Preventing a Plaintiff’s Attempt to “Read In” Underinsured Motorists Coverage in an Umbrella Policy
Under Wis. Stat. § 632.32(4m), insurers must provide notice of the availability of underinsured motorists coverage under umbrella policies that insure against liability “for loss or damage resulting from an accident caused by any motor vehicle” and “against loss resulting from liability imposed by law for bodily injury or death suffered by a person arising out of the ownership, maintenance or use of a motor vehicle.”[i] In addition to proper notice, the insurer must provide a sufficient definition of the purpose of UIM insurance.[ii] Should an insurer fail to provide the requisite notice, a court will automatically find $50,000/$100,000 UIM limits under the umbrella policy.[iii] It does not matter whether the insured would have purchased UIM coverage at the time the insurer offered the policy, thus the only inquiry is whether the insurer initially provided both proper notice of the availability of that insurance under the policy and a definition of the purpose of UIM insurance in general.[iv]
This article addresses the methods of meeting the statutory requirements outlined by the Wisconsin Supreme Court for proper explanation and notice of UIM coverage under an umbrella policy. It also suggests some methods that an attorney defending an insurer against a claim that the insurer failed to meet the statutory requirements could use to prove that the insurer provided adequate notice and explanation of UIM insurance.
The Notice Requirement Under Wisconsin Statute § 632.32(4m).
The Wisconsin Supreme Court first analyzed the effect of Wis. Stat. § 632.32(4m) on an umbrella policy in Rebernick v. Wausau Gen. Ins. Co.[v] There, the Rebernicks, American Family Mutual Insurance Company’s insureds, carried multiple lines of insurance including automobile insurance and an umbrella policy.[vi] Their underlying automobile insurance had UIM limits of $100,000 per person and $300,000 per accident.[vii] Even though their umbrella policy offered UIM coverage, they did not have any UIM coverage under that policy.[viii]
After Dale Rebernick was severely and permanently injured in an automobile accident, the Rebernicks sued American Family for additional funds under the umbrella policy, even though that policy “expressly excluded UIM coverage.”[ix] They argued that American Family failed to notify them that they could purchase such coverage under the umbrella policy, in violation of Wis. Stat. § 632.32(4m), which, they asserted, required such notice.[x]
American Family moved for summary judgment, arguing that the notice provision of the statute did not apply to umbrella policies. The circuit court granted American Family’s motion and the Rebernicks appealed.[xi] In a split decision, the court of appeals affirmed the circuit court under a somewhat different rationale. Both the majority and the dissent agreed that the notice provision in Wis. Stat. § 632.32(4m) applied to umbrella policies and that the statute imposed a duty on American Family to both explain the purpose of UIM coverage and notify them of the availability of that coverage.[xii] The court split on the issue of whether American Family provided sufficient notice that UIM coverage was available under their umbrella policy, with the majority holding that American Family’s notice was sufficient.[xiii] The Rebernicks petitioned for certification, which the Supreme Court.
The statute requires, first, that the insurer give notice that UIM coverage is available under the policy and, second, that the notice adequately explain the purpose of UIM coverage.[xiv] The Supreme Court agreed with the court of appeals that Wis. Stat. § 632.32(4m) requires that an insurer give notice of the availability of UIM coverage under an umbrella policy. “[I]f a policy under sec. 632.32(4m), [Stats.], does not already include UIM coverage, ‘an insurer’ writing such policies must ‘provide to one insured’ under the policy ‘written notice of’ the ‘availability of UIM coverage, including a ‘brief description’ of such coverage.”[xv]
Thus, according to the plain language of the statute, as interpreted by Rebernick, an insurer is required to give both its existing and new insureds notice of the availability of UIM coverage in an umbrella policy.
