Dowhower v. Marquez, 01-1347.

• Decision Date: 15 January 2003
• Docket Number: No. 01-1347.,01-1347.
• Citation: 2003 WI App 23,260 Wis.2d 192,659 N.W.2d 57
• Parties: Dustin DOWHOWER, a minor, by his Guardian ad Litem Susan Rosenberg, Tamara Dowhower and Larry Dowhower, Plaintiffs-Respondents, v. Simon MARQUEZ and Viking Insurance Company of Wisconsin, Defendants, WEST BEND MUTUAL INSURANCE CO., Defendant-Appellant, AETNA LIFE INSURANCE CO., Defendant.
• Court: Wisconsin Court of Appeals

260 Wis.2d 192

2003 WI App 23

659 N.W.2d 57

Dustin DOWHOWER, a minor, by his Guardian ad Litem Susan Rosenberg, Tamara Dowhower and Larry Dowhower, Plaintiffs-Respondents, v. Simon MARQUEZ and Viking Insurance Company of Wisconsin, Defendants, WEST BEND MUTUAL INSURANCE CO., Defendant-Appellant,¹ AETNA LIFE INSURANCE CO., Defendant.

No. 01-1347.

Court of Appeals of Wisconsin.

Submitted on briefs December 13, 2001.

Decided January 15, 2003.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Jeffrey Leavell of Jeffrey Leavell, S.C., of Racine.

On behalf of the plaintiffs-respondents, the cause was submitted on the briefs of Robert L. Jaskulski and Brian P. Mularski of Domnitz, Mawicke & Goisman, S.C., of Milwaukee.

Before Brown, Anderson and Snyder, JJ.

¶ 1. BROWN, J.

West Bend Mutual Insurance Co. appeals from a judgment declaring the reducing clause contained in the policy it issued to the Dowhowers unenforceable and requiring it to pay the Dowhowers the full $50,000 limit of liability guaranteed in the policy. After a thorough review of the policy at issue, we determine that the policy as a whole is inconsistent and contradictory. We conclude that the policy failed to clearly inform the Dowhowers that they were purchasing a fixed level of underinsured motorist recovery that would be arrived at by combining payments made from all sources. Thus, the reducing clause's effect is not "crystal clear" within the context of the whole policy. Accordingly, the policy is ambiguous and the reducing clause is unenforceable. We therefore affirm.² ¶ 2. The facts in this case are undisputed.³ While crossing the street in April 1997, Dustin Dowhower, a minor, was injured as a result of the negligence of a motorist. Viking Insurance Company of Wisconsin insured the vehicle that struck Dowhower. Viking's policy carried a limit of $25,000 per person. Viking paid its $25,000 policy limit to the Dowhowers. Pursuant to both WIS. STAT. § 632.32(5)(i) (1999-2000),⁴ which authorizes insurance companies to include reducing clauses in their policies, and the reducing clause in the Dowhowers' policy, West Bend paid the Dowhowers $25,000, an amount representing the $50,000 UIM bodily injury limit under the Dowhowers' UIM policy minus the $25,000 paid by Viking.

¶ 3. The Dowhowers sought a judgment from the trial court declaring unenforceable the reducing clause provision in the UIM policy and contending that WIS. STAT. § 632.32(5)(i) violated the United States and Wisconsin Constitutions. West Bend filed a motion to dismiss the action and counterclaimed for a declaration that it had paid all that it owed pursuant to § 632.32(5)(i) and the policy language. The trial court granted the Dowhowers' motion for declaratory judgment on the grounds that § 632.32(5)(i) violated the substantive due process rights of the Dowhowers. The court further declared that West Bend was obligated to provide $50,000 in UIM benefits to the Dowhowers. West Bend appealed and we certified to our supreme court the issue of whether § 632.32(5)(i) violates substantive due process under the state and federal constitutions.

¶ 4. The supreme court accepted our certification and reversed the judgment of the trial court, holding that the statute did not deprive the Dowhowers of their constitutionally protected rights. Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, ¶¶ 9, 36, 236 Wis. 2d 113, 613 N.W.2d 557 (Dowhower I). The supreme court directed the trial court to determine on remand whether the language contained in the policy was ambiguous and, if so, whether a reasonable person in the position of the insured would have understood the policy to mean that the $50,000 limit in UIM coverage was to be a maximum recovery from all sources. Id. On remand, the trial court concluded that the policy was ambiguous and a reasonable person in the position of the Dowhowers would not have understood the policy to mean that the $50,000 limit in UIM coverage was to be a maximum recovery from all sources. The court then declared the UIM reducing clause in the policy unenforceable and required West Bend to pay the full $50,000 on the policy. West Bend appeals.

