Bethke v. Auto-Owners Ins. Co.
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Petitioners sought underinsured motorist coverage (UIM) under a policy issued by Auto-Owners Insurance Company (Owners) as a result of an automobile accident caused by an allegedly negligent driver of a rental vehicle owned by Avis Rent-a-Car (Avis). Avis, as a car rental company, was statutorily required to pay $50,000 as a result of the accident. Owners denied Petitioners' UIM claim, asserting that because Avis was a self-insurer, the rental vehicle was not an underinsured automobile under the terms of the policy. The circuit court ruled in favor of Owners, determining that Avis was unambiguously a self-insurer, and therefore, the Avis vehicle did not fall within the policy definition of underinsured automobile. The court of appeals affirmed. The Supreme Court reversed, holding (1) as applied, the policy term "self-insurer" is ambiguous, and therefore, the policy is interpreted in favor of Petitioners to afford coverage; and (2) even if the term "self-insurer" appears to be unambiguous, interpreting it to exclude self-insured rental vehicles from coverage leads to an absurd result here. Remanded.
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2013 WI 16 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2010AP3153 Lynn Bethke, individually and as Personal Representative of the Estate of Kathryn A. Bethke and Andrew Bethke, Plaintiffs-Appellants-Petitioners, v. Auto-Owners Insurance Company, Defendant-Respondent. REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at 338 Wis. 2d 212, 808 N.W.2d 175 (Ct. App. 2011 - Unpublished) OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: SOURCE OF APPEAL: COURT: COUNTY: JUDGE: JUSTICES: CONCURRED: DISSENTED: February 1, 2013 October 9, 2012 Circuit Sheboygan L. Edward Stengel ABRAHAMSON, C.J., CROOKS and GABLEMAN, JJ., dissent. (Opinion filed.) NOT PARTICIPATING: ATTORNEYS: For the plaintiffs-appellants-petitioners, there were briefs filed by William P. Te Winkle and Stephanie E. Waldon, and Rohde Dales, LLP, Sheboygan, and oral argument by William P. Te Winkle. For the defendant-respondent, there were briefs filed by Richard E. Schmidt, Allen M. Ratkowski and Thomas T. Calkins, and Piper & Schmidt, Milwaukee, and oral argument by Allen M. Ratkowski. An amicus curiae brief was filed by William C. Gleisner, III, Hartland, on behalf of the Wisconsin Association Justice, and oral argument by William C. Gleisner, III. for 2 2013 WI 16 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2010AP3153 (L.C. No. 2009CV630) STATE OF WISCONSIN : IN SUPREME COURT Lynn Bethke, Individually and as Personal Representative of the Estate of Kathryn A. Bethke and Andrew Bethke, FILED Plaintiffs-Appellants-Petitioners, v. FEB 1, 2013 Auto-Owners Insurance Company, Diane M. Fremgen Clerk of Supreme Court Defendant-Respondent. REVIEW of a decision of the Court of Appeals. Reversed and cause remanded. ¶1 ANN WALSH BRADLEY, J. The petitioners, Lynn and Andrew Bethke (collectively, the Bethkes), seek review of an unpublished decision of the court of appeals affirming the circuit court's grant of a declaratory judgment to Auto-Owners Insurance 1 Company.1 The Bethkes seek underinsured motorist Bethke v. Auto-Owners Ins. Co., No. 2010AP3153, unpublished slip op. (Ct. App. Nov. 2, 2011), affirming the circuit court for Sheboygan County, L. Edward Stengel, J., presiding. No. 2010AP3153 coverage (UIM) under a policy issued by Owners as a result of an automobile accident caused by an allegedly negligent driver of a rental vehicle owned by Avis Rent-a-Car (Avis). The Bethkes' mother, Kathryn Bethke, suffered fatal injuries in the accident and Andrew was seriously injured. Avis, as a car rental company, was statutorily required to pay $50,000 as a result of the accident. ¶2 Owners denied the Bethkes' UIM claim and asserted that because Avis is a self-insurer, the rental vehicle is not an "underinsured automobile" under the terms of the policy. In response, the Bethkes argue that the term "self-insurer" in the policy is ambiguous as applied to the facts of this case and must be construed in favor of coverage. Moreover, the Bethkes argue that excluding UIM coverage under the facts of this case leads to an absurd result. ¶3 We conclude that as applied, the policy term "self- insurer" is ambiguous because it is unclear whether a reasonable insured would understand that a car rental company which is statutorily liable under Wis. Stat. § 344.51 is a "self-insurer" under the policy. Consistent with the canons of construction and case law, when the policy language relates to coverage and is ambiguous, we interpret the policy in favor of the insured to afford coverage. We further conclude that even if the term Although the court caption indicates that "Auto-Owners Insurance Company" is the name of the defendant-respondent, the briefs submitted in this matter indicate that its correct name is "Owners Insurance Company." Throughout this opinion, we will refer to the defendant-respondent merely as "Owners." 2 No. "self-insurer" appears to be unambiguous, 2010AP3153 interpreting it to exclude self-insured rental vehicles from coverage leads to an absurd result here. Accordingly, we reverse the court of appeals and remand to the circuit court for further proceedings. I ¶4 The facts of this case are undisputed. ¶5 On July 19, 2007, Kathryn was operating a motor vehicle in an eastbound direction on County Highway C in the Town of Sheboygan Falls and Andrew, her son, was a passenger in the vehicle. Frederick Kingdom, was driving an direction and crossed Goddard, Avis the a rental center vehicle in a head-on collision. resident vehicle line, of in the the striking United opposite Kathryn's Both Kathryn and Goddard died and Andrew suffered serious injuries.2 ¶6 Goddard did not possess any insurance that provided coverage for the accident. Avis, however, paid the Bethkes a limited amount because it is a car rental company, which is statutorily liable under Wis. Stat. § 344.51(1m) (2005-06)3 for 2 Lynn Bethke was not involved in the accident. She appears in this case individually and as representative of Kathryn's estate. Andrew Bethke and Lynn Bethke are Kathryn's only children and her sole surviving heirs. 