Court Opinion

ID: 8203895
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:50:01.968494+00
Date Added: 2024-06-11T16:41:05.026866
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 41. {dissenting). The issue in this case is whether the umbrella insurance policy provides uninsured motorist (UM) coverage. The parties' arguments center on the meaning of an endorsement, which provides in full:
Exclusion of Personal Injury to Insureds Following Form
We do not cover personal injury to you or a relative. We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A.
¶ 42. Both parties agree that the first sentence, standing alone, would operate to exclude UM coverage.1 However, the first sentence does not stand alone, and *338the parties disagree about the meaning of the second sentence, "We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A." It is undisputed that UM insurance is provided by one of the underlying policies listed in Schedule A.
¶ 43. In arriving at its conclusion that there is no coverage here, the majority invents a novel approach to the interpretation of insurance policies, generally. Its approach is erroneous because it: (1) evinces a misunderstanding of how policies are written; (2) is inconsistent with how courts heretofore have approached the interpretation of policies; and (3) is based on a nonsensical premise that an endorsement in an umbrella policy could ever negate coverage in an underlying policy.
¶ 44. I conclude that, at the very least, the policy is contextually ambiguous and should be construed in favor of coverage. Accordingly, I respectfully dissent.
I
¶ 45. The majority correctly asserts that a court begins its interpretation of an insurance policy by looking to the grant of coverage. Majority op., ¶ 14. However, it appears to believe that the only place a grant of coverage can be made is in the section of the policy labeled "Coverages." Id., ¶¶ 19-20. The majority reads the "Coverages" section of the umbrella policy in isolation, and it determines that this policy unambiguously provides only third-party coverage. Id., ¶¶ 19-20. Based on this premise, the majority asserts that the endorsement at issue is an "exclusion" rather than a grant of coverage. Id., ¶ 21.
*339¶ 46. Without specifically mentioning or discussing Wadzinski's interpretation, the majority further contends that there can be only one reasonable interpretation of the second sentence of the endorsement. It concludes that the phrase "we will cover" refers not only to Auto-Owners' obligations under the umbrella policy, but also its obligations under the underlying policies. Id,., ¶ 24. It asserts that the second sentence is meant to clarify that the first sentence does not negate any coverage provided by an underlying policy. Id., ¶¶ 26-27.
II
¶ 47. The majority's approach evinces a misunderstanding of how insurance policies are written. "An endorsement is a written document attached to an insurance policy that modifies the policy by changing the coverage provided by the policy." 1 Jeffrey E. Thomas, New Appleman on Insurance Law Library Edition § 1.07[8] (2009) (emphasis added). Often, endorsements are used by an insurer to tailor a standard policy to the needs of a particular insured or the regulatory requirements of a particular state. Id.
¶ 48. Although the majority focuses exclusively on the "Coverages" section to define the grant of coverage, a grant of coverage may also be found in an endorsement. Just as much as an endorsement may "limit or subtract coverage," an endorsement may also "add coverage for acts or things not covered by the original policy." Id. Accordingly, endorsements can significantly alter the scope of coverage.2
*340¶ 49. Given that endorsements can alter the scope of coverage, one leading treatise recommends reading a policy by starting with the endorsements:
Because endorsements change the basic policy form, reading a Commercial General Liability ("CGL") policy, or any insurance policy, is unlike reading anything else. Put simply, the reader should not start from page one.... It is necessary to begin with the endorsements because they can change any part or provision of an insurance policy, no matter how fundamental to the policy.
3 Thomas, supra, § 21.01[1]. The majority errs by failing to consider that a grant of coverage may be found in an endorsement.
Ill
¶ 50. Not only does the majority's approach evince a misunderstanding of how policies are written, its approach is also inconsistent with the way in which insurance policies are interpreted by courts. To determine what is covered under a policy and whether a policy provision is ambiguous, courts read individual provisions in the context of the whole policy, rather than isolating a small part of the policy language. Folkman v. Quamme, 2003 WI 116, ¶ 21, 264 Wis. 2d 617, 665 N.W.2d 857; State Farm Mut. Auto. Ins. Co. v. Bailey, 2007 WI 90, ¶ 27, 302 Wis. 2d 409, 734 N.W.2d 386.
