Acuity, Ins. Co. v. Estate

Citation406 Wis.2d 730,2023 WI 28,987 N.W.2d 689
Docket Number2020AP189
Decision Date07 April 2023
Parties ACUITY, a Mutual Insurance Co., Plaintiff-Respondent-Petitioner, v. ESTATE OF Michael SHIMETA and Terry Scherr, Defendants-Appellants, Partners Mutual Insurance Co., Intervening Defendant.
CourtUnited States State Supreme Court of Wisconsin

For the plaintiff-respondent-petitioner, there were briefs filed by Christine M. Rice, Nicole R. Radler, and Simpson & Deardorff, S.C., Milwaukee. There was an oral argument by Christine M. Rice.

For the defendants-appellants, there was a brief filed by Brett A. Eckstein and Cannon & Dunphy, S.C., Brookfield. There was an oral argument by Brett A. Eckstein.

An amicus curiae brief was filed by James A. Friedman, Daniel C.W. Narvey, and Godfrey & Kahn, S.C., Madison, for the Wisconsin Insurance Alliance.

An amicus curiae brief was filed by Mark L. Thomsen, Lynn R. Laufenberg, and Gingras, Thomsen, & Wachs, LLP, Madison, for the Wisconsin Association for Justice.

KAROFSKY, J., delivered the majority opinion of the Court, in which ANN WALSH BRADLEY, ROGGENSACK, and DALLET, JJ., joined. ZIEGLER, C.J., filed a dissenting opinion, in which REBECCA GRASSL BRADLEY, J., joined. HAGEDORN, J., filed a dissenting opinion, in which REBECCA GRASSL BRADLEY, J., joined.

JILL J. KAROFSKY, J.

¶1 This case arises from a tragic automobile accident that occurred when Douglas Curley lost control of his vehicle, crossed the center line, and hit another vehicle, killing Michael Shimeta and seriously injuring his passenger, Terry Scherr. As a result of the accident, Curley's insurer paid Shimeta's estate (Shimeta) and Scherr $250,000 each. Shimeta and Scherr sought additional recovery under a policy that Acuity had issued to Shimeta prior to the accident. The policy included underinsured motorist (UIM) coverage with a $500,000 limit for "each person" and a $500,000 limit for "each accident." At issue in this case is whether Acuity's UIM coverage entitles Shimeta and Scherr to an additional $250,000 each from Acuity, or whether the payments Shimeta and Scherr received from Curley's insurer reduced their recovery to nothing. To resolve this issue, we must interpret the UIM policy's reducing clause, which states that "[t]he limit of liability shall be reduced by all sums ... [p]aid because of the bodily injury by or on behalf of persons ... who may be legally responsible."

¶2 We conclude that the reducing clause operates on an individual basis to reduce the $500,000 "each person" limit of liability by the $250,000 payment that Shimeta and Scherr each received from Curley's insurer. Consequently, Acuity owes Shimeta and Scherr $250,000 each. Accordingly, we affirm the court of appeals’ reversal of the circuit court's1 grant of declaratory judgment for Acuity.

I. BACKGROUND

¶3 Michael Shimeta was tragically killed and Terry Scherr was severely injured on November 22, 2018 when Douglas Curley lost control of his pickup truck on Highway 10 in Portage County, crossed the center line, flipped in the air, and landed on top of Shimeta's Jeep. It is undisputed that Shimeta and Scherr's injuries met or exceeded $1 million in damages.

¶4 Curley was insured under an automobile liability insurance policy issued by Farmers Insurance Company. The policy provided coverage up to a $250,000 "per person" limit of liability, and a $500,000 "per accident" limit of liability. In accordance with this policy, Farmers paid Shimeta and Scherr $250,000 each.

¶5 Shimeta and Scherr were also covered under a UIM policy that Acuity issued to Shimeta. The policy's liability limits for UIM coverage are $500,000 for "each person" and $500,000 for "each accident." The policy includes a reducing clause that states: "[t]he limit of liability shall be reduced by all sums ... [p]aid because of the bodily injury 2 by or on behalf of persons ... who may be legally responsible."

¶6 The parties do not dispute that both Shimeta and Scherr were insured under the UIM policy. Nor do they dispute that Curley's truck was an "underinsured motor vehicle" as defined by the policy. In dispute is whether Acuity must still pay $250,000 each to Shimeta and Scherr, or whether the $500,000 in combined payments from Farmers reduced Acuity's policy limits to zero.