A. Fulfilling the Notice and Explanation Requirements Under Wisconsin Statute § 632.32(4m).
The Supreme Court held that American Family satisfied both requirements under Wis. Stat. § 632.32(4m). The Rebernick Court held that American Family provided sufficient notice under the statute because, one week before issuing the umbrella policy, American Family “provided a general notice regarding the availability of UIM in its policies.” That, coupled with the specific exclusion of UIM coverage in the umbrella policy, sufficed to alert the Rebernicks of the availability of UIM coverage under their umbrella policy.[xvi]
The Rebernicks were “apparently aware of the availability of UIM coverage before receiving any required notice because they had requested such coverage in their underlying primary auto policy before receipt of such notice.”[xvii] American Family issued their underlying primary auto policy on April 29, 2001.[xviii] American Family also included the following notice when it issued the primary auto policy to the Rebernicks:
SPECIAL NOTICE TO POLICYHOLDERS
This special notice is being given in accordance with Wisconsin law to advise you of the availability of Underinsured Motorist (UIM) coverage. If you do not presently carry UIM coverage, this message is especially important to you.
Underinsured Motorist coverage provides payment for legally collectible damages for bodily injury or death if you or any person riding in your vehicle is injured or killed in an accident with a vehicle whose driver has insurance coverage that is less than the limit of your underinsured motorist coverage.
Please see the actual policy for exact terms and conditions.
Contact your American Family agent if you have questions about this coverage.[xix]
Accordingly, on April 29, 2001, American Family both advised the Rebernicks of the availability of UIM coverage and provided them with a basic description of the nature of such coverage. “The terms of the notice do not limit its application to only primary or underlying policies.”[xx]
Merely advising the Rebernicks of the availability of UIM coverage under their auto policy would not have been sufficient to satisfy the notice requirement for the umbrella policy. However, American Family provided sufficient notice of UIM coverage under its umbrella policy, in any event. In addition to the general notice sent by American Family to its insureds, the umbrella policy also included an exclusion that expressly excluded UM/UIM claims unless the policy was endorsed to cover such claims:
Uninsured/Underinsured Motorists. We will not cover any claims which may be made under Uninsured Motorists Coverage, Underinsured Motorists Coverage or similar coverage, unless this policy is endorsed to provide such coverage.[xxi]
The Court reasoned that this clause in the umbrella policy also alerted the Rebernicks that UIM coverage was available under that policy by way of an endorsement. This clause “alone would not be enough to constitute notice of the availability of UIM coverage in an umbrella policy pursuant to [sec.] 632.32(4m). [Stats.], because it does not contain the statutorily required ‘brief description of the coverage’.”[xxii] Taken together with the notice letter, however, American Family met the statutory requirements. Thus, the reception of the notice letter, coupled with the specific exclusion of UIM coverage in the umbrella policy, sufficed to alert the Rebernicks of the availability of UIM coverage under their umbrella policy.[xxiii]
In Stone v. Acuity, however, the Court held that Acuity did not satisfy the requirements of the statute.[xxiv] There, Acuity initially issued the Stones’ auto insurance and personal umbrella endorsement in April 1993.[xxv] Beginning in 1996, Acuity sent out notices of availability of UIM coverage on auto renewal policies in order to comply with revisions to Wis. Stat. § 632.32(4m). However, at that time Acuity did not offer UIM coverage for umbrella policies like the Stones’.[xxvi]
Acuity only began offering UIM coverage in its umbrella policies in 1999. It then provided notice to newapplicants, but did not provide notice of the availability of UIM coverage to existing umbrella policyholders, such as the Stones. Thus, the Court reasoned, the Stones never received notice that UIM coverage was available as part of their umbrella insurance.[xxvii] “It would be meaningless to provide notice of the availability of UIM coverage when that type of coverage was, in fact, not available.”[xxviii] Furthermore, the three-year gap between the initial notice sent by Acuity and the year in which Acuity began offering UIM coverage in its umbrella policies did “not let insureds know about [UIM coverage] becoming available” in their umbrella policy.[xxix]
Taking the holdings in Rebernick and Stone together, several “rules” become clear. An insurer does not satisfy the requirements of Wis. Stat. § 632.32(4m) merely by explaining the purpose of UIM coverage and providing notice of its existence at some point in time. Instead, the insurer must ensure that the notice of the availability of UIM coverage is sent contemporaneously at the time that UIM coverage becomes available under an umbrella policy. Furthermore, the insurer must also send that notice to both existing and new insureds at the time it becomes available. The content of that notice must not only explain that UIM coverage is now available under the umbrella policy, but also explain the purpose of UIM coverage and define the concept of UIM insurance. Under the analyses in both Rebernick and Stone, those actions appear to be sufficient to satisfy the requirements under sec. 632.32(4m), Stats.
