Confusing insurance policy leads to 'bad law'.

Byline: Tony Anderson

The state Supreme Court's decision last summer regarding reducing clauses in uninsured motorist cases shows that "organizationally complex and confusing insurance policies make bad law," according to a member of the insurance defense bar.

John M. Swietlik Jr., a shareholder at Kasdorf, Lewis & Swietlik S.C., recently discussed the implications of the high court's decision in Badger Mutual v. Schmitz, 2002 WI 98, 647 N.W.2d 223 (2002), during the Civil Trial Counsel of Wisconsin's 2002 Fall Conference. Swietlik's comments were part of an overall presentation on UIM case law.

Swietlik characterized the July 10 decision in Badger Mutual as a shift in case law following the 1995 legislative changes to statute pertaining to UIM reducing clauses.

Reducing clauses are provisions in insurance policies, which attempt to reduce the amount of available coverage by payments made from other sources. In 1995, the Legislature enacted changes to sec. 632.32(5)(i) that authorized reducing clauses, Swietlik explained.

A 1997 accident resulted in a constitutional challenge to the new legislation. The state Supreme Court in Dowhower v. West Bend Mutual Ins. Co., 236 Wis. 2d 113, 613 N.W.2d 557 (2000), rejected that challenge; however, it did leave the door open to the possibility that the language of reducing clauses could be found ambiguous, Swietlik noted.

Constitutional Challenge Defeated

The Supreme Court in Dowhower stated, "In sum, we hold that Wis. Stat. 632.32(5)(i)1 on its own terms does not deprive the Dowhowers of any state or federal constitutional right to enter into insurance contracts without fraud, and, as a result, it does not present a substantive due process violation. We remand the case to the circuit court to address whether the language of the contract is ambiguous, and, if so, whether a reasonable person in the position of the insured would have understood the policy to mean that the $50,000 limit in UIM coverage was to be a maximum recovery from all sources."

When defense attorneys read the Dowhower decision, Swietlik recalled, there was a sense of relief that reducing clauses were not a per se violation of public policy and that when the policy language was consistent with the statutory language in 632.32(5), it's not ambiguous.

"Recall that the court in Dowhower sent the case back to the trial court, so the trial court could determine whether the reducing clause could be ambiguous when considered in the context...