Reducing
Clauses Analysis
Oct.
18, 2006
If
this decision is published, and not reversed by the Supreme Court,
it is going to cause problems in determining its breadth.
In
this case, both the appellant’s and the appellee’s briefs
were extremely well written. Significant swaths of text could
have been lifted verbatim from either brief, to create a principled
rule of law that could easily be applied in future cases.
Gresens’
brief, for example, argued that sec. 632.32(5)(i) prohibits insurers
from ever reducing UIM policy limits by payments from joint tortfeasors
who are not also underinsured motorists.
Suppose
for example, A is in a three-car accident with B and C; B is underinsured;
C is not. Gresens argued that A’s UIM limits could never
be reduced by payments from C’s insurer, arguing that sec.
632.32(5)(i)1. does not allow it. Whether one agrees with such
a proposed rule or not, it would be easy for attorneys and lower
courts to apply.
However,
the court of appeals declined to address this argument.
Gresens’
alternative argument was that, under State Farm’s policy
language, payments from the insured’s own insurer cannot
be used to reduce the insured’s policy limits, even if payments
from a non-related joint tortfeasor can.
Thus,
in the hypothetical above, A’s insurer could reduce her policy
limits by payments from C’s insurer, as well as from B’s.
However,
where C is A’s husband, and they have the same policy, Gresens
argued that UIM policy limits cannot be reduced by payments made
pursuant to the liability provisions of the same insurance policy.
Only payments from B’s insurer reduce the limits.
That
argument was based on particularities in the policy’s choice
of language, not statutory grounds. Again, agree with the argument
or not, the rule would be easy to apply, and insurers could adapt
their policy language to avoid application of the rule.
The
court, however, adopted neither of Gresens’ arguments, nor
did it adopt any of State Farm’s.
Instead,
the opinion goes much further, seeming to disallow reduction of
payments made from any source other than an underinsured motorist,
even worker’s compensation or disability policies.
The
court called the policy “misleading,” because, “There
are many instances … where an insured is legally entitled
to collect damages from a motorist whose limits of liability are
less than the limits of the State Farm policy. Under the policy
definition of coverage, State Farm will pay damages in that situation.
Yet under State Farm’s UIM reducing clause, State Farm will
pay nothing.”
Consider
a final hypothetical: A has $100,000 UIM limits, as in the case
at bar, and is injured in an accident with just B, who is underinsured,
with only $50,000 limits. However, A recovers more than $50,000
in worker’s compensation benefits.
As
sec. 632.32(5)(i) has always been understood (provided the policy
is not deficient in some way not relevant to this analysis), A
can recover nothing under her UIM coverage. The reducing clause
is authorized by statute, and because the insured’s recovery
exceeds her UIM limits, she cannot recover.
However,
the above quote from the court of appeals would apply, just as
strongly as it does in the case at bar. The UIM coverage promises
coverage; but the reducing clause takes it away. Gresens made
no such radical argument in her brief; yet that is what the opinion
appears to hold.
If
this opinion is published and not reversed, circuit courts will
face a dilemma.
This
case has unusual facts, in that the underinsured motorist’s
joint tortfeasor was the insured’s husband, and her UIM coverage
was part of the same policy as his liability coverage. A circuit
court limit the case to such facts, or even limit to cases involving
two tortfeasors — one underinsured, one not — but neither
is covered by the same policy as the insured.
However,
if a circuit court takes the court’s reasoning in the case
at bar to its logical conclusion, it will have to conclude that
a reducing clause that permits reduction for worker’s compensation
benefits conflicts with the policy’s UIM coverage, just as
a reducing clause that permits reduction for payments from a joint
tortfeasor who is not underinsured conflicts with the coverage.
That
argument, however, has been rejected by the Supreme Court, and
wasn’t argued in the case at bar by the plaintiff.
Obviously,
the final hypothetical is explicitly addressed by sec. 632.32(5)(i),
and the first two hypotheticals are not, so the case at bar could
be distinguished on that ground when the third hypothetical arises.
But,
as noted, the court never addressed the statutory argument, and
based its decision solely on the policy language.
Furthermore,
the reducing clause in this case, and the definition of underinsured
motor vehicle, are no different than those in many other policies
from other insurers.
Arguably,
some policies may be distinguishable based on the following sentence
by the court: “Absent some clue directing the insured to
[the reducing clause], an insured could reasonably rely on State
Farm’s statement that it ‘will pay damages an insured
is legally entitled to collect from’ an underinsured motorist.”
Other
than this one sentence, however, everything else the court wrote
on the issue is broad enough to encompass any UIM policy that
contains a reducing clause. It is not clear why this one sentence
should nullify the rest of the analysis.
Unfortunately,
this particular policy (at least according to the court) suffers
from two other flaws, so it may not be the best vehicle for Supreme
Court review of this narrow issue. But, at some point, this opinion
will have to be reconciled with existing precedents, limited to
its facts, or overruled.
-
David Ziemer
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David
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