3 All subsequent references to the Wisconsin Statutes refer to the 2005-06 version unless otherwise indicated. Wisconsin Stat. § 344.51(1m) states the following: Financial responsibility for domestic rented or leased vehicles. . . .(1m) No lessor or rental company may for compensation rent or lease any motor vehicle unless there is filed with the department on a form prescribed by the department a certificate for a good 3 No. $25,000 each to Kathryn's estate and to Andrew. 2010AP3153 Accordingly, Avis tendered to the Bethkes a payment of $50,000. ¶7 After receiving the $50,000 payment from Avis, the Bethkes claimed underinsured motorist (UIM) benefits under an automobile insurance policy issued to Kathryn by Owners. The declaration page of the policy states that Kathryn purchased UIM coverage in excess of the statutory minimum that was in effect at the time.4 She purchased coverage in the amount of $500,000 per person and $500,000 per accident. The declaration page of the policy describes the UIM coverage as follows: Underinsured occurrence Motorist The Underinsured allowable offsets. $500,000 Motorist limit person/$500,000 is subject to Please refer to form 79326. and sufficient bond or policy of insurance issued by an insurer authorized to do an automobile liability insurance or surety business in this state. The certificate shall provide that the insurer which issued it will be liable for damages caused by the negligent operation of the motor vehicle in the amounts set forth in s. 344.01(2)(d). No lessor or rental company complying with this subsection, and no lessor or rental company entering into or acquiring an interest in any contract for the rental or leasing of a motor vehicle for which any other lessor or rental company has complied with this subsection, is liable for damages caused by the negligent operation of the motor vehicle by another person. 4 If an individual elected to buy UIM coverage, the minimum amount of coverage required by statute was $50,000 per person and $100,000 per accident. Wis. Stat. § 632.32(4m)(d). 4 No. ¶8 2010AP3153 The UIM endorsement (Form 79326) in the policy states that Owners will cover "compensatory damages [the Bethkes are] entitled to underinsured recover automobile from the for owner bodily or operator injury." The of an endorsement defines an "underinsured automobile" as: an automobile to which a bodily injury liability bond or liability insurance policy applies at the time of the occurrence: (1) in at least the minimum amounts required by the Financial Responsibility Law in the state where your automobile is normally garaged; and (2) the limits of liability provided are less than the amount of compensatory damages the injured person is legally entitled to recover for bodily injury. ¶9 Immediately below that definition, the policy lists certain types of vehicles that do not fall within the definition of "underinsured automobile." Underinsured automobile: They are listed as follows: automobile does not include an (1) owned or leased by, furnished to or available for the regular use of you or any relative; (2) owned or operated automobile law; by a self-insurer under any (3) owned by any governmental unit or agency; (4) located for use as a residence or premises; (5) that is designed for use primarily off roads except while actually on public roads; or (6) that is an uninsured automobile. . . . (Emphasis added.) 5 public No. ¶10 2010AP3153 Owners rejected the Bethkes' claim for UIM benefits because it determined that the Avis rental vehicle was not an "underinsured automobile" as that term is defined in the policy. Prior to the accident, Responsibility Avis Self-Insurance obtained a Certificate Wisconsin (a Safety "certificate of self-insurance") from the Wisconsin Department of Transportation in order vehicle. to be qualified to self-insure Goddard's rental The certificate states that Avis "has qualified as a self-insurer under Responsibility Act' the Wisconsin chapter 344 'Motor Wisconsin Vehicle Statutes." Safety Owners argued that because Avis self-insured the rental vehicle, there was no coverage under the policy. ¶11 When Owners refused to provide UIM coverage, the Bethkes commenced an action alleging a survivor's action and claims of wrongful death, bad faith, and personal injuries to Andrew. any In its answer, Owners denied that the policy provided UIM coverage and alleged a counterclaim requesting a declaratory judgment on the question of UIM coverage. ¶12 filed Following the pleadings, the Bethkes and Owners each separate regarding motions Kathryn's UIM requesting coverage. a The declaratory Bethkes judgment requested in their motion a payment of $450,000 after the payment from Avis was applied. Conversely, Owners asked the circuit court to determine that there was no UIM coverage. ¶13 Owners' In a motion written decision, for declaratory a Bethkes' competing motion. the circuit judgment court and granted denied the The circuit court determined that 6 No. 2010AP3153 Avis was unambiguously a "self-insurer." Therefore, because the Avis policy vehicle did not fall within the definition of "underinsured automobile," the circuit court concluded that the policy provided no UIM coverage. ¶14 The insurer" was statutorily Bethkes appealed, ambiguous liable car arguing because rental insurer under the policy. it company that is is the unclear term "self- whether considered a a self- The court of appeals rejected the Bethkes' ambiguity argument and instead adopted Owners' argument that the policy "excludes a self-insured vehicle defined under any automobile law."5 5 The court of appeals did not directly identify which law it meant. However, earlier in the opinion, the court of appeals cited Wis. Stat. § 344.16, which governs who may be qualified as self-insurers. Wisconsin Stat. § 344.16 states the following: Requirements as to self-insurers. (1) Any person in whose name more than 25 motor vehicles are registered may qualify as a self-insurer by obtaining a certificate of self-insurance issued by the secretary as provided in sub. (2). (2) The secretary may, upon the application of such a person, issue a certificate of self-insurance when satisfied that such person is possessed and will continue to be possessed of ability to pay judgments obtained against such person. (3) Upon not less than 5 days' notice and a hearing pursuant to such notice, the secretary may upon reasonable grounds cancel a certificate of selfinsurance. Failure to pay any judgment within 30 days after such judgment has become final constitutes a reasonable ground for cancellation of a certificate of self-insurance. 