Kenneth A. Folkman, Sr. v. Sheri A. Quamme
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2003 WI 116 SUPREME COURT CASE NO.: OF WISCONSIN 02-0261 COMPLETE TITLE: Kenneth A. Folkman, Sr., Debra J. Folkman and Kenneth A. Folkman, Jr., Plaintiffs-Appellants, v. Sheri A. Quamme, State Farm Mutual Automobile Insurance Company and Keith A. Folkman, Defendants, Society Insurance, Defendant-Respondent-Petitioner. REVIEW OF A DECISION OF THE COURT OF APPEALS 2002 WI App 237 Reported at: 257 Wis. 2d 864, 652 N.W.2d 406 (Ct. App. 2002-Published) OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: March 4, 2003 SOURCE OF APPEAL: COURT: COUNTY: JUDGE: Circuit Brown Mark A. Warpinski JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: CROOKS, J., did not participate. July 16, 2003 ATTORNEYS: For the defendant-respondent-petitioner there were briefs by James W. Mohr, Jr. and Mohr & Anderson, LLC, Hartford, and oral argument by James W. Mohr, Jr.. For the plaintiffs-appellants there was a brief by George Burnett and Liebmann, Conway, Olejniczak & Jerry, S.C., Green Bay, and oral argument by R. George Burnett. 2003 WI 116 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 02-0261 (L.C. No. 01 CV 517) STATE OF WISCONSIN : IN SUPREME COURT Kenneth A. Folkman, Sr., Debra J. Folkman and Kenneth A. Folkman, Jr., Plaintiffs-Appellants, FILED v. Sheri A. Quamme, State Farm Mutual Automobile Insurance Company and Keith A. Folkman, JUL 16, 2003 Cornelia G. Clark Clerk of Supreme Court Defendants, Society Insurance, Defendant-Respondent-Petitioner. REVIEW of a decision of the Court of Appeals. ¶1 DAVID T. PROSSER, J. Reversed. This is a review of a published decision of the court of appeals1 that reversed a judgment of the Circuit Court for Brown County, Mark A. Warpinski, Judge. The circuit court dismissed Society Insurance (Society) from this action after determining that the automobile insurance policy 1 Folkman v. Quamme, 2002 WI App 237, 257 Wis. 2d 864, 652 N.W.2d 406. No. that Society issued to Debra Folkman (Debra) 02-0261 limited the insurer's liability for bodily injury to $50,000 per accident, regardless of the number of insureds. The court of appeals reversed, finding that the "split liability limits" endorsement for bodily injury in Debra's policy was ambiguous when read in context with another portion of the endorsement. perceived ambiguity, the court concluded that Given this the policy's limits of liability should be read to apply separately to each insured's liability accident, for including sponsorship. As a bodily injury vicarious result, arising liability Society was from from required a single parental to tender $125,000 in fulfillment of its coverage obligations to the three members of the Folkman family who incurred liability for bodily injuries from an accident caused by the family's 17-year-old son. ¶2 We conclude that the insurance policy at issue in this case unambiguously limited Society's liability to $50,000 for bodily injury arising from this accident. The limits of liability provisions in the policy cannot reasonably be read, either alone or in the context of the entire policy, to grant liability single coverage accident negligent. in in an which amount only greater one than insured $50,000 was for a actively Accordingly, we reverse the court of appeals and reinstate the circuit court's judgment dismissing Society from this action. ¶3 policy We are also asked to determine whether the insurance at issue violated a variety 2 of Wisconsin statutes No. 02-0261 governing automobile insurance policies and whether the policy, as written, liability was illusory. clause in We conclude Society's policy that the does limits not of violate Wis. Stat. §§ 632.32(3)(b), 632.32(5)(f), or 641.43(1), is not illusory, and is enforceable.2 I ¶4 On the morning of April 11, 1998, 17-year-old Keith Folkman was driving a vehicle owned by his parents, Debra and Kenneth Folkman, Sr., when it collided with another vehicle. Debra and another son, Kenneth Folkman, Jr., were passengers in the car. The accident caused Debra to suffer severe injuries to both of her legs, her right shoulder, and her tailbone, and to lose hearing in her left ear. For these injuries, incurred approximately $76,000 in medical expenses. Kenneth Jr. became accident.3 permanently paralyzed as a Debra Meanwhile, result of the Both Keith Folkman and Sheri Quamme, the driver of the other vehicle, were at fault for the accident, since Keith was speeding and Quamme failed to yield the right of way. 2 All references to the Wisconsin Statutes are to the 200102 version unless otherwise noted. 3 The amount of Kenneth Jr.'s bodily injury expenses, whether past, present, or future, is unclear from the record. However, because this action involves competing motions to establish the outer limits of Society's liability for this accident, it is not necessary, at this time, for a value to be attributed to these expenses. The Folkmans' attorney averred that the value of Debra and Kenneth Sr.'s claims exceeds Society's policy limits, whether such limits are $50,000 or $125,000. 3 No. ¶5 02-0261 The car driven by Keith was insured under a Society Insurance "personal auto policy" issued to the policy's named insured, Debra Folkman. The policy also covered Kenneth Folkman Sr., Keith Folkman, and a third son, who was age 16, as drivers. Both of Keith's parents had sponsored Keith's license to drive. As a result, Society insured both Debra and Kenneth Sr. for sponsorship liability imputed to them by Keith's negligence.4 ¶6 included According a "split to its limit of declarations liability" for page, the bodily policy injury of $25,000 for "each person" and $50,000 for "each occurrence."5 The effect of the policy's limits of liability is explained in a section of the main policy labeled "Part A LIABILITY COVERAGE." This section begins with Paragraph A of the "Insuring Agreement," which provides: We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the "insured." We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for 4 Under Wis. Stat. § 343.15(1), when a person under age eighteen applies for a license, the application must be signed and verified by an adult sponsor. Under § 343.15(2)(b), any negligence of a person under eighteen in operating a motor vehicle is imputed to the person's parents, where both have custody and either signed as a sponsor. 5 The declarations page also specifies that there is a $25,000 limit of liability for property damage for each occurrence. There is no issue regarding property damage liability in this appeal. 4 No. 02-0261 this coverage has been exhausted. We have no duty to defend any suit or settle any claim for "bodily injury" or "property damage" not covered under this policy. An endorsement changed the fifth sentence of this paragraph to read: "However, our duty to settle or defend any suit ends after our limit of liability has been offered or paid." ¶7 Part A of the Liability" section. policy also includes a "Limit of Paragraph A of this section provides, in full: LIMIT OF LIABILITY The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for all damages resulting from any one auto accident. This is the most we will pay regardless of the number of: 1. "Insureds;"6 2. Claims made; 3. Vehicles or premiums shown in the Declarations; or 4. Vehicles involved in the auto accident. This language reflect a in the single Stat. § 344.33(2) insurance $25,000 policy's limit requires policy issued per person and bodily injury. liability." in printed of that was written liability. an Wisconsin $50,000 per form Wisconsin automobile provide accident in to a liability minimum coverage of for This statute usually produces "split limits of These split limits of liability were noted on the 6 There is no dispute that Debra, Kenneth Sr., and Keith were "insureds" for purposes of liability coverage from the April 11, 1998, accident at issue in this case. 5 No. 02-0261 declarations page and printed as a separate endorsement entitled "Split Liability Limits" that was added to replace Paragraph A and to explain the difference between the "per person" and "per occurrence" amounts. This endorsement, the language of which is at the heart of the case, is replicated as it appears in the policy as follows. ¶8 After