¶7 Acuity filed an action for declaratory judgment, asking the circuit court to find that Acuity was not obligated to pay Shimeta and Scherr any UIM benefits under its policy because Shimeta and Scherr had already received a total of $500,000 from Farmers. The circuit court granted Acuity's motion, reasoning that Acuity's $500,000 maximum limit for "each accident" was reduced to zero by Farmers’ combined payments to Shimeta and Scherr. The court of appeals reversed, concluding that the reducing clause operates on an individual basis to reduce the limit of liability for "each person" by the payment that "each person" insured under the policy received. We agree with the court of appeals and conclude that the clause reduces the "each person" limit by the payments an individual insured received for his or her injuries.

II. ANALYSIS

¶8 This case requires the court to interpret the language of an insurance policy, which presents a question of law that we review de novo. Mau v. N.D. Ins. Rsrv. Fund, 2001 WI 134, ¶12, 248 Wis. 2d 1031, 637 N.W.2d 45.

¶9 Analyzing Acuity's UIM policy requires us to put the disputed UIM policy language in context. To do so, we first provide a brief overview of the purpose of UIM coverage and the principles we use when interpreting UIM policies. Next, we review the UIM policy language at issue in this case. We then conclude that the policy's reducing clause, when read in the context of the whole policy, reduces the limit of liability for "each person" by the payments received by each individual insured. We further determine that the policy's "each accident" limit of liability serves as an additional backstop, establishing the maximum amount that Acuity will pay out for any one accident.

A. UIM Background

¶10 As a general matter, the purpose of UIM coverage is to protect "persons insured under that coverage who are legally entitled to recover damages for bodily injury, death, sickness, or disease from owners or operators of underinsured motor vehicles." Wis. Stat. § 632.32(2)(d) (2019-20).3 This court has identified two approaches to UIM coverage, both of which are permissible under Wis. Stat. § 632.32(4m). Welin v. Am. Fam. Mut. Ins. Co., 2006 WI 81, ¶¶24-27, 292 Wis. 2d 73, 717 N.W.2d 690. Policies that follow the "separate fund" approach provide a set amount of coverage for the insured's damages that exceed the amount the insured recovers from the responsible party. State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶16, 275 Wis. 2d 35, 683 N.W.2d 75. Policies that follow the "limits-to-limits" approach—like Acuity's policy—provide "a predetermined, fixed level of UIM recovery that is arrived at by combining payments from all sources" legally responsible for the insured's damages. Welin, 292 Wis. 2d 73, ¶49, 717 N.W.2d 690. To that end, Wis. Stat. § 632.32(5)(i) allows insurers to write UIM policies that "provide that the limits under the policy" shall be reduced by "[a]mounts paid by or on behalf of any person or organization that may be legally responsible for the bodily injury or death for which the payment is made."

¶11 While our UIM cases provide a helpful framework for interpreting policy language, we pause to note that a UIM policy is a contract, and "[w]here the language of the policy is plain and unambiguous, we enforce it as written .... This is to avoid rewriting the contract by construction and imposing contract obligations that the parties did not undertake." Danbeck v. Am. Fam. Mut. Ins. Co., 2001 WI 91, ¶10, 245 Wis. 2d 186, 629 N.W.2d 150 (internal citations omitted). We interpret the policy language as a reasonable insured would understand it, and if the language is ambiguous, we construe it in favor of the insured. Id. With these principles in mind, we turn to the language of the contract at issue in this case.

B. Policy Language

¶12 We begin our review of the insurance policy by examining the Declarations page. We next look to the UIM grant of coverage, then we examine the definition of "underinsured motor vehicle," and finally we analyze the Limits of Liability section, which contains the reducing clause at issue in this case.

¶13 The policy's Declarations page lists the types of coverage the policy provides, including "Underinsured Motorists" coverage for "$500,000 Each Person" and "$500,000 Each Accident." The Declarations page does not provide any additional information about "Underinsured Motorists" coverage or what "Each Person" or "Each Accident" mean, so we turn next to the Underinsured Motorists Coverage section in Part IV of the policy for further clarification.

¶14 The Underinsured Motorists Coverage section first includes the following grant of coverage:

We [Acuity] will pay damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle. Bodily injury must be sustained by an insured person and must be caused by accident and result from the ownership, maintenance, or use of the underinsured motor vehicle.

Acuity does not dispute that: (1) Shimeta and Scherr were legally entitled to recover at least $1 million in damages for bodily injury from Curley; (2) Shimeta and Scherr were both "insured persons" under Acuity's policy; and (3) Shimeta and Scherr sustained injuries that were caused by the accident. Having established that both Shimeta and Scherr meet the initial requirements set out in the grant of coverage, we next examine the policy's definition of "underinsured motor vehicle."

¶15 The policy defines "underinsured motor vehicle" as a vehicle covered by an insurance policy with a "limit for bodily injury liability" that is "less than the limit of liability for this coverage." Acuity...

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