 Wis. 2d 113, 613 N.W.2d 557 (Bradley, J., concurring):
*161Although it authorized reducing clauses under Wis. Stat. § 632.32(5)(i)l, the legislature envisioned clear policies without a hint of illusion to protect consumers from fraudulent practices. It did not authorize deception in the implementation of the statute.
¶ 46. Reducing clauses, as employed in the policies before us, all but eliminate coverage in a large number of cases. As a practical matter, it is only when UIM coverage limits reach fairly high dollar amounts that we can expect to consistently see actual recovery of UIM proceeds. Even then, however, recovery would never be in the amount stated on the declaration sheet.
¶ 47. It can be said with certainty that under all policies, the first $25,000 of all UIM coverage is not truly "coverage" at all. By operation of Wis. Stat. § 344.33, an underinsured driver will always have at least $25,000 in liability coverage. Moreover, because the reducing clause tends to render worthless the lower levels of UIM coverage, it has the harshest effects on those who can only afford to purchase the lower limits of UIM coverage. I do not believe that the legislature intended to authorize a reducing clause that renders worthless the UIM coverage sold to Wisconsin insureds.
¶ 48. While a reducing clause serves a legitimate function in a framework in which it operates to prevent double recovery, under the current state of UIM law it functions to thwart the reasonable expectations of Wisconsin insureds. The UIM endorsements in the case at hand are devoid of any mechanism by which the reducing clause works only to prevent double recovery, and as such should be construed in a manner consistent ■with that purpose and the reasonable expectations of an insured.
*162¶ 49. Having concluded that the provisions at issue in this case operate in contravention of the reasonable insured's expectations and the purposes of those provisions, I join the court of appeals in requesting that the legislature provide a statutory definition of underinsured motor vehicle. The definition should reflect the purpose of UIM coverage and the reasonable expectations of the Wisconsin insured. Likewise, I urge the legislature to examine the ramifications of the reducing clause authorized by Wis. Stat. § 632.32(5)(i)l when it operates in conjunction with other policy provisions.
¶ 50. In sum, this court should no longer ignore the disparity between the commonly held conception of underinsured motorist coverage and the terms of the UIM endorsements brought before us in all too frequent litigation. Were the majority to reach the correct result in this case, it would acknowledge that a reasonable insured would find the "limits of coverage" definition in the policies before us to be counterintui-tive. It would also acknowledge that the reducing clause, while valid as a means of avoiding double recovery, has been adapted as a means of avoiding reasonably anticipated UIM coverage. The majority in this case does neither. Rather, it sanctions the "limits of coverage" definition and avoids any discussion of the operation of the reducing clause. Accordingly, I respectfully dissent.
¶ 51. I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON and Justice WILLIAM A. BABLITCH join this dissent.

 The most disturbing of all the problems posed by the "limits of coverage" definition was the sale of illusory UIM coverage. The court of appeals explained that this problem arose with the sale of UIM endorsements providing coverage limits of $25,000. Meyer v. Classified Ins. Co., 192 Wis. 2d 463, 531 N.W.2d 416 (Ct. App. 1995); Hoglund v. Secura Ins. Co., 176 Wis. 2d 265, 500 N.W.2d 354 (Ct. App. 1993). Because Wis. Stat. § 344.33 requires liability limits of at least $25,000, no insured at-fault Wisconsin driver could ever be underinsured. Moreover, if an out-of-state driver were insured only to the minimum liability limits required by another state's financial responsibility law and those limits were less than those required by Wis. Stat. § 343.44, that driver was by the terms of standard UM and UIM policies considered uninsured. In such a situation it was impossible for an insured to recover under UIM. While this specific problem has been mitigated by § 632.32(4m)(d), which requires minimum UIM coverage of $50,000/$100,000, UIM coverage, as I explain below, remains an illusion in most cases.