Society made several attempts to resolve its coverage obligations for the accident, Kenneth Sr., Debra, and 6 No. 02-0261 Kenneth Jr. (the Folkmans)7 jointly brought suit against Keith and Society, in addition to Quamme and her automobile insurer, to collect damages related to bodily injuries stemming from the accident. accident Society acknowledged Keith's responsibility for the and its resultant obligation to provide coverage. Accordingly, it filed a motion seeking to deposit $50,000 with the circuit court and then be dismissed from the action. Society reasoned that the $50,000 amount represented its full liability limit for the accident. ¶9 The Folkmans opposed the motion, contending Debra's policy required Society to pay $125,000. that They arrived at this figure as follows: (1) Keith had liability to Debra and Kenneth Jr., for a maximum of $25,000 to each of them; (2) Debra was liable to Kenneth Jr. as Keith's sponsor for a maximum of $25,000; and (3) Kenneth Sr. was liable to both Debra and Kenneth Jr. as Keith's sponsor, for a maximum of $25,000 to each of them. The Folkmans $50,000 "per separately to argued that Society's occurrence" each of the limits three $25,000 of "per liability insureds. person" must They and apply sought a declaratory ruling that the foregoing were the correct limits of Society's obligation for liability coverage. 7 Kenneth Sr., Debra, and Kenneth Jr. are the plaintiffs in this action and will be collectively referred to as "the Folkmans," unless it is necessary to identify them as individuals. 7 No. ¶10 court After the construed parties the presented Folkmans' arguments, policy to the limit 02-0261 circuit Society's liability to $50,000 per accident, regardless of the number of insureds liable for that accident. In doing so, the court disposed of the Folkmans' various statutory arguments seeking to void the policy's limit of liability clause. Accordingly, the court denied the Folkmans' motion for a declaratory ruling and ordered that Society be dismissed from the action upon deposit of $50,000 with the Clerk of the Circuit Court. Shortly thereafter, Society deposited $50,000 with the court and was formally dismissed.8 ¶11 The Folkmans appealed. The court of appeals addressed only the issue of whether Society's policy was ambiguous as to whether multiple insureds under the policy. share a single limit of liability Folkman v. Quamme, 2002 WI App 237, ¶1, 257 Wis. 2d 864, 652 N.W.2d 406. The court of appeals held that Society's limits of liability for bodily injury were ambiguous when read in conjunction with another portion of the policy's split liability limits endorsement and, because of this ambiguity, the policy should be construed against the drafter, Society. Id., ¶17. Consequently, the court determined that the policy's limits of liability should be read to apply separately to each insured's liability in 8 a single accident and that Two months later, by stipulation of the parties, Keith Folkman was dismissed, with prejudice, from the action. The record indicates that Quamme's automobile insurer had previously agreed to pay its policy limits of $150,000 to Debra and Kenneth Jr. in exchange for a Pierringer release from the action. 8 No. 02-0261 Society was obligated to pay up to its limits of liability for each of the three insureds under the policy. Id. Society petitioned this court for review, which we granted. II ¶12 Insurance contract interpretation presents a question of law that is reviewed de novo. Danbeck v. Am. Family Mut. Ins. Co., 2001 WI 91, ¶10, 245 Wis. 2d 186, 629 N.W.2d 150; Smith v. Atl. Mut. N.W.2d 597 (1990). general contracts polices. Ins. Co., 155 Wis. 2d 808, are applied Co. to v. the Am. language Employers Wis. 2d 722, 735, 351 N.W.2d 156 (1984). to give expressed in the 456 The same rules of construction that govern Kremers-Urban construed 810, effect to language the of Ins. insurance Co., 119 An insurance policy is intent the in of policy. the parties Danbeck, as 245 Wis. 2d 186, ¶10. ¶13 Therefore, the first issue in construing an insurance policy is to determine whether an ambiguity exists regarding the disputed coverage issue. Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶51, 255 Wis. 2d 61, 647 N.W.2d 223. Insurance policy language is ambiguous "if it is susceptible to more than one reasonable interpretation." Danbeck, 245 Wis. 2d 186, ¶10. If there is no ambiguity in the language of an insurance policy, it is enforced as written, without resort to rules of construction or applicable principles of case law. Mut. Auto. (1998). Ins. Co., 222 Id.; Hull v. State Farm Wis. 2d 627, 637, 586 N.W.2d 863 If there is an ambiguous clause in an insurance policy, 9 No. 02-0261 we will construe that clause in favor of the insured. See Smith, 155 Wis. 2d at 811. III ¶14 In one sense, this case concerns the amount that Society must pay the Folkmans in satisfaction of its liability insurance coverage for the bodily injuries suffered in Keith's automobile accident. Society's coverage interpretations contest The parties present varying amounts for the of obligations the effect based policy. of the In on radically particular, policy's "limits different the of parties liability" provisions, with Society arguing that the most it agreed to pay for liability arising out of any one accident is $50,000 and the Folkmans contending that each insured is governed by his or her own $25,000/$50,0000 $125,000. "limits of liability," for a total of The resolution of this specific dispute will have ramifications on insurance coverage well beyond these litigants. ¶15 In another sense, this case is about the way courts interpret insurance policies. The case provides an opportunity to discuss ambiguity and the effect it has on insurance policy construction. We begin our discussion with a recitation of general principles. ¶16 Our goal in interpreting insurance contracts discern and give effect to the intent of the parties. is to Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 536, 514 N.W.2d 1 (1994). Insurers have the advantage over insureds because they draft the contracts. Thus, courts construe ambiguities in coverage in 10 No. 02-0261 favor of the insureds and narrowly construe exclusions against insurers. ¶17 contract "'what See Smith, 155 Wis. 2d at 811. As a "is the general given rule, its reasonable the common, person language ordinary in the an meaning," position would have understood the words to mean.'" in of insurance that the is, insured Arnold P. Anderson, Wisconsin Insurance Law § 1.1(C) (4th ed. 1998) (citing KremersUrban, 119 Wis. 2d at 735; Richie v. Am. Fam. Mut. Ins., 140 Wis. 2d 51, 54, 409 N.W.2d 146 (1987)). ¶18 Some ambiguity is unavoidable because words are unable to anticipate every eventuality. But other ambiguity is the result of the insurer's imperfect preparation of the policy. A clearly written policy promotes a good relationship between the insurer and the insured and protects the insured from future misunderstandings. The insurer's best defense against an unwarranted but appealing claim is an unambiguous policy. ¶19 Occasionally a clear and unambiguous provision may be found ambiguous in the context of the entire policy. Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, ¶35, 236 Wis. 2d 113, 613 N.W.2d 557; see also Frost v. Whitbeck, 2002 WI 129, ¶18, 257 Wis. 2d 80, 654 N.W.2d 225; Badger Mut. v. Schmitz, 2002 WI 98, ¶37, 255 Wis. 2d 61, 647 N.W.2d 223; Taylor v. Greatway Ins. Co., 2001 WI 93, ¶26, 245 Wis. 2d 134, 628 N.W.2d 916. dislike this principle. Yet, the opposite Insurers principle that courts must mechanically apply a clear provision regardless of the ambiguity created by the 11 organization, labeling, No. explanation, inconsistency, omission, and text of 02-0261 the other provisions in the policy is not acceptable. ¶20 Courts will interpret the words of an insurance contract against the insured when the interpretation conforms to what a reasonable person in the position of the insured would have understood the words to mean. McPhee v. Am. Motorists Ins. Co., 57 Wis. 2d 669, 676, 205 N.W.2d 152 (1973). But courts will not surrender the authority to construe insurance contracts in favor of the insured when a policy is so "ambiguous or obscure," Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621 (1992), or deceptive that it befuddles the understanding and expectations of a reasonable insured. ¶21 There ambiguity. clause or is complementary principle to contextual Sometimes it is necessary to look beyond a single sentence agreement. a The to capture language of the a essence policy of should an not insurance be made ambiguous by isolating a small part from the context of the whole. 