WI Supreme Court rules UIM definition impermissible reducing clause.

Byline: David Ziemer

Underinsured motorist (UIM) benefits cannot be reduced by payments to other injured parties, the Wisconsin Supreme Court held on June 30. Where the effect of an automobile policy's definition of underinsured motorist is to reduce the insured's expected level of coverage, the court held the definition could not be enforced.

Elizabeth A. Pyrzynski fell asleep while driving, and two persons were injured as a result: her passenger, Joshua Opichka; and another driver, Alison M. Welin.

Pyrzynski had policy limits of $300,000, and Welin had UIM coverage of $300,000. Welin's policy defines "underinsured motor vehicle" as "a motor vehicle which is insured by a liability bond or policy at the time of the accident which provides bodily injury liability limits less than the limits of liability of this Underinsured Motorists coverage."

Welin brought suit against Pyrzynksi, Pyrzynski's insurer, and her own insurer, American Family.

The parties stipulated that Welin's damages were greater than $250,000 and that the tortfeasor's $300,000 limits of liability would be shared between the two injured persons; the plaintiff received $250,000, and Opichka, $50,000.

American Family moved for summary judgment on the ground that its UIM endorsement was not triggered because Pyrzynksi's vehicle did not meet the policy's definition of an underinsured motor vehicle. Chippewa County Circuit Court Judge Benjamin D. Proctor granted the motion.

The court of appeals initially reversed, but withdrew that decision on motion for reconsideration, and then affirmed in its second unpublished opinion.

The Supreme Court granted review, and reversed, in a decision by Chief Justice Shirley S. Abrahamson.

Section 632.32(5)(i) provides that a reducing clause in uninsured or underinsured motorist coverage may allow for reduction of coverage for only three types of payments: amounts paid by or on behalf of any person or organization that may be legally responsible for the bodily injury or death for which the payment is made; amounts paid or payable under any worker's compensation law; and amounts paid or payable under any disability benefits laws.

The court concluded that the policy's definition of underinsured vehicle operates as an unlawful reducing clause, and thus, cannot be enforced against Welin to exclude coverage.

The court noted that it permits UIM coverage to operate in two manners. Under the first, UIM coverage compensates an insured accident victim...