In Acuity, a Mutual Insurance Co. v. Estate of Shimeta (2023 WI 28), the Wisconsin Supreme Court held that an insurance policy’s reducing clause applied individually to each person insured, rather than limiting the insurer’s total liability for the accident.

Facts

Shimeta was killed and his passenger seriously injured when their vehicle was struck by another driver. The at-fault driver’s insurer paid $250,000 each to Shimeta’s estate and to the passenger, according to the policy’s “per person” liability limit of $250,000 and “per accident” limit of $500,000. Shimeta’s estate and the passenger sought an additional $250,000 each under Shimeta’s policy, issued by Acuity, that included underinsured motorist (UIM) coverage with a $500,000 limit for “each person” and a $500,000 limit for “each accident.”

The Acuity policy included a clause reducing the insurer’s UIM liability by any amount “paid because of the bodily injury by or on behalf of persons… who may be legally responsible.” Acuity argued that the combined $500,000 already paid out by the at-fault driver’s insurer met the UIM policy’s $500,000 coverage limit for “each accident,” thereby reducing Acuity’s liability to $0.

Decision

In a 4-3 decision (Justice Karofsky, joined by Justices Walsh Bradley, Dallet, and Roggensack), the court held that the reducing clause in Acuity’s UIM policy operated on an individual basis, reducing the liability limit for “each person” insured under the policy, rather than reducing the liability limit for “each accident.”

The court found that the policy’s references to “the limit of liability” referred only to the “each person” liability limit, rejecting Acuity’s contention that the phrase referred collectively to the per-person or per-accident limits “depending on the facts of the case.”

The court found that policy language referencing “all sums… paid because of the bodily injury” referred to “all sums paid because of the bodily injury suffered by the individual insured making the claim,” rather than, as Acuity contended, “all sums paid for all injuries suffered by any insureds injured in a single accident.”

Dissent

In a dissent, Chief Justice Ziegler (joined by Justice R. Bradley) argued that the several “limits of liability” provided in the Acuity policy “operate together as one collective ‘limit of liability’ to establish the most Acuity might pay.” The dissent characterized the court’s opinion as “overcomplicat[ing] Acuity’s policy” and interpreting it “as no reasonable insured would, creating coverage out of thin air that was never agreed upon.”

In another dissent, Justice Hagedorn (joined by Justice R. Bradley) argued that the court needlessly confused the policy’s singular and plural uses of the term “limit of liability.” According to the dissent, the reducing clause applies to all liability limits under the policy, which was designed such that “the per accident limit will reduce the amount individuals can recover in multi-person accidents.”

Both dissents concluded that the court’s decision created additional coverage beyond what was agreed to in the original contract between insured and insurer.