2 Lee R. Russ & Thomas S. Segalla, Couch on Insurance 3d § 21:14 (3d ed. 1999 & Supp. 2002). conclude that the limits of Applying this principle, we liability in the Folkman policy regarding Society's coverage obligations are not ambiguous. IV ¶22 Last term, this court held in Badger Mutual Insurance Co. v. Schmitz, 2002 WI 98, 255 Wis. 2d 61, 647 N.W.2d 223, that a reducing clause in an automobile insurance policy affecting an insured's underinsured motorist (UIM) coverage became ambiguous when it was read in the context of the entire policy. 12 Id., No. ¶¶72, 75. 02-0261 We reached this conclusion even though the reducing clause itself was unambiguous when read in isolation and even though the clause was Wis. Stat. § 632.32(5)(i). ¶23 written in conformity with Id., ¶61. In deciding the Schmitz case, three members of this court disagreed with the conclusion that the reducing clause at issue was coverage. ambiguous relation to ¶¶76-85 Id., in (Crooks, J., Justices Wilcox and Sykes). the operation dissenting) of (joined UIM by However, the principle of ambiguity in context was not assailed by the dissent; it was embraced. Id., ¶79 (Crooks, J., dissenting) ("I agree with the majority that Dowhower insurance and Taylor policy can be recognized ambiguous that within language the in an context of the whole policy."). ¶24 The principle of contextual ambiguity is established precedent. contract As a general matter, it has long been a rule of construction in Wisconsin that "the meaning of particular provisions in the contract is to be ascertained with reference to the contract as a whole." 13 Tempelis v. Aetna Cas. & No. Sur. Co., 169 Wis. 2d 1, 9, 485 N.W.2d 217 (1992).9 02-0261 In Dowhower, decided in 2000, all seven members of this court applied this principle and agreed that "a reducing clause may be ambiguous within the context of the insurance contract." Wis. 2d 113, ¶35. Dowhower, 236 In that case, five members of our court voted to remand the action for consideration of whether the particular reducing clause was ambiguous within the context of the insurance contract, while two members of the court found the contract unambiguous and opposed remand. ¶25 The principle of contextual Id., ¶35.10 ambiguity was again recognized a year later in Taylor v. Greatway Insurance Co., 2001 WI 93, ¶26, 245 Wis. 2d 134, 628 N.W.2d 916, another case involving UIM coverage. The majority, in holding that the insured was not entitled to UIM coverage under the circumstances of that case, stated: 9 See also Crown Life Ins. Co. v. LaBonte, 111 Wis. 2d 26, 36, 330 N.W.2d 201 (1983) ("It is a cardinal rule of contract construction that the meaning of a particular provision in a contract is to be ascertained with reference to the contract as a whole."); Kraemer Bros., Inc. v. U.S. Fire Ins. Co., 89 Wis. 2d 555, 562, 278 N.W.2d 857 (1979); Ketay v. Gorenstein, 261 Wis. 332, 333-334, 53 N.W.2d 6 (1952); Hampton Plains Realty Co. v. Cohen, 214 Wis. 128, 130, 252 N.W. 572 (1934) ("It is well established that in construing a particular provision of a written instrument the entire agreement must be looked to as a whole for the purpose of giving to each provision of the contract its intended meaning.") (citing cases). 10 Although Justice Bradley ultimately joined in the mandate to remand, she wrote separately to explain her conclusion that the policy was ambiguous. Dowhower v. West Bend Mut. Ins. Co., 2000 WI 73, ¶37, 236 Wis. 2d 113, 613 N.W.2d 557 (Bradley, J., concurring). Justice Bradley was joined in her concurring opinion by Chief Justice Abrahamson. Id., ¶55. 14 No. 02-0261 The definition of underinsured vehicle in American Family's policy is unambiguous within the context of the entire policy. We find nothing in the rest of American Family's policy that obscures the unambiguous definition of underinsured vehicle. . . . Because the definition of underinsured vehicle in each of American Family's policies is unambiguous standing on its own and in the context of the whole policy, we do not need to engage in construction to determine Taylor's reasonable expectations of coverage. Id., ¶27 (citing Kremers-Urban, 119 Wis. 2d at 735, 351 involved UIM N.W.2d 156) (emphasis added). ¶26 Dowhower, Taylor, and Schmitz each coverage in automobile insurance policies. contextual ambiguity may apply to other The principle of insurance contract provisions, but it came to the forefront in UIM cases because few areas contested of and automobile so insurance vexing to law have courts. See been so hotly Dowhower, 236 Wis. 2d 113, ¶¶22-31; Schmitz, 255 Wis. 2d 61, ¶¶25-34. ¶27 Society expresses concern that the principle of contextual ambiguity creates a slippery slope, opening up every insurance clause in a contract to reinterpretation in context. Society claims that it can never be certain where courts will "strike next" in finding contextual ambiguity and maintains that it will be faced with the impossible task of drafting perfect documents coverage. to avoid Society disruption argues of its emphatically intended that clear insurance language should be construed as it stands and that other portions of the policy should not be considered, unless the contested portion refers the insured to another part of the policy. 15 No. ¶28 02-0261 Society asserts that other states have not adopted the methodology this court followed in Schmitz. It presents the following language from the Supreme Court of North Dakota in support of this proposition: Generally, we attempt to ascertain the parties' intent through the language of the insurance contract itself. We look first to the language of the insurance policy, and if the policy is clear on its face, our inquiry is at an end. . . . An ambiguity in an insurance policy exists when good arguments can be made for two contrary positions about the meaning of a policy term. Dundee Mut. Ins. Co. v. Marifjeren, 587 N.W.2d 191, 193-94 (N.D. 1998) (emphasis added). This language does not mean that a clear phrase within a policy can never be rendered ambiguous by contradictory language elsewhere in the policy. We think the North Dakota high court is discussing how a policy that, as a whole, is clear on its face should not be rummaged through to unearth some type of latent ambiguity. any authority insurance another for policy portion the proposition provision of the that same 16 is Society has not cited that an directly policy will otherwise clear contradicted not be in deemed No. ambiguous.11 that 02-0261 We would point to Couch on Insurance, which notes "where a interpretation, provision illogically is subject located and to more labeled than one within the policy, and inconsistent with other provisions, it will be found to be ambiguous." ¶29 Russ & Segalla, supra, § 21:14. We agree with Society that any contextual ambiguity in an insurance policy must be genuine and apparent on the face of 11 To the contrary, courts from other states commonly, if not uniformly, recognize the possibility of contextual ambiguity for insurance policy provisions. See, e.g., Lumbermens Mut. Cas. Co. v. Offices Unlimited, Inc., 645 N.E.2d 1165, 1166-67 (Mass. 1995) ("we recognize that words, which are clear by themselves, may become ambiguous when read in the context of an insurance policy"); Parker-Bigback v. St. Labre Sch., 7 P.3d 361, 368 (Mont. 2000) (finding contextual ambiguity in a contract); State Farm Mut. Ins. Co. v. Pitman, 809 A.2d 1280, 1282 (N.H. 2002) ("we address whether the application of the term ['accident'] in the context of uninsured motorist insurance is susceptible to more than one reasonable interpretation"); Am. Family Mut. Ins. Co. v. Elliot, 523 N.W.2d 100, 102 (S.D. 1994) ("Ambiguity in an insurance policy is determined with reference to the policy as a whole and the plain meaning and effect of its words."); N. Sec. Ins. Co. v. Hatch, 683 A.2d 392, 396-97 (Vt. 1996) ("It is common for ambiguity to arise in the context of different, but related, parts of an insurance policy."); Panorama Vill. Condo. Owners Ass'n Bd. of Dirs. v. Allstate Ins. Co., 26 P.3d 910, 924 (Wash. 2001) ("The reasonableness of the interpretations [to establish ambiguity in an insurance policy] is determined with regard to the contract as a whole."). Of course, occasionally the principle of reading a policy in its entire context helps to alleviate any ambiguity that may exist in a provision when it is read standing alone. See, e.g., Palmer v. Truck Ins. Exch., 988 P.2d 568, 575 (Cal. 1999) ("Where, as here, the meaning of the policy term is clear from the context of the policy as a whole, no ambiguity exists."); Towns v. Vermont Mut. Ins. Co., 726 A.2d 65, 67 (Vt. 1999) ("ambiguity does not arise by isolating a word or phrase from the overall context of a contract"). 