Smith v. Atlantic Mut. Ins. Co., 88-1657

Decision Date25 June 1990
Docket NumberNo. 88-1657,88-1657
Citation155 Wis.2d 808,456 N.W.2d 597
PartiesCynthia SMITH, Plaintiff-Appellant-Petitioner, v. ATLANTIC MUTUAL INSURANCE COMPANY, Defendant-Respondent.
CourtWisconsin Supreme Court

John A. Becker, argued, and Hanson, Gasiorkiewicz & Becker, S.C., on briefs, Racine, for plaintiff-appellant-petitioner.

Donald H. Piper, argued Robert E. Neville and Fellows, Piper and Schmidt, on brief, Milwaukee, for defendant-respondent.

Mark L. Thomsen and Cannon & Dunphy, S.C., on brief, Milwaukee, amicus curiae, for the Wisconsin Academy of Trial Lawyers.

BABLITCH, Justice.

Cynthia Smith (Smith) seeks review of a court of appeals' decision which affirmed a circuit court judgment dismissing her case against Atlantic Mutual Insurance Company (Atlantic Mutual). In her lawsuit, she claimed entitlement to underinsured motorist (UIM) benefits. The issue is whether the other vehicle involved in the accident was an "underinsured motor vehicle" as defined in Smith's policy.

We conclude that the other vehicle involved in the accident was not an "underinsured motor vehicle" as unambiguously defined in the policy, and therefore Smith was not entitled to UIM coverage.

The facts are as follows: Smith was involved in an accident with Joyce Goulias (Goulias). Goulias carried liability insurance with American Family Insurance Company (American Family) that had a $50,000 policy limit. Smith had $50,000 of underinsured motorist coverage with Atlantic Mutual. Damages are alleged to be in excess of $100,000.

American Family tendered to Smith its policy limits of $50,000, and Smith then made a claim against her company Atlantic Mutual for the limits of her UIM policy. Atlantic Mutual denied coverage, and Smith commenced the present suit. Atlantic Mutual successfully moved for summary judgment and the action was dismissed. The circuit court held that the Goulias vehicle was not an underinsured motor vehicle as defined by the policy.

The court of appeals affirmed the circuit court judgment. However, the court did not address the issue whether the Goulias vehicle was an underinsured motor vehicle under the policy language. The court of appeals based its decision on the grounds that even if Smith were entitled to UIM benefits, the claim would be reduced by $50,000 pursuant to the policy's reducing clause. Such a reduction would result in Smith's claim being reduced to zero.

We accepted review to resolve the issues whether Goulias' vehicle was an "underinsured motor vehicle" under Smith's policy, and if so, to what extent the reducing clause affects the claim. The resolution of these issues involves the interpretation of language within an automobile liability policy. The interpretation of an insurance policy is a question of law which this court decides independently of the lower courts. Lambert v. Wrensch, 135 Wis.2d 105, 115, 399 N.W.2d 369 (1987).

Insurance contracts are controlled by the same rules of construction as are applied to other contracts. Ehlers v. Colonial Penn. Ins. Co., 81 Wis.2d 64, 74, 259 N.W.2d 718 (1977). Ambiguities in coverage are to be construed in favor of coverage, while exclusions are narrowly construed against the insurer. Davison v. Wilson, 71 Wis.2d 630, 635-36, 239 N.W.2d 38 (1976). Words or phrases are ambiguous when they are susceptible to more than one reasonable construction. However, when the terms of an insurance policy are plain on their face, the policy must not be rewritten by construction. Limpert v. Smith, 56 Wis.2d 632, 640, 203 N.W.2d 29 (1973).

We conclude that the Goulias vehicle was not an underinsured motor vehicle as defined in the policy. The Atlantic Mutual policy defines an "underinsured motor vehicle" as:

a land motor vehicle ... 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. (Emphasis added.)

We agree with the circuit court that the above policy terms regarding UIM coverage are unambiguous. Applying the plain meaning of the words, Smith does not fit the definition of an underinsured motorist which would trigger coverage under the policy. Coverage under this provision only applies when the owner or driver of the other vehicle maintains a policy with a lower coverage than the insured. Here, Goulias' liability limits of $50,000 were the same as, and not less than, the $50,000 limits of Smith's UIM coverage. Accordingly, under the clear terms of the policy, Goulias' vehicle is not an underinsured motor vehicle, and Atlantic Mutual need not provide coverage.

This conclusion is in accord with Paape v. Northern Assur. Co., 142 Wis.2d 45, 51, 416 N.W.2d 665 (Ct.App.1987) . In that case, the plaintiff sustained bodily injury as a result of an accident. The tortfeasor's auto liability carrier, American Family Insurance Company, agreed to pay plaintiffs its policy limit of $25,000. The plaintiff subsequently made an underinsurance claim against his liability carrier, Northern Assurance Company of America. Northern's policy contained underinsurance coverage in the amount of $15,000. Northern denied the plaintiff's underinsurance claim, maintaining among other things that the tortfeasor's vehicle was not an underinsured vehicle as defined under the Northern policy. As in the present case, the Northern policy defined an "underinsured motor vehicle" as a " 'land motor vehicle ... 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.' " Id. at 48, 416 N.W.2d 665.

The court of appeals affirmed the circuit court's summary judgment in favor of Northern, holding that the insurance company had no contractual duty to pay under its policy. The court stated, at 51-52, 416 N.W.2d 665:

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.

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