Wisconsin Law Change Hurts Accident Victims
Illinois Doesn’t Have to Make the Same Mistake
Authored By Attorney Michael F. Hupy
Wisconsin automobile insurance law has become an unfortunate victim of the sweeping changes that can be made by a reshuffle of government power. These changes are a direct reflection of political party control in the state. This article will discuss the recent changes that were made to automobile insurance laws inWisconsin, how the current coverage requirements fail to keep pace with inflation rates and how seriously-injured insureds within the state may suffer as a result of the most recent changes.
Driving in Wisconsin Prior to Wisconsin’s Legislative Flip-Flop:
There were 125,103 automobile accidents reported in the State of Wisconsin in 2008. 11,039 of the owners or drivers of the 206,048 total vehicles involved in those accidents were uninsured, creating over $37,000,000 in damages that were not covered by liability insurance for the at-fault party. Further, the number of uninsured motorists in reported accidents is underrepresented—as recent studies have shown they comprise about 14% of all drivers in the state, a figure on par with the national average. Additionally, thousands more drivers hold policies that provide for only the minimum coverages required by law. As a result, seriously injured insureds who were involved in car accidents in which they were not at fault were often not fully compensated by at-fault parties and their insurers.
Since 1946, Wisconsinlaw had only required at-fault drivers to assume “financial responsibility” for the accidents they cause. Drivers who were involved in an accident were required to submit evidence to the Wisconsin Department of Motor Vehicles of their ability to bear the financial burden of their liability in the accident. Those who failed to provide such proof faced a suspension of driving privileges. The most common proof of financial responsibility was, and currently continues to be, auto liability insurance. However, prior to 2009, Wisconsin was one of only two states in the country in which automobile owners and drivers were not required to carry liability insurance as a condition to being permitted to operate a motor vehicle in the state. Instead, drivers with insurance policies at certain minimums qualified as having proof of financial responsibility, specifically, $25,000 for each person injured in an accident, $50,000 per occurrence, and $10,000 for property damage.
The Truth in Auto Insurance Act of 2009:
With Democrats in office, the Wisconsin legislature passed what is commonly known as the “Truth in Auto Insurance Act” (TAIA). The TAIA, part of then—Governor Jim Doyle’s 2009 state budget, made drastic changes to Wisconsin automobile insurance law, which had remained largely unchanged since 1995, with minimum coverage amounts that dated from 1982. The TAIA was enacted, in part, to provide seriously-injured consumers with sufficient coverage, especially when the at-fault driver was uninsured or underinsured. The Act mandated automobile liability insurance, made underinsured coverage mandatory, increased existing uninsured coverage minimums, largely prohibited anti-stacking clauses within insurance policies, prohibited reducing clauses, and removed the “hit” requirement for hit-and-run accidents. These laws became effective January 1, 2010, and remained in place through October 31, 2011.
The liability insurance mandate provided that, “no person may operate a motor vehicle upon a highway in this state unless the owner or operator of the vehicle has in effect a motor vehicle liability policy with respect to the vehicle being operated.” Mandated coverage for drivers minimally required $50,000 of coverage per person, $100,000 per accident and $15,000 for damaged property. The law also requires that drivers carry proof of insurance, which must be presented upon request by a law enforcement officer.
Next, the law statutorily defined “underinsured motorist coverage” and “uninsured motorist coverage” to mean “coverage for the protection of persons insured under that coverage who are legally entitled to recover damages . . . from owners or operators of [underinsured/uninsured] motor vehicles.” An “underinsured motor vehicle” was defined as one that (1) “is involved in an accident with a person who has underinsured motorist coverage,” (2) has a bodily injury liability policy attached to it, which (3) has “limits . . . that . . . are less than the amount needed to fully compensate the insured for his or her injuries.”
The TAIA mandated that all automobile liability policies provide underinsured motorist coverage. Additionally, underinsured motorist minimum insurance coverage were increased from $50,000 per person and $100,000 per occurrence to $100,000 per person and $300,000 per occurrence.
The law then defined an “uninsured motor vehicle” as “[a] motor vehicle that is involved in an accident and with respect to which . . . a bodily injury insurance policy is not in effect . . . .” Additionally, an uninsured vehicle included “an unidentified motor vehicle, provided that an independent 3rd party provides evidence in support of the unidentified motor vehicle’s involvement in the accident” (sometimes known as “miss and run”), and “[a]n unidentified motor vehicle involved in a hit-and-run accident with [a person who has UM coverage.” The latter two definitions allowed insureds to avail themselves of UM coverage under their policies without proving that the unidentified vehicle was actually uninsured when that knowledge was not reasonably ascertainable under the circumstances, and without the previously required physical “hit” of a hit-and-run accident. The legislature’s decision to define these terms is significant because the terms had previously been left to the discretion of insurers within their policies.