17 No. 02-0261 the policy, if it is to upset the intentions of an insurer embodied in otherwise clear language. The test for determining whether contextual ambiguity exists is the same as the test for ambiguity in any disputed term of a policy. That is, are words or phrases of an insurance contract, when read in the context of the policy's other language, reasonably or fairly susceptible to more than one construction?12 The standard for determining a reasonable and fair construction is measured by the objective understanding of an ordinary insured. See Gen. Cas. Co. of Wis. v. Hills, 209 Wis. 2d 167, 175, 561 N.W.2d 718 (1997) (citing Sprangers, 182 Wis. 2d at 536).13 ¶30 The issue then is, what degree of contextual ambiguity is sufficient to engender an objectively reasonable alternative meaning and, thereby, policy language? disrupt an insurer's otherwise clear On this matter we acknowledge an unintended 12 See, e.g., Dowhower, 236 Wis. 2d 113, ¶34; Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 536-37, 514 N.W.2d 1 (1994); Garriguenc v. Love, 67 Wis. 2d 130, 135, 226 N.W.2d 414 (1975); Wheelwright v. Pure Milk Ass'n, 208 Wis. 40, 46, 240 N.W. 769 (1932) ("It is probably accurate to say that the language of a contract is ambiguous . . . when it may reasonably be taken in more than one sense."). 13 We reject Society's argument that, in order for claims of ambiguity to go forward, there must be some credible evidence that an insured read the policy at issue and was reasonably confused about the policy language in question. We have long held that the test for ambiguity in an insurance contract is what a reasonable person in the position of the insured would have understood the words to mean. See, e.g., Mau v. N.D. Ins. Reserve Fund, 2001 WI 134, ¶13, 248 Wis. 2d 1031, 637 N.W.2d 45. This test is objective and one of law, not subjective and requiring a case-by-case factual finding of an insured's actual understanding. 18 No. effect of some language we used in Schmitz. 02-0261 In that decision, we summed up Dowhower as saying "that reducing clauses must be crystal clear in the context of the whole policy" for insureds to understand what Wis. 2d 61, ¶46. they are purchasing. Schmitz, 255 A series of court of appeals decisions decided post-Schmitz reveals that our admonition of "crystal clarity" has been used to alter the focus.14 analytical Rather than assessing whether a policy, as written, is ambiguous in context, insurers are being required to undertake explanatory responsibilities in drafting policies. affirmative, Aspirational goals and admonitions on how to avoid ambiguity are admittedly different from minimum legal standards. ¶31 Schmitz and its predecessors do not demand perfection in policy draftsmanship. These decisions advise insurers to draft policies in a clear manner if they upset the reasonable expectations of insureds. To prevent contextual ambiguity, a 14 See Gohde v. MSI Ins. Co., 2003 WI App 69, ¶¶6, 8, ___ Wis. 2d ___, 661 N.W.2d 470 ("Although a reducing clause may comply with the statute's language, the clause may still be unenforceable if its effect is not 'crystal clear in the context of the whole policy.'") (citing Schmitz, 255 Wis. 2d 61, ¶46); Dowhower ex rel. Rosenberg v. Marquez, 2003 WI App 23, ¶¶22-23, 260 Wis. 2d 192, 659 N.W.2d 57 ("Schmitz teaches us that in order for the policy to explain the effects of the reducing clause with crystal clarity, all of the provisions helping the insured navigate his or her way through the policy must be consistent with one another and with the reducing clause."); Hanson v. Prudential Prop. & Cas. Ins. Co., 2002 WI App 275, ¶18, 258 Wis. 2d 709, 653 N.W.2d 915 ("Even if the reducing clause conformed to Wis. Stat. § 632.32(5)(i), it is not 'crystal clear' within the context of the whole policy.") (quoting Schmitz, 255 Wis. 2d 61, ¶46). 19 No. policy should build up avoid false inconsistent expectations, and reasonable alternative meanings. are consonant contracts. with provisions, Wisconsin 02-0261 provisions provisions that that produce These standards for clarity law on ambiguity in insurance See, e.g., Smith, 155 Wis. 2d at 811; see also Hause v. Bresina, 2002 WI App 188, ¶8, 256 Wis. 2d 664, 649 N.W.2d 736 ("a policy is not ambiguous simply because the insured has offered a 'remotely possible second interpretation'") (quoting United States Fire Ins. Co. v. Ace Baking Co., 164 Wis. 2d 499, 503, 476 N.W.2d 280 (Ct. App. 1991)). ¶32 Ferreting through a policy to dig up ambiguity should not be judicially rewarded because this sort of ambiguity is insufficient. Rather, inconsistencies in the context of a policy must be material to the issue in dispute and be of such a nature that a reasonable insured would find an alternative meaning. ¶33 In analyzing contextual ambiguity, the policy must be taken as it is written. Society argues that the ambiguity- producing sentence attached to the paragraph addressing property damage in the policy's "split liability limits" endorsement could have been eliminated in its entirety, and the absolute $50,000 liability abundantly clear. limit for each accident would remain It argues that, since this case has nothing to do with property damage, this sentence should be ignored if it is construed to apply only to the property damage paragraph. ¶34 is in The problem is that the ambiguity-producing sentence the policy. Courts cannot 20 engage in a fiction that No. conflicting language in the policy does not 02-0261 exist. Courts interpret insurance policies that do exist, not those that could have or should have existed. It is well understood that "[n]o contract of insurance should be rewritten by construction to bind an insurer to a risk which it did not contemplate and for which it was not paid." Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621 (1992) (citing Inter-Ins. Exch. v. Westchester Fire Ins. Co., 25 Wis. 2d 100, 104, 130 N.W.2d 185 (1964)). corollary of this rule is that ambiguity-producing cannot be deleted to cure ambiguity. attempting to make a reasoned The language After all, an insured interpretation of his or her policy may not ignore language that is seemingly relevant to a provision whose meaning is being ascertained. ¶35 In the present case, the theory of interpretation advanced by the court of appeals and the Folkmans is that the location of the ambiguity-producing sentence in the paragraph on property damage liability means, by negative implication, that its absence in the bodily injury liability paragraph changes the limitations in that paragraph. While we reject this interpretation as being unreasonable for an ordinary insured, we cannot do so by simply erasing the actual language from the policy. Whatever ambiguity is created by the location of the "This is the most we will pay" sentence, it should be evaluated in the context of the whole policy. V ¶36 Our rejection of Society's proposals to reconstruct the rules of insurance contract interpretation does not resolve 21 No. the central bodily question injury to limits this of case: Is the operation liability in the 02-0261 of Folkmans' the policy ambiguous to a reasonable insured, even when those provisions are read in the context of the entire policy? ¶37 To answer this question we must look to the language of the policy. "generally the We start with the declarations page, which is portion of an insurance policy to which the insured looks