7 No. 2010AP3153 II ¶15 In this case, we are called upon to review the circuit court's decision to grant a declaratory judgment to Owners. The grant or denial of a declaratory judgment is addressed to the circuit court's discretion. Olson v. Farrar, 2012 WI 3, ¶24, 338 Wis. 2d 215, 809 N.W.2d 1. ¶16 Our task is to determine whether the circuit court erroneously exercised its under facts this the of discretion case the unambiguously excluded UIM coverage. when it terms concluded of the that policy Hull v. State Farm Mut. Auto. Ins. Co., 222 Wis. 2d 627, ¶11, 586 N.W.2d 863 (1998). A circuit court erroneously exercises its discretion if it makes an error of law or neglects to base its decision upon the facts of the record. Ash Park, LLC v. Alexander & Bishop, Ltd., 2010 WI 44, ¶32, 324 Wis. 2d 703, 783 N.W.2d 294. ¶17 An interpretation of an insurance policy presents a question of law that we review independent of the determinations rendered by the circuit court and court of appeals. Folkman v. Quamme, 2003 WI 116, ¶12, 264 Wis. 2d 617, 665 N.W.2d 857. III ¶18 The Bethkes argue that the term "self-insurer" in the policy is ambiguous as applied to the facts of this case because it is unclear whether a reasonable insured would understand that a car rental company which is 8 statutorily liable under Wis. No. Stat. § 344.51 is a "self-insurer" under the policy.6 2010AP3153 Moreover, the Bethkes argue that interpreting the policy to exclude UIM coverage under the facts of this case leads to an absurd result. To evaluate the Bethkes' arguments, we begin by considering both the type of coverage that Kathryn bought when she purchased the insurance policy and the rules of construction established by our precedent that are to guide an ambiguity analysis. ¶19 Kathryn elected to purchase a UIM endorsement with her insurance policy. insured automobile UIM coverage provides additional coverage to accident victims inadequate means of payment. Insurance 2d § 147.1 stated, "underinsured when a liable party has 24 Eric Mills Holmes, Appleman on (2004). As motorist this court has coverage predetermined, fixed level of coverage." repeatedly provides a Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶42, 293 Wis. 2d 123, 717 N.W.2d 258 (citing Welin v. American Family Mut. Ins. Co., 2006 WI 81, 292 Wis. 2d 73, ¶¶46, 49-53, 717 N.W.2d 690). It puts the insureds in the same position they would have occupied had the liable party's insurance limits been the same motorist limits purchased by the insureds. as the underinsured State Farm Mut. Ins. Co. v. Gillette, 2002 WI 31, ¶44, 251 Wis. 2d 561, 641 N.W.2d 6 In addition to their argument that the term "self-insurer" is ambiguous, the Bethkes argue that the self-insured provision operates as an impermissible reducing clause under Welin v. American Family Mut. Ins. Co., 2006 WI 81, 292 Wis. 2d 73, 717 N.W.2d 690 and that the self-insured provision is contrary to public policy. Because we determine that the term "selfinsurer" is ambiguous when applied to the facts of this case, we need not reach the Bethkes' other arguments. 9 No. 662 (citation omitted). 2010AP3153 UIM coverage seeks to "compensate the victim of an underinsured motorist's negligence where the third party's liability limits are not adequate to fully compensate the victim for his or her injuries." Id., ¶45. (citation omitted). ¶20 Having purchased, we examined consider the type next of the insurance rules that of Kathryn construction established by our precedent to guide an ambiguity analysis. the policy language is unambiguous, we interpret the If policy language to accord with the plain meaning of its provisions. Acuity v. Bagadia, 2008 WI 62, ¶13, 310 Wis. 2d 197, 750 N.W.2d 817. We must give the words used in the policy their common and ordinary meaning, which is "what the reasonable person in the position of the insured would have understood the words to mean." Arnold P. Anderson, Wisconsin Insurance Law § 1.1(C) (4th ed. 1998) (citations omitted); see also State Farm Mut. Auto. Ins. Co. v. Langridge, 2004 WI 113, ¶14, 275 Wis. 2d 35, 683 N.W.2d 75. ¶21 Ambiguity may exist in the language of an insurance policy either on its face or as applied to the extrinsic facts to which it refers.7 Washington v. Washington, 2000 WI 47, ¶18, 234 Wis. 2d 689, 611 N.W.2d 261; see also Froedtert Memorial Lutheran Hosp., Inc. v. National States Ins. Co., 2009 WI 33, 7 Owners concedes in its response to an amicus brief submitted by the Wisconsin Association for Justice that "statutes and policy provisions could potentially be ambiguous given a certain set of circumstances," but denies that the selfinsured provision is ambiguous when applied to these facts. 