Kuhn v. Allstate Ins. Co.

• Decision Date: 23 May 1995
• Docket Number: No. 93-0344.,93-0344.
• Citation: 193 Wis.2d 50,532 N.W.2d 124
• Parties: Linda A. KUHN, Plaintiff-Respondent, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant-Petitioner, RUSK COUNTY DEPARTMENT OF SOCIAL SERVICES, Nominal-Defendant.
• Court: Wisconsin Supreme Court

193 Wis.2d 50

532 N.W.2d 124

Linda A. KUHN, Plaintiff-Respondent, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant-Petitioner RUSK COUNTY DEPARTMENT OF SOCIAL SERVICES, Nominal-Defendant.

No. 93-0344.

Supreme Court of Wisconsin.

Oral argument March 7, 1995.

Decided May 23, 1995.

For the defendant-appellant-petitioner there were briefs by Terrance E. Davczyk, Vicki L. Arrowood and Kasdorf, Lewis & Swietlik, S.C., Milwaukee and oral argument by Terrance E. Davczyk.

For the plaintiff-respondent there was a brief by Virginia M. Antoine, and Habush, Habush, Davis & Rottier, S.C., Milwaukee and D. James Weis and Johnson, Weis, Paulson & Priebe, S.C., Rhinelander and argument by D. James Weis.

Amicus curiae brief was filed by Stephen P. Juech, John P. Spector and Whyte Hirschboeck Dudek, S.C., Milwaukee for the Civil Trial Counsel of Wisconsin.

Amicus curiae brief was filed by Noreen J. Parrett and LaFollette & Sinykin, Madison for the Wisconsin Insurance Alliance.

SHIRLEY S. ABRAHAMSON, J.

This is a review of a published decision of the court of appeals, Kuhn v. Allstate Ins. Co., 181 Wis. 2d 453, 510 N.W.2d 826 (Ct. App. 1993), upholding in part and reversing in part an amended summary judgment in favor of Linda Kuhn, the plaintiff, by the circuit court for Rusk county, Frederick A. Henderson, circuit judge. The issue presented is whether the reducing clause in the plaintiff's Allstate Insurance Company policy was valid, so that its underinsured motorist coverage could be reduced by payments made to the injured plaintiff policyholder by or on behalf of the underinsured tortfeasor. Both the circuit court and the court of appeals held that Allstate's reducing clause was invalid and unenforceable. We affirm the decision of the court of appeals. We conclude that in defining underinsured motorist coverage (UIM) as uninsured motorist coverage (UM), Allstate's policy removes the distinction between the two coverages and broadens the UM coverage. Allstate's obligations to its policyholder under UIM coverage are thus broadened to correspond to those of UM coverage. A reducing clause in UM coverage is invalid.¹

I.

The facts in this case are not in dispute. Linda Kuhn, the plaintiff, was struck by a car driven by Catherine Schlewitz. The plaintiff suffered severe injuries and sustained damages exceeding $200,000. Schlewitz had a General Casualty Insurance Company liability policy with coverage in the amount of $25,000. General Casualty did not contest Schlewitz's liability for the collision and offered to pay the plaintiff $25,000. The offer to pay was not accepted. Allstate, as the plaintiffs underinsurance insurer, paid the $25,000 benefit to the plaintiff in order to preserve subrogation rights. Vogt v. Schroeder, 129 Wis. 2d 3, 383 N.W.2d 876 (1986). The plaintiff then turned to Allstate for coverage.

At the time of the collision, Allstate provided insurance coverage for the plaintiff's two vehicles. Separate premiums were charged for each vehicle's coverage. The table of contents in the original policy referred only to Uninsured Motorists Insurance (Coverage SS). An endorsement to the policy amended the definition of uninsured motorist to include an underinsured motorist.² A further document, labelled "IMPORTANT NOTICE," also defined uninsured motorists as underinsured motorists. Under a subheading which read "This is information concerning Uninsured Motorists Insurance," the notice stated:

Coverage SS uninsured motorists insurance pays you and other persons insured by your policy, subject to the terms and conditions of your policy, for bodily injury caused by legally liable Uninsured Motorists, who are:

* drivers with no liability insurance or liability bond,

. . .

*Underinsured Motorists who are drivers with liability limits less than your coverage SS limits. This applies only if your Coverage SS limits are greater than the minimum limits required by law in Wisconsin.

The reducing clause appeared in the uninsured motorist section of the policy under the heading "Limits of Liability." The reducing clause provided, inter alia, as follows:

Damages payable will be reduced by:

(1) all amounts paid by the owner or operator of the uninsured vehicle or anyone else responsible. This includes all sums paid under the bodily injury liability coverage of this or any other auto policy.