Similar to UIM coverage, the TAIA mandated that all auto liability policies provide UM coverage, with minimums of at least $100,000 per person and $300,000 per accident. Previously, no requirement for UIM coverage existed.
Further, the TAIA increased the amount of medical payments coverage required in auto liability policies ten-fold, from a minimum of $1,000 to $10,000. Medical payments coverage requires an insurer to pay for medical treatment, including ambulance transportation, doctor visits, surgeries, etc., resulting from injuries suffered in an automobile accident.
Finally, the TAIA limited the use of anti-stacking clauses in auto liability insurance policies. The statute reads, in relevant part:
No policy may provide that[,] regardless of the number of policies involved, vehicles involved, persons covered, claims made, vehicles or premiums shown on the policy or premiums paid[,] the limits for any uninsured . . . or underinsured motorist coverage under the policy may not be added to the limits for similar coverage applying to other motor vehicles to determine the limit of insurance coverage available . . . in any one accident, except that a policy may limit the number of motor vehicles for which the limits of coverage may be added to 3 vehicles.
The statute permits interpolicy stacking, where separate policies cover the same loss, and intrapolicy stacking, where multiple coverages under one policy are aggregated.
Similarly, the TAIA enacted a prohibition on reducing clauses. Reducing clauses allow the amount of coverage available under a policy to be reduced by any amount paid (or payable) by those obligated to compensate the injured party. Under the TAIA, UM or UIM coverage cannot be reduced by amounts paid by (1) persons or organizations legally responsible for the injury to a person, (2) amounts paid under any workers compensation law, or (3) amounts paid under any disability benefits laws.
In sum, the Truth in Auto Insurance Act enacted several regulatory restrictions on the freedom of individuals and insurance companies to contract. On the one hand, it requires any individual who owns or operates a motor vehicle within the state to contract to insure that vehicle. On the other hand, it regulates the ability of insurance companies—which are often the more sophisticated party to the bargain—to dictate the terms of that contract.
The Repeal of the Truth in Auto Insurance Act
In early 2011, state legislators in the Wisconsin Senate and Assembly passed 2011 Assembly Bill 4, which was signed into law by Wisconsin Governor Scott Walker on April 12, 2011.  Essentially, the new law “largely return[ed] the laws on financial responsibility for motor vehicles to the status of those laws prior to being revised by [the TAIA]”—the laws of the 1995, Republican-controlled state government. The law “maintain[s] the requirement under current law that every motor vehicle in Wisconsin be covered by an insurance policy,” but rolls back the increased minimums for UM coverage and medical payments coverage, and eliminates the requirement of UIM coverage altogether. Further, it eliminates the prohibition on anti-stacking and reducing clauses, allowing insurance companies to re-insert those clauses into insurance policies that are issued or renewed after the effective date.
With respect to the auto insurance mandate, the law decreases the required liability minimums from $50,000/$100,000 per accident, and for $15,000 property damage, to $25,000/$50,000/$10,000. In short, the law leaves the auto liability insurance mandate in place while halving the minimum coverage required. The new law also returns the minimum amounts of UM and medical payment coverage required to their pre-TAIA levels—to $25,000 per person, $50,000 per occurrence, and $1,000 for medical payments.
Significantly, the new law also makes changes to the statutory definition of “uninsured vehicle.” In place of the subsections defining uninsured vehicle to include any unidentified motor vehicles for which a third party provides evidence of involvement in an accident with the insured, the new law creates the “phantom motor vehicle,” which is defined as a motor vehicle that (1) “is involved in an accident with a person who has [UM] coverage,” (2) “makes no physical contact with a person who has [UM] coverage,” and (3) “the identity of neither the operator nor the owner . . . can be ascertained.”
Phantom motor vehicles are included within the definition of “uninsured motor vehicles” only if (1) “the facts of the accident are corroborated by competent evidence that is provided by someone other than the insured or any other person who makes a claim against the [UM] coverage as a result of the accident,” (2) the accident is reported to a Wisconsin law enforcement agency within 72 hours, and (3) the insured files an affidavit stating that the insured “has a cause of action arising out of the accident for damages against a person whose identity is not ascertainable” within 30 days. Essentially, the new law more clearly defines a “miss and run” accident, but also sets forth strict reporting requirements that must be met in order for UM coverage to be applicable to these accidents.
