Paape v. Northern Assur. Co. of America

Decision Date21 October 1987
Docket NumberNo. 86-1438,86-1438
Citation142 Wis.2d 45,416 N.W.2d 665
PartiesJames J. PAAPE, Plaintiff-Appellant, v. The NORTHERN ASSURANCE COMPANY OF AMERICA, a foreign corporation, Defendant-Respondent.
CourtWisconsin Court of Appeals

Warshafsky, Rotter, Tarnoff, Gesler, Reinhardt & Bloch, S.C. (Daniel J. Cook of counsel) Milwaukee, for plaintiff-appellant.

Piette, Knoll & Nelson, S.C. (Craig W. Nelson of counsel) Milwaukee, for defendant-respondent.

Before MOSER, P.J., and WEDEMEYER and SULLIVAN, JJ.

WEDEMEYER, Judge.

James J. Paape appeals from a summary judgment granted in favor of Northern Assurance Company of America. He raises three issues: (1) whether Northern, by refusing to make a payment for underinsurance, waived all its policy rights and defenses; (2) whether the trial court erred in deciding the issue of contract reformation when it was not raised by Northern's motion for summary judgment; and (3) whether, after Northern refused to pay his underinsurance claim, Paape's general release of the tortfeasor violated the terms of his policy thereby precluding any recovery. Because Northern, in refusing Paape's claim for underinsurance, acted within its policy rights and retained all of its contractual defensive rights, because Paape waived his right to a review of the trial court's rejection of the reformation claim, and because Paape's release of the tortfeasor violated the terms of the policy precluding any recovery, we affirm.

The undisputed facts can be summarized as follows. In August, 1982, Paape was injured when his vehicle collided with another vehicle driven by Roy Cullen. At the time of the accident, Cullen carried $25,000 of liability insurance with American Family Insurance Company and Paape carried $15,000 of underinsurance coverage with Northern. Paape presented his claim to Cullen and American Family and also notified Northern of the claim. In August, 1983, Paape made both a demand on American Family for the $25,000 policy limits and an underinsurance claim to Northern because his damages were in excess of Cullen's policy limits.

In September, 1983, Northern rejected Paape's underinsurance claim. The following month Paape accepted Cullen's settlement offer of his policy limits of $25,000 and executed a general release to American Family and Cullen. Paape then brought an action against Northern: (1) to reform his policy of insurance to provide $100,000/$300,000 in underinsurance protection instead of the stated amount of $15,000/$30,000; (2) for breach of contract for failure to provide him with underinsurance coverage; and (3) for acting in bad faith towards him.

The relevant policy clauses provide:

"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.

* * *

We will pay under this coverage only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.

* * *

However, the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible.

* * *

A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:

1. Whatever is necessary to enable us to exercise our rights and

2. Nothing after loss to prejudice them.

[Boldface in original.]

Northern moved for summary judgment. The trial court concluded that Northern did not deny underinsurance coverage but only its liability under the terms and conditions of the policy. 1 The trial court construed the clause which stated that the liability limit shall be reduced by all sums paid by persons who may be legally responsible to mean that underinsurance coverage was for the first $15,000 of damages sustained by the insured. Since Cullen carried $25,000 of liability insurance, Northern had no obligation to Paape. Because Northern did not breach its contract, it did not waive any right to subrogation. The court found that Paape, by executing the general release with Cullen and American Family, violated its contract with Northern. Thus, the trial court granted the motion for summary judgment dismissing the case against Northern.

Section 802.08(2), Stats., provides that summary judgment shall be granted when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. When reviewing a grant of summary judgment, we follow the same methodology as the trial court. Because that methodology is detailed in Preloznik v. City of Madison, 113 Wis.2d 112, 116, 334 N.W.2d 580, 582-83 (Ct.App.1983), and is well known, we will not repeat it here.

A motion for summary judgment may be used to address issues of insurance policy coverage. State Farm Mut. Auto. Ins. Co. v. Kelly, 132 Wis.2d 187, 189, 389 N.W.2d 838, 839 (Ct.App.1986). Because the record made on motion for summary judgment indicates that there is no material issue of fact in dispute, and the issue involves the construction of a contract, we are presented with a question of law. See id. at 190, 389 N.W.2d at 839.

The dispositive issue of this appeal is whether Northern was within its rights to deny payment under its underinsurance provisions. If so, Northern did not breach its contract and all other contentions fall.

It is elementary that no contract of insurance should be rewritten by construction to bind an insurer to a risk which it did not contemplate and for which it was not paid. Inter-Insurance Exch. of the Chicago Motor Club v. Westchester Fire Ins. Co., 25 Wis.2d 100, 104, 130 N.W.2d 185, 188 (1964). In the absence of stated legislative policy to the contrary, the extent of liability of an insurance company is based upon the contract entered into between the parties and must be governed by its terms and conditions. See Tischendorf v. Lynn Mut. Fire Ins. Co., 190 Wis. 33, 42, 208 N.W. 917, 921 (1926). When the terms of a policy are plain on their face, a court need not resort to either construction or case law to bolster its recognition of the policy's plain meaning. Garriguenc v. Love, 67 Wis.2d 130, 135, 226 N.W.2d 414, 417 (1975). Words used in the policy should be given their common everyday meaning and should be interpreted as a reasonable person in the insured's position would have understood them to mean. Id. at 134-35, 226 N.W.2d at 417.

We conclude that Northern's policy terms concerning the extent of liability under underinsurance motorist coverage are not ambiguous. The policy clearly states that an underinsured motor vehicle is one to which a liability policy applies but its limit is less than that of Northern's. Because Cullen's policy provided for $25,000 in liability coverage, and Paape's coverage was for $15,000, Cullen's vehicle was not underinsured as defined by the policy. Additionally, the policy provides that the extent of Northern's liability is reduced by all sums paid for the bodily injury caused by persons who may be legally responsible. Therefore, the $25,000 settlement from American Family effectively reduced any underinsurance liability to zero.

Northern did not have a duty to pay damages...

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