This case is Welin v. American Family Mutual Insurance Company, 717 N.W.2d 690 ( Wis. 2006).

 

The case arises from an automobile accident. The liability insurance policy covering Elizabeth A. Pyrzynski, the tortfeasor, provided for a $300,000 policy limit; American Family's underinsured motorist (UIM) coverage of Alison M. Welin, the plaintiff, had limits of $300,000 per person and $300,000 per occurrence. The plaintiff's UIM coverage defined an underinsured motor vehicle as a motor vehicle that is insured with bodily injury liability limits less than the limits of liability of the UIM coverage.

 

Welin received $250,000 of the tortfeasor's $300,000 motor vehicle policy limit; the other person injured in the occurrence (not covered by the same UIM policy as the plaintiff) received $50,000 from the tortfeasor's insurer. The plaintiff's damages exceeded $250,000, and she sought $50,000 from American Family, the difference between what she was paid by the tortfeasor's insurer and the limit of liability under her UIM coverage.

 

Insured brought action against automobile insurer to recover underinsured motorist (UIM) benefits since multiple victims received liability coverage limits which equaled UIM limits. The Circuit Court entered summary judgment in favor of insurer. Welin appealed. Review was granted.

 

In the appeal, the court identified two approaches to UIM coverage. Under one view, UIM coverage compensates an insured accident victim when the insured's damages exceed the recovery from the at-fault driver. The UIM coverage is for a set dollar amount above and beyond the liability limits of the at-fault driver. Under this view, UIM coverage operates as a separate fund, over and above the amount paid by the tortfeasor's insurance, available up to the limit of the UIM policy for the payment of the insured's uncompensated damages.

 

Under the second view, UIM coverage is designed to put the insured in the same position he or she would have occupied had the tortfeasor's liability limits been the same as the UIM limits purchased by the insured. Under this “limits-to-limits” view, an insured purchases a predetermined, fixed level of insurance coverage made up of payments from both the at-fault driver's liability policy and the injured person's UIM policy.

 

In summary, the court concluded that the definition of an underinsured motor vehicle in the policy at issue functions to reduce coverage below the predetermined, fixed amount of coverage purchased by the named insured. Because the reduction contravenes the purpose of UIM coverage and is not for amounts paid by a legally responsible person to the named insured, the provision is not authorized under Wisconsin law. “Tying the availability of UIM coverage to the amount of the tortfeasor's liability limits, even when a portion of those funds are paid to another claimant [who is not insured under the same UIM policy], is not consistent with any theory of UIM coverage that has been recognized by Wisconsin courts or approved by the legislature.”

 

The court also concluded that when a tortfeasor injures more than one person in a single occurrence and the injured persons are not insured under the same UIM policy, a definition of an underinsured motor vehicle that compares the injured person's UIM limits to the limits of a tortfeasor's liability policy without regard to the amount the injured person actually receives from the tortfeasor's insurer is invalid under Wisconsin statutes. The definition in the policy contravenes the purpose of UIM coverage and functions as an impermissible reducing clause when a tortfeasor injures more than one person in a single occurrence and the injured persons are not insured under the same UIM policy.

 

Accordingly, the decision of the court of appeals was reversed and the case was remanded.