first," Schmitz, 255 Wis. 2d 61, ¶62, and "is the most crucial section of the policy for the typical insured." Dowhower, 236 Wis. 2d 113, ¶40 (Bradley, J., concurring). ¶38 The declarations page provides that Society's limits of liability for bodily injury are split limits, with $25,000 for each person and $50,000 for each occurrence. The juxtaposition of "each person" with "each occurrence" under the limits of liability heading implies that the $25,000 limit is for each injured person, not each insured, capped at $50,000 per occurrence. This has been the interpretation of this standard provision for many years. The page also makes clear that the named insured has paid the premium for bodily injury liability coverage for two vehicles, one of which Keith was driving at the time of the accident. We see no ambiguity on the declarations page that could imply more extensive coverage. ¶39 The next critical portion of the policy is the "Split Liability Limits" endorsement endorsement. discusses only The bodily first injury paragraph of liability. the It unambiguously specifies the maximum amount that will be paid out by and on behalf of all insureds 22 is "our maximum limit of No. 02-0261 liability for all damages . . . from any one accident." Again, this language states: The limit of liability shown in the Schedule or in the Declarations for each person for Bodily Injury Liability is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of "bodily injury" sustained by any one person in any one auto accident. Subject to this limit for each person, the limit of liability shown in the Schedule or in the Declarations for each accident for Bodily Injury Liability is our maximum limit of liability for all damages for "bodily injury" resulting from any one auto accident. (Emphasis added.) ¶40 According to this language, the $25,000 limit is the maximum Society is liable for when one person is injured in an accident and the $50,000 limit is Society's maximum exposure, regardless of the number of people injured in one automobile accident. a reading As the court of appeals recognized, "It is plain from of this entire section, in conjunction with the declaration page, that Society is not agreeing to pay for all damages for which 'any "insured" becomes legally responsible,' but only for those damages within the 'limit of liability.'" Folkman, 257 Wis. 2d 864, ¶10. ¶41 Nonetheless, the Folkmans argue, first, that Debra, Kenneth Sr., and Keith were each separately insured under the policy, which Society concedes. of Liability" on They note next that the "Limits the declarations page does not explain how these limits apply when more than one insured is liable for bodily injury resulting from a single accident. The Folkmans then assert that this same "ambiguity" exists with respect to 23 No. the paragraph on endorsement. bodily injury in the split 02-0261 liability limit They contend that this paragraph does not inform an insured whether the limit of liability is the "maximum" it will pay for each insured or whether the limit of liability is the "maximum" Society will pay regardless of the number of people it insures. ¶42 We do not perceive portions of the policy. any latent ambiguity in these Instead, the Folkmans must add the words "for each insured" to the endorsement for it to acquire the meaning they offer. We may not judicially revise policy language in this manner. See Frost, 257 Wis. 2d 80, ¶17 ("If the language of an insurance policy is unambiguous, a court will not rewrite the policy by construction and will interpret the policy according to its imposing contract plain and obligations ordinary that the meaning parties to avoid did not undertake."). ¶43 We must keep in mind that the Folkman policy is not novel. It is a standard policy comparable to hundreds thousands of automobile insurance policies in Wisconsin. The basic provisions have been interpreted countless times. were the first court to see this policy, we might of If we be more amenable to the statements by the court of appeals that "it is still not clear how the 'limit of liability' on the declaration page is to apply when more than one insured is liable for bodily injury caused Wis. 2d 864, 'maximum by ¶10, limit of an and accident," "it is liability' Folkman reasonable to 24 mean to the v. read Quamme, the maximum 257 phrase limit of No. 02-0261 liability for all insureds, rather than for each insured," id., ¶12. But we are not the first court to see this policy. ¶44 Given the policy's long history of interpretation, the insurer would have relied on the language at issue to limit its total liability for personal injury to $50,000 per occurrence or accident. If the insurer were not relying on this language to limit its liability, it could never be certain what its total liability would be. To illustrate this point using the Folkman theory, suppose that the Folkman car hit another vehicle and four people in the other car were badly injured. If Mrs. Folkman were driving alone, the insurer's total liability for one "insured" would be $50,000. If one of the Folkman children were driving, the liability would be $150,000 because of the vicarious liability of the two parental sponsors. If the other Folkman insured were in the car and found to be contributorily negligent, the liability would be $200,000. If the policy limits had been $200,000 per occurrence instead of $50,000, the potential liability would have climbed to $800,000. The Folkmans' interpretation is not a reasonable interpretation of the policy because it eviscerates any limit of liability. ¶45 A policy is normally interpreted objectively according to its terms. the insured Thus, the subjective interpretation of terms by is not relevant. However, the extent of the insurer's coverage is one of the few terms of the policy that requires discussion between the parties. When Debra Folkman purchased the policy, she must have instructed her agent how much insurance she wanted to purchase, what vehicles she wanted 25 No. 02-0261 to cover, and which drivers she wanted to cover, because this information is reflected on the declarations page. We observe that all coverage to protect other parties was purchased at the minimum level as required by law. Moreover, the policy provides no underinsured motorist coverage to protect the drivers in the Folkman family from the negligence of others. There is no indication that either party actually considered deviating from standard contract terms. ¶46 There is no dispute that Society had a clear limit of liability on "page 3 of 11" of the original policy before the "split liability limits" endorsement. the limit of liability is equally coverage on page "4 of 11." There is no dispute that clear in medical payments It is clear again in the uninsured motorist coverage on page "5 of 11." Why would the insurer change its position in the endorsement so that the limit of liability, "regardless of the number of 'insureds,'" find ambiguity applied only to property damage? ¶47 Moving on, the Folkmans in the placement of the disputed sentence within the endorsement of "Split Liability Limits." The Folkmans observe that the endorsement is split into two paragraphs, one relating to bodily injury and the other to property damage. above, the Folkmans contend that the Id. As alluded to paragraph relating to bodily injury liability does not clearly indicate that Society will pay but one limit of liability regardless of the number of insureds liable for any accident. Meanwhile, the paragraph discussing property damage liability concludes with a sentence 26 No. 02-0261 that reads: "This is the most we will pay regardless of the number of: (1) Insureds; (2) Claims made; (3) Vehicles or premiums shown in the Declarations; or (4) Vehicles involved in the auto accident." The Folkmans contend the preceding sentence applies only to property damage, not bodily injuries, because the sentence is placed in the paragraph on property damage liability and because the use of the pronoun "this" suggests that the sentence only applies to its most immediate antecedent, which is the property damage limits. ¶48 To bolster their view, the Folkmans compare the old Paragraph A of the "limit of liability" section with the change made to the paragraph as a result of the endorsement. Folkmans acknowledge that old Paragraph A of the "Limit The of Liability" section clearly stated that Society would pay but one limit of liability even if more than one insured was responsible for the accident. Unlike this original paragraph, the new paragraph does not suggest the same relationship between policy limits and the number of insureds. On this reasoning, the Folkmans conclude that Society eliminated the "regardless of the number insured" exception to bodily injury liability and confined the passage to property damage. ¶49 For its part, Society concedes that the placement of the "[T]his is the most we will pay" sentence in the paragraph discussing property damage liability was a typographical error. The sentence should be and, according to Society, usually is in a separate paragraph that follows the property damage paragraph. As such, it would complete the language of the endorsement and 27 No. apply to the entirety of the endorsement. 