¶ 51. The approach adopted by the majority was explicitly rejected by the court of appeals in Stubbe v. Guidant Mutual Insurance Co., 2002 WI App 203, 257 *341Wis. 2d 401, 651 N.W.2d 318. In that case, an umbrella policy's statement of coverage was similar to the "Coverages" section here in that it exclusively granted third-party liability coverage.3 The insurer, Guidant, argued that the statement of coverage was unambiguous, and therefore, that the policy did not provide any first-party coverage.
¶ 52. The Stubbe court noted that "the policy must be read as a whole," id., ¶ 10, and it rejected Guidant's "view of the umbrella policy [which] focuse[d] almost exclusively on the policy's statement of coverage," id., ¶ 9. Rather, because of the interaction between an exclusion, an endorsement, and the schedule of underlying insurance limits, the court of appeals found the umbrella policy to be contextually ambiguous, and it construed it in favor of coverage. Id., ¶ 15 n.4.
¶ 53. The majority should not tinker with established methods of interpretation. This case and Stubbe are on all fours. In both cases, the statement of coverage does not include first-party claims. In both cases, other provisions of the policy, including the endorsements, can be read to grant UM coverage. The majority should follow Stubbe's analysis, rather than overruling Stubbe sub silencio.4
*342IV
¶ 54. Because it isolates the "Coverages" section to determine the scope of the grant of coverage, the majority presumes without analysis that the endorsement at issue in this case must be an exclusion. It then jumps to the conclusion that the second sentence of the endorsement must be an exception to the exclusion, and it adopts a strained interpretation of the endorsement based on a nonsensical premise.
¶ 55. The majority interprets the first sentence, "we do not cover personal injury to you or a relative," to mean that there is no UM coverage. Majority op., ¶ 25. It advances that the role of the second sentence, "[w]e will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A," is to clarify that this fact will not negate any UM coverage provided by Auto-Owners in an underlying policy. Id., ¶¶ 26-27. It contends that the second sentence of the endorsement "assures [Wadzinski] that the first sentence does not interfere with an independent *343obligation for first-party coverage that was undertaken [by Auto-Owners] in [an underlying] policy listed in Schedule A[.]" Id., ¶ 26.
¶ 56. The premise that a provision in an umbrella policy can interfere with or negate coverage provided in an underlying policy is nonsensical. As the court of appeals said, "we question why an insurer or anyone else would believe that an exclusion in an umbrella policy could have any effect on coverage in an underlying policy." Wadzinski v. Auto-Owners Ins. Co., 2011 WI App 47, ¶ 16, 332 Wis. 2d 379, 797 N.W.2d 910. An insured purchases an umbrella policy to receive additional protection. The majority's interpretation rests on the false premise that there is a danger of paying an additional premium but receiving less coverage. Any insurance customer would be surprised to learn that the coverage it purchased in an underlying policy could be wiped away by the insured's purchase of an umbrella policy.
¶ 57. Further, the majority's construction relies on an unreasonable interpretation of the phrase "we will cover such injury." The policy defines "we" as "the company providing this insurance." (Emphasis added.) It is unreasonable to interpret the phrase "we will cover such injury" as a reference to Auto-Owners' promise to cover a risk under a different policy.
¶ 58. The problem with the majority's interpretation of that phrase is illustrated by imagining a different scenario. Here, it happens to be Auto-Owners that provided both the umbrella policy and the underlying policy. "Generally, however, excess insurance is purchased from an insurer different from that providing the underlying insurance." Michael A. Knoerzer, Practicing Law Institute, Introduction to Excess Insurance, 629 PLI/Lit 181, 187 (2000). If the underlying insurance were provided by XYZ Mutual instead of Auto-*344Owners, the majority's interpretation would render the second sentence of the endorsement meaningless.
V
¶ 59. In contrast to the majority's strained interpretation, I conclude that, at the very least, the policy is contextually ambiguous and thus should be construed in favor of providing coverage. As stated above, the text of the endorsement provides: "We do not cover personal injury to you or a relative. We will cover such injury to the extent that insurance is provided by an underlying policy listed in Schedule A." This text is preceded by a caption that reads: "Exclusion of Personal Injury to Insureds Following Form."
