The Wisconsin Court of Appeals recently held that Wisconsin law precludes enforcement of a provision in an insurance policy that purported to limit underinsured motorist (“UIM”) coverage to only those insureds who sustain bodily injury or death.

Ryan Johnson died from injuries sustained in a collision involving an underinsured vehicle. Johnson’s minor son, Elliot Brey, filed a claim against State Farm—his mother’s automobile insurance carrier—seeking to recover damages resulting from his father’s wrongful death. State Farm refused to compensate Elliot, relying on a clause in the policy’s UIM provision that limited damages to bodily injury suffered by an insured. State Farm reasoned that, because Johnson was not an insured under the policy, the UIM coverage did not cover Elliot’s damages for loss of monetary support as a result of his father’s death.

In relevant part, the UIM provision at issue provides:

We will pay compensatory damages for bodily injury an insured is legally entitled to recover from the owner or driver of an underinsured motor vehicle. The bodily injury must be:

  1. sustained by an insured; and
  2. caused by an accident that involves the ownership, maintenance, or use of an underinsured motor vehicle as a motor vehicle.

(emphases in original)

It is undisputed that Elliot was covered as an insured under the policy. And it is undisputed that Johnson sustained a bodily injury as a passenger in an underinsured motor vehicle. Likewise, the parties agreed that, as written, the UIM provision at issue excludes coverage of Elliot’s wrongful death claim. The sole issue on appeal was whether the UIM provision complied with the minimum coverage requirements of Wis. Stat. § 632.32.

The relevant statutory provisions include subdivisions (1) and (2)(d). Subdivision (1) states that every automobile insurance policy issued in Wisconsin must comply with the various subparts of section 632.32, including the UIM provision found in subpart (2)(d). Notably, Wisconsin law does not mandate that insurance providers provide UIM coverage, but they must offer it. And if the insured accepts the offer, the UIM coverage provided must meet the requirements of Wis. Stat. § 632.32(2)(d), which provides:

‘Underinsured motorist coverage’ means coverage for the protection of persons insured under that coverage who are legally entitled to recover damages for bodily injury [or] death … from owners or operators of underinsured motor vehicles.

At first blush, extending Elliot’s claim for compensation for Johnson’s death under UIM coverage might seem far-fetched. But, as the Court of Appeals concluded, a careful parsing of the relevant statutory language supports his claim.

The Court held that the unambiguous, plain meaning of Wis. Stat. § 632.32(2)(d) precludes an insurer from limiting UIM coverage to only those situations in which the policy’s insured has sustained bodily injury. Breaking the statute down, the Court found that UIM coverage must protect any person who makes a UIM claim so long as three elements are satisfied:

(1) the claimant is insured under the UIM coverage of the policy;

(2) the claimant is legally entitled to recover damages for bodily injury or death; and

(3) the claimant is legally entitled to recover damages from an owner or operator of an underinsured motor vehicle.

In limiting the necessary elements to these three factors found in the statutory text, the Court rejected State Farm’s effort to read into the statute an additional requirement that the insured must be the one to suffer physical bodily injury.

Applied to the case at hand, the limitation provision on which State Farm relied to deny Elliot’s claim was more restrictive than state law allows for UIM coverage. Elliot was an insured under his mother’s State Farm policy; he was legally entitled to recover damages for his father’s bodily injury or death; and he was legally entitled to make that recovery from the operator of the underinsured vehicle in which his father died. Because Elliot’s claim met all three requirements and yet was not compensable under State Farm’s policy, the policy’s UIM provision failed to provide the coverage consistent with Wisconsin law and was therefore unenforceable .

This decision underscores that insurance companies cannot enforce insurance policies contrary to Wisconsin law. This seems elementary, but it is an important concept, especially because, as in Elliot’s case, some claims that initially seem tenuous are protected by the statutes. With over 2 million registered automobiles in Wisconsin, it is incumbent on attorneys practicing insurance law to think carefully about how the language in each policy relates to the relevant statutory requirements.

Law Clerk Isaac Brodkey assisted with researching and writing this post.