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Insurance Law

Underinsured Motorist Not Effected by Governmental Liability Cap – Underinsured Motorist Coverage Is to Assure Insurance Coverage

This case arises from a collision between a vehicle driven by Barry Hunt and a snow plow owned by Dane County. Wisconsin and operated by a county employee. Barry Hunt and his wife, Ashley Hunt, had a motor vehicle liability policy with State Farm Mutual Insurance Co. at the time of the collision. The damages recoverable from the county and its employee are capped by statute at $250,000 and the Hunts claimed damages greater than that amount. In State Farm Mut. Auto. Ins. Co. v. Hunt, Slip Copy, 2014 Wisc. App. LEXIS 803 (Wis.App., Oct. 2, 2014), [enhanced version available to subscribers], the appellate court was asked to determine whether the Hunts can rely on their policy, as affected by the underinsured motorist coverage provisions in Wisconsin statutes to recover their damages arising out of this collision in excess of $250,000 and up to the limits of the underinsured motorist coverage required by statute.

The trial court granted summary judgment to State Farm, concluding that the Hunts could not recover damages in excess of $250,000 under their policy as affected by the underinsured motorist coverage law for two reasons: (1) the Hunts are not “legally entitled to recover” damages, within the meaning of the statute beyond the $250,000 statutory liability cap applicable to a claim against a municipality for negligent operation of a vehicle; and (2) government owned vehicles are excluded from the definition of an underinsured motor vehicle under the terms of the Hunts’ policy.


Barry Hunt sustained serious injuries as a result of a collision between his vehicle and a Dane County snow plow in January 2012. These injuries were caused by a county employee’s negligence. The Hunts filed a notice to the county claiming $5,850,000 in damages against the county and its employee. By statute the damages recoverable from the county and its employee are capped at $250,000.

At the time of the collision, the Hunts had a motor vehicle liability insurance policy with State Farm that included coverage for injuries caused by an uninsured or underinsured motorist. The coverage was mandated by statute and defined an underinsured motor vehicle as a motor vehicle as pertinent to the issues raised in the appeal: “2. At the time of the accident, a bodily injury liability insurance policy applies to the motor vehicle[,] or the owner or operator of the motor vehicle has furnished proof of financial responsibility … or is a self-insurer…. 3. The limits under the bodily injury liability insurance policy or with respect to the proof of financial responsibility or self-insurance are less than the amount needed to fully compensate the insured for his or her damages.”

Pursuant to the statute the Hunts’ State Farm policy provided underinsured motorist coverage in the amount of $100,000 per person or $300,000 per accident. The basic language of the Hunts’ policy exempted vehicles “owned by or rented to any government” from its definition of an underinsured motor vehicle. However, an endorsement to the policy redefined an underinsured motor vehicle and, in doing so, did not include any language regarding an exclusion for government vehicles.

The Hunts sought recovery pursuant to their underinsured motorist coverage. State Farm argued that the only damages the Hunts are “legally entitled to recover” from the county and its employee are capped by statute at $250,000, and that there is no dispute that damages up to that amount are otherwise fully covered. State Farm also argued that the snow plow was not an underinsured motor vehicle because it was owned by a governmental unit.


The Hunts argue that the circuit court erred in granting summary judgment in favor of State Farm for two reasons. First, the Hunts argue that the phrase “legally entitled to recover” in the statute means that the Hunts’ underinsured motorist coverage applies whenever the insured demonstrates a valid tort claim for damages against the operator of an underinsured motor vehicle. Second, the Hunts argue that the endorsement to their State Farm policy did not exclude government vehicles from the definition of an underinsured motor vehicle and, even if it did, that this exclusion is invalid.

The parties agree that State Farm was required to provide underinsured motorist coverage to the Hunts as mandated by Wisconsin statutes and that the policy could not provide less coverage than required by statute

Statutory language is given its common, ordinary, and accepted meaning, except that technical or specially-defined words or phrases are given their technical or special definitions. The scope, context, and purpose of a statute are relevant to a plain meaning interpretation as long as they are ascertainable from the text and structure of the statute itself. If the language of the statute is unambiguous, there is no need to consult extrinsic sources of interpretation, such as legislative history.

The purpose of the staute is to assure insurance coverage to accident victims. Thus, it must be broadly construed so as to increase rather than limit coverage.

Neither party argues that the phrase “legally entitled to recover” is ambiguous but, rather, each party argues that a plain meaning interpretation of that phrase supports its position.

The Hunts contend that the meaning of this phrase is that the insured seeking underinsured motorist coverage must demonstrate a valid tort claim for damages against the underinsured motorist, but need not show that all alleged damages sustained by the insured are recoverable from the tortfeasor. State Farm argues, to the contrary, that the meaning of “legally entitled to recover” is that the insured has coverage only “up to the amount for which the tortfeasor is liable under applicable tort law,” an amount that, here, is limited by the statutory cap. Therefore, State Farm argues, because the Hunts cannot recover damages in excess of $250,000 from the county or its employee due to the statutory limit on governmental liability, their underinsured motorist coverage does not apply here.

The statute defines an underinsured motor vehicle as a vehicle with policy limits that are less than the amount needed to fully compensate the insured for his or her damages. This language addresses the amount needed to compensate the insured, and does not address the tortfeasor’s situation.

In fact, in 2010, the legislature specifically rejected a provision excluding motor vehicles owned by governmental units from the definition of underinsured motor vehicles. In so doing, the legislature demonstrated its intent to retain underinsured motorist coverage up to the policy limits in instances where the underinsured motor vehicle is a government vehicle and the damages recoverable against the driver are capped by statute.

In the case of governmental liability caps, the purpose of such caps supports our application of the phrase “legally entitled to recover.” The purpose behind governmental immunity statutes is plainly to protect the public purse, and not to reduce payouts by insurers to those injured through the negligence of government employees.

The purpose of the cap bears no relation to an insured’s underinsured motorist coverage. Thus, in the context of a case involving the statutory municipal liability cap, the appellate court concluded that an insured is “legally entitled to recover” damages where he or she can demonstrate a claim for damages against a tortfeasor for which the insured is not fully compensated, despite the fact that all of these damages are not recoverable due to the statutory cap.


The snow plow was permissively self-insured. The governmental entity and the public’s purse was protected by the statute capping liability. The cap worked just like a small limit of liability on an insurance policy insuring a judgment proof defendant. State Farm must pay its insured the $100,000 limit of its policy if the insured’s injuries are really worth more than $5 million as alleged and walk from this case. State Farm had a viable argument since it convinced the trial court so it can avoid claims of bad faith. Considering the extent of injury this was probably not a wise case to take up on appeal since the costs may exceed the amount of indemnity capped by its policy limits.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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