¶ 60. Wadzinski argues that the endorsement means that personal injury for an insured will be excluded if and only if it is not covered by an underlying policy issued in Schedule A. If it is covered by an underlying policy, Wadzinski asserts, then the umbrella policy will "follow form" and cover it as well.
¶ 61. This interpretation comports with the text of the endorsement. The phrase "we will cover such injury" appears to be a grant of coverage under this policy, and the phrase "to the extent that coverage is provided by an underlying policy listed in Schedule A" can reasonably be interpreted to mean if and only if coverage is provided by an underlying policy listed in Schedule A.
¶ 62. Further, Wadzinski's interpretation is consistent with the use of the term "following form" in the caption. In the insurance industry, that term means that an excess policy will incorporate terms in an underlying policy to provide coextensive coverage. See Johnson Controls, Inc. v. London Mkt., 2010 WI 52, ¶ 34, 325 Wis. 2d 176, 784 N.W.2d 579. Auto-Owners chose to use *345the term "following form" in the caption of this endorsement, and it must be given some meaning.5
¶ 63. The majority dismisses Wadzinski's interpretation of the term "following form" without providing any alternative explanation for Auto-Owners' decision to use that term. The majority declines to give the caption any meaning because it asserts that the term "following form" can only be used when an excess policy follows the entire form of an underlying policy. According to the majority, there can be no such thing as a following form endorsement. Majority op., ¶ 30. Why not?
¶ 64. It may be that many excess insurers choose to follow the form of an entire policy. However, other excess insurers have written policies that are largely independent of the underlying policies, but that never*346theless offer a certain type of coverage or exclusion that follows the form of a coverage or exclusion in an underlying policy. Nothing prevents an umbrella insurer from writing such an endorsement, as it appears Auto-Owners has done here.6
¶ 65. Wadzinski's interpretation is consistent with the text and gives meaning to all the language in the caption. UM coverage is "excluded" unless it is covered by an underlying policy, in which case the umbrella phrase will "follow form" and also provide coverage.
¶ 66. A policy's grant of coverage is ambiguous if it is susceptible to more than one reasonable interpretation. Folkman, 264 Wis. 2d 617, ¶ 13; Stubbe, 257 Wis. 2d 401, ¶ 8. Even if the majority's interpretation can be considered to be reasonable, the policy is rendered ambiguous due to the existence of an alternative reasonable interpretation. Under our well-established *347canons of construction, an ambiguous policy should be construed in favor of coverage. Folkman, 264 Wis. 2d 617, ¶ 13; Stubbe, 257 Wis. 2d 401, ¶ 8.
VI
¶ 67. Before concluding, I pause to observe that the majority's attempt to bolster its analysis by comparing the cost of various policy premiums is folly. See majority op., ¶¶ 4, 5, 17 n.8. It is based on uninformed speculation.
¶ 68. There is nothing in this record that informs how Wadzinski's premium was determined and nothing in this record which provides any context from which reasonable inferences can be drawn. Nevertheless, the majority asserts in a footnote that "the amount paid for coverage may lend support to the conclusion that potentially ambiguous terms should be construed one way rather than another." Id., ¶ 17 n.8.
¶ 69. The majority fails to appreciate that the amount paid for excess insurance generally bears little relationship to the range of prices that we have come to expect for primary insurance coverage. "Because excess policies do not provide 'first dollar' coverage and are generally not within the 'working layer,' the premium charged is generally much lower than that of a primary policy." Knoerzer, supra, at 187.7
*348¶ 70. It should not surprise any reader of this opinion that no member of this court understands the formulas for determining insurance premiums. Without anything in the record to explain how rates are calculated or what inference should be drawn from the calculation made by the underwriters issuing this policy, any snap judgment based on the amount of a premium would be pure speculation.
¶ 71. Actuaries set the amount of a premium by relying on complex formulas which contain a multitude of variables. I need do nothing more than replicate what the industry considers to be the most basic of formulas to demonstrate this point:
SIMPLE EXAMPLE
The following simple example illustrates how expenses and profit are incorporated within the fundamental insurance equation and in the ratemaking process ...
If the rates are appropriate, the premium collected will be equivalent to the sum of the expected losses, LAE, underwriting (UW) expenses (both fixed and variable), and the target underwriting profit.. . . [T]his can be written as:
P — L + EL + (Ep + V" x P) + Qy x P
P — (V + Q-p) x P = L + El + Ep