B. The Effect of an Insurer’s Failure to Fulfill the Notice Requirement Under Wisconsin Statute § 632.32(4m).
In Rebernick, the Court found that American Family satisfied the statute’s notice provision. There, the Rebernicks argued that if American Family failed to fulfill the statutory requirements, the Court should reform the umbrella policy and “read in” $1 Million of UIM coverage. The court of appeals’ majority expressed some reluctance with that concept, noting that “[r]eformation of an insurance policy may be warranted [only] if the policy, as issued, reflect[ed] a mutual mistake by the contracting parties.”[xxx] The dissent, however, suggested that a violation of the notice provision in Wis. Stat. § 632.32(4m) required the retroactive imposition of UIM coverage if “the insureds would have purchased [UIM] coverage.”[xxxi] Since the Supreme Court found that American Family did not violate the statute, it declined to address that issue at that time.
It was not until Stone, supra, that the Supreme Court had the opportunity to revisit the effect of an insurer’s failure to satisfy Wis. Stat. § 632.32(4m)’s notice requirement.[xxxii] As discussed above, the Stone Court found that Acuity failed to satisfy sec. 632.32(4m)’s notice requirement.[xxxiii] “Having concluded that Acuity violated [the statute] . . . there remain[ed] a question of the appropriate remedy for such a violation.”[xxxiv]
“Under Wis. Stat. § 631.15(3m), a ‘policy that violates a statute or rule is enforceable against the insurer as if it conformed to the statute or rule.’ ”[xxxv] The Court therefore reasoned that one possibility for remedying a violation of the statute was forcing Acuity to provide retroactive coverage in the full amount of the umbrella policy limits, $1 Million. Another was to force Acuity to provide retroactive coverage only at the minimum levels of coverage set forth in the statute, $50,000 per person and $100,000 per accident.[xxxvi]
Retroactive imposition of UIM coverage, and how much UIM coverage to impose, was a question of first impression in Wisconsin. Therefore, the Court looked to other jurisdictions and learned treatises for instruction.[xxxvii] A leading treatise on UM and UIM insurance asserts that “legislation mandates that when an insurer fails to prove an effective offer [UIM coverage as part of an auto liability policy], the insurer must provide the minimum coverage required to be offered to the purchaser under the statute.”[xxxviii]
After reviewing cases from several other jurisdictions, the Court held that “where an insurer fails to provide adequate notice of the availability of UIM coverage, the appropriate remedy is to read in only the minimum level of UIM coverage required under sec. 632.32(4m)(d) -- $50,000 per person and $100,000 per accident.”[xxxix] Thus, a violation of the statute’s notice requirement mandates the automatic retroactive imposition of UIM limits in an umbrella policy in the minimum amount dictated by Wis. Stat. § 632.32(4m)(d).
“[T]he only way for insurance companies to be certain that they have provided proper notice pursuant to sec. 632.32(4m) is to separately provide in each policy for which notice is required the type of notice American Family provided to the Rebernicks in their primary automobile policy.”[xl]
In the event that there is no cut-and-dried notice like the one in Rebernick, a defense attorney should request the insured’s claims file from the insurer. In some cases, all of the correspondence between the insured’s agent and the insured will be kept in that file and will definitively answer the question of whether the insured received the required notice and description of UIM coverage under the umbrella policy. If, however, the agent does not keep all of the mailings sent to the insured, the defense attorney should look to the insurer’s compliance department.