[1-6]

¶ 5. The resolution of this case involves the interpretation of language in an automobile insurance policy. The construction or interpretation of language in an insurance policy presents a question of law that we review de novo. Taylor v. Greatway Ins. Co., 2001 WI 93, ¶ 9, 245 Wis. 2d 134, 628 N.W.2d 916. If the language in an insurance policy is unambiguous, we must not rewrite the policy by construction. Dowhower I, 2000 WI 73 at ¶ 34. If the policy is ambiguous, we construe ambiguities in favor of coverage. Id. Words or phrases of an insurance policy are ambiguous if they are susceptible to more than one reasonable construction. Smith v. Atl. Mut. Ins. Co., 155 Wis. 2d 808, 811, 456 N.W.2d 597 (1990). If the language in an insurance policy is ambiguous, we interpret the language by attempting to determine "what a reasonable person in the position of the insured would have understood the words of the policy to mean." Dowhower I, 2000 WI 73 at ¶ 35 (citation omitted). In addition, the interpretation of ambiguous language in an insurance policy "should advance the insured's reasonable expectations of coverage." Taylor, 2001 WI 93 at ¶ 10.

¶ 6. WISCONSIN STAT. § 632.32(5)(i) grants insurers the right to reduce their limits of liability by the sums paid by or on behalf of the tortfeasor. The statute reads as follows:

(5) PERMISSIBLE PROVISIONS ....

(i) A policy may provide that the limits under the policy for uninsured or underinsured motorist coverage for bodily injury or death resulting from any one accident shall be reduced by any of the following that apply:

1. Amounts 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.

2. Amounts paid or payable under any worker's compensation law.

3. Amounts paid or payable under any disability benefits laws.

The parties do not dispute that the reducing clause West Bend issued to the Dowhowers conforms to the strictures of § 632.32(5)(i). Thus, a reducing clause itself is not ambiguous or contrary to public policy, see Dowhower I, 2000 WI 73 at ¶ 20, and the sole question before us is whether the reducing clause is invalid despite its compliance with the statute.

[7]

¶ 7. West Bend argues that the reducing clause in the Dowhowers' policy is enforceable for several reasons. It asserts that the reducing clause is not obscured or hidden within the policy and the policy is therefore easy to read and user friendly. West Bend also contends that the policy informs the reasonable insured with crystal clarity that his or her recovery will be reduced by any payments made on behalf of the tortfeasor and sends no contradictory or false signals to the insured that would indicate otherwise. Finally, West Bend also seems to argue that even if the policy does contain inconsistencies, its reducing clause clarifies them and renders the policy enforceable.

¶ 8. In Dowhower I, the supreme court determined that UIM reducing clauses are valid when "the policy clearly sets forth that the insured is purchasing a fixed level of UIM recovery that will be arrived at by combining payments made from all sources." Id. at ¶ 33. The court further recognized that "a reducing clause may be ambiguous within the context of the insurance contract." Id. at ¶ 35.

[8, 9]

¶ 9. In Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, 255 Wis. 2d 61, 647 N.W.2d 223, the court explained that Dowhower I contemplated the consideration of the entire insurance policy and not simply the language contained in the reducing clause. See Schmitz, 2002 WI 98 at ¶ 42. The court determined that a UIM reducing clause is not valid merely because its terms are unambiguous and it complies with WIS. STAT. § 632.32(5)(i). See Schmitz, 2002 WI 98 at ¶¶ 48-49. Rather, the effects of the reducing clause must be "crystal clear in the context of the whole policy." Id. at ¶ 46. The policy in its entirety must clearly lead the reasonable insured to the conclusion that he or she is purchasing a predetermined amount of insurance that would be arrived at by combining payments from all permissible sources. See id. at ¶ 38; Dowhower I, 2000 WI 73 at ¶ 38 (Bradley, J., concurring.) In reaching this conclusion, the Schmitz court embraced portions of Justice Ann Walsh Bradley's concurrence in Dowhower I, which read, in part, "[a]lthough [the legislature] authorized reducing clauses under WIS. STAT. § 632.32(5)(i)1, 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." Schmitz, 2002 WI 98 at ¶ 39; see also Dowhower I, 2000 WI 73 at ¶ 50 (Bradley, J., concurring). Accordingly, if the coverage provided is misleading and unclear, the policy is ambiguous, or worse, and the reducing clause is not enforceable. Schmitz, 2002 WI 98 at ¶ 49.

¶ 10. In Schmitz, the court invalidated a reducing clause in an insurance policy that while complying with WIS. STAT. § 632.32(5)(i) was ambiguous when viewed in the context of the policy as a whole. Schmitz, 2002 WI 98 at ¶ 61. The court examined the whole policy, tracing the route the insured would have to take from the declarations page through the UIM portion and to the endorsement containing the reducing clause. Id. at ¶¶ 62-66. After working its way through the policy, the court concluded the policy was organizationally complex and plainly contradictory and hence failed to clearly set forth that the insured was purchasing a fixed level of UIM recovery arrived at by combining payments from all sources. Id. at ¶¶ 72, 75. Here we encounter similar problems when we attempt to trace the path the Dowhowers would have to take to understand the extent of West Bend's...