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UIM Case Analysis

The court relies on two cases for support of its holding that the reducing clause is not illusory, even though the clause purports to admit reduction for “amount[s] payable” by a tortfeasor, in addition to amounts paid: Van Erden v. Sobczak, 2004 WI App 40, 677 N.W.2d 718; and Folkman v. Quamme, 2003 WI 116, 264 Wis.2d 617, 665 N.W.2d 857.

However, both can be distinguished from the case at bar.

In Folkman, the Supreme Court held that a “split limit of liability” in a policy was unambiguous, rejecting the plaintiff’s argument that it was ambiguous when considered with another portion of the policy’s endorsement

The Supreme Court held that courts should not “ferret” through policies to unearth ambiguity, but that “inconsistencies in the context of a policy must be material to the issue in dispute and be of such a nature that a reasonable insured would find an alternative meaning.” Folkman, 264 Wis.2d at 641.

In the case at bar, however, there is no “ferreting” required to find the ambiguity. It is contained squarely within the reducing clause at issue.

Van Erden is also arguably distinguishable. In Van Erden, the reducing clause stated that UIM payments could be reduced by “A payment made or amount payable because of bodily injury under any worker’s compensation or disability benefits law or any similar law (emphasis added).”

Section 632.32(5)(i) only permits reductions for payments made by the tortfeasor or his insurer, payments under a worker’s compensation law, or disability benefits law.

Nevertheless, the court held, “The inclusion of the additional language does no disservice to the legislative intent. The wording merely acts as a catchall phrase for jurisdictions that may call their disability benefits law by another name.” Van Erden, 677 N.W.2d at 727.

The same cannot be said in the case at bar, because the policy language is contrary to statute, and cannot, by any interpretation, be rationalized as consistent with legislative intent.

Section 632.32(5)(i) permits coverage to be reduced by “amounts paid or payable,” but only those amounts payable under worker’s compensation law or disability benefits law. When the statute speaks of amounts owed by a person or organization that may be legally responsible, the statute explicitly uses the term, “amounts paid,” rather than “amounts paid or payable.”

The distinction is important, because inclusion of the “or payable” language actually would render the UIM coverage illusory when referring to the tortfeasor, rather than worker’s compensation or disability benefits laws.

The whole point of UIM coverage is for the insured to be paid money by his insurer that should properly be “payable” to him by the tortfeasor, but which, because of the tortfeasor’s inadequate insurance, the insured will never actually be “paid.”

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‘Amounts payable’ not ambiguous term

When the money is payable by a worker’s compensation insurer, or a disability benefits provider, on the other hand, the assumption is that the insured will actually get paid; thus, it is reasonable for “amounts payable” to be included in the portions of the reducing clause concerning them.

However, to say that UIM coverage can be reduced by an amount “payable” by an underinsured tortfeasor, when the whole object of UIM insurance is that the insured be paid what is properly payable to him by another, is to render the coverage patently illusory.

Admittedly, in Van Erden, the court added, “Moreover, that language is not in dispute here.” Id., at 727. In the case at bar, as well, the insurer is not trying to get out of paying anything by invoking the literal language of its policy.

Nevertheless, Van Erden could still be distinguished. Citing Van Erden for authority, the court in the case at bar stated, “The fact that an insurance policy may include arguably ambiguous language upon which the insurer has not relied is of no consequence and will not defeat the right of an insurer to reduce its limits of liability under a valid provision.”

In the case at bar, however, the language is not “arguably ambiguous”; it unambiguously renders the coverage illusory.

– David Ziemer

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David Ziemer can be reached by email.

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