02-0261 Written in this way, it would also mirror the language of the limits of liability paragraph it had replaced. ¶50 Whatever error there may be in the placement or grammatical structure of the "This is the most we will pay" sentence in Society's split liability limits endorsement, the policy remains indemnify its injuries from unambiguous regarding insureds for any accident. one no more Society's than After obligation $50,000 for examining the to bodily whole policy, we find it unreasonable for an insured to infer from this one errant sentence that the insured was greatly expanding the policy's coverage property damage. Society's and confining its liability limit to The function of the endorsement is to limit liability obligations to $50,000 regardless of the number of "insureds." per accident, A reasonable insured would not find the endorsement language, combined with other portions of the policy, to be ambiguous, nor would a reasonable insured expect to receive any greater amount in compensation. 28 No. ¶51 The Society policy at issue in this case is not akin to the insurance policy in Schmitz.15 based on a confluence of factors. would 02-0261 likely believe that the In Schmitz, ambiguity was First, a reasonable insured purchase of, say, $200,000 in underinsured motorist coverage would lead to a $200,000 payment from the insurer depending on the insured's level of damages. In fact, however, because the policy contained a reducing clause, the insurer would never pay $200,000 to the insured, and if the other party paid $200,000, the insurer would pay nothing. We had stated in Dowhower that the effect of the reducing clause should be made clear. ¶52 Dowhower, 236 Wis. 2d 113, ¶33. Second, the effect of the reducing clause was made clear but only in the reducing clause itself. explanation of it. There was no The policy made no reference to underinsured motorist coverage on its declarations page or in its index, so that the insured would have had some difficulty finding the UIM coverage and real difficulty finding the reducing clause on the 15 Schmitz involved a person who was rendered a quadriplegic while a passenger in the vehicle of a driver whose insurance policy had a liability limit of $100,000. Badger Mut. Ins. Co. v. Schmitz, 2002 WI 98, ¶¶8-9, 255 Wis. 2d 61, 647 N.W.2d 223. The insured made a claim under his own policy's UIM coverage, which had a limit set at $250,000. Id., ¶9-10. The insurer applied the policy's UIM reducing clause to reduce its UIM payments by the $100,000 paid by the driver's insurer. Id., ¶11. We found that a reasonable insured would not expect that his recovery, under the UIM provisions of the policy, would be reduced by the payments received from the underinsured motorist. Id., ¶7. Thus, in the context of the entire policy, the reducing clause was ambiguous and rendered the UIM coverage illusory. Id. 29 No. 02-0261 twentieth page of the policy, where it was buried among other provisions. ¶53 limits Third, if the insured found the UIM page, a typical of liability provision followed immediately after the schedule for underinsured motorist coverage. It stated, among other things, "This is the most we will pay, implying that it would pay the policy limits, although it never would. ¶54 Fourth, entitled one of "Availability Wisconsin." It remainder the of read, the of Underinsured in bodily endorsements part, injury "The to the Motorists coverage damages policy up was Coverage- will the the to pay limit of liability you select for underinsured motorists coverage." That sentence implied more than the policy delivered. ¶55 After examining these factors, we said that "the American Merchants policy is a maze that is organizationally complex and plainly contradictory. signals to the insured. Wis. 2d 61, ¶72. and provided policy. ¶56 It sends several It is not user-friendly." false Schmitz, 255 We said the policy was confusing, ambiguous, illusory coverage in the context of the entire Id. In the Folkmans' policy, there is an informative declarations page that lays out the limits of liability. Courts cannot ask for an informative declarations page and then fault the insurer for failing to address every nuance and speculative interpretation of coverage that an insured might raise. The Society policy is clearly organized with a good index that, in four different places, refers to limits of liability. 30 The index No. page states: "Please Endorsements." These Note: There may be State endorsements are then 02-0261 Amendatory listed on the declarations page. ¶57 An insured would have to go to the nineteenth page in the policy, which contains the endorsement for "Split Liability Limits," to notice that the sentence "This is the most we will pay regardless of the number of 'Insureds,'" is contained in the paragraph on property damage. draw the inference that the magically increased coverage The insured would then have to placement for of personal this injury sentence had because the insurer had eliminated its limit of liability from the bodily injury portion of the policy. ¶58 compete Here, an against unreasonable clear text. negative The founded on contradictory language. implication alleged ambiguity is must not We conclude that the limits of liability provision is unambiguous, particularly when it is examined in the context of the whole policy. VI ¶59 In addition to their arguments on ambiguity, the Folkmans present an assortment of statutory violations allegedly caused by the policy's limit of liability clause. The Folkmans argue that the clause, if it is interpreted to deny multiple liability limits to each Folkman facing liability for Keith's accident, contravenes is void, three because it statutes: 632.32(5)(f); and 631.43(1). is illusory and because it Wis. Stat. §§ 632.32(3)(b); The application of these statutes to undisputed facts is a question of law that we review de novo. 31 No. 02-0261 For the reasons discussed below, we conclude that the policy's limits of liability clause is valid and must be enforced. ¶60 Before beginning our analysis of each statute, we observe that the Folkmans' arguments are rooted, to some degree, in an erroneous premise. The Folkmans contend that Society failed to extend coverage to all insureds who were liable for the accident, namely, Keith Folkman (as driver), as well as Debra Folkman and Kenneth Folkman, Sr. (as sponsors of Keith Folkman). This overarching premise is extend coverage to all three insureds. false. Society did The problem the insureds face is not that one or more of them were not covered under the policy. The problem is that the named insured did not purchase a greater amount of per occurrence liability. A. The Omnibus Statute, Wis. Stat. § 632.32(3) ¶61 Wisconsin Stat. § 632.32(3), known colloquially as the omnibus coverage statute, states the following: Required provisions. Except as provided in sub. (5), every policy subject to this section issued to an owner shall provide that: (a) Coverage provided to the named insured applies in the same manner and under the same provisions to any person using any motor vehicle described in the policy when the use is for purposes and in the manner described in the policy. (b) Coverage extends to any person responsible for the use of the motor vehicle. These policy required provisions insures a vehicle are intended listed