Sweeney v. General Cas. Co. of Wisconsin

• Decision Date: 14 May 1998
• Docket Number: No. 97-2010,97-2010
• Citation: 582 N.W.2d 735,220 Wis.2d 183
• Parties: Shona SWEENEY, Karrin Sweeney, by her Guardian ad Litem David Ross, Yvonne Sweeney, and Gary Sedwick, Plaintiffs-Respondents, v. GENERAL CASUALTY COMPANY OF WISCONSIN, Defendant-Appellant. d
• Court: Wisconsin Court of Appeals

Page 735

582 N.W.2d 735

220 Wis.2d 183

Shona SWEENEY, Karrin Sweeney, by her Guardian ad Litem David Ross, Yvonne Sweeney, and Gary Sedwick Plaintiffs-Respondents, v. GENERAL CASUALTY COMPANY OF WISCONSIN, Defendant-Appellant.^d

No. 97-2010.

Court of Appeals of Wisconsin.

Submitted on Briefs Feb. 11, 1998.

Opinion Released May 14, 1998.

Opinion Filed May 14, 1998.

Page 734

On behalf of the defendant-appellant, the cause was submitted on the briefs of Scott G. Pernitz and Kim I. Moermond of Winner, Wixson & Pernitz.

On behalf of the plaintiffs-respondents, the cause was submitted on the brief of James D. Wickhem of Meier, Wickhem, Southworth & Lyons, S.C.

Before VERGERONT, DEININGER and JONES, ¹ JJ.

VERGERONT, Judge.

General Casualty Company of Wisconsin appeals a summary judgment in favor of Shona Sweeney, Karrin Sweeney by her guardian ad litem David Ross, Yvonne Sweeney, and Gary Sedwick (Sweeneys) concerning the underinsured motorist (UIM) coverage under a policy issued to Yvonne Sweeney. The Sweeneys sought a declaratory judgment that the reducing clause in General Casualty's policy is invalid because it renders the UIM coverage illusory. The trial court held that it is invalid and therefore does not reduce the amount the Sweeneys are entitled to recover under the UIM provisions of the policy. We conclude that the trial court's decision is correct and therefore affirm.

BACKGROUND

The facts in this case are undisputed for purposes of this appeal. The Sweeneys were involved in an accident with a vehicle driven by Aaron Huber. All parties to the accident claimed injuries. The Sweeneys claimed that they incurred a total of $150,000 in damages.

At the time of the accident, American Family Insurance Company insured Huber. The liability limit for bodily injury under that policy is $50,000, and American Family paid $50,000 to the Sweeneys. Yvonne Sweeney, the owner of the car the Sweeneys were driving, had an automobile insurance policy with General Casualty that included UIM coverage. The limit per accident for the UIM coverage was $100,000. The Sweeneys claimed that they were entitled to the entire $100,000 because their damages were $150,000 and they had recovered only $50,000 from Huber's insurer. However, General Casualty paid the Sweeneys only $50,000, asserting that the $50,000 paid by American Family was deducted from the UIM policy limit of $100,000 by operation of the "reducing clause." That clause provides: "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."

The Sweeneys filed this declaratory judgment action seeking invalidation of the reducing clause and recovery of the additional $50,000. General Casualty filed a motion for summary judgment. The trial court agreed with the Sweeneys that the reducing clause is invalid because it renders the UIM coverage illusory, and granted summary judgment in favor of the Sweeneys.

DISCUSSION

Summary judgment is appropriate where, as in this case, the underlying facts are undisputed and the only issue to be resolved is a question of law. Section 802.08(2), STATS. The construction of an insurance policy, including the extent to which a reducing clause affects insurance claims, presents a question of law, which we review de novo. Smith v. Atlantic Mut. Ins. Co., 155 Wis.2d 808, 810, 456 N.W.2d 597, 598 (1990).

The parties rely on prior decisions of this court or the supreme court that, each claims, support their position. General Casualty claims that there are no supreme court decisions invalidating a limit of liability reducing clause such as that contained in its policy, and that the clause is valid and enforceable under Smith v. Atlantic Mutual Insurance Company, 151 Wis.2d 542, 444 N.W.2d 465 (Ct.App.1989) (Smith I ), aff'd on other grounds, 155 Wis.2d 808, 456 N.W.2d 597 (1990) (Smith II ). The Sweeneys respond that neither Smith I nor Smith II decides the issue presented in this case and that the decision of this court in Kuhn v. Allstate Insurance Company, 181 Wis.2d 453, 510 N.W.2d 826 (Ct.App.1993) (Kuhn I ), aff'd on other grounds, 193 Wis.2d 50, 532 N.W.2d 124 (1995) (Kuhn II ), and the later supreme court decision, Matthiesen v. Continental Casualty Company, 193 Wis.2d 192, 532 N.W.2d 729 (1995), support the trial court's decision that the reducing clause is invalid. We agree with the Sweeneys that neither Smith I nor Smith II controls the resolution of this appeal and that Kuhn I does.

