Timothy Barber
Timothy Barber

Wisconsin Legislature Plays Ping Pong With Auto Insurance Laws

April 26, 2011

Two years ago, the Wisconsin Legislature made several significant changes to the laws governing automobile insurance policies as part of the 2009-2010 bi-annual budget bill (known as “Truth in Auto Insurance Legislation”). These changes were motivated, in part, to reverse the changes to the law that were enacted in the 1995 “Tort Reform” legislation. Now, the legislature has again turned the tables and enacted 2011 Wis. Act 14, which basically undoes nearly all of the changes made to auto insurance law in the 2009-10 budget bill. Confused yet?

Changes to Mandatory Minimum Levels of Insurance Coverage 
Before 2009, Wisconsin law did not require drivers to have automobile insurance, and instead required drivers to possess “proof of financial responsibility” in the event of an accident — although an insurance policy with certain limits qualified as proof of “financial responsibility.”

The 2009 Truth in Auto Insurance Law changed this and required that all Wisconsin drivers possess automobile liability insurance with certain minimum levels of coverage. The 2009 law increased the mandatory minimum insurance policy limits required to provide “proof of financial responsibility” for operating a motor vehicle from $25,000 to $100,000 per person and from $50,000 to $300,000 per occurrence. It also increased mandatory property damage coverage in automobile liability polices from $10,000 to $25,000 and raised the mandatory minimum coverage for medical payments from $1000 to $10,000.

Under 2011 Wis. Act. 14, these increased mandatory limits are reduced back to the levels required before the Truth in Auto Insurance Law was passed. However, the 2011 legislation retains the requirement that all drivers possess automobile liability insurance. Therefore, the minimum level of coverage required is now $25,000 per person; $50,000 per accident; $10,000 for property damage and $1,000 for medical payments.

Uninsured Motorist Coverage
Before 2009, insurance policies were required to contain uninsured motorist coverage with limits of $25,000 per accident and $50,000 per occurrence. The Truth in Auto Insurance Law raised those minimums to $100,000 per person and $300,000 per occurrence. The 2009 law also clarified that an “uninsured motorist” included a driver that caused an accident and fled the scene but did not actually impact the injured person’s vehicle — a “miss-and-run” accident or “phantom vehicle.”

The 2011 law reduces the minimum levels of required uninsured motorist coverage to their pre-2009 levels. It also modifies the definition of “uninsured motorist” to exclude so-called “phantom vehicles” that do not make physical contact with the insured’s vehicle. Uninsured motorist coverage is available for damages caused by so-called “phantom vehicles” only if:

  1. An independent witness verifies the existence of the vehicle;
  2. The insured notifies police of the accident within 72 hours, and;
  3. Within 30 days the insured files a statement, under oath, with his insurer attesting to the accident.

Finally, the new law provides that government vehicles are not included in the definition of “uninsured motor vehicle.”

Underinsured Motorist Coverage
The 2009 Truth in Auto Insurance Law mandated that every policy of automobile insurance contain underinsured motorist coverage with limits of $100,000 per person and $300,000 per occurrence. 2011 Wis. Act 14 abolishes the requirement that insurance policies provide mandatory underinsured motorist coverage. Insurers now need to provide only a written offer of coverage of $50,000 per person and $100,000 per accident.

The 2009 legislation also required insurers to offer all customers supplemental underinsured and uninsured motorist coverage in all umbrella policies and authorized a court to “reform” a policy that failed to offer this coverage. The new 2011 law removes the requirement that insurers provide a written offer of supplemental uninsured and uninsured motorist coverage when writing umbrella policies. Umbrella policies can be written without this supplemental coverage.

The 2011 law also changes the definition of what constitutes an “underinsured motor vehicle.” Prior to the 2009 legislation, insurers could offer underinsured motorist coverage that defined an “underinsured motor vehicle” as:

  1. A motor vehicle with policy limits less than what was necessary to compensate the injured driver, or;
  2. A motor vehicle with policy limits less than the limits of the injured driver’s policy limits.

Most insurers adopted the second definition, which courts described as providing a “fixed, pre-determined amount of coverage,” and had the effect of reducing underinsured motorist coverage available by any monies paid by the negligent driver. In other words, if an insured purchased a policy with underinsured motorist limits of $100,000 and a negligent driver injured him but had $50,000 in coverage available, the insured would have only $50,000 of underinsured motorist coverage available.

The 2009 Truth in Auto Insurance Law prohibited insurers from using the second definition and instead required all policies to utilize the first definition, such that a driver’s underinsured motorist coverage would be triggered anytime the at-fault driver’s limits were less than what was necessary to cover his injuries, and the insured would be entitled to the full limit of underinsured motorist coverage listed in the policy. The 2011 law allows insurers to utilize either definition.

Stacking and Reducing Clauses 
The 2009 Truth in Auto Insurance Law made it illegal for insurers to include provisions in their policies that reduced the amount of coverage by any amount the insured received from other sources to cover his or her injuries. Once the 2011 law becomes effective, insurers can again include clauses in their policies that reduce the amount of coverage available to an insured by the amounts paid by a negligent driver, monies paid under worker’s compensation law, and any disability payments the insured received.

The 2009 legislation also made it unlawful for insurance companies to prohibit “stacking” of insurance coverage when an insured purchased multiple policies that covered the same risk. Under the new 2011 law, insurers can once again prohibit insureds from “stacking” the coverage limits of multiple policies.

Commercial Liability Policies
The new law defines “commercial liability policy” to mean a policy that is intended principally to provide primary coverage for an insured’s general liability arising out of its business or other commercial activities but that includes coverage for the insured’s liability arising out of the ownership, maintenance, or use of a motor vehicle as one component of the policy. Under the new law, “commercial liability policies” are not subject to the same required mandatory coverage and limits provisions as are personal liability policies.

Effective Dates 
The changes made under the 2009 Truth In Auto Insurance Law were effective as to policies issued or renewed on or after November 1, 2009. The changes made in the 2011 legislation are effective as to policies issued or renewed on or after November 1, 2011.

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