in "to the make policy, legally sure the when a policy follows the vehicle to provide coverage for individuals that use 32 No. it with permission and are responsible for using it. 02-0261 Insurance companies are prohibited from insuring only certain drivers." Anderson, supra, § 2.2[A] (citation omitted). ¶62 The Folkmans § 632.32(3)(b) to draw claim upon that the language Society in Wis. Stat. violated the omnibus statute by relying on the limits of liability in the policy in this case. The violation occurred, according to the Folkmans, because each dollar Society pays on behalf of one insured (Keith Folkman) subtracts from coverage owed to another (Debra or Kenneth Sr.) and, therefore, coverage has not been extended as required by § 632.32(3)(b). ¶63 The Folkmans' argument regarding the applicability of the omnibus statute fails. In two cases, Miller v. Amundson, 117 Wis. 2d 425, 345 N.W.2d 494 (Ct. App. 1984), and Iaquinta v. Allstate Ins. Co., 180 Wis. 2d 661, 510 N.W.2d 715 (Ct. App. 1993), the court of appeals interpreted the omnibus statute to double liability liability insureds in in the each coverage, notwithstanding policies, because case was viewed as the a the limits negligence separate of rule in Miller and Iaquinta, limitation on two occurrence. Miller, 117 Wis. 2d at 430; Iaquinta, 180 Wis. 2d at 669. the of Under liability conflicts with § 632.32(3)(b) when both the named insured and an additional insured that is "legally responsible for the use of the motor vehicle" are each actively negligent. ¶64 However, in cases of vicarious liability, § 632.32(3)(b) does not extend policy-limits protection to both the tortfeasor and the person or persons vicariously liable for 33 No. the tortfeasor's wrongdoing. 02-0261 See Mills v. Wis. Mut. Ins. Co., 145 Wis. 2d 472, 427 N.W.2d 397 (Ct. App. 1988) overruled on other grounds Wis. 2d 37, by 489 West Bend N.W.2d 915 Mut. Ins. Co. v. (1992);16 Landsinger Playman, v. Am. 171 Family Mut. Ins. Co., 142 Wis. 2d 138, 417 N.W.2d 899 (Ct. App. 1987).17 In Landsinger, the court of appeals held that a person to whom the negligence of another is imputed is not entitled to separate liability coverage under Wis. Stat. § 632.32(3)(b). 142 Wis. 2d at 142-43. Landsinger, In Mills the court specifically held that additional or increased policy limits are not available to a sponsor of a minor driver, since the sponsor's liability is based solely on imputed negligence of the driver. Wis. 2d at 479. In instances where someone Mills, 145 is "legally responsible for the use of a motor vehicle" but where he or she has no liability independent of the negligence of another, a single liability is shared by the tortfeasor and the sponsor.18 16 Playman overruled Mills only with respect to the issue of whether Wis. Stat. § 631.43 applies to insurance coverage that is not mandated by statute. West Bend Mut. Ins. Co. v. Playman, 171 Wis. 2d 37, 43 & n.2, 489 N.W.2d 915 (1992). 17 See also Iaquinta v. Allstate Ins. Co., 180 Wis. 2d 661, 666, 510 N.W.2d 715 (Ct. App. 1993) ("where the negligence of the additional insured is merely imputed to the named insured, or where the named insured is vicariously liable, the holding of Miller is inapplicable and the policy limits expressed in the policy are unaffected by the omnibus statute"). 18 See Arnold P. Anderson, Wisconsin Insurance Law § 2.17[B] (4th ed. 1998) ("Mills is consistent with the theories of parental liability. Whether the claim against parents is based on the sponsorship statute, negligent entrustment or negligence in supervision, there is only one occurrence."). 34 No. The distinction between Miller and Landsinger-Mills 02-0261 reflects this sharing of a single liability. ¶65 We conclude that there is no conflict between Society's limit of liability clause and § 632.32(3)(b), because only Keith Folkman was actively negligent. Sr. are merely vicariously liable. Debra and Kenneth Following Mills and Landsinger, the plaintiffs are entitled to receive collectively from Society only the $50,000 per-occurrence liability limit. As in Landsinger, Debra and Kenneth Sr. each "received the same dollar-for-dollar negligence. protection" Landsinger, 142 as Keith Wis. 2d at did for his 142-43. own Therefore, liability coverage was extended to all those legally responsible for the use of the vehicle and Society's satisfied to the extent of a $50,000 payment. B. obligations were Id. at 143. Anti-Stacking and Wis. Stat. § 632.32(5)(f) ¶66 Wisconsin Stat. § 632.32 exclusions to their automobile allows insurers policies so to long provide as these exclusions are not expressly prohibited under § 632.32(6) or by other applicable law. Wis. 2d 169, 175, 577 Clark v. Am. Family Mut. Ins. Co., 218 N.W.2d 790 (1998). Wisconsin Stat. § 632.32(5)(f) was created in 1995 to permit insurance companies to prohibit insureds from stacking19 insurance coverage 19 The concept of stacking has been previously explained by this court: "Stacking" is just another word to denote availability of more than one policy in reimbursement of the losses of the insured. second insurer's liability does not arise until 35 the the The the No. 02-0261 protection from multiple policies or multiple premiums. Id. at 177 n.3; Anderson, supra, § 2.15[B]. This provision reads: A policy may provide that regardless of the number of policies involved, vehicles involved, persons covered, claims made, vehicles or premiums shown on the policy or premiums paid the limits for any coverage under the policy may not be added to the limits for similar coverage applying to other motor vehicles to determine the limit of insurance coverage available for bodily injury or death suffered by a person in any one accident. Since 1995, cases involving this subsection have been confined to the stacking of uninsured motorist (UM) and underinsured motorist (UIM) coverage.20 ¶67 The Folkmans contend that Wis. Stat. § 632.32(5)(f) authorizes only the inclusion of a limit of liability clause that limits coverage based on the number of vehicles covered under the policy. clause effectively They insist that Society's limit of liability limits liability based on the number of insureds and does not fit within this narrow category of limits policy limits of the first are exhausted; nor does the third's arise until the combined limits of the first and second carriers are exhausted. West Bend Mut. Ins. Co. v. Playman, 171 Wis. 2d 37, 40 n.1, 489 N.W.2d 915 (1992) (quoting P. Pretzel, Uninsured Motorists § 25.5(B)(1972)); see also Carrington v. St. Paul Fire & Marine Ins. Co., 169 Wis. 2d 211, 223, 485 N.W.2d 267 (1992) ("Stacking refers to a situation where an insured attempts to collect reimbursements for the same loss under multiple policies."). 20 See, e.g., Clark v. Am. Family Mut. Ins. Co., 218 Wis. 2d 169, 176 n.3, 577 N.W.2d 790 (1998); Dorschner v. State Farm Mut. Auto. Ins. Co., 2001 WI App 117, ¶12, 244 Wis. 2d 261, 628 N.W.2d 414; Hanson v. Prudential Prop. & Cas. Ins. Co., 224 Wis. 2d 356, 370, 591 N.W.2d 619 (Ct. App. 1999). 36 No. of liability permitted in § 632.32(5)(f). 02-0261 Therefore, the Folkmans assert, the clause is inconsistent with the statute and is void. ¶68 To support prohibition, the this Folkmans theory cite to of strict Blazekovic v. statutory City of Milwaukee, 2000 WI 41, 234 Wis. 2d 587, 610 N.W.2d 467, in which this court interpreted a UM exception in an automobile insurance policy and found it Wis. Stat. § 632.32(5)(j).21 to The be court invalid based its under reasoning primarily on (1) how the policy exception at issue failed to satisfy the statutory requirements of a permissible "drive other car" exclusion; and (2) the court's conclusion that only such exclusions were permitted by the statute. ¶69 We hold that Wis. Stat. § 632.32(5)(f) has no bearing on the circumstances of this case. creating 21 Id., ¶¶21, 42. a traditional limit on Society is not barred from liability for bodily injury Wisconsin Stat. § 632.32(5)(j) states: A policy may provide that any coverage under the policy does not apply to a loss resulting from the use of a motor vehicle that meets all of the following conditions: 1. Is owned by the named insured, or is owned by the named insured's spouse or a relative of the named insured if the spouse or relative resides in the same household as the named insured. 