UIM Case Analysis

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The decision lays to rest a question that has bedeviled courts and attorneys ever since the Wisconsin Supreme Court upheld automobile insurers’ use of reducing clauses.

In Praefke v. Sentry Ins. Co., 2005 WI App 50, 279 Wis.2d 325, 694 N.W.2d 442, the court of appeals held that a tortfeasor’s vehicle was not an underinsured motor vehicle, even though the insured received less than full recovery as a result of payments to another injured party.

Then in this case, on April 21, 2005, the court of appeals held that, where a definition of underinsured motorist results in the insured receiving less than full recovery, the definition is invalid. Initially, the court of appeals recommended that this opinion be published (the opinion actually issued in the appeal of Opichka, the other injured party in this case, who also recovered less than his full UIM benefit).

However, on May 17, 2005, the court withdrew that opinion.

On May 24, it issued the decision that was being reviewed in the Supreme Court, involving Welin’s appeal. Relying on Praefke, the court held that the tortfeasor’s vehicle was not an underinsured motor vehicle.

Then, on June 16, 2005, the court reissued its opinion in Opichka’s appeal, and as in the case at bar, ruled in favor of the insurer, relying solely on the precedent in Praefke. Both these opinions were unpublished.

So, a long-awaited answer has finally arrived; however, other questions remain unresolved.

First, what if both injured parties were insured under the same insurance policy? The court specifically noted that its decision does not address this situation.

Second, what will be the fate of the court of appeals’ decision in Teschendorf v. State Farm Ins. Co., 2005 WI App 10, 278 Wis.2d 354, 691 N.W.2d 882.

In Teschendorf, the court held that the statutes allowing policies to reduce UM and UIM coverage limits by amounts paid under a workers’ compensation law includes only those amounts paid to the insured, or to the insured’s heirs.

In that case, the insured, Scott Shira, was killed in an automobile accident with an uninsured motorist, while on duty. Because he had no children and was unmarried, the worker’s compensation death benefit was paid to the State Work Injury Supplemental Benefit Fund, instead of to his heirs.

His parents sought to recover $150,000 in UM coverage from Scott’s automobile insurer. However, the trial court held that they were not entitled to recover anything under his UM coverage, because the amount paid to the Fund, $159,000, exceeded the limits of Scott’s coverage, $150,000.

The court of appeals reversed, holding, “By purchasing $150,000 in UM coverage, Scott guaranteed that he, or his heirs or estate, would recover a total of $150,000, through payments by the tortfeasor, worker’s compensation, disability payments and UM payments. To deny recovery in this case would deny Scott the benefit of the coverage he purchased and would provide a windfall for American Family. This would be contrary to both sec. 632.32(5)(i) and the expectations of the insured.” Teschendorf, 691 N.W.2d at 886.

The Supreme Court heard oral arguments in that case on Nov. 8, 2005. In the case at bar, oral arguments were on Jan. 10, 2006.

Since both cases address variations on the same question — whether an insured can be denied UM or UIM benefits because of payments to a third party — many expected that the decisions would be released on the same day, and would cross-reference each other.

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Obviously, that didn’t happen, although when the UM decision is released, it will presumably cite the case at bar, either for support, or to distinguish it.

If the court focuses on the expectations of the insured, it will have to affirm the court of appeals. No reasonable insured would expect that, if his worker’s compensation benefit escheats to the state, he (or rather, his heirs) would then be denied UM coverage on the ground that the “benefit” he received exceeds the amount of his coverage. On the contrary, a reasonable insured would consider that to be the epitome of adding insult to injury.

Therefore, unless there is something unique to the worker’s compensation laws, or some critical difference between UIM and UM coverage, it would seem that the Supreme Court is likely to affirm the court of appeals in Teschendorf.

– David Ziemer

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David Ziemer can be reached by email.