Wisconsin Court Says UIM Carrier May Not Deduct Comp Benefits Subject to Subrogation Lien
A Wisconsin appellate court held that a deceased worker’s automobile insurance carrier, which had written a policy that included underinsured motorist’s (UIM) limits of $250,000, may only reduce its coverage limits by the total amount of workers’ compensation actually received by the deceased worker’s estate [Secura Supreme Ins. Co. v. Estate of Huck, 2021 Wisc. App. LEXIS 864 (Sept. 29, 2021). Accordingly, where the estate initially received $35,798.04 from the employer’s workers’ compensation insurer and then recovered $25,000 from a negligent third-party motor vehicle operator—the liability limits of that person’s auto insurance policy—but was required to reimburse the employer’s workers’ compensation insurer the sum of $9,718.73 pursuant to the reimbursement formula contained in Wis. Stat. § 102.29, the UIM insurer could not reduce it coverage limits for the monies reimbursed to the workers’ compensation insurer.
Background
Huck was struck and killed by a motorist while working for the Village of Mt. Pleasant. The tortfeasor had an insurance policy with liability limits of $25,000, which were paid to Huck’s Estate. Because Huck was in the course and scope of his employment with the Village when he died, the Estate initially received $35,798.04 from the Village’s worker’s compensation insurer (WC Insurer). However, the Estate was obligated by Wis. Stat. § 102.29 to refund the WC Insurer $9718.73 from the $25,000 settlement with the tortfeasor. Thus, the Estate netted only $26,079.31 from worker’s compensation.
Huck had purchased an automobile insurance policy with underinsured motorist’s (UIM) limits of $250,000 limits from Secura Supreme Insurance Company, and thus, the Estate submitted a claim under his policy. Secura moved for judgment on the pleadings, contending that its limits could be reduced by the amount paid by, and then paid back to, the WC Insurer pursuant to Wis. Stat. § 102.29. In other words, Secura sought to reduce its limits by the $9718.73 the WC Insurer paid to the Estate that the Estate repaid to the same WC Insurer. The circuit court rejected Secura’s contention and granted the Estate judgment on its counterclaim for the disputed amount of $9718.73. Secura appealed.
The Teschendorf Decision
The appellate court said its analysis of the issues was guided by an earlier decision of the state’s Supreme Court in Teschendorf v. State Farm Ins. Cos., 2006 WI 89, ¶9, 293 Wis. 2d 123, 717 N.W.2d 258. In Teschendorf, as in the instant case, the insured was killed in an auto accident in the course of his employment. Because the insured had no dependents, his worker’s compensation death benefit was paid to the state fund per Wis. Stat. § 102.49(5)(b). When the insured’s parents sought coverage under the insured’s policy, the insurer contended that its reducing clause barred recovery for sums paid to the state fund. The Wisconsin Supreme Court unanimously rejected that argument.
The Teschendorf court split as to why the reduction was impermissible; some justices thought Wis. Stat. § 632.32(5)(i) was ambiguous while others thought its literal application created an absurd result. Either way, however, the Teschendorf court squarely rejected application of the literal reading of the reducing clause Secura proposed in the instance case. The Teschendorf court provided numerous examples of disparities that would be visited upon the injured person under the insurer’s interpretation which further underscored incongruous and unintended results. For example, an individual injured while at work would receive less than one on the way home from church, and in some instances, nothing at all.
Again, referring back to Teschendorf, the appellate court stressed that the consistent focus throughout the supreme court’s analysis, regardless of the approach, was on what the injured person actually received from the worker’s compensation insurer. Beyond ensuring the fixed level of coverage that the legislature intended and the insured paid premiums for and reasonably expected, the focus on what the injured person recovers makes sense, stressed the appellate court, because the purpose of the reducing clause is to prevent double recovery by the insured. Based on the foregoing, the court concluded that the circuit court correctly held that Secura was only permitted to reduce its coverage limits under Wis. Stat. § 632.32(5)(i)2. and its underinsured motorist’s insurance policy by the total amount of worker’s compensation actually received by Huck’s estate. Accordingly, it affirmed the order of the circuit court.