10 No. ¶34, 317 Wis. 2d 54, 765 N.W.2d 251 ("the 2010AP3153 language of a[n insurance] policy may not be entirely clear as applied to a given set of facts"). Words in a policy that are clear in most contexts may become ambiguous when applied to specific facts because "words cannot anticipate every possible fact situation." Teschendorf, 293 Wis. 2d 123, ¶20 (describing statutory ambiguity). ¶22 We interpret undefined words and phrases of an insurance policy as they would be understood by a reasonable insured. language Acuity, is 310 Wis. ambiguous, we insured to afford coverage. ¶23 2d 197, will construe If it the undefined in favor of the Id.; Folkman, 264 Wis. 2d 617, ¶13. With the above explanations in mind, we turn now to evaluate the Bethkes' arguments. term ¶13. "self-insurer" in Kathryn's The Bethkes contend that the UIM coverage is ambiguous because it is unclear what constitutes a "self-insurer" under the policy. would not The Bethkes further argue that a reasonable insured understand that a statutorily liable car rental company is a "self-insurer" under the policy. ¶24 The term interpretation issues. "self-insurance" often gives rise to As one popular treatise on insurance law 11 No. 2010AP3153 puts it, "[t]he term 'self-insurance' is somewhat ambiguous."8 1A Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 10:1 (3d ed. 2011). currency rather It explains that the term is one "of colloquial than of precise legal meaning." Id. We therefore examine next what the term "self-insurer" means in this policy. ¶25 Sometimes a statutory definition of a term provides the meaning of the use of that term in a policy. to the statutes governing automobile Thus, we look insurance coverage. However, the term "self-insurer" is not defined in Wisconsin's statutes. ¶26 In examining the policy, the term "self-insurer" is likewise undefined there. An examination of the declarations page of the policy that provides the insured $500,000 of UIM coverage sheds no light on our quest. Although the policy in total makes four references to a "self-insurer," none of those references defines the term. ¶27 The only qualifying phrase in the policy that arguably lends any assistance in defining the term "self-insurer" is the phrase that appears to direct the reader to search for self- 8 Broadly stated, a self-insurer generally elects to take on the risk of paying claims by itself rather than purchasing a separate policy from an insurance company. Robert E. Keeton & Alan I. Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Doctrines and Commercial Practices 13 (1988). An entity of sufficient size such as a corporation or governmental agency might elect to handle the risk of becoming liable to an injured party by setting aside assets. Id. The entity then uses its own assets to pay claims. Id. 12 No. insurers "under any automobile law." 2010AP3153 The term "law" in "any automobile law" arguably directs the reader to laws related to automobiles that govern a "self-insurer." However, even assuming that the phrase "under any automobile law" modifies the term "self-insurer," it is unclear whether a car rental company that is statutorily liable under Wis. Stat. § 344.51 is a "selfinsurer" under the policy. ¶28 We identify two statutes that potentially inform what a "self-insurer" under any "automobile law" means, Wis. Stat. §§ 344.51 and 344.16. Both of those statutes are part of Wisconsin's financial responsibility law.9 We turn to examine whether our they provide any assistance in search for a definition of a "self-insurer." ¶29 Avis is a liable party to this accident not because it is self-insured, but because it is a car rental company. Avis is statutorily liable under Wis. Stat. § 344.51(1m) for damages caused by the negligent operation of its rented motor vehicle by another person. Wisconsin Stat. § 344.51(1m) requires Avis to file with the Department of Transportation "a certificate for a good and sufficient bond or policy of insurance."10 The certificate must provide that Avis' insurer will be liable for certain minimal amounts that arise from accidents caused by the 9 The financial responsibility law is codified at Chapter 344 of the Wisconsin statutes. 10 Although the statute refers to a "policy of insurance," a certificate of self-insurance is sufficient to meet the insurance requirement of Wis. Stat. § 344.51. Boatright v. Spiewak, 214 Wis. 2d 507, 515, 570 N.W.2d 897 (Ct. App. 1997). 13 No. 2010AP3153 negligent operation of a rented motor vehicle by another person. Id. The minimum amount of insurance coverage that Avis must maintain under Wis. Stat. § 344.51(1m) is $25,000 per person and $50,000 per occurrence.11 ¶30 Wis. Stat. § 344.01(2)(d). Wisconsin Stat. § 344.51(1m) further provides that if a car rental company complies with the insurance requirement in the statute, it is not liable beyond the insurance liability limits for damages caused by the negligent operation of a rented motor vehicle by another person. fails to comply with the Even if a car rental company insurance requirement, the statute makes it directly liable for only $25,000 per person and $50,000 per accident. Wis. Stat. Wis. Stat. §§ 344.51(2); 344.01(2)(d). § 344.51 makes a car rental company Although liable for damages caused by the negligent operation of its rented motor vehicle by another person, it also expressly limits its exposure for that liability. ¶31 The legislature's purpose in enacting Wis. Stat. § 344.51 is therefore expressed in the operation of the statute. Wisconsin Stat. § 344.51 represents a trade-off for car rental companies. to accident On one hand, the statute requires a minimal payment victims for damages 11 caused by the negligent Neither Wis. Stat. § 344.51 nor Wis. Stat. § 344.01(2)(d) prohibit car rental companies from acquiring liability insurance beyond the minimum amounts and providing additional compensation to injured accident victims. However, as the court of appeals has noted, there is little incentive in the statutory scheme for any car rental company to insure for more than the minimum amount. See Boatright, 214 Wis. 2d 507, 519-20. 