Folkman v. Quamme

• Decision Date: 16 July 2003
• Docket Number: No. 02-0261.,02-0261.
• Citation: 2003 WI 116,264 Wis.2d 617,665 N.W.2d 857
• Parties: Kenneth A. FOLKMAN, Sr., Debra J. Folkman and Kenneth A. Folkman, Jr., Plaintiffs-Appellants, v. Sheri A. QUAMME, State Farm Mutual Automobile Insurance Company and Keith A. Folkman, Defendants, SOCIETY INSURANCE, Defendant-Respondent-Petitioner.
• Court: Wisconsin Supreme Court

264 Wis.2d 617

2003 WI 116

665 N.W.2d 857

Kenneth A. FOLKMAN, Sr., Debra J. Folkman and Kenneth A. Folkman, Jr., Plaintiffs-Appellants, v. Sheri A. QUAMME, State Farm Mutual Automobile Insurance Company and Keith A. Folkman, Defendants, SOCIETY INSURANCE, Defendant-Respondent-Petitioner.

No. 02-0261.

Supreme Court of Wisconsin.

Oral argument March 4, 2003.

Decided July 16, 2003.

For the defendant-respondent-petitioner there were briefs by James W. Mohr, Jr. and Mohr & Anderson, LLC, Hartford, and oral argument by James W. Mohr, Jr.

For the plaintiffs-appellants there was a brief by R. George Burnett and Liebmann, Conway, Olejniczak & Jerry, S.C., Green Bay, and oral argument by R. George Burnett.

¶ 1. DAVID T. PROSSER, J.

This is a review of a published decision of the court of appeals¹ that reversed a judgment of the Circuit Court for Brown County, Mark A. Warpinski, Judge. The circuit court dismissed Society Insurance (Society) from this action after determining that the automobile insurance policy that Society issued to Debra Folkman (Debra) limited the insurer's liability for bodily injury to $50,000 per accident, regardless of the number of insureds. The court of appeals reversed, finding that the "split liability limits" endorsement for bodily injury in Debra's policy was ambiguous when read in context with another portion of the endorsement. Given this perceived ambiguity, the court concluded that the policy's limits of liability should be read to apply separately to each insured's liability for bodily injury arising from a single accident, including vicarious liability from parental sponsorship. As a result, Society was required to tender $125,000 in fulfillment of its coverage obligations to the three members of the Folkman family who incurred liability for bodily injuries from an accident caused by the family's 17-year-old son.

¶ 2. We conclude that the insurance policy at issue in this case unambiguously limited Society's liability to $50,000 for bodily injury arising from this accident. The limits of liability provisions in the policy cannot reasonably be read, either alone or in the context of the entire policy, to grant liability coverage in an amount greater than $50,000 for a single accident in which only one insured was actively negligent. Accordingly, we reverse the court of appeals and reinstate the circuit court's judgment dismissing Society from this action.

¶ 3. We are also asked to determine whether the insurance policy at issue violated a variety of Wisconsin statutes governing automobile insurance policies and whether the policy, as written, was illusory. We conclude that the limits of liability clause in Society's policy does not violate Wis. Stat. §§ 632.32(3)(b), 632.32(5)(f), or 641.43(1), is not illusory, and is enforceable.²

I

¶ 4. On the morning of April 11, 1998, 17-year-old Keith Folkman was driving a vehicle owned by his parents, Debra and Kenneth Folkman, Sr., when it collided with another vehicle. Debra and another son, Kenneth Folkman, Jr., were passengers in the car. The accident caused Debra to suffer severe injuries to both of her legs, her right shoulder, and her tailbone, and to lose hearing in her left ear. For these injuries, Debra incurred approximately $76,000 in medical expenses. Meanwhile, Kenneth Jr. became permanently paralyzed as a result of the accident.³ Both Keith Folkman and Sheri Quamme, the driver of the other vehicle, were at fault for the accident, since Keith was speeding and Quamme failed to yield the right of way.

¶ 5. The car driven by Keith was insured under a Society Insurance "personal auto policy" issued to the policy's named insured, Debra Folkman. The policy also covered Kenneth Folkman Sr., Keith Folkman, and a third son, who was age 16, as drivers. Both of Keith's parents had sponsored Keith's license to drive. As a result, Society insured both Debra and Kenneth Sr. for sponsorship liability imputed to them by Keith's negligence.⁴

¶ 6. According to its declarations page, the policy included a "split limit of liability" for bodily injury of $25,000 for "each person" and $50,000 for "each occurrence."⁵ The effect of the policy's limits of liability is explained in a section of the main policy labeled "Part A—LIABILITY COVERAGE." This section begins with Paragraph A of the "Insuring Agreement," which provides:

We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the "insured." We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted. We have no duty to defend any suit or settle any claim for "bodily injury" or "property damage" not covered under this policy.

