Dowhower v. Marquez

• Decision Date: 10 December 2003
• Docket Number: No. 01-1347.,01-1347.
• Citation: 674 N.W.2d 906,268 Wis.2d 823,2004 WI App 3
• 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

268 Wis.2d 823

2004 WI App 3

674 N.W.2d 906

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 November 6, 2003.

Decided December 10, 2003.

On behalf of the defendant-appellant, the cause was submitted on the briefs of Jeffrey Leavell and Christine M. Genthner 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.

A nonparty brief was filed by Eric Englund, president for the Wisconsin Insurance Alliance.

A nonparty brief was filed by William C. Gleisner, III, of Milwaukee and Charles David Schmidt of Cannon & Dunphy, S.C., of Brookfield for The Wisconsin Academy of Trial Lawyers.

Before Anderson, P.J., Brown and Snyder, JJ.

¶ 1. BROWN, J.

In Dowhower ex rel. Rosenberg v. Marquez, 2003 WI App 23, 260 Wis. 2d 192, 659 N.W.2d 57 (Dowhower II), we applied the principles of insurance contract interpretation espoused in Badger Mutual Insurance Co. v. Schmitz, 2002 WI 98, 255 Wis. 2d 61, 647 N.W.2d 223, to the insurance policy West Bend Mutual Insurance Company issued to the Dowhowers. Applying the Schmitz methodology, we concluded that although the reducing clause in the underinsured motorist (UIM) provision of the policy, standing alone, was unambiguous, the clause's effect was ambiguous within the context of the whole policy and therefore the clause was unenforceable. But in making this determination, we also used the wording found in the Schmitz opinion and concluded that the clause's effect was not "crystal clear" within the context of the whole policy. ¶ 2. Recently, however, in Folkman v. Quamme, 2003 WI 116, ¶¶ 29-30, 264 Wis. 2d 617, 665 N.W.2d 857, the supreme court clarified Schmitz and the analytical framework that courts are to apply in cases alleging contextual ambiguity in insurance policies. In Folkman, the court held that the "crystal clear" language in Schmitz had produced the unintended effect of altering the analytical focus in cases involving alleged contextual ambiguity. Folkman, 264 Wis. 2d 617, ¶ 30. The court then vacated our decision and remanded the case to us for reconsideration in light of its teachings.

¶ 3. We are convinced that Folkman does not undermine but, rather, supports our holding in Dowhower II. In Folkman, the supreme court reaffirmed the principle of contextual ambiguity that guided our previous decision and instructed that a policy with a clear UIM provision can still be rendered ambiguous by the "organization, labeling, explanation, inconsistency, omission, and text of other provisions in the policy." Folkman, 264 Wis. 2d 617, ¶¶ 19, 24. As we explained in Dowhower II, West Bend's policy is an organizational maze making it nearly impossible for a reasonable insured to locate, let alone to understand the effect of, the reducing clause. As a consequence, the policy fails to inform a reasonable insured that he or she is purchasing a fixed level of UIM recovery that would be arrived at by combining payments made from all sources. Accordingly, we hold that the policy is contextually ambiguous and affirm the trial court judgment declaring the reducing clause unenforceable and requiring West Bend to pay the Dowhowers the full $50,000 limit of liability guaranteed in the policy.

¶ 4. The facts are undisputed and we take them primarily from Dowhower ex rel. Rosenberg v. West Bend Mutual Insurance Co., 2000 WI 73, 236 Wis. 2d 113, 613 N.W.2d 557 (Dowhower I) and Dowhower II. 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) (2001-02),² 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.

¶ 5. The Dowhowers sought a judgment from the trial court declaring unenforceable the reducing clause provision in the UIM section of the 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. ¶ 6. 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 I, 236 Wis. 2d 113, ¶¶ 9, 36. 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., ¶ 36. 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 appealed.

¶ 7. On appeal, West Bend contended both that the policy clearly informed the reasonable insured that his or her recovery would be reduced by any payments on behalf of the tortfeasor and that even if the policy did contain some inconsistencies, its reducing clause clarified them and rendered the policy unambiguous and enforceable. Dowhower II, 260 Wis. 2d 192, ¶ 7. Relying on our supreme court's decision in Schmitz, we concluded that the reducing clause was ambiguous. Dowhower II, 260 Wis. 2d 192, ¶ 1. We reasoned:

While the reducing clause, standing alone, is unambiguous, the law prevents us from reading the clause in a vacuum as West Bend asks us to do. Schmitz dictates that we review what appears to be an unambiguous reducing clause within the context of the entire insurance policy to determine whether the coverage provided is understandable and clear. Schmitz teaches us that in order for the policy to explain the effects of the reducing clause with crystal clarity, all of the provisions helping the insured navigate his or her way through the policy must be consistent with one another and with the reducing clause.

Dowhower II, 260 Wis. 2d 192, ¶ 22 (citation omitted). We then thoroughly reviewed the policy and determined that the policy's sections sent "contradictory messages that would befuddle a reasonable insured." Id., ¶ 23. We explained:

While an insured might carefully work his or her way through the policy as instructed in the Table of Contents, after doing so, he or she still would not understand the extent of his or her UIM coverage. Viewed in conjunction, the Declarations page, the Endorsement Schedule, the Table of Contents and the UIM provisions create confusion and would lead the reasonable insured to expect full coverage from West Bend in the amount of $50,000. The reducing clause, when viewed in the context of the whole policy, fails to clearly set forth that the insured is purchasing a fixed level of UIM recovery arrived at by combining payments from all sources. Thus, the reducing clause's effect is not crystal clear within the context of the whole policy.

Id. (citations omitted). West Bend subsequently petitioned the supreme court for review. As we indicated at the outset, the supreme court granted the petition, vacated our opinion and remanded the matter to us for further review in light of its decision in Folkman. Dowhower ex rel. Rosenberg v. Marquez, 2003 WI 127, 265 Wis. 2d 410, 411, 668 N.W.2d 735.

¶ 8. The resolution of this case turns upon the Folkman court's clarification of the principles of insurance policy interpretation courts are to apply in cases alleging contextual ambiguity. We therefore begin our analysis with a discussion of that case.

¶ 9. In Folkman, Debra Folkman and one of her sons were injured in an automobile accident with another vehicle. Folkman, 264 Wis. 2d 617, ¶ 4. Society Insurance had issued an insurance policy to Debra as the named insured. Id., ¶ 5. The policy also covered Debra's husband and their sons. Id. The declarations page of the Society policy recited UIM "split limits" coverage of "$25,000 for `each person' and $50,000 for `each occurrence.'" Id., ¶ 6. Debra, her husband and son brought suit against Society pursuant to the UIM provisions of the policy. Id., ¶¶ 8-9. In response, Society filed a motion seeking to deposit $50,000 with the circuit court and then to be dismissed from the action. Id., ¶ 8. Society contended that its payment fully discharged its duties to the Folkmans. Id. The Folkmans opposed the motion, arguing that the "per person" and "per occurrence" limits of liability should apply separately...