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UIM Case Analysis

Few types of decisions that the appellate courts decide generate as much interest as those involving reducing clauses to underinsured motorist (UIM) coverage. Every personal injury attorney, defense attorney, insurance claim adjuster, and court in the state has files just waiting to see how these cases will play out in the appellate courts.

By once again holding the Dowhower policy ambiguous, the court of appeals has potentially averted the need for more Supreme Court review. The policy suffers from many of the same infirmities and complexities as were present in Schmitz. Had the court upheld the policy, the high court likely would have had to review it, for the distinctions between the policies are too minor to be workable in the lower courts.

By approving the policy in Commercial Union, however, and disapproving the one in Dowhower, District II of the court of appeals has created a distinction that should be workable, although not ideal to either plaintiffs or insurers.

Nevertheless, until Gohde v. MSI Ins. Co., No. 01-2121 (currently before District III), and Van Erden v. Sobczak, No 02-1595 (before District I), are decided, and all these cases are either reviewed or denied review by the Wisconsin Supreme Court, it is still too early to call the issue resolved.

It is impossible to assess, at this time, how the Van Erden decision may affect the mix, because the court of appeals’ decision the first time around, Van Erden v. Sobczak, 2003 WI App 57, 260 Wis.2d 881, 659 N.W.2d 896, vacated, 2003 WI 129, 668 N.W.2d 735, wholly failed to even attempt application of the Schmitz methodology.

The potential effect of the Gohde case, on the other hand, is easier to assess, because the defects the court of appeals found in Gohde, the first time around, are so similar to what District II called “arguable failing[s]” insufficient to render the Commercial Union policy ambiguous.

In the first Gohde decision, the court noted the following reason for finding it ambiguous — neither the declarations nor the index mention that the UIM coverage is subject to a reducing clause. Gohde, 261 Wis.2d at 718-719. However, the same is true of the Commercial Union policy.

Second, the Gohde court found language stating, “this is the maximum we will pay,” ambiguous because, in reality, the full amount will “rarely, if ever, be paid.” Id., at 720-21. Again, however, the same is true of the Commercial Union policy that District II held unambiguous.

Furthermore, the Gohde policy states on the title page, “READ YOUR POLICY CAREFULLY. This policy is a legal contract between you and us. It is written in ‘easy to read and understand’ language.” Id. at 716.

The Commercial Union policy only states on the front page, “Please refer to the following sections for detailed information on vehicles, operators, and deductibles.” It is not until one gets to the endorsements that the Commercial Policy warns the insured to read the policy carefully in bold letters.

Thus, if the policy in Gohde is found ambiguous, notwithstanding the Commercial Union holding, the Supreme Court will likely have to review the issue once again, because lower courts could not reasonably be expected to discern any distinction between the two.

If the policy in Gohde is found unambiguous and enforceable, the high court could deny review in all these cases, and a workable standard would still be in place for settling all these files currently held in abeyance.

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Dowhower reducing clause
held illegal again

There is one more scenario, however, under which the reducing clause in Gohde could be held unlawful, without conflicting with Commercial Union.

The reducing clause in the Gohde policy provides, in relevant part, that the limit of liability shall be reduced by “all sums paid or payable because of the bodily injury under any workers’ comp
ensation, disability benefits or any similar law (emphasis added).”

However, the final, emphasized portion of the clause is not authorized by sec. 632.32(5)(i), and is unlawful, pursuant to Hanson v. Prudential Property, 2002 WI App 275, 258 Wis.2d 709, 653 N.W.2d 915.

In Hanson, the court held, “The public policy of this state, as reflected in this statute, is to allow insurers to reduce UIM liability only by amounts paid to the insured by or on behalf of persons or organizations legally responsible for the injury suffered, or by worker’s compensation or disability benefits law. … The reducing clause in Prudential’s UIM coverage reduces liability by any amounts paid by the person responsible for the accident or ‘paid under any other source.’ This goes beyond the permissible reducing sources allowed by the statute.” Hanson, 258 Wis.2d at 718.

The clause “or any similar law,” makes the Gohde reducing clause unlawful, as well. Thus, the only way the Gohde policy can be upheld is if the defect were to be found not “material to the issue in dispute.” See Folkman v. Quamme, 2003 WI 116, par. 32.

– David Ziemer

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David Ziemer can be reached by email.

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