Sept. 29, 2016 – Passengers seriously injured in a multi-car accident are not covered by an insured driver’s underinsured motorist policy because a policy exclusion barred coverage when the insured driver was at-fault, a state appeals court has ruled.

Amanda Swedlund had an auto insurance policy with Mid-Century Insurance Company when she was involved in a car accident. Jessica Pierce, Zachary Pierce, and Brenden Pepper were passengers in the vehicle. It was determined that Swedlund was at-fault.

Her auto insurance policy covered liability up to $500,000. She also had underinsured motorist coverage up to $500,000, in case an accident involved an underinsured driver.

The passengers, and others, sued Swedlund and Mid-Century Insurance, claiming the accident occurred in part because of Swedlund’s negligent driving. They sought coverage under Swedlund’s auto policy. Mid-Century paid the $500,000 liability limit.

Apportioned to multiple accident victims, the payment was not enough to fully compensate the passengers for their injuries. Thus, they claimed coverage under Swedlund’s underinsured motorist (UIM) policy, which defined “insured person” as any person “occupying your insured car.” That would seem to include any passenger.

But Mid-Century Insurance argued that a policy exclusion applied. A provision in the UIM policy said “an underinsured motor vehicle does not include a land motor vehicle … insured under the liability coverage of this policy.”

The passengers argued that this exclusion was unenforceable under Wis. Stat. section 632.32, which covers provisions in motor vehicle policies. The circuit court in Green County dismissed the passengers’ claims, concluding the provision was not prohibited.

In Pierce v. Mid-Century Ins. Co., 2015AP002408 (Sept. 29, 2016), a three-judge panel for the District IV Court of Appeals Court affirmed, concluding the exclusion clause at issue was not prohibited and the passengers were not covered under the UIM policy.

The Statutory Squabble

Wis. Stat. section 632.32(6)(b)2.a prohibits policies from excluding coverage to “any person who is a named insured or passenger in or on the insured vehicle” with respect to bodily injury or death. The passengers cited this provision to make their case.

But, as the panel explained, Mid-Century argued that section 632.32(5)(e) “allows enforcement of certain exclusions that would otherwise be prohibited by 632.32(6).”

Section 632.32(5)(e) says “a policy may provide for exclusions not prohibited by sub.(6) or other applicable law. Such exclusions are effective even if incidentally to their main purpose they exclude persons, uses or coverages that could not be directly excluded under sub.(6)(b).” This provision, Mid-Century argued, saves the exclusion.

The three-judge panel agreed with Mid-Century.

“[W]e agree with Mid-Century that the exclusion excludes insured-vehicle passengers only incidentally to the exclusion’s main purpose, which we conclude is more accurately characterized as preventing a policy’s UIM coverage from, in effect, acting as supplementary liability coverage under the same policy,” wrote Judge Paul Lundsten.

The panel said the exclusion prevents passengers from accessing UIM coverage as “supplementary liability coverage” when the driver is at-fault. The result could be different, the panel explained, if a third-party driver caused the passengers’ injuries.