Conflicting statutes could cost insurers millions

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State justices seek to settle conflict between property owners, DNR

Oral arguments are just around the corner in the eagerly awaited case of Ronald E. Belding Jr. v. Deeanna L. Demoulin, 2012 AP 829, which will determine whether drivers can stack together auto insurance policies to increase coverage if they were injured from 2009 to 2011 by an uninsured or underinsured motorist.

The potential cost to the insurance industry could be enormous. Thousands of injured drivers and passengers could possibly tack on an additional $100,000 or more to their claims, leaving insurance companies on the hook for millions of dollars in added coverage payments.

State Farm strongly supported the trial court’s decision to deny policy stacking, and, in its brief, blasted the appellate court for taking “plain” statutory language and rewriting it, transforming a statute “designed to authorize exclusions …. to a statute that prohibits exclusions.”

The amicus curiae brief filed by James Alan Friedman of Godfrey & Kahn SC on behalf of the Wisconsin Insurance Alliance and Property Casualty Insurers Assoc. of America was just as blunt: the appellate court “put on its legislative hat,” according to the brief, and “obliterated an important provision of the automobile insurance code.”

The Wisconsin Association for Justice contends that the appellate court was only performing its normal role of interpreting legislative intent, however. An amicus brief filed by attorneys Jesse Blocher of Habush Habush & Rottier SC and Kevin Lonergan of Herrling Clark Law Firm Ltd. states that the appellate court’s decision was intended to prevent “crafty insurers like State Farm” from eluding the effect of prohibitions against anti-stacking language in insurance policies.

“State Farm’s clever theory,” the amicus brief states, “is that by separating the insured’s vehicles onto different declarations pages, its ‘Drive Other Car’ exclusion avoids stacking in virtually every case.

“It would be a cruel irony [if the law] intended to allow the stacking of coverage limits owned by the insured did not apply because the accident vehicle was owned by the insured.”

Case history

On Jan. 13, 2010, Ronald Belding Jr. was driving his Ford Ranger, insured by State Farm, when he was struck by an uninsured driver in Kenosha. The insurance company offered the entire $100,000 coverage amount to Belding for his uninsured motorist coverage, but balked when Belding tried to stack that policy with a second policy on another family car, a Mercury Villager.

Belding’s accident caused him permanent physical injuries so severe that the $100,000 coverage didn’t cover his damages.

Kenosha County Circuit Judge S. Michael Wilk upheld the insurance company’s anti-stacking language on summary judgment, saying that the “Drive Other Car” exclusion in Belding’s policy prevented the permanently injured driver from stacking the policies.

But the appellate court reversed, saying the anti-stacking exclusion relied upon by State Farm was clearly at odds with Wis. Stat. 632.32(6)(d), which prohibited anti-stacking language and allowed up to three polices to be stacked.

The appellate court applied a two-part test to determine if State Farm’s “Drive Other Car” exclusion was lawful: 1) if the exclusion is specifically noted under Section 632.32, and (2) if any other law or consideration should bar the exclusion.

The court found that 632.32(6)(d) barred any and all insurance policy provisions that discouraged stacking of UM and UIM coverage policies together. Because the “Drive Other Car” exception used certain policyholder criteria to prevent stacking, the appellate court said it could not be enforced. It reversed the trial court summary judgment finding for the insurance company.

State Farm was astonished and expressed disbelief that the appellate court would take a step that seemed to conflict with past judicial decisions.

“In its 38 year history,” State Farm wrote in its brief, “Wis. Stat. 632.32(5)(c) has never been applied to prohibit a provision authorized by another subsection of 632.32(5)”(referring to 632.32(5)(j)).

The State Farm “Drive Other Car” policy section excludes coverage if: “for any insured who sustains bodily injury resulting from the use of a motor vehicle owned by you or any resident relative if it is not your car, a newly acquired car or a temporary substitute car.”

Counsel for Belding assert in their brief that the “Drive Other Car” exclusion was negated by Wis. Stat. 632.32(6)(d), which states: “no policy may provide that … the limits for any uninsured motorist coverage … under the policy may not be added to the limits for similar coverage applying to other motor vehicles to determine the limits of insurance coverage available for bodily injury … except that a policy may limit the number of motor vehicles for which limits may be added to three vehicles.”

The statutory history of auto insurance anti-stacking provisions in Wisconsin is long and colorful. In 1975 and 1979, the Legislature passed laws curtailing the use of many auto insurance anti-stacking provisions.

Twenty years later, evolving Wisconsin caselaw had further shifted to essentially prohibit auto policy anti-stacking language. Then in 1995, the Legislature added Wis. Stat. 632.32(5)(j), which carved out an exception specifically prohibiting stacking of policies, the “Drive Other Car” exception.

The 2009 Truth in Automobile Insurance Law created a variety of statutory provisions attempting to make auto insurance policies more fair, transparent and easier to understand, including a prohibition against insurance policy anti-stacking language (Wis. Stat. 632(6)(d)).

Curiously enough, the 2009 Legislature also tried to repeal the 632.32(5)(j) anti-stacking law passed in 1995, but the provision was vetoed by then-Gov. James Doyle, who suggested that repeal could raise insurance premiums.

So from 2009 to 2011, both the 1995 anti-stacking law and the 2009 prohibition against policy stacking clauses were on the books, until the new Scott Walker administration and Legislature in 2011 repealed the prohibition against anti-stacking provisions. That left a two-year gap where both conflicting statutes were in effect.

The appellate court’s January opinion suggests that routine rules of statutory interpretation gave sufficient guidance for the court to issue a fair rule. However, some commentators believe that a more business-friendly Wisconsin Supreme Court could undertake a different case analysis and reverse the appellate court decision.