14 No. 2010AP3153 operation of a rented motor vehicle by another person. On the other hand, Wis. Stat. § 344.51 shields car rental companies from liability for those damages above the minimal statutory requirements. Because it is subject to Wis. Stat. § 344.51, Avis was statutorily liable in the amount of $50,000 to the Bethkes regardless of whether it was insured or self-insured. ¶32 Here, Avis possessed a certificate of self-insurance under Wis. Stat. § 344.16. whose name more than 25 That statute allows "any person in motor vehicles are registered" to qualify as a self-insurer by obtaining a certificate of selfinsurance. Wis. Stat. § 344.16(1). The Department of Transportation is charged with the responsibility to determine who is qualified to self-insure certificates of self-insurance. ¶33 Wisconsin Stat. their vehicles and to issue Wis. Stat. § 344.16(2). § 344.16(2) provides that the Department of Transportation may qualify an individual to selfinsure their vehicles only when it is "satisfied that such person is possessed and will continue to be possessed of ability to pay judgments obtained against such person." Department of Transportation regulations, an Pursuant to applicant is considered to be "possessed of the ability to pay judgments" under Wis. Stat. § 344.16(2) if the applicant has abundant financial resources at their disposal: ...the [applicant must have] unencumbered assets of at least $60,000 times the square root of the total number of motor vehicles owned by the [applicant] and operated on Wisconsin highways, [must be] paying creditors as the [applicant's] debts become due, and 15 No. 2010AP3153 [must] not have any judgment, fine or forfeiture that has remained unpaid more than 30 days. Wis. Admin. Code § Trans 100.16(4)(c) (Oct., 2005).12 ¶34 Evidence of the ability to pay judgments must be provided in the form of audited financial statements or on a United filing. States securities and exchange Id. at § Trans 100.16(4)(c). commission form 10K Applicants may obtain a certificate of self-insurance if they have financial resources sufficient to prove to the Department of Transportation that they can pay judgments. Wis. Stat. § 344.16(1). Because self- insurance certificates must be renewed every year, applicants must annually submit a new application and financial statement. Wis. Admin. Code § Trans 100.16(3). ¶35 By Department enacting of Wis. Stat. Transportation § 344.16 with the and charging the responsibility to determine that applicants for a certificate of self-insurance are financially capable of paying judgments, the legislature sought to ensure that self-insurers can fully satisfy judgments against them by injured accident victims. The financial requirements imposed by the Department of Transportation give effect to that purpose by ensuring that anyone who chooses to self-insure has a significant amount of financial resources available to pay judgments to accident victims. 12 All regulations cited in this opinion are the regulations that were in effect at the time Avis possessed the certificate of self-insurance at issue in this case, unless otherwise indicated. 16 No. ¶36 Wis. The Department of Transportation's administration of Stat. purpose 2010AP3153 is judgments. self-insurer §§ 344.16 to ensure further that indicates that self-insurers the can statute's fully satisfy Department of Transportation regulations require a under Wis. Stat. § 344.16 to use a specific application form when seeking approval to self-insure vehicles. The regulations identify that form as form Admin. Code § Trans 100.16(1) (Oct., 2005). "MV3069." Wis. The instructions on form MV3069 state that it is "specifically not valid for the requirements of s.344.51 and s.344.52 Wis. Stats."13 The Department of Transportation treats car rental companies whose liability is limited under Wis. Stat. § 344.51 differently than self-insurers whose liability is not limited by the statute. ¶37 By enacting both Wis. Stat. §§ 344.16 and 344.51, the legislature has set forth two statutes whose purposes collide. A self-insured car rental company cannot at the same time enjoy limited liability and be expected to fully satisfy judgments. There is a disconnect because one statute makes Avis statutorily liable for a minimal amount of $25,000 per person and $50,000 per accident while the other statute seeks to ensure that Avis has the financial resources to fully satisfy judgments against it. The purposes of the statutes do not add up when they are combined in a self-insured car rental company like Avis. 13 Although form MV3069 is not in the record, we take judicial notice of the form because it is an easily accessible form authored by a state agency. See Wis. Stat. § 902.01; Wisconsin Med. Soc'y v. Morgan, 2010 WI 94, ¶18 n.7, 328 Wis. 2d 469, 787 N.W.2d 22. 17 No. ¶38 The disconnect between the two statutes 2010AP3153 is further illustrated by the circumstances giving rise to Avis' liability under Wis. Stat. § 344.51(1m). Avis is statutorily liable for a minimal amount in order to pay damages caused by the negligent operation of a rented motor vehicle by another person. Stat. § 344.51(1m). Wis. However, Avis would be expected to fully pay a judgment if Avis' negligence caused the damages. ¶39 It is unclear whether a reasonable insured would understand that a car rental company whose liability is limited by Wis. Stat. § 344.51 is a "self-insurer" under the policy. The generalized requirements to obtain a certificate of selfinsurance are quite different underinsured motorist coverage. from the protection of Wisconsin Stat. § 344.51 places liability on the shoulders of a car rental company regardless of whether it is self-insured. ¶40 coverage A reasonable generally insured provides would additional understand coverage their to UIM insured automobile accident victims when a liable party has inadequate means of payment. 24 Eric Mills Holmes, Appleman on Insurance 2d § 147.1 (2004). Here, Avis made an inadequate payment yet Owners failed to provide additional coverage. ¶41 coverage A reasonable should insured provide "a would understand predetermined, fixed their level coverage" when all sources of payment have been combined. UIM of See Teschendorf, 293 Wis. 2d 123, ¶42 (citing Welin, 292 Wis. 2d 73, ¶¶46, 49-53). Bethkes have When all sources of payment are combined, the not received the 18 predetermined, fixed level of No. coverage that Kathryn purchased, which is $500,000. 