No-fault insurance doesn't bar uninsured coverage.

• Date: 03 April 2002

Byline: David Ziemer

Where a Wisconsin insured is injured out-of-state by a tortfeasor who is uninsured, but covered by the other jurisdiction's "no-fault" insurance law, which does not permit recovery of noneconomic damages, the insured can collect under his underinsured motorist (UIM) coverage, the Wisconsin Supreme Court held on Mar. 29.

Wrong Place, Wrong Time

In 1995, V. Thomas Ostlund, a Wisconsin resident, was driving his mother's pickup truck in Manitoba, Canada. Franklin Gillette was a passenger. While legally stopped, they were struck from behind by another truck driven by Norman Unrau, a Manitoba resident. There was no dispute that Unrau was at fault.

Unrau's vehicle was registered in Manitoba, and pursuant to Manitoba's "no-fault" automobile liability legislation, was insured by the Manitoba Public Insurance Corporation (MPIC).

Ostlund's mother was insured by State Farm, but her policy contained no UIM coverage. However, Ostlund also had two State Farm auto policies, both of which did.

The policy provided, "We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. The bodily injury must be caused by accident arising out of the operation, maintenance or use of an underinsured motor vehicle."

MPIC paid Ostlund's subrogated health insurer $20,000, and almost $7,000 directly to Ostlund. Gillette has thus far received nothing from MPIC, although he has filed a claim.

The Road to Recovery

State Farm paid for some of Ostlund and Gillette's medical expenses, and then sought default judgment that it had no further obligations to Ostlund and Gillette under its policies, because Manitoba law does not permit recovery for noneconomic damages, but only lost wages and medical bills. La Crosse County Circuit Court Judge Dennis G. Montabon agreed, and entered judgment in State Farm's favor.

Ostlund and Gillette appealed, and, in a decision by Circuit Court Judge William F. Hue, sitting by special assignment, the Court of Appeals reversed in a published decision, holding that the vehicle was underinsured, because Manitoba law does not permit the recovery of noneconomic damages. State Farm Mut. Auto. Ins. Co. v. Gillette, 2001 WI App 123, 246 Wis.2d 561, 630 N.W.2d 527.

The Court of Appeals primarily relied on the Supreme Court's decision in Sahloff v. Western Cas. & Sur. Co., 45 Wis.2d 60, 171 N.W.2d 914 (1969), which held that the phrase "legally entitled to recover" in uninsured motorist coverage was insufficient to preserve to the insurer all rights and immunities...