April 20, 2023 – The reducing clause in an underinsured motorist insurance policy applied to the per person liability limit and not the per accident limit, the Wisconsin Supreme Court has held (4-3) in Acuity v. Estate of Michael Shimeta, 2023 WI 28 (April 7, 2023).

Justice Jill Karofsky wrote the majority opinion, joined by Justice Ann Walsh Bradley, Justice Patience Roggensack, and Justice Rebecca Dallet.

Chief Justice Annette Ziegler dissented, joined by Justice Rebecca Grassl Bradley. Justice Brian Hagedorn dissented, joined by Justice R.G. Bradley.

Horrific Accident

In November 2018, Michael Shimeta was killed in Portage County when a pickup truck driven by Douglas Curley crossed the centerline and struck a median, then became airborne and crashed down on top of a Jeep driven by Shimeta.

Scherr, a passenger riding in the Jeep, was severely injured.

Curley’s auto insurance policy had a $250,000 per person coverage limit and a $500,000 per accident coverage limit. Curley’s insurer paid Curley and the Estate of Shimeta (Shimeta) $250,000 each.

At the time of the accident, Shimeta carried an insurance policy issued by Acuity. The policy included underinsured motorist (UIM) coverage in the amount of $500,000, with coverage limits of $250,000 per person and $500,000 per accident.

The policy contained a reducing clause that the coverage limits “shall be reduced by all sums … [p]aid because of bodily injury by or on behalf of persons … who may be legally responsible.”

Per Person or Per Accident?

In 2019, Acuity filed for declaratory judgment in Milwaukee County Circuit Court, seeking a declaration that it wasn’t obligated to pay Shimeta or Scherr any more, because the policy allowed it to reduce underinsured motorist (UIM) benefits by the amount paid by Curley’s insurer.

Because Curley’s insurer had paid $250,000 to Shimeta and $250,000 to the passenger, the $500,000 per-accident UIM limit in the Shimeta’s policy had been reached, Acuity argued.

Shimeta and Scherr argued that the reducing clause applied only to per-person payments. Since each had only received $250,000 from Curley’s insurer, each was entitled to an additional $250,000.

The circuit court ruled for Acuity. The estate appealed.

The Wisconsin Court of Appeals reversed. Acuity appealed.

Two Phrases at Issue

Justice Karofsky began her opinion by pointing out that the case centered around the interpretation of two sentence fragments in the reducing clause, which was contained in paragraph two of the limits on liability section: “the limit of liability” and “all sums … [p]aid because of bodily injury.”

Shimeta and Scherr argued that “limit of liability” was the per person limit of liability contained in paragraph one of limits of liability section.

Acuity argued that “limit of liability” meant all sums paid because of bodily injury suffered by a person making a claim against the policy.

Term is Ambiguous

“Limit of liability” as used in the reducing clause was ambiguous, Karofsky concluded, because unlike in paragraph one of the limit of liability section, the term did not refer to both the per person and per accident limit in turn.

“Limit of liability” as used in paragraph two couldn’t apply to both per person and per accident policy, Justice Karofsky reasoned, because it was phrased in the singular.

Acuity argued that when there’s more than one injured insured, paragraph one required that the “limit of liability” to be reduced under paragraph two is the per accident limit.

“But neither paragraph 1 nor the reducing clause actually say that the limit of liability to be reduced changes depending on the number of injured insureds, and Acuity has not pointed us to anywhere else in the policy that does so,” Karofsky wrote.

As a result, Justice Karofsky reasoned, it was unclear that a reasonable insured would know that the limit of liability would change depending on the facts of the case.

“As we have reasoned in previous UIM cases, ‘reducing clauses must be crystal clear in the context of the whole policy,’” Karofsky wrote. “‘Otherwise, insureds are not likely to understand what they are purchasing.’”

Phrase applies to Per Person Limit

Justice Karofsky concluded that a reasonable insured would understand the “limit of liability” to apply to the per person limit, because Acuity conceded that the “limit” in the policy’s definition of an underinsured motor vehicle referred to the per person limit.

It must be, Karofsky wrote, “otherwise Curley would not be underinsured as his policy had equal ‘each accident’ limits and lower ‘each person’ limits than Acuity’s policy.”

Regarding “all sums … [p]aid because of bodily injury” as used in the reducing clause, Justice Karofsky concluded the phrase applied to the per person limit.

Karofsky acknowledged that the phrase “all sums” was broad, but she pointed out that it was qualified by the phrase that immediately followed it: “[p]aid because of bodily injury.”

“The most reasonable interpretation is that the ‘each person’ limit shall be reduced by payments made because of the bodily injury to the insured making the claim,” Justice Karofsky wrote. “The ‘each accident’ limit remains a cap on what Acuity itself will ever pay for a bodily injury resulting from any one accident.”

Ziegler Dissent: ‘Out of Thin Air’

In her dissent, Chief Justice Ziegler argued that the majority had created coverage ‘out of thin air.’

The per person and per accident limits were interlinked, Ziegler argued.

“Because the insureds in this case received from the tortfeasor a combined amount equal to Acuity’s limit, the insureds received exactly the amount they would have gotten from Acuity if the tortfeasor had no insurance at all,” Justice Ziegler wrote.

Hagedorn Dissent: Needless Complexity

In his dissent, Justice Hagedorn wrote that the majority “creates complexity where none is found.”

Shimeta had bargained for a maximum recovery of either $500,000 per person or $500,000 per accident, Hagedorn argued, and that’s what the policy had paid out.

“This isn’t rocket science, and a reasonable insured wouldn’t be confused,” Justice Hagedorn wrote.