Danbeck v. American Family Mut. Ins. Co.

• Decision Date: 23 December 1999
• Docket Number: No. 99-1142.,99-1142.
• Citation: 2000 WI App 26,605 N.W.2d 925,232 Wis.2d 417
• Parties: Dan DANBECK, Plaintiff-Respondent, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

232 Wis.2d 417

2000 WI App 26

605 N.W.2d 925

Dan DANBECK, Plaintiff-Respondent,¹ v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Appellant.

No. 99-1142.

Court of Appeals of Wisconsin.

Submitted on briefs October 8, 1999.

Decided December 23, 1999.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Ward Richter and John M. Christenson of Bell, Gierhart & Moore, S.C. of Madison.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Michael J. Luebke of Gingras, Cates & Luebke, S.C. of Madison.

Before Eich, Vergeront and Roggensack, JJ.

¶ 1. VERGERONT, J.

This appeal concerns the interpretation of a provision in an underinsured motorist (UIM) policy that coverage would be provided "only after the limits of liability under bodily injury liability bonds or policies have been exhausted by payment of judgment or settlements." American Family Mutual Insurance Company sought summary judgment in the trial court on the ground that Dan Danbeck, its insured, had not satisfied this clause and therefore was not entitled to benefits under his UIM policy. The trial court denied the motion, concluding the clause was reasonably susceptible to more than one interpretation and construing it against the insurer. On appeal, American Family asserts that the language of the clause is clear and unambiguous, and precludes Danbeck's recovery under the policy. We agree, and therefore reverse.

BACKGROUND

¶ 2. The facts are not disputed. Danbeck was seriously injured when the bicycle he was riding was struck by a car driven by George Horne. At the time of the accident, Horne had $50,000 in liability coverage through Country Mutual Insurance Company. Danbeck had UIM coverage with limits of $100,000 under an endorsement to a policy with American Family. The UIM endorsement provided, in pertinent part:

[American Family] will pay compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle. The bodily injury must be sustained by an insured person and must be caused by accident and arise out of the use of the underinsured motor vehicle.

You must notify us of any suit brought to determine legal liability or damages. Without our written consent we are not bound by any resulting judgment.

We will pay under this coverage only after the limits of liability under any bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.

¶ 3. Danbeck settled his claim with Horne and Country Mutual for $48,000. He then sought compensation from American Family under his UIM policy for damages in excess of $50,000, the liability limit in Horne's policy. When American Family declined to pay the claim on the ground that Danbeck had failed to exhaust the limits of liability under Horne's policy, Danbeck filed this action.

¶ 4. In denying American Family's motion for summary judgment, the trial court first decided the exhaustion clause was ambiguous and could reasonably be interpreted to provide coverage as long as Danbeck was not seeking to recover any part of the first $50,000 of his damages from American Family. The court then decided that the principle of construing ambiguous insurance contract provisions in favor of the insured, and several public policies, warranted interpreting the clause as Danbeck advocated. Because there was no dispute over the value of Danbeck's claim, the parties stipulated to the entry of judgment for Danbeck in the amount of $20,000.

DISCUSSION

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¶ 5. We review the grant or denial of summary judgment de novo and apply the same standards employed by the trial court. See Brownelli v. McCaughtry, 182 Wis. 2d 367, 372, 514 N.W.2d 48, 49 (Ct. App. 1994)

. Summary judgment is proper if there are no disputed issues of fact and one party is entitled to judgment as a matter of law. Section 802.08(2), STATS. The interpretation of an insurance contract is also a question of law, which we review de novo. Katze v. Randolph & Scott Mut. Fire Ins. Co., 116 Wis. 2d 206, 212, 341 N.W.2d 689, 691 (1984).

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¶ 6. We construe the words in an insurance contract as a reasonable person in the position of an insured would understand them. See Garriguenc v. Love, 67 Wis. 2d 130, 134-35, 226 N.W.2d 414, 417 (1975). A word or phrase in an insurance contract is ambiguous if it is susceptible to more than one reasonable construction, and whatever ambiguity exists is resolved against the insurer, as the drafter. See id. at 135, 226 N.W.2d at 417. However, when the terms of a policy are plain on their face, we may not rewrite them. See id.