In many cases, an insurer will send form notices to all of its new and existing insureds due to a statutory or legal requirement. In those cases, the defense attorney must determine on what dates the insurer sent the notice and whether the notice was sent to existing insureds, new insureds, or both. The attorney must also ensure that the notice provides sufficient explanation of the purpose of UIM insurance.
Once the defense attorney finds the requisite notice, the attorney must determine whether that sufficiently outlines the availability of UIM coverage in an umbrella policy. If not, then the attorney should review the umbrella policy and its exclusions to determine whether the policy itself details the availability of that coverage.
Assuming that the defense attorney is able to find contemporaneous statutory notice of the availability of UIM insurance under the umbrella policy, as well as an explanation of UIM insurance, the insurer will meet the statutory mandate of Wis. Stat. § 632.32(4m) and no UIM coverage will be "read in" by a court.
[i] Stone v. Acuity, 2008 WI 30, ¶ 26, ____ Wis. 2d ____, 747 N.W.2d 149 (quoting Wis. Stat. §§ 632.32(1) and 632.32(4m)).
[iii] Id., 2008 WI 30, ¶ 2.
[iv] Id., 2008 WI 30, ¶ 41.
[v] 2006 WI 27, 289 Wis. 2d 324, 711 N.W.2d 621.
[vi] Id., 2006 WI 27, ¶ 4.
[vii] Id., 2006 WI 27, ¶ 3.
[xi] Rebernick, 2006 WI 27, ¶¶ 5-7.
[xii] Id., 2006 WI 27, ¶ 7.
[xiv] Rebernick, 2006 WI 27, ¶ 7 (citing Wis. Stat. § 632.32(4m)).
[xv] Id., 2006 WI 27, ¶ 32 (quoting Wis. Stat. § 632.32(4m)).
[xvi] Rebernick, 2006 WI 27, ¶¶ 34-36 (emphasis in original).
[xvii] 2006 WI 27, ¶ 33.
[xix] Id. at ¶ 34.
[xx] Id. (emphasis added).
[xxi] Id., 2006 WI 27, ¶ 36 (bolding in original).
[xxiii] Id., 2006 WI 27, ¶¶ 34-36.
[xxiv] 2008 WI 30. For a recent criticism of the Supreme Court’s holding in Stone, see, generally, Nault v. W. Bend Mut. Ins. Co., 2008 WI App 91, ¶¶ 29-34 (explaining that because the purposes of umbrella policies are very different than the ones underlying automobile liability policies, “reading in” any amount of UIM coverage under an umbrella policy “makes little sense.”).
[xxv] Id., 2008 WI 30, ¶ 7.
[xxvii] Id., 2008 WI 30, ¶ 8.
[xxviii] Id., 2008 WI 30, ¶ 34.
[xxx] Id., 2008 WI 30, ¶ 7 (citing Rebernick I, 2005 WI App 15, ¶ 12, 278 Wis. 2d 461, 692 N.W.2d 348).
[xxxi] Rebernick, 2006 WI 27, ¶ 58 (Butler J., dissenting).
[xxxii] See, generally, Stone, 2008 WI 30.
[xxxiii] Id., 2008 WI 30, ¶ 37.
[xxxiv] Id., 2008 WI 30, ¶ 38.
[xxxv] Stone, 2008 WI 30, ¶ 38.
[xxxvi] Id., 2008 WI 30, ¶¶ 42-43 (citing Wis. Stat. § 632.32(4m)(d)).
[xxxvii] Stone, 2008 WI 30, ¶ 47.
[xxxviii] Id., 2008 WI 30, ¶ 48 (quoting 3 Alan I. Widwiss & Jeffrey E. Thomas, Uninsured and Underinsured Motorist Insurance, § 32.7 (3d ed. 2005)).
[xxxix] Stone, 2008 WI 30, ¶ 61. This holding, however, does not similarly impose the same rule for UM coverage. See, generally, Etter v. State Farm Mut. Auto. Ins. Co., 2008 Wisc. App. LEXIS 802.
[xl] Rebernick, 2006 WI 27, ¶ 38.