Marotz v. Hallman

• Citation: 2007 WI 89,734 N.W.2d 411
• Decision Date: 10 July 2007
• Docket Number: No. 2005AP1579.,2005AP1579.
• Parties: Jeffrey E. MAROTZ, Plaintiff-Appellant-Petitioner, v. Arthur E. HALLMAN, Jr., Acuity, a mutual insurance company, The Mega Life and Health Insurance Company and IMT Insurance Company (Mutual), Defendants, Rural Mutual Insurance Company, Defendant-Respondent.
• Court: Wisconsin Supreme Court

734 N.W.2d 411

2007 WI 89

Jeffrey E. MAROTZ, Plaintiff-Appellant-Petitioner, v. Arthur E. HALLMAN, Jr., Acuity, a mutual insurance company, The Mega Life and Health Insurance Company and IMT Insurance Company (Mutual), Defendants Rural Mutual Insurance Company, Defendant-Respondent.

No. 2005AP1579.

Supreme Court of Wisconsin.

Argued January 5, 2007.

Decided July 10, 2007.

For the plaintiff-appellant-petitioner there were briefs by Virginia M. Antoine and Habush Habush & Rottier S.C., Milwaukee, and oral argument by Craig A. Christensen.

For the defendant-respondent there was a brief by Thomas A. Maroney and Hansen, Shambeau, Maroney, Anderson & Parry, Waupaca, and oral argument by Thomas A. Maroney.

An amicus curiae brief was filed by Lynn R. Laufenberg and Laufenberg & Hoefle, S.C., Milwaukee.

¶ 1 JON P. WILCOX, J

This is a review of an unpublished court of appeals decision,¹ which affirmed the judgment of Waupaca County Circuit Court, John P. Hoffmann, Judge. Judge Hoffman denied the motion for declaratory judgment of Jeffery E. Marotz (Marotz) and dismissed his claim against Rural Mutual Insurance Company (Rural).

¶ 2 Two issues are before this court.² First, does Wis. Stat. § 632.32(5)(i)1. (2005-06),³ which allows an insurer to reduce the limit of underinsured motorist (UIM) coverage by "[a]mounts paid [to an insured] 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," permit an insurer to reduce the UIM limit by the amount paid to an insured by a non-UIM tortfeasor? We hold that § 632.32(5)(i)1. does allow an insurer to reduce the limit of UIM liability by the amount paid to an insured by a non-UIM tortfeasor. Second, does the reducing clause in the policy issued by Rural unambiguously comply with § 632.32(5)(i)1.? We hold that the language does unambiguously comply with § 632.32(5)(i)1. Accordingly, we affirm the court of appeals.

I

¶ 3 On December 21, 2002, Marotz rode as a passenger in the vehicle of Arthur E. Hallman, Jr. (Hallman) as Hallman drove southbound on County Highway J in Shawano County. Hallman entered the intersection of County Highway J and State Highway 29 without stopping at the posted stop sign. Donald J. Hilgemann (Hilgemann), who was driving eastbound on State Highway 29, struck Hallman's vehicle. As a result of the collision, Marotz sustained injuries. The injuries resulted in more than $250,000 in medical bills.

¶ 4 Hallman's vehicle was insured by a liability insurance policy, which ACUITY, a mutual insurance company (ACUITY), issued with a limit of $25,000 per person. Hilgemann's vehicle was also insured by a liability insurance policy, which IMT Insurance Company (Mutual) (IMT) issued with a limit of $250,000.

¶ 5 Marotz's parents, Joann K. and Orland O. Marotz, had a policy issued by Rural in effect at the time of the accident. Their policy provided UIM coverage for any "family member," such as Marotz.⁴ The UIM coverage provided a limit of liability of $100,000 per person.

¶ 6 The personal auto policy declarations provided the limits of liability for the various coverages included in the policy, as well as the premium for each. Before listing the limit of liability for the uninsured motorist (UM) coverage and UIM coverage, the following statement appeared: "THE LIMITS OF LIABILITY FOR THE FOLLOWING COVERAGES ARE PER POLICY LIMITS AND SHALL BE REDUCED AS A RESULT OF YOUR RECEIVING AMOUNTS FROM OTHER SOURCES BECAUSE OF YOUR `BODILY INJURY.'"

¶ 7 The policy included an endorsement pertaining to UIM coverage in Wisconsin. The endorsement began by noting that "[w]ith respect to the coverage provided by this endorsement, the provisions of the policy apply unless modified by the endorsement." Under an "INSURING AGREEMENT" heading, the endorsement stated the following:

We will pay compensatory damages which an "insured" is legally entitled to recover from the owner or operator of an "underinsured motor vehicle" because of "bodily injury":

1. Sustained by an "insured"; and

2. Caused by the accident.

The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the "underinsured motor vehicle."