In Smith I, the injured party received $50,000 from the tortfeasor's liability insurer. The injured party's UIM policy had a liability limit of $50,000 and a reducing clause that provided that the "limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of organizations who may be legally responsible." The policy also contained a definition of underinsured motor vehicle as one to which a liability policy applied "but its limit for bodily injury liability is less than the limit of liability for this coverage." Smith, 151 Wis.2d at 544-45, 444 N.W.2d at 466. We did not decide whether the injured party met the definition of underinsured motorist because we decided that the reducing clause unambiguously required that the insurer's liability under the UIM policy be reduced by the $50,000 the injured party received from the tortfeasor. Id. at 548, 444 N.W.2d at 467.

We distinguished the reducing clause in Smith I from the ones found ambiguous by the supreme court in Wood v. American Family Insurance, 148 Wis.2d 639, 652, 436 N.W.2d 594, 599 (1989), and Kaun v. Industrial Fire & Casualty Insurance Company, 148 Wis.2d 662, 668, 436 N.W.2d 321, 323 (1989). Those provided that "any amounts payable will be reduced by" payments made by the owner of an underinsured motor vehicle which may be legally liable. In Wood and Kaun, the court decided that a reasonable insured would have construed "amounts payable" to be the equivalent of damages compensable. Wood, 148 Wis.2d at 652-654, 436 N.W.2d at 600; Kaun, 148 Wis.2d at 670, 436 N.W.2d at 324-25. In contrast, we held in Smith I, that the reducing clause unambiguously reduced the "limit of liability." Smith, 151 Wis.2d at 547, 444 N.W.2d at 467. We noted in a footnote that we were not addressing Smith's arguments concerning illusory contracts. Id. at 548 n. 6, 444 N.W.2d at 467.

In affirming on other grounds, the supreme court in Smith II held that the tortfeasor's vehicle did not meet the policy definition of underinsured motor vehicle. Smith, 155 Wis.2d at 811, 456 N.W.2d at 599. An underinsured motor vehicle was defined in the Smith policy as a vehicle that had a policy with lower liability limits than the insured. Id. The tortfeasor's vehicle did not meet this definition, the court concluded, because its liability limits of $50,000 were the same as the $50,000 limits of Smith's UIM coverage. Id. Because of that conclusion, the court stated, "we need not reach the issue regarding to what extent the policy's reducing clause may affect the claim." Id. at 814, 456 N.W.2d at 600. However, the supreme court did note in a footnote that "Smith's policy does not involve the ambiguous phrase 'amounts payable.' Rather, the policy states that it is the 'limit of liability' that is reduced." Id. at 814 n. 1, 456 N.W.2d at 600.

There is no dispute in this case that Huber's vehicle is an underinsured vehicle. Therefore, Smith II's holding regarding the definition of underinsured motorist does not apply. However, General Casualty argues that although the supreme court in Smith II did not affirm based on the reducing clause, it did approve, in the footnote noted above, the distinction between the "amounts payable language" in Wood and Kaun and the "limits of liability" language in Smith's policy. According to General Casualty, that distinction is dispositive in this case. We disagree. While the footnote does support General Casualty's efforts to distinguish the language of the reducing clause in this case from that of the reducing clause in Wood, that distinction does not address the issue of whether the reducing clause in this case is invalid because it renders UIM coverage illusory. Neither Smith I nor Smith II addressed this issue. ² However, we did address this issue in the later case, Kuhn I.

In Kuhn I, the tortfeasor's insurer paid Kuhn its bodily injury liability limit of $25,000. Kuhn, 181 Wis.2d at 457, 510 N.W.2d at 827. The limit for both UM and UIM coverage in Kuhn's policy with Allstate was $50,000 per person and $100,000 per accident. Id. at 457-58, 510 N.W.2d at 827-28. ³ Kuhn's damages exceeded $100,000. Id. at 57, 510 N.W.2d at 828. The Allstate policy included a reducing clause which provided that "[i]f 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 [tortfeasor]...." Id. at 462, 510 N.W.2d at 830. Allstate contended that pursuant to the reducing clause, the $25,000 paid by the tortfeasor should be subtracted from the $50,000 per person limit. ⁴ We rejected that argument and held that the reducing clause rendered the purported $50,000 coverage illusory and was contrary to public policy. Id. at 463, 510 N.W.2d at 830.

We recognized that Kuhn would receive some of the $50,000 benefits, whereas in a recent decision, Hoglund v. Secura Insurance, 176 Wis.2d 265, 500 N.W.2d 354 (Ct.App.1993), we invalidated a reducing clause as illusory because, with limits of $25,000 for the UIM coverage, the insured would never recover any UIM benefits. ⁵ However, we concluded that the difference in illusion created by the policy in Hoglund and the one before us in Kuhn I was "only a matter of degree." Kuhn, 181 Wis.2d at 463, 510 N.W.2d at 830. We found support for our conclusion in Wood, although we recognized that the language of that reducing clause differed from Kuhn's.

Specifi...