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Published: July 16, 2008
Author: Gesina (Ena) Seiler
The Wisconsin Supreme Court recently held that when an insurer fails to provide the notice of the availability of UIM coverage as part of an umbrella insurance policy, the appropriate remedy is to read in the level of coverage necessary for the policy to conform to the UIM limits contained in Wis. Stat. § 632.32(4m)(d), specifically $50,000 per person and $100,000 per accident.
For several years the insurance industry and its counsel struggled with the implications of the Rebernick v. Wausau General Ins. Co decision. In Rebernick, the Supreme Court decided that an insurer was required to provide notice to an insured of the availability of underinsured (UIM) coverage in an umbrella policy. If the insurer did not provide the proper notice, the umbrella policy was reformed to include UIM coverage. However, the Rebernick court, while announcing that the umbrella policy must be reformed to include UIM coverage, failed to address the very important question of what the UIM limits would be when these policies were reformed.
Insurers and their counsel speculated that there were three possible options for the reformed UIM limits: (1) statutory minimums of $50,000/$100,000; (2) what the insured would have purchased had he or she received proper notice (the intent of the insured); or (3) the underlying umbrella policy limits, which are generally $1 million or more. Insurers were in the unenviable position of potentially paying huge UIM claims because of the inherently large policy limits of umbrella policies. In the very recent case, Stone v. Acuity, the court answered this question; it held that an umbrella policy, where proper Rebernick notice was not provided to the insured, is reformed as a matter of law to provide the statutory minimum UIM coverage of $50,000 per person and $100,000 per accident.
In Stone, Acuity provided $300,000 of automobile liability insurance, including $300,000 of UIM coverage, and a $1 million umbrella policy to the Stones. Acuity originally issued the Stones' auto insurance and personal umbrella endorsement in 1993. Beginning in 1996, Acuity sent out notices of the availability of UIM coverage on auto renewal policies in order to comply with the newly enacted notice requirements of Wis. Stat. § 632.32(4m). However, at that time Acuity did not offer UIM coverage for umbrella policies. In 1999 Acuity began offering UIM coverage for its personal umbrella policies. It then provided notice of the availability of such coverage to new applicants only; it did not provide notice of the availability of UIM coverage to existing personal umbrella policyholders, including the Stones. Thus, the Stones never received notice that UIM coverage was available as part of their umbrella insurance.
Mr. Stone was seriously injured in an auto accident and received $510,000 from the tortfeasor and her insurer. Acuity reserved its right to appeal the denial of its summary judgment motion and entered into a stipulation with Stone that it would pay $500,000 if UIM coverage was found on appeal. This stipulation limited Acuity's exposure under the Stones' $1 million umbrella policy.
The court first determined that Acuity's 1996 notice of the availability of UIM in its auto polices was not sufficient to notify insureds that UIM umbrella coverage would became available in 1999. Therefore, the notice sent out for the Stones' personal automobile policy renewal in 1996 failed to satisfy the notice requirements of Wis. Stat. § 632.32(4m). The court ruled that the stipulation providing for $500,000 of UIM coverage was binding on Acuity.
The court then addressed the general question of an insured's remedy when an insurer violates the notice provision, the all-important question that was left unanswered by Rebernick. The court decided that when an insurer fails to provide notice of the availability of umbrella UIM coverage, the policy is reformed to provide $50,000 per person and $100,000 per occurrence.
Bottom Line
The Stone decision is the best possible outcome for the insurance industry given the existence of Rebernick. However, another UIM case summarized in this issue, Nault v. West Bend, suggests that the "appropriate remedy" may be revisited again in the near future because the law as applied provides virtually no UIM umbrella coverage when one considers the catastrophic protection contemplated by umbrella policies.
Insurance companies should provide notice of availability of UIM coverage to current and future umbrella policyholders. However, insurers should also consider lobbying the legislature to codify both the UIM notice requirements and UIM minimums for umbrella policies. The Government Relations Group at Axley Brynelson is always available to assist you will all of your lobbying needs.
Gesina (Ena) M. Seiler is an attorney in the areas of general civil litigation, insurance defense, medical malpractice defense, legal malpractice defense, municipal and school district defense, personal injury and employment law. For more information, contact Ms. Seiler at 608.283.6787 or gseiler@axley.com.
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