2010AP3153 Avis is the only source of payment and it is statutorily liable for only $50,000. ¶42 A reasonable insured would expect that the UIM insurance she purchased would put her in the same position she would have occupied had the liable party's insurance limits been the same as the underinsured motorist limits purchased by her. Gillette, 251 Wis. 2d 561, ¶44. Here, Avis' payment does not put the Bethkes in that same position. The liability limits were only $50,000 even though Kathryn purchased $500,000 of UIM coverage. ¶43 A reasonable insured would expect UIM coverage when "the third party's liability limits are not adequate to fully compensate the victim for his or her injuries." Id., ¶45. Here, Avis has statutory liability limits that are inadequate to compensate the Bethkes for their injuries yet Owners has provided no additional coverage. ¶44 UIM coverage is meant to provide coverage up to the policy limit where those who are liable cannot fully compensate the insured. A car rental company that is statutorily liable is not meant to provide compensation to injured accident victims beyond a minimal amount. In light of those purposes, a reasonable insured would expect their UIM coverage to fill in the gap between the statutory liability of a car rental company and their coverage. which coverage limit absent a clear exclusion limiting For the reasons we discuss above, the exclusion on Owners relies is unclear. 19 Therefore, because it is No. 2010AP3153 unclear whether a reasonable insured would understand that a car rental company who is statutorily liable under Wis. Stat. § 344.51 is a "self-insurer," we conclude that the term "selfinsurer" is ambiguous under these facts. ¶45 Even if we concluded that the policy appeared to clearly and unambiguously exclude the Avis rental vehicle from coverage, we would still be unable to interpret it to exclude UIM coverage under these facts because such a construction leads to an absurd result. Its application to these unique facts simply makes no sense. ¶46 Kathryn expected of her took to every protect reasonable herself action under that these could facts. be She elected to purchase $500,000 in UIM coverage when she could have chosen not to buy any. However, if the term "self-insurer" is interpreted to encompass the Avis rental vehicle, it would not matter whether Kathryn bought $1,000,000 or even $5,000,000 in coverage. Her prudent planning against a catastrophic loss like the one suffered by the Bethkes would be nullified. ¶47 The absurdity that results from including Avis as a "self-insurer" here is regarding why the policy place. illustrated by Owners' statements excludes a "self-insurer" in the first At oral argument Owners agreed that the main purpose of excluding a "self-insurer" is because "the self-insurer entity has been certified as having plenty of resources." Self- insurers are not covered because Owners expects that the Bethkes will collect a judgment from a self-insurer that fully addresses their damages. Generally that makes sense when applied to an 20 No. 2010AP3153 entity that possesses a self-insurance certificate under Wis. Stat. § 344.16 because the statute ensures that it has the financial capacity to pay judgments. ¶48 However, that purpose makes no sense when applied to the Avis rental vehicle. Wisconsin Stat. § 344.51(1m) expressly limits the liability of rental car companies whether or not they are self-insured. Owners cannot reasonably expect the Bethkes to collect a judgment that fully addresses their damages from a company whose statute. liability is limited to a minimal amount by The unique circumstances of this case produce a result that is at odds with the purpose for excluding a "self-insurer." ¶49 insured" The absurd result that occurs when the term "selfis applied to the Avis rental vehicle is further illustrated by Murray v. American Family Mut. Ins. Co., 429 F.3d 757 (8th Cir. 2005). the Eighth Circuit Although Murray arose under Missouri law, interpreted similar facts similar to the case before us. ¶50 In Murray, Monte and policy Jane Murray were Id. at 759. the insured the Murrays were under Id. at 760-62. vehicle driven by a third party. accident, language by riding in a At the time of American Family through six automobile policies, one for each vehicle that they owned. Id. Four of the six policies contained UIM coverage in the amount of $100,000 per person and $300,000 per occurrence. Id. ¶51 The Murrays were riding in a vehicle owned by a car rental company at the time of the accident. driver of the rental vehicle 21 was insured Id. at 760. for $10,000 The of No. liability coverage through her own policy. 2010AP3153 Id. After accident, the Murrays filed an action against the driver. the Id. Following a bench trial, the court found the driver 100% liable for the accident and awarded damages of $1,606,889.54 to Monte Murray and $160,690.11 to Jane Murray. Id. insurer paid its $10,000 limit to the Murrays. ¶52 The driver's Id. The Murrays looked to the self-insured rental vehicle company for compensation. Id. After some negotiations and a bankruptcy filing by the rental vehicle company, the company paid the Murrays an additional $15,000. ¶53 Id. at 760-61. The Murrays then filed suit against American Family seeking payment of uninsured and UIM benefits. Id. at 761. The Murrays' UIM coverage in all relevant policies provided that an "underinsured motor vehicle" did not include vehicles "[o]wned or operated by a self-insurer as considered by any financial responsibility law, motor carrier law, or similar law." Id. at 761-62. ¶54 contract The Eighth Circuit determined that "interpreting the to nullify coverage unreasonable interpretation." in this situation Id. at 765. would be an The Murray court approvingly quoted a lower court's statement that the Murrays presented a "compelling argument in favor of a fatal ambiguity." Id. at 764. The Murray court agreed that "it simply makes no sense to sell insureds insurance that provides protection in the event that they are involved in an accident with an individual with less than $100,000 insurance 22 and then turn around and No. 2010AP3153 nullify that underinsurance protection simply because the other individual is a qualified self-insurer." ¶55 Id. at 764-65. To apply the policy term "self-insurer" to