P = [L + El + Ep]

[1.0-V-Qt]

P = [L + EL + Ep] / X = [L + ÉL + Ép]

[1.0-V- Qt][1.0-V-Qt]

*349Geoff Werner & Claudine Modlin, Casualty Actuarial Society, Basic Ratemaking 125 (4th ed. 2010).
¶ 72. Given the complexity of ratemaking and the fact that there is nothing in the record to explain the premium and how it was derived, it is difficult to see how the amount of Wadzinski's premium could lend any support to the conclusion that potentially ambiguous terms should be construed one way or another. See majority op., ¶ 17 n.8.
¶ 73. For all of the reasons set forth above, I respectfully dissent.
¶ 74. I am authorized to state that CHIEF JUSTICE SHIRLEY S. ABRAHAMSON joins this dissent.

 The parties appear to agree that the endorsement's reference to "personal injury to you or a relative" relates to first-party UM coverage. No argument has been made that the *338endorsement is instead intended to address an insured's third-party liability for injury caused to another insured.

 See Muehlenbein v. West Bend Mut. Ins. Co., 175 Wis. 2d 259, 265, 499 N.W.2d 233 (Ct. App. 1993) ("An endorsement is a provision added to an insurance contract altering its scope or *340application that takes precedence over printed portions of the policy in conflict therewith."); Stubbe v. Guidant Mut. Ins. Co., 2002 WI App 203, ¶ 13, 257 Wis. 2d 401, 651 N.W.2d 318 (same).

 In relevant part, the statement of coverage provided: "We will pay the ultimate net loss that any covered person becomes legally obligated to pay because of personal injury or property damage to which the insurance applies occurring during the policy period." Stubbe, 257 Wis. 2d 401, ¶ 9.

 The majority's discussion evinces a number of additional misunderstandings about how insurance policies are interpreted which are not specifically addressed in this dissent. For instance, it asserts that the rule of construing ambiguities in favor of coverage applies "primarily" when determining the *342breadth of the grant of coverage. Majority op., ¶ 12. Yet, in the very same paragraph, it acknowledges that exclusions are construed narrowly. The consequence of construing an exclusion narrowly is that the policy is construed in favor of coverage.
Additionally, the majority sets forth a number of related, overbroad "principles" that likewise do not comport with the way in which courts interpret insurance policies. For example, at ¶ 38, it states: "an unambiguous initial grant of third-party coverage will not be undone by an exclusion,... an endorsement that includes both an exclusion and an exception to the exclusion will not be read to overcome the initial grant of coverage,... and that the requirement of maintaining underlying automobile liability insurance does not translate into a corresponding requirement that UM coverage be maintained." A court's interpretation of an insurance policy is not dependent on rigid rules. Rather, it depends upon the language of the policy.

 It should be noted that the phrase "following form" appears in four of the 11 endorsements to Auto-Owners' umbrella policy, including the "Punitive Damages - Following Form Endorsement," the Bodily Injury Following Form Endorsement," the endorsement regarding Pollution Liability (Following Form)," and the endorsement at issue here. The surrounding endorsements follow a similar pattern as the endorsement at issue in this case. It appears that when Auto-Owners issued the policy and the endorsement, it believed that the term had meaning.
Additionally, some of these parallel endorsements expressly acknowledge that coverage will be provided under this umbrella policy to the extent that coverage is provided by the underlying policy. The punitive damages endorsement, for example, provides "It is agreed that this policy covers punitive or exemplary damages only to the extent that such coverage is available to the insured under a policy listed in the Schedule of Underlying Insurance Policies." (Emphasis added.) Similarly, the pollution endorsement provides: "This policy does not apply to [damages caused by pollution] except to the extent that coverage is provided[] a. by a policy described in SCHEDULE A...." (Emphasis added.)

 In fact, a review of the case law shows that it is common practice to include following form endorsements in a policy that otherwise contains independent terms. The court of appeals recently interpreted an "UNINSURED AND UNDERINSURED MOTORISTS COVERAGE FOLLOWING FORM ENDORSEMENT" in what otherwise appears to have been a stand-alone personal liability umbrella policy. Veto v. Am. Fam. Mut. Ins. Co., 2012 WI App 56, ¶ 8 n.2, 341 Wis. 2d 390, 815 N.W.2d 713. Further, the Fifth Circuit Court of Appeals recently interpreted an umbrella policy in which only one endorsement, the Professional Liability Limitation endorsement, followed form. See Estate of Bradley ex rel. Sample v. Royal Surplus Lines Ins. Co., Inc., 647 F.3d 524, 530 (5th Cir. 2011) ("[NJothing in the Royal policy suggests that it follows form as to all terms and conditions in the Lexington policy. Rather, the Professional Liability Limitation endorsement is the only term that contains a follow form provision, and it specifies that the Royal policy will follow form to the Lexington policy 'with respect to professional liability' arising out of Mariner's operations at the Indianola nursing home.").

 By way of example, for companies underwriting excess policies for wealthy clients, the first $1 million in coverage is usually the most expensive, at perhaps $150 to $300, with each additional $1 million in coverage costing around $100 to $125 annually. Joseph B. Treaster, Umbrella Coverage for Preventing Your Ruin, N.Y. Times, March 18, 2008. The situation is often the reverse for the insurer who underwrites excess policies for middle and lower income clients. Id.