An endorsement changed the fifth sentence of this paragraph to read: "However, our duty to settle or defend any suit ends after our limit of liability has been offered or paid."

¶ 7. Part A of the policy also includes a "Limit of Liability" section. Paragraph A of this section provides, in full:

LIMIT OF LIABILITY

The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one auto accident. This is the most we will pay regardless of the number of:

1. "Insureds;"⁶

2. Claims made;

3. Vehicles or premiums shown in the Declarations; or

4. Vehicles involved in the auto accident.

This language in the policy's printed form was written to reflect a single limit of liability. Wisconsin Stat. § 344.33(2) requires that an automobile liability insurance policy issued in Wisconsin provide a minimum of $25,000 per person and $50,000 per accident in coverage for bodily injury. This statute usually produces "split limits of liability." These split limits of liability were noted on the declarations page and printed as a separate endorsement entitled "Split Liability Limits" that was added to replace Paragraph A and to explain the difference between the "per person" and "per occurrence" amounts. This endorsement, the language of which is at the heart of the case, is replicated as it appears in the policy as follows.

SPLIT LIABILITY LIMITS SCHEDULE Bodily Injury Liability $__________ each person $__________ each accident Property Damage Liability $__________ each accident The first paragraph of the Limit of Liability The limit of liability shown in the Schedule provision in Part A is replaced by the or in the Declarations for each accident for following: Property Damage Liability is our maximum limit of liability for all "property damage" LIMIT OF LIABILITY resulting from any one auto accident. This is the most we will pay regardless of the The limit of liability shown in the Schedule number of or in the Declarations for each person for Bodily Injury Liability is our maximum limit 1. "Insureds;" of liability for all damages, including damages for care, loss of services or death, 2. Claims made arising out of "bodily injury" sustained by any one person in any one auto accident. 3. Vehicles or premiums shown in the Subject to this limit for each person, the limit Declarations; or of liability shown in the Schedule or in the Declarations for each accident for Bodily 4. Vehicles involved in the auto accident. Injury Liability is our maximum limit of liability for all damages for "bodily injury" resulting from any one auto accident. This endorsement must be attached to the Change Endorsement when issued after the policy is written.

¶ 8. After Society made several attempts to resolve its coverage obligations for the accident, Kenneth Sr., Debra, and Kenneth Jr. (the Folkmans)⁷ jointly brought suit against Keith and Society, in addition to Quamme and her automobile insurer, to collect damages related to bodily injuries stemming from the accident. Society acknowledged Keith's responsibility for the accident and its resultant obligation to provide coverage. Accordingly, it filed a motion seeking to deposit $50,000 with the circuit court and then be dismissed from the action. Society reasoned that the $50,000 amount represented its full liability limit for the accident.

¶ 9. The Folkmans opposed the motion, contending that Debra's policy required Society to pay $125,000. They arrived at this figure as follows:

(1) Keith had liability to Debra and Kenneth Jr., for a maximum of $25,000 to each of them;

(2) Debra was liable to Kenneth Jr. as Keith's sponsor for a maximum of $25,000; and

(3) Kenneth Sr. was liable to both Debra and Kenneth Jr. as Keith's sponsor, for a maximum of $25,000 to each of them.

The Folkmans argued that Society's $25,000 "per person" and $50,000 "per occurrence" limits of liability must apply separately to each of the three insureds. They sought a declaratory ruling that the foregoing were the correct limits of Society's obligation for liability coverage.

¶ 10. After the parties presented arguments, the circuit court construed the Folkmans' policy to limit Society's liability to $50,000 per accident, regardless of the number of insureds liable for that accident. In doing so, the court disposed of the Folkmans' various statutory arguments seeking to void the policy's limit of liability clause. Accordingly, the court denied the Folkmans' motion for a declaratory ruling and ordered that Society be dismissed from the action upon deposit of $50,000 with the Clerk of the Circuit Court. Shortly thereafter, Society deposited $50,000 with the court and was formally dismissed.⁸

¶ 11. The Folkmans appealed. The court of appeals addressed only the issue of whether Society's policy was ambiguous as to whether multiple insureds share a single limit of liability under the policy. Folkman v. Quamme, 2002 WI App 237, ¶ 1, 257 Wis. 2d 864, 652...