Feb. 6, 2013 – An insurance company argued that its policy did not cover accidents with rental cars. Recently, the Wisconsin Supreme Court ruled that interpreting the policy this way would lead to absurd results.

The Bethke family had an underinsured motorist policy with Auto-Owners Insurance Company, covering $500,000 per person and $500,000 per accident.

However, the policy states that underinsured cars don’t include ones “owned or operated by a self-insurer under any automobile law.”

In 2007, Kathryn Bethke was driving near Sheboygan Falls with her son, Andrew, when an oncoming car allegedly crossed the center-line and hit the Bethkes’ car head on.

Frederick Goddard, from the U.K., was driving the oncoming car, which was a rental from Avis Rent-a-Car. Goddard and Kathryn died. Andrew sustained serious injuries.

Goddard did not have car insurance. However, the rental car company was required to pay the Bethke’s $50,000 under Wis. Stat. section 344.51(1m), which requires car rental companies to carry liability insurance for negligent driving by persons who rent cars. But the statute does not require car rental companies to cover more than $50,000.

The Bethke family sought additional coverage under the family’s underinsured motorist policy, which covered damages the Bethkes were entitled to recover from the owner or operator of an underinsured automobile, excluding vehicles owned by “self-insurers.”

Auto-Owners denied coverage, arguing that Avis was a self-insurer, and thus the rental car driven by Goddard was not an underinsured vehicle covered by the policy. The circuit court sided with Auto-Owners. An appeals court affirmed.

But in Bethke v. Auto-Owners Ins. Co., 2013 WI 16 (Feb. 1, 2013), a Wisconsin Supreme Court majority (4-3) reversed in favor of the Bethke family.

The majority said the policy was ambiguous because a “reasonable insured” may not understand that Avis would be considered a “self-insurer.” It also concluded that the exclusion for self-insured rental vehicles would lead to an absurd result in the case.

“Its application to these unique facts simply makes no sense,” wrote Justice Ann Walsh Bradley, joined by Justices David Prosser, Patience Roggensack, and Annette Ziegler.

The majority explained that excluding the rental car in this case would nullify Kathryn Bethke’s “prudent planning against catastrophic loss,” because section 344.51(1m) limits the liability of rental car companies to $50,000, a minimal amount.

“Self-insurers are not covered because [Auto-Owners] expects that the Bethkes will collect a judgment from a self-insurer that fully addresses their damages,” wrote Justice Bradley, reversing the lower court rulings. “[Auto-Owners] cannot reasonably expect the Bethkes to collect a judgment that fully addresses their damages from a company whose liability is limited to a minimal amount by statute.”

Dissent

Chief Justice Shirley Abrahamson wrote a dissent (joined by Justices Patrick Crooks and Michael Gableman), sympathizing with the victims but constrained by the policy.

“As much as my sympathies pull me to the result the majority reaches, I cannot join the majority opinion in rewriting the insurance policy to create coverage where none exists under the plain text of the policy,” the chief justice explained.

The dissent noted that under the Bethke policy, underinsured vehicles do not include vehicles owned by self-insurers under any automobile law. And the rental car company was a self-insurer under Wis. Stat. section 344.16, the dissent argued.

Under that provision, car rental companies can qualify as “self-insurers” if they have more than 25 vehicles and obtain a certificate of self-insurance.

The majority argued that under section 344.16, “the legislature sought to ensure that self-insurers can fully satisfy judgments against them by injured accident victims.”

“A self-insured car rental company cannot at the same time enjoy limited liability and be expected to fully satisfy judgments,” Justice Bradley wrote for the majority, which reasoned that sections 344.51(1m) and 344.16 conflict to produce an absurd result.

The dissent disagreed with that assessment.

It said that section 344.51(1m) requires rental car companies to compensate accident victims if a driver who rents a car is negligent in driving it, but this liability is limited.

In contrast, section 344.16 would provide full compensation to a victim if a self-insured car rental company caused the accident through its own negligence.

“Whether Avis has statutory liability for the negligent operation of one of its vehicles by a driver who rented the vehicle or liability for its own wrongdoing, it is a self-insurer under a Wisconsin automobile law,” the chief justice wrote.

The dissent explained that the Bethkes chose a policy with high underinsured motorist coverage limits but containing numerous exclusions, and paid a low premium for it:

“Nothing in the record shows that all automobile liability policies available in Wisconsin exclude self-insurers from underinsured motorist coverage. As fate would have it, however, the Bethke policy does not cover the eventuality that occurred.”

Attorneys

William Te Winkle and Stephanie Waldon of Rohde Dales LLP, Sheboygan, represented the Bethke family. Richard Schmidt, Allen Ratkowski, and Thomas Calkins of Piper & Schmidt, Milwaukee, represented Auto-Owners Insurance Company. William Gleisner, Hartland, filed an amicus brief on behalf of Wisconsin Association for Justice.