At the close of summer, the Wisconsin Court of Appeals rejected an insurance company’s attempt to “double dip” and reduce its underinsured motorist (“UIM”) coverage responsibility to an insured based on a liability payment made to another insured.
The case arose from an automobile accident that caused the death of Michael Shimeta and serious injuries to his passenger, Terry Scheer. The responsible tortfeasor’s liability insurance policy provided for a $250,000 per-person limit and a $500,000 per-accident limit. Because the damages incurred by both Shimeta’s estate and by Scheer exceeded $250,000, both the Estate and Scheer received a $250,000 payment from the tortfeasor’s insurer, Farmers Insurance Company.
Shimeta had auto insurance coverage through Acuity Insurance, which provided that Shimeta would have $500,000 per person and $500,000 per accident in UIM coverage. Scheer, as Shimeta’s passenger, also qualified as UIM insured under the Acuity policy.
After Farmers paid to the extent of its liability limits on the tortfeasor’s policy, Acuity sought a declaratory judgment that it was not required to pay any UIM benefits to the Estate or to Scheer, under Shimeta’s policy. Acuity based its request on the reducing clause applicable to the UIM coverage in Shimeta’s policy; that clause provided, in relevant part:
- The limit of liability shall be reduced by all sums:
- Paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible.
Acuity argued that its UIM coverage was exhausted because the reducing clause meant that the $500,000 per-accident UIM limit was reduced to zero by “all sums” paid by Farmers. To reach that conclusion, Acuity applied against its UIM limit both the $250,000 payment to the Estate and the $250,000 payment to Scheer. Acuity thereby attempted to “double dip,” reducing its $500,000 coverage obligation to Scheer by both the $250,000 payment Farmers made to him and the $250,000 payment Farmers made to Shimeta’s Estate (though Scheer received no benefit from the payment to Shimeta’s Estate). Acuity applied the same logic, in reverse, to disclaim any liability to Shimeta’s Estate.
In response, the Estate and Scheer argued that each was separately owed $250,000 in UIM benefits under the Acuity policy, above and beyond what they had received under the Farmers policy.
The circuit court erroneously held that the language in the contract favored Acuity and declared that the payments made by Farmers meant that Acuity had no obligation to make any payments under Shimeta’s UIM coverage.
The court of appeals reversed, concluding that the reducing clause applies to the $500,000 per-person UIM limit on an individual-insured basis. The court found that, although the clause does not state whether the UIM limit is the per-person limit or per-accident limit, use of the singular “the bodily injury” indicates that it operates on an individualized basis. The court found several additional sources of support for its interpretation: in the definition of “bodily injury,” which is in the singular; in the statement of UIM coverage, which states that it pays damages for “bodily injury” to “an insured person”; and in the definition of “underinsured motor vehicle,” which is defined by comparing the limits for bodily injury liability, which are also known as per-person liability limits. By contrast, the reducing clause did not state that the limit of liability is reduced by sums paid for all bodily injuries to all insureds.
After determining that the reducing clause applied to the per-person UIM limit separately, the court concluded that Acuity was able to reduce the amount it owed to the Estate and Scheer by only $250,000, thereby entitling each to a $250,000 UIM payment from Acuity. The court reached this conclusion by determining that the policy language gave Acuity a right to reduce its $500,000 per-person limit for Scheer by Farmers’ $250,000 payment to Scheer, but it cannot also reduce that limit by Farmers’ $250,000 payment to the Estate. Likewise, Acuity can reduce its $500,000 per-person limit for the Estate by Farmers’ $250,000 payment to the Estate, but not to also reduce that limit by the payment made to Scheer. In its conclusion, the court notes that Acuity will not ultimately pay more than the amount of $500,000 UIM coverage purchased by Shimeta.
The main takeaway from this decision is the court of appeals’ clear rejection of Acuity’s attempt to “double dip” and reduce its coverage responsibilities to an insured based on a liability payment made to another insured. When an insured purchases UIM coverage, he or she is purchasing a predetermined, fixed amount of coverage, which may be reduced by any payment made to him or her on behalf of an underinsured motorist. The Acuity decision makes clear that UIM coverage cannot also be reduced by payments made to a different insured, absent a policy provision authorizing such a reduction.
 Acuity v. Estate of Shimeta, No. 2020AP189 (Ct. App. Aug. 31, 2021) (recommended for publication).