Reducing
clause conflicts with UIM coverage
Payments
from joint tortfeasor don’t reduce policy limits
By
David Ziemer
david.ziemer@wislawjournal.com
Oct.
18, 2006
|
What
the court held
Case:
Gresens v. State Farm Mut. Auto. Ins. Co., No. 2005AP2574
Issue:
Is an automobile policy ambiguous if it provides UIM coverage,
but permits reduction from the limits for payments from
joint tortfeasors who are not underinsured?
Holding:
Yes. The reducing clause conflicts with the UIM coverage.
Attorneys:
For Appellant: Covelli, Claude J., Madison; For Respondent:
Antoine, Virginia M., Milwaukee; Murray, John D., Appleton
|
An
insured can collect underinsured motorist (UIM) benefits, even
if her total recovery from all sources exceeds her UIM limits,
the Wisconsin Court of Appeals held on Oct. 10.
In
2001, Shayna Gresens was injured in an automobile accident. Gresens
was a passenger in a vehicle driven by her husband, James Gresens.
Their vehicle collided with a vehicle driven by Joseph Williams.
At
the time of the accident, the Gre-senses were covered by a policy
from State Farm Mutual Automobile Insurance Co., with liability
and UIM limits of $250,000 and $100,000 per person, respectively.
Williams
was covered by a $50,000 liability policy issued by American Standard
Insurance Company. Thus, Williams is an underinsured motorist,
and husband James is not.
American
Standard paid its policy limits of $50,000. State Farm and Gresens
went to trial. At trial, the jury determined that James was forty
percent causally negligent and that Williams was sixty percent
causally negligent. The jury determined that Gresens’ total
damages were $263,100.
Accordingly,
James was responsible for $105,240 and Williams was responsible
for $157,860.
State
Farm paid Gresens the $105,240 due as James’s liability insurer,
but argued no money was due under her UIM policy because both
the $50,000 paid by American Standard, plus the $105,240 paid
on behalf of James, exceeded her $100,000 UIM limit.
Gresens
argued $50,000 was still payable under the UIM policy because
only the American Standard payment should be deducted from her
UIM limit.
Outagamie
Circuit Court Judge Mark J. McGinnis agreed with Gresens, finding
State Farm’s reducing clause contextually ambiguous, and
ordered that Gresens be paid $50,000 more. State Farm appealed,
but the court of appeals affirmed, in a decision by Judge Gregory
A. Peterson.
The
court found that the policy was ambiguous in three separate respects,
although it only engaged in significant discussion of the first:
(1)
the definition of coverage granted coverage in some instances
where no payment would actually be made because of the reducing
clause, implying more than the policy delivered;
(2)
the effect of the reducing clause was impermissibly made clear
only in the reducing clause itself; and
(3)
the declarations page contained no indication that policy limits
were subject to conditions and exceptions set forth later in the
policy.
Addressing
the first of these deficiencies, the court began by setting forth
State Farm’s definition of underinsured motorist coverage:
“[State
Farm] will pay damages for bodily injury an insured is legally
entitled to collect from the owner or driver of an underinsured
motor vehicle …
[An]
underinsured motor vehicle — means a land motor vehicle:
…
whose limits of liability for bodily injury liability
(a)
are less than the limits of liability of this coverage; or
(b)
have been reduced by payments to persons other than the insured
to less than the limits of this coverage.
The
reducing clause provides in relevant part:
The
most [State Farm] will pay is … the limits of liability of
this coverage reduced by … the amount paid to the insured
by or on behalf of any person or organization that may be legally
responsible for the bodily injury. (all emphases in original policy).
The
court concluded that the policy’s definition of UIM coverage
promises more than the policy delivers.
The
court concluded, “It promises that State Farm will pay damages
an insured is legally entitled to collect from a motorist whose
limits of liability are less than the limits of the State Farm
UIM coverage.
Because
of the reducing clause, however, this promise is a misleading
one.”
The
court explained, “There are many instances, including here,
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.”
The
court elaborated, “the policy will pay nothing in many instances
where injuries are caused by an underinsured motorist. Such a
drastic change from the ordinary expectations of a reasonable
insured cannot be buried in one sentence in the section of the
policy dealing with limits of liability. Absent some clue directing
the insured to that sentence, 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.”
Accordingly,
after cursorily addressing the other two deficiencies, and declining
to address Gresens argument that the policy is barred by sec.
632.32(5)(i), the court affirmed.
Click here for
Case Analysis.
