Wood v. American Family Mutual Insurance Co
In Wood v. American Family Mutual Insurance Co., 148 Wis. 2d 639, 436 N.W.2d 594 (1989), the supreme court construed UIM coverage under a policy that attempted to reduce its payout by amounts payable by the tort-feasor.
In concluding that there was UIM coverage, the court reasoned, "we believe that a reasonable insured expects to be protected against a loss caused by another that is not covered by the underinsured driver's liability coverage." Wood, 148 Wis. 2d at 654, 436 N.W.2d at 600.
In so doing, the court defined UIM coverage by comparing the insured's damages to the liability coverage afforded by the tort-feasor. It did so to avoid illusory coverage:
"If the insurer is allowed to offset its $ 100,000 liability to the insured under each policy by the $ 25,000 paid by the tort-feasor's insurance carrier, the insurer will not be providing the $ 100,000 of UIM benefits it indicated it would pay on the declarations page of each policy." Id. at 653, 436 N.W.2d at 600.
Otherwise, the court stated, "an underinsured liability limit is an illusion because an insured will never be entitled to recover up to that limit." Id. .