¶ 7. American Family contends the language in its exhaustion clause plainly requires that, as a precondition to recovering UIM benefits, an insured must receive in full the policy limits of any applicable liability policy. Danbeck maintains it is at least equally reasonable that a lay person would understand that "a settlement which barred any further claim against those limits and gave credit for payment of the full underlying liability limits would effectively exhaust those limits." We do not agree with Danbeck that the policy language at issue is reasonably susceptible to this construction. The phrase "limits of liability . . . exhausted by payment of judgments or settlements" unambiguously requires that the UIM policyholder receive payment from the liability insurer equal to the limits of applicable liability policies.

¶ 8. Danbeck is correct that words in insurance contracts that are used in common speech are to be given the meaning they have for lay people. See Henderson v. State Farm Mut. Auto. Ins. Co., 59 Wis. 2d 451, 459, 208 N.W.2d 423, 427 (1973)

. We may use a dictionary to ascertain the common meaning. See id. at 457-58, 208 N.W.2d at 426.² The relevant definitions of the verb "exhaust" in WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 796 (1993) are:

4 a: to use up the whole supply or store of : expend or consume entirely . . . [5] b: to make use of or try out or otherwise account for the whole number of . . . c: to take complete advantage of (legal remedies).

We conclude that the only reasonable meaning of "exhaust[ing]" the "limits of liability" is entirely using up the limits.

¶ 9. Danbeck does not disagree with this meaning of exhaust, but contends that, whether the liability insurer writes a check pursuant to a settlement agreement for the full policy limits of $50,000, or for some discounted amount, the effect is the same so long as credit is given for the full policy limits. However, while a credit may have the effect of exhausting liability limits, it is not an alternative means of exhaustion available under the contract language. Danbeck's UIM policy specifically requires that the exhaustion of liability limits be "by payment of judgments or settlements." (Emphasis added.) "Payment" is defined as: "1: the act of paying or giving compensation : the discharge of a debt or an obligation . . . 2: something that is paid : something given to discharge a debt or obligation or to fulfill a promise." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 1659 (1993). "Payment" has only one reasonable meaning in this clause: compensation paid by the liability insurer and received by the insured. Therefore, a reasonable policyholder would understand that liability limits "exhausted by payment of judgements or settlements" means that the UIM policyholder must receive payment from the liability insurer equal to the limit of the liability policy. Treating exhaustion by payment plus credit as "effectively" the same as by exhaustion by payment is an impermissible rewriting of the plain language of the contract. See City of Edgerton v. General Cas. Co., 184 Wis. 2d 750, 781, 517 N.W.2d 463, 477 (1994) ("suit" plainly denotes court proceedings, not a "functional equivalent," to a reasonable policyholder).

¶ 10. Both parties refer us to decisions from other jurisdictions to support their respective positions on the proper construction of the exhaustion clause. We observe that a number of cases have found the phrase "exhausted by payment of judgments or settlements," either in a statute or an insurance contract or both, to unambiguously require that the insured receive the full amount of the liability policy limits. See Robinette v. American Liberty Ins. Co., 720 F. Supp. 577, 580 (S.D. Miss. 1989)

; Continental Ins. Co. v. Cebe-Habersky, 571 A.2d 104, 106 (Conn. 1990); Federal Ins. Co. v. Watnick, 607 N.E.2d 771, 772 (N.Y. Ct. App. 1992); Mann v. Farmers Ins. Exch., 836 P.2d 620, 621 (Nev. 1992); Lewis v. State Farm Mut. Auto. Ins. Co., 857 S.W.2d 465, 466-67 (Mo. Ct. App. 1993).³ Of the cases cited by Danbeck, none hold that this particular language is ambiguous: either the court is interpreting a clause that does not contain the language "exhaustion by payment of settlement or judgment" at all, see Kelley Co. v. Central Nat'l Ins. Co., 662 F. Supp. 1284, 1289 (E.D. Wis. 1987), or the court is interpreting other words in the exhaustion clause. See Mulholland v. State Farm Mut. Auto. Ins. Co., 527 N.E.2d 29, 35 (Ill. App. Ct. 1988) (construing "apply").⁴ Thus, the cases from other jurisdictions support our conclusion that the contested language is not ambiguous.

¶ 11. Danbeck also contends that American Family's construction of the clause is inconsistent with the public policy of Wisconsin. He supports this argument with cases from other jurisdictions, which may be grouped into three categories: those holding that a similar exhaustion clause is void altogether because it is inconsistent with the state's UIM statute;⁵ those holding that the clause is void insofar as it does not permit a settlement for less than the liability limits if recovery is sought under an UIM policy only for amounts over that liability limit, because of the policies expressed in the state's UIM statute;⁶ and those holding, in the absence of a...