2. Is not described in the policy under which the claim is made. 3. Is not covered under the terms of the policy as a newly acquired or replacement motor vehicle. 37 No. simply because the subsection (5)(f). policy limit is not expressly 02-0261 authorized by The focus of § 632.32(5)(f) is directed at provisions affecting UIM or UM coverage, or other coverage that implicates coverage to more than one vehicle. To read its scope beyond this subject matter is unreasonable and was not seemingly intended by the legislature.22 Furthermore, Blazekovic is not controlling, as its reasoning was limited to a set of facts in relation to § 632.32(5)(j). In fact, Blazekovic lends general credence to a distinction between limits of liability and UIM coverage limits in the context of § 632.32(5). The decision clearly stated that "liability coverage differs from uninsured motorist coverage, and the two are not to be equated. . . . There is no convergence of liability intended a coverage in light of the types of insurance." C. indicia different that and goals the legislature uninsured motorist underlying the two Blazekovic, 234 Wis. 2d 587, ¶¶38-39. "Other Insurance" Provisions and Wis. Stat. § 631.43(1) ¶70 The Folkmans also argue that the limit of liability clause in Debra's policy is void because it violates Wis. Stat. § 631.43(1), which states: 22 The legislative policy behind Wis. Stat. § 632.32(5)(f) is contained in the Legislative Council Information Memorandum 96-25 to 1995 Wisconsin Act 21, which states: "Section 632.32(5)(f), Stats., as created by the Act, permits motor vehicle insurance policies to prohibit 'stacking' of uninsured or underinsured motorist coverage or any other coverage, such as medical payments coverage, provided under the policies." (Emphasis in original.) 38 No. 02-0261 When 2 or more policies promise to indemnify an insured against the same loss, no "other insurance" provisions of the policy may reduce the aggregate protection of the insured below the lesser of the actual insured loss suffered by the insured or the total indemnification promised by the policies if there were no "other insurance" provisions. ¶71 This section expressly prohibits insurance policy provisions, such as anti-stacking clauses, that have the effect of reducing coverage below the total aggregate indemnification promised by multiple policies. See Clark, 218 Wis. 2d at 179. The statute applies only when there are "two or more insurance policies [that] promise to indemnify an insured against the same loss." Martin v. Am. Family Mut. Ins. Co., 2002 WI 40, ¶12, 252 Wis. 2d 103, 643 N.W.2d 452. The "2 or more policies" requirement means that § 631.43(1) will apply only to interpolicy stacking or to intra-policy stacking when two or more premiums are paid within the same policy to cover the same loss. See Carrington v. St. Paul Fire & Marine Ins. Co., 169 Wis. 2d 211, 224, 485 N.W.2d 267 (1992) ("Where an insured pays separate premiums, he or she receives separate and stackable . . . protections whether the coverage is provided in one or more than one policy.").23 ¶72 Clearly, there is no inter-policy stacking at issue in this case, since only one policy was issued to Debra promising 23 See also Playman, 171 Wis. 2d at 40 n.1, 43-44; Agnew v. Am. Family Mut. Ins. Co., 150 Wis. 2d 341, 348-49, 441 N.W.2d 222 (1989) (citing Wood v. Am. Family Mut. Ins. Co., 148 Wis. 2d 639, 651, 436 N.W.2d 694 (1989)); Burns v. Milwaukee Mut. Ins. Co., 121 Wis. 2d 574, 577-78, 360 N.W.2d 61 (Ct. App. 1984); Anderson, supra, § 2.15. 39 No. 02-0261 to indemnify her, Keith, and Kenneth Sr. against bodily injury losses from an accident. See Mills, 145 Wis. 2d at 482.24 Neither is there any intra-policy stacking, because the policy charged only a single premium for bodily injury liability arising from use of the car that Keith was driving during the accident. For the foregoing reasons, the limit of liability clause the in Folkmans' policy is not an "other insurance" clause subject to regulation by § 631.43 and Society's policy did not reduce liability coverage to below the total indemnification promised by the policy.25 24 The court of appeals in Mills mentioned this principle when it stated: "This is not a stacking case under sec. 631.43(1), Stats., because there are not involved two or more policies promising to indemnify an insurer against the same loss." Mills v. Wis. Mut. Ins. Co., 145 Wis. 2d 472, 482, 427 N.W.2d 397 (Ct. App. 1988) (emphasis added). This sentence was appended by a footnote quoting Wis. Stat. § 631.43(1), including its introductory language stating: "When 2 or more policies promise to indemnify an insured against the same loss, no "other insurance" provisions of the policy may reduce the aggregate protection of the insured below . . . ." Id. at 482 n.4 (emphasis added). It is apparent that the court of appeals intended to use the term "insured" as opposed to "insurer" in its sentence. Id. at 487. 25 Nevertheless, the Folkmans argue that Society violated the spirit of Wis. Stat. § 631.43(1) by reducing the aggregate coverage for three insureds (Debra, Kenneth Sr., and Keith) to coverage for only one insured. They cite Schult v. Rural Mutual Insurance Co., 195 Wis. 2d 231, 536 N.W.2d 135 (Ct. App. 1995), to support this contention. 40 No. D. 02-0261 Illusory Coverage ¶73 As a final alternative, the Folkmans argue that the limit of liability clause renders Society's coverage illusory, because it ensures that Society will never cover Debra and Kenneth Sr.'s legal responsibility as sponsors for the accident, despite an express promise to do so. This argument is contingent on the Folkmans establishing that Debra and Kenneth Sr. had a legitimate expectation of separate policy limits. For the reasons expressed earlier in this opinion, the Folkmans are unable to demonstrate that such an expectation exists in the mind of a reasonable insured. ¶74 It is true that Society separately insured Debra and Kenneth Sr., hence promising to provide coverage if they became "legally responsible" for an accident. This observation, however, does not alter the fact that Debra and Kenneth Sr. were Schult does not support the Folkmans' theory under the facts of this case. In Schult, the court of appeals found the limit of liability clause to be an "other insurance" clause because the insured paid more than one premium to insure against the same loss and because he was driving a nonowned vehicle. Id. at 240. Due to the wording of the insurance premiums for his three vehicles, the court of appeals concluded that the insured was entitled to more coverage from an accident while driving a nonowned vehicle than he would have been entitled to had he been driving his own car. Id. at 242. According to the court, "Had [the insured] been driving one of his three covered vehicles, [the injured person]'s recovery would have been limited to $100,000 because each premium insured against liability arising from the operation of the vehicle specified in the policy." Id. (citing Agnew, 150 Wis. 2d at 349) (emphasis added). In the present case, the insured, Keith, was driving an owned vehicle and the liability policy did not charge multiple premiums regarding bodily injury liability for that particular car. 41 No. 02-0261 both extended coverage; they merely happened to share the same liability subject to one limit of liability. The coverage purchased by the Folkmans is not illusory because the policy accurately and fairly set out its liability coverage terms in an unambiguous fashion and coverage was extended to each insured. VII ¶75 For the reasons expressed in this opinion, we hold that the Society insurance policy's provision limiting liability for bodily injures is unambiguous, both standing alone and in the context of the entire policy. Under the policy, Society agreed only to indemnify its insureds for a maximum of $50,000 for bodily injury liability from any one accident. We also conclude that the policy's limit of liability clause did not violate Wis. Stat. §§ 632.32(3)(b), 632.32(5)(f), or 631.43(1) and was not illusory. By the Court. The decision of the court of reversed. ¶76 N. Patrick Crooks, J., did not participate. 42 appeals is No. 1 02-0261
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