Badger Mutual Insurance: One year later.

Byline: Tony Anderson

Since the state Supreme Court released a decision at the end of it's 2002 term dealing with unambiguous reducing clauses becoming ambiguous when read with the rest of the policy, lower courts have had the responsibility of applying that decision.

During the past year, the Wisconsin Court of Appeals issued four decisions dealing with reducing clauses, but only three applied the standards set forth in Badger Mutual Insurance Co. v. Schmitz, 2002 WI 98, 255 Wis.2d 61, 647 N.W.2d 223. In those three cases, the court found ambiguity. However, the fourth decision, which came from District I, did not address the Badger Mutual standards.

During a tort update discussion for the Wisconsin Academy of Trial Lawyers, Lynn Laufenberg, the group's president, encouraged plaintiff's lawyers to review all four of the decisions. Those decisions are:

*Gohde v. MSI Insurance Co., 2003 WI App 69, 261 Wis.2d 710, released on March 4, 2003;

*Hanson v. Prudential Property, 2002 WI App. 275, 258 Wis.2d 709, released on Oct. 29, 2002;

*Dowhower v. Marquez, 2003 WI App 23, 260 Wis.2d 192, 01-1347, released on Jan. 15, 2003 (Dowhower 2); and

*Van Erden v. Sobczak, 2003 WI App 57, 260 Wis.2d 881, released on Feb. 25, 2003.

Badger Mutual

The Badger Mutual decision, issued July 10, 2002, held that an otherwise unambiguous reducing clause may nonetheless be unenforceable if it is found that in the context of a policy as a whole it is ambiguous, Laufenberg said.

"The key point about Badger Mutual v. Schmitz ... is that you need to look at the policy," he explained. "Every case is an individual case and in Badger Mutual, they reaffirmed the decision in Dowhower (1) that reducing clauses are enforceable only if the policy clearly sets forth that the insured is purchasing a fixed level of UIM coverage that will be arrived at by combining payments from all sources."

Two years earlier, the Supreme Court had issued its decision in Dowhower v. West Bend Mutual Insurance Co., 2000 WI 73, 236 Wis. 2d 113, 613 N.W.2d 557 (Dowhower 1). In that decision, the court addressed the constitutionality of Wis. Stat. Sec. 632.32(5)(i). The plaintiffs in Dowhower (1) had argued that Sec. 632.32(5)(i) was unconstitutional because it authorized fraudulent, illusory UIM coverage. But the court disagreed.

In that decision the court wrote: "When we consider these cases in conjunction with Wis. Stat. s. 632.32(5)(i), we conclude that an insurer may reduce payments made pursuant to a UIM...