The endorsement to the policy amended the uninsured Limits of Liability section, adding the following:

If the loss involves the use of an underinsured auto, the limit of this coverage will be reduced by all amounts paid by or on behalf of the owner or operator of the underinsured auto, including partial payments made by an insolvent insurer.

The plaintiff claimed at the circuit court and the court of appeals that she is entitled to recover both uninsured motorist (UM) and underinsured motorist (UIM) benefits,³ that the coverages for both automobiles should be stacked,⁴ and that neither the UM nor the UIM coverage should be reduced by any payments made by or on behalf of the underinsured tortfeasor. The circuit court granted summary judgment in favor of the plaintiff, awarding her $204,000 (plus prejudgment interest). According to the circuit court, the plaintiff could stack (that is, aggregate) Allstate's UM coverage ($50,000 for each vehicle for a total of $100,000) and Allstate's UIM coverage ($50,000 for each vehicle for a total of $100,000); the plaintiff was also entitled to a medical payment of $2,000 for each vehicle. The circuit court concluded that the reducing clause of the policy was invalid because the plaintiff's damages exceeded recovery under the plaintiff's underinsured motorist coverage combined with the tortfeasor's liability policy.

The court of appeals reversed part of the order of the circuit court. In contrast to the circuit court, the court of appeals held that the insured had the benefit of either UM or UIM coverage for a single accident, but not both. The court of appeals also reversed that part of the circuit court order allowing prejudgment interest and attorney fees. These issues are not before the court.

Because the plaintiff's policy covered two vehicles for which separate premiums were paid, the court of appeals affirmed that part of the circuit court order allowing stacking of the two $50,000 UIM coverages. This stacking issue is not before the court.

Like the circuit court, the court of appeals declared the policy's reducing clause invalid. The court of appeals, however, did not adopt the circuit court's reasoning. Rather, the court of appeals concluded that the reducing clause was invalid because it rendered the UIM coverage illusory. The court of appeals determined that the plaintiff should be awarded $104,000 ($50,000 UIM coverage on two vehicles for a total of $100,000, plus $4,000 for the medical payments under the two policies).⁵

The question presented in this case is the validity of the reducing clause of the Allstate policy. Allstate seeks to apply the reducing clause to reduce the $104,000 to which the plaintiff is entitled under the UM/UIM and medical provisions of the policy by the $25,000 payable under the tortfeasor's General Casualty liability policy.⁶ The plaintiff presents three rationales supporting her claim that the reducing clause in this case is invalid. One argument is that the reducing clause would in effect be applied to UM coverage and is therefore rendered invalid under the case law interpreting sec. 632.32(4)(a), Stats. 1991-92, governing uninsured motorist insurance. Alternatively the plaintiff asserts that the reducing clause added by the amendatory endorsement, when read with the reducing clause in the UM Limits of Liability section, should be interpreted so that the amount received from the tortfeasor's insurer is subtracted from the plaintiff's damages and not from Allstate's limits of coverage. Finally the plaintiff maintains that the reducing clause violates sec. 631.43(1), Stats. 1991-92, governing stacking.

II.

The parties agree that the Allstate policy in issue includes both UM and UIM coverage. The parties further agree that this policy defines an underinsured motor vehicle as an uninsured motor vehicle.

The parties draw different conclusions, however, regarding the appropriate law to apply to these points of agreement. Allstate asserts that because the tortfeasor in this case has some liability insurance, this case involves UIM coverage and the law applicable to UIM coverage governs the plaintiff's claim. Allstate relies on the definition of UIM coverage (as distinguished from the definition of UM coverage) set forth in Hemerley v. American Family Mut. Ins. Co., 127 Wis. 2d 304, 306-310, 379 N.W.2d 860 (Ct. App. 1985), and Kuehn v. Safeco Ins. Co. of America, 140 Wis. 2d 620, 626-628, 412 N.W.2d 126 (Ct. App. 1987).

The plaintiff contends that because the policy language defines UIM coverage as UM coverage, Allstate has broadened its UM coverage to include UIM coverage. Accordingly, the plaintiff asserts that Wisconsin law applicable to UM coverage applies to the UIM coverage in this case. In other words, the plaintiff professes that the UIM coverage in her Allstate policy must be treated under the law as if it were UM coverage⁷ and that under Wisconsin law governing UM coverage, the reducing clause is invalid. The reducing clause would be invalid under UM coverage because "the injured party must be entitled to the proceeds of uninsured motorist coverage free from any reductions contingent solely on the fact that a negligent uninsured motorist was a tortfeasor."⁸

The plaintiff's position that UM law governs when the policy defines UIM as UM is, as Allstate concedes, supported by Wisconsin case law. Allstate Reply Brief at 5. The court of appeals has held that when an insurer includes UIM coverage within the policy definition of UM coverage, a court should apply Wisconsin law concerning UM coverage to the UIM coverage. In Sobieski v. Farmers...