the Avis rental vehicle is similarly an unreasonable interpretation. makes no sense for Owners to sell Kathryn $500,000 of It UIM coverage excluding a "self-insurer" and to then turn around and apply that policy term to a car rental company who is statutorily liable for a minimal amount not because it is a self-insurer, but because it is a car rental company. ¶56 We decline to adopt an interpretation of the policy that leads to such an absurd result. Just as in Murray, the ambiguity in Owners' policy is fatal to its arguments that the policy does not extend coverage to the Avis rental vehicle. at 764. Id. To avoid an absurd result, we interpret the policy in favor of the insured. See Olguin v. Allstate Ins. Co., 71 Wis. 2d 160, 165, 237 N.W.2d 694 (1976). V ¶57 In sum, we conclude that as applied, the policy term "self-insurer" is ambiguous because it is unclear whether a reasonable insured would understand that a car rental company which is statutorily liable under "self-insurer" under the policy. Wis. Stat. § 344.51 is a Consistent with the canons of construction and case law, when the policy language relates to coverage and is ambiguous, we interpret the policy in favor of the insured to afford coverage. if the term interpreting it "self-insurer" to exclude We further conclude that even appears self-insured 23 to be rental unambiguous, vehicles from No. coverage leads to an absurd result here. 2010AP3153 Accordingly, we reverse the court of appeals and remand to the circuit court for further proceedings. By the Court. The decision reversed and the cause is remanded. 24 of the court of appeals is No. ¶58 SHIRLEY S. ABRAHAMSON, C.J. 2010AP3153.ssa (dissenting). The majority opinion struggles mightily, but unsuccessfully, in my opinion, to justify awarding funds to the sympathetic innocent victims of an auto accident. Tragically, Kathryn Bethke died. Andrew Bethke was seriously injured. I agree with the majority that a fairer result, and perhaps one more in line with the theoretical goals of Underinsured Motorist Coverage (UIM), is for Ms. Bethke's insurance company to compensate the Bethkes. But that result is not consistent with the policy Bethke purchased and that the insurance company issued. that Ms. As much as my sympathies pull me to the result the majority reaches, I cannot join the majority opinion in rewriting the insurance policy to create coverage where none exists under the plain text of the policy. ¶59 of underinsured motorist coverage for a premium of $7.17 per year. The majority opinion Kathryn Bethke explains (without bought any $500,000 basis in the record) that Ms. Bethke took every reasonable action that could be expected of her to protect herself from an underinsured motorist. Majority op., ¶46. ¶60 The Bethke policy has high coverage underinsured motorist coverage and a low premium. expected under these circumstances, the limits for As might be underinsured motorist provision in this insurance policy contains numerous exceptions and exclusions limiting coverage underinsured motorist provision. 1 and recovery under the No. ¶61 Indeed, the vehicle at issue automobile as defined in the policy.1 includes a lengthy list of is 2010AP3153.ssa an underinsured The Bethke policy also automobiles excluded from the definition of an underinsured automobile and thus excluded from underinsured motorist coverage. policy provides that an One exclusion in the Bethke "underinsured automobile does not include an automobile owned or operated by a self-insurer under any automobile law" ¶62 2 (emphasis added). Other underinsured motorist policies may be available for purchase in Wisconsin, may cost more, and may have fewer exclusions than the Bethke policy. Nothing in the record shows that all automobile liability policies available in Wisconsin exclude self-insurers from underinsured motorist coverage. ¶63 As fate would have it, however, the Bethke policy does not cover the eventuality that occurred. Ms. Bethke collided 1 The Bethke policy provides that "underinsured automobile" means "an automobile to which a bodily injury liability bond or liability insurance policy applies at the time of the occurrence in at least the minimum amounts required by the Financial Responsibility Law in the state where your automobile is normally garaged . . . . Underinsured automobile does not include an automobile . . . owned or operated by a self-insurer under any automobile law . . . ." The vehicle at issue does not fall definition of "uninsured automobile." within the policy's 2 This policy exclusion from underinsured coverage is found in the standard personal auto policy. See 1 Susan J. Miller, Miller's Standard Insurance Policies Annotated 12 (Form PAP) (6th ed. 2012). Wisconsin Stat. § 632.32(6) includes a list of exclusions that are prohibited in motor vehicle insurance policies. The self-insurance exclusion is not prohibited by Wis. Stat. § 632.32(6) or any other law. 2 No. 2010AP3153.ssa with a rental car owned by Avis Rent-A-Car, a self-insurer under a Wisconsin automobile law, and operated by an uninsured driver who was unable to compensate the Bethkes for the damages inflicted. ¶64 The majority opinion characterizes as ambiguous the policy language declaring that an "underinsured automobile does not include an automobile owned or operated by a self-insurer under any automobile law." ¶65 I agree with the circuit court and court of appeals. Both concluded that the exclusion of self-insured vehicles does not function as an impermissible reducing clause and that the policy language excluding "a self-insurer under any automobile law" is not ambiguous. ¶66 The automobile policy law. automobile law. refers Wisconsin to a Stat. self-insurer § 344.16 is under just any such an It unambiguously grants Avis the opportunity to be a self-insurer under Wisconsin law. Avis has qualified as a self-insurer and has received a Wisconsin certificate of selfinsurance. Majority op., ¶10. not found it. these plain company As I read the plain words of the policy (and words § 632.32(6), the under If there is an ambiguity, I