Case Law Update: Underinsured Motorist Coverage - Exhaustion Clause

WDC Journal Edition: December 2001
By: Civil Trial Counsel of Wisconsin

Danbeck v. American Family Mutual Insurance Company
___ Wis.2d ___, 629 N.W.2d 150 (2001)
Decided July 6, 2001

Danbeck was insured by American Family, which had $100,000 of Underinsured Motorist (UIM) coverage. Danbeck was seriously injured when a car driven by George Horn struck his bicycle. Horn had $50,000 of liability coverage from Country Mutual Insurance Company. Danbeck settled with Country and Horn for $48,000 and provided a vogt notice to American Family that it intended to pursue a UIM claim and that American Family would be given credit for the full $50,000 limit of Horn's liability policy. American Family refused to substitute its funds and took the position that the UIM coverage was not available because Danbeck had settled for less than Horn's liability limit and therefore had not "exhausted" that limit within the meaning of the American Family policy language necessary to trigger UIM coverage. American Family moved for summary judgment and the trial court denied the motion. The court of appeals reversed and indicated a partial settlement and credit did not satisfy the policy's requirement for coverage. Danbeck v. American Family Mutual Insurance Company, 232 Wis.2d 417, 605 N.W.2d 925 (Ct. App. 1999)

The supreme court indicated American Family's exhaustion provision was not ambiguous. The plain language of the policy required exhaustion "by payment of judgments or settlements." Therefore, a settlement plus credit does not satisfy the requirements of the policy.