We will pay under this coverage only if 1. or 2. below applies:

1. The limits of liability under any bodily injury liability bonds or policies applicable to the "underinsured motor vehicle" have been exhausted by payment of judgments or settlements; or

2. A tentative settlement has been made between an "insured" and the insurer of the "underinsured motor vehicle" which would exhaust the limits of liability under any applicable bodily injury liability bonds or policies and we:

a. Have been given prompt written notice of such tentative settlement; and

b. Advance payment to the "insured" in an amount equal to the tentative settlement within 30 days after the receipt of notification.

The endorsement also stated that "`Underinsured motor vehicle' means a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage." Because Hallman's vehicle had a liability coverage limit less than $100,000 (i.e., the limit of UIM liability in Marotz's policy), it constituted an "underinsured motor vehicle."

¶ 8 Under a "LIMIT OF LIABILITY" heading, the endorsement included a reducing clause. It stated the following:

The limit of liability shall be reduced by all of sums:

1. Paid because of the "bodily injury" by or on behalf of persons or organizations who may be legally responsible. This includes all sums paid under Part A; and

2. Paid or payable because of the "bodily injury" under any of the following or similar law:

a. Workers' compensation law; or

b. Disability benefits law.

Under the same "LIMIT OF LIABILITY" heading, the following appeared: "We will not make a duplicate payment under this coverage for any element of loss for which payment has been made by or on behalf of persons or organizations who may be legally responsible."

¶ 9 Marotz filed a UIM claim with Rural. Rural denied the claim. It asserted that the policy's reducing clause applied to the payments made by ACUITY (i.e., $25,000 on behalf of Hallman) and IMT (i.e., $90,000 on behalf of Hilgemann), and therefore the payments Marotz received exceeded the $100,000 limit of UIM liability. Conversely, Marotz argued only ACUITY's payment on behalf of Hallman was subject to the reducing clause, meaning Rural needed to pay Marotz at least $75,000 in UIM benefits.

¶ 10 Marotz commenced litigation and moved for declaratory judgment with regard to the insurance policy issued by Rural. He requested that the circuit court declare that (1) Rural was not entitled to reduce the limit of the UIM liability by the $90,000 that IMT paid on behalf of Hilgemann and (2) the policy's reducing clause was ambiguous when considered in the context of the entire policy and could not be enforced with regard to payments made by ACUITY and IMT.

¶ 11 The circuit court ruled that the reducing clause complied with § 632.32(5)(i)1, that the reducing clause was not ambiguous and was thus enforceable, and that Rural was entitled to reduce the $100,000 limit of UIM liability by ACUITY's $25,000 payment and IMT's $90,000 payment. The court entered a judgment dismissing Marotz's complaint against Rural.

¶ 12 Marotz appealed to the court of appeals, which affirmed the circuit court. The court of appeals concluded that Marotz's policy had an unambiguous reducing clause that permitted Rural to reduce the amount it paid to Marotz by the amount Marotz received from both Hallman's insurer and Hilgemann's insurer. It also concluded that no contextual ambiguity existed when viewing the reducing clause in the context of the entire policy. Finally, it concluded that prior cases interpreting § 632.32(5)(i)1. did not prevent Rural from reducing its obligation by the payment Marotz received from a non-UIM tortfeasor.⁵

¶ 13 Marotz filed a petition for review with this court, which was granted.

II

¶ 14 This review presents two issues. First, does Wis. Stat. § 632.32(5)(i)1. permit an insurer to reduce the UIM limit by the amount paid by a non-UIM tortfeasor? Second, does the reducing clause in the policy issued by Rural unambiguously comply with § 632.32(5)(i)1.? Because Rural's policy must conform with § 632.32(5)(i)1., we focus initially on the statute. See Theis v. Midwest Sec. Ins. Co., 2000 WI 15, ¶ 13, 232 Wis.2d 749, 606 N.W.2d 162.

A. Wisconsin Stat. § 632.32(5)(i)1.

¶ 15 We first address whether Wis. Stat. § 632.32(5)(i)1. permits an insurer to reduce the limit of UIM liability by the amount paid to an insured by a non-UIM tortfeasor. This issue involves statutory interpretation and the application of a statute to specific facts, which are questions of law that we review de novo. Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶ 9, 293 Wis.2d 123, 717 N.W.2d 258.

¶ 16 As a preliminary matter, Rural contends that Marotz waived this issue. Before the circuit court and the court of appeals, Marotz did not argue that § 632.32(5)(i)1. was ambiguous or that a literal reading of it would create an absurd result. Marotz focused his argument on the validity of the reducing clause in Rural's policy. As a general rule, "issues not raised in the circuit court will not be considered for the first time on appeal." Apex Elecs. Corp. v. Gee, 217 Wis.2d 378, 384, 577 N.W.2d 23 (1998). Because this rule does not relate to the jurisdiction of appellate courts, an appellate court may use its discretion to hear an issue not raised in the circuit court. Id. Specifically, "[w]hen an issue involves a question of law rather than of fact, when the question of law has been briefed by both parties and when the question of law is of sufficient public interest to merit a decision, ...