have the are Bethkes not prohibited cannot underinsured recover motorist by the from Wis. their coverage Stat. insurance for damages arising from this auto accident because the vehicle at fault was owned by Avis, a self-insurer under an automobile law. Even though the Bethkes were not fully compensated by the at-fault driver, the underinsured motorist 3 coverage will not provide No. coverage because the auto accident a involved 2010AP3153.ssa self-insured vehicle. ¶67 Rather than looking at the plain language of the policy, the majority opinion turns to analyzing the purpose of the statutes governing car rental companies and self-insurers. The statutes impose a do not definition establish of a the UIM scope of vehicle. UIM coverage Nevertheless, or the majority opinion ominously declares that the statutes regarding limited liability, self-insurers, and underinsured motorists are on a collision course: "A self-insured car rental company cannot at the same time enjoy limited liability and be expected to fully satisfy judgments. There is a disconnect because one statute [§ 344.51] makes Avis statutorily liable for a minimum amount . . . while the other statute [§ 344.16] seeks to ensure that Avis has the financial resources to fully satisfy judgments against it." ¶68 Majority op., ¶37. There is no collision course. There is no disconnect. The fatal flaw in the majority opinion is that it seems to assume that Avis would be fully liable to Ms. Bethke but for the statutory "limit on liability." This is simply not so. Wisconsin Stat. § 344.51 does not act as a "limit on liability," but rather expands Avis's obligation to compensate an innocent victim; Avis is liable without any proof that it (rather than the driver who rented the vehicle) is at fault. ¶69 an At common law, a car rental company was not liable to innocent third party for the 4 negligent operation of the No. driver of its rented car.3 that imposes liability 2010AP3153.ssa The statute, Wis. Stat. § 344.51(1m), on abrogates the common law. the car rental company partially The statute requires the car rental company to provide the specified compensation to the victim of a driver who rents its car, causes an injury, and is unable to pay the damages on his or her own.4 But for the existence of the statute mandating Avis to compensate the injured person in the specified amounts, Ms. Bethke likely would not have recovered a single dollar from Avis in the present case. Avis is a "source of payment" for victims only because the statute requires it to pay compensation, not because Avis is liable under common law principles of tort liability. ¶70 The statutory liability applies only to cars that Avis rents to drivers who are negligent, cause injury, and are unable to pay damages. ¶71 A car rental company like Avis is nonetheless fully liable for damages that are caused by its own wrongdoing. Avis may its negligent maintenance of a rented car is a cause of injury. Avis may incur incur liability liability if its if, for negligence negligent driver is a cause of injury. example, Thus, in renting a car to a Avis may incur liability 3 City of Milwaukee v. Froelich, 196 Wis. 444, 445, 219 N.W. 954 (1928); Boatright v. Spiewak, 214 Wis. 2d 507, 520-21, 570 N.W.2d 897 (Ct. App. 1997); Am. Family Mut. Ins. Co. v. Reciprocal Ins. Serv. Exch. Mgmt. Co., 111 Wis. 2d 308, 310, 330 N.W.2d 223 (Ct. App. 1983). 4 Wis. Stat. § 344.51(1m). Co., 111 Wis. 2d at 311. See also Am. Family Mut. Ins. 5 No. if an Avis-owned car is negligently 2010AP3153.ssa operated by an Avis employee. ¶72 The liability" majority opinion contravenes the complains purpose that of Avis's the "limited self-insurer exclusion to enable the self-insured to pay damages against it in full and asserts that therefore definition of a self-insurer.5 Avis does not fit This assertion is wrong. the Avis is a self-insurer under the law, whether it is required to provide compensation to an innocent victim for another's wrongdoing or whether it must pay damages when it is liable for its own in the wrongdoing. ¶73 statutes. purpose: There is The Car no collision statutes rental course demonstrate companies a have or disconnect consistent statutory legislative liability for negligent motorists who rent their cars, cause an injury, and are unable to pay the damages on their own. In the event that the car rental company is liable for its own wrongdoing, the State of Wisconsin is satisfied that it resources to pay any judgments against it. has the financial Whether Avis has statutory liability for the negligent operation of one of its vehicles by a driver who rented the vehicle or liability for its own wrongdoing, it is a self-insurer under a Wisconsin automobile law. ¶74 The majority, in my opinion, should stick to reading the insurance policy and the statutes. 5 Majority op., ¶38. 6 The result the majority No. reaches is not consistent with the policy 2010AP3153.ssa that Ms. Bethke purchased and that the insurance company issued. ¶75 The majority reads the insurance policy based on its theoretical expectation of UIM coverage, and not the expectation of an insured who has read the self-insurer exclusion or the insurance company that issued the policy. The majority reads words into the insurance policy that are not there. It reads the policy as if it includes the following underlined language: "Underinsured automobile does not include an automobile owned or operated by a self-insurer under any automobile law except an automobile law providing that when the self-insurer is a car rental company it has limited statutory liability for a driver's negligent operation of a rental car." ¶76 The law simply does not allow us to alter policy language to create coverage where none exists.6 ¶77 For the reasons set forth, I dissent. ¶78 I am authorized to state that Justice N. PATRICK CROOKS and Justice MICHAEL J. GABLEMAN join this dissent. 6 Bruchert v. Tokio Marine & Nichido Fire Ins. Co., Ltd., 2007 WI App 156, ¶12, 303 Wis. 2d 671, 736 N.W.2d 234. 7 No. 1 2010AP3153.ssa
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