While UIM coverage had not been mandatory prior to the TAIA, insurers were required to offer this coverage by “provid[ing] written notice of the availability of that coverage,” and if the insured chose to accept it, the coverage had to include at least $50,000 per person and $100,000 per accident. Insureds who chose to reject the offer of UIM coverage were required to do so in writing. The UIM mandate has been removed entirely, replacing it with the requirement only that insurance companies offer their insureds UIM coverage (which, if accepted, must be at least $50,000/$100,000). Further, the law no longer requires insureds to reject the UIM offer in writing, changing what was essentially an “opt-out” contractual scheme into an “opt-in.” It also removed the definition of “underinsured motor vehicle,” allowing that term to again be defined by individual insurance policies.
Finally, the new law repeals the prohibition on anti-stacking and reducing clauses, reversing the changes made by the TAIA. Literally, the new law removes the exact language that the TAIA inserted, and restores the law verbatim to its pre-TAIA form, changing anti-stacking and reducing clauses from prohibited to permissible. These changes have the effect of decreasing the amount of coverage actually available to an insured without altering the nominal amount of stated coverage under the policy.
The Effects of the Repeal on Wisconsin Insureds
In summary, the new law either repealed coverage mandated by the TAIA or reduced the required minimums to pre-TAIA levels, while it eliminated prohibitions on certain clauses within auto liability insurance policies, as well as created new statutory reporting requirements for insureds to avail themselves of coverage under the policies in certain circumstances. Those favoring the current law argue that the changes repealed unnecessary and harmful encroachments on the freedom of individuals and businesses to contract for the desired type and amount of coverage, while those against it argue that the law is a step backwards from necessary reforms to ensure that individuals are adequately protected both as consumers and drivers on Wisconsin roads.
The minimum amounts for UM coverage were increased from $15,000 per person and $30,000 per occurrence to $25,000 and $50,000, respectively, in 1982. These amounts remained unchanged until the TAIA was instituted, significantly increasing the minimums to $100,000 per person and $300,000 respectively. The 1982 changes became effective November 1, 1982, and the TAIA became effective on January 1, 2011. The cumulative rate of inflation between these dates is 123.65%. Consequently, the 1982 amount of $25,000 of UM coverage, per person injured in an accident, adjusted by this rate of inflation equals $55,912.50. The 1982 amount of $50,000 of UM coverage per occurrence, adjusted by this rate of inflation, is $111,825.00.
The minimum UM coverage amounts under TAIA surpass these inflated numbers, $55,912.50 (inflated) as compared to $100,000 (TAIA minimum) per person, and $111,825.00 (inflated) compared to $300,000 (TAIA minimum) per occurrence. The changes reflect a desire by the legislature to provide adequate coverage to insureds who are injured by uninsured motorists. However, the current law, with its minimum UM coverage amounts returned to $25,000 per person and $50,000 per occurrence, are less than half of the coverage when they are adjusted for inflation ($55,912.50 and $111,825.00 respectively). The repeal of TAIA, and consequential return to lowered UM coverage minimums of 1982, simply does not reflect the progress of the economy over the past 29 years. Medical expenses have certainly increased in the past three decades, but the minimum coverage allowed for such expenses has not increased at all, aside from the short time the TAIA was in effect. The lack of change to these amounts may be a significant hardship for anyWisconsininsured who sustains injuries in an accident with an uninsured motorist; theses injured insureds face steeper medical bills but without coverage amounts that reflect the costs of healthcare.
Under the current law, the more significant the injuries sustained by an insured with UM coverage in an accident with an uninsured motorist, the more likely it is that the insured will face financial difficulties in funding the treating for those injuries. Our firm had three seriously injured clients that benefitted significantly under TAIA law, specifically by the stacking provisions. Client A, while operating his motorcycle, sustained very serious injuries when he was hit by an automobile. Without the ability to stack, he would have received only $300,000 for his injuries, far less than his total medical costs, which were more than one million dollars. Client A was able to stack multiple policies to a total settlement amount of $850,000. Without stacking and the higher recovery it allowed, Client A and his family would have filed bankruptcy, an unjust result for injuries he sustained in an accident for which Client A was not at fault.
While proponents of the law had expressed concern that the previous changes to auto insurance law under the TAIA had caused a 33% increase in auto insurance premiums since taking effect in the beginning of 2010, opponents of the bill have expressed skepticism that the TAIA had actually caused the premium increases cited by legislators and lobbyists, or that it had made auto liability insurance unaffordable. A study by Citizen Action of Wisconsin found that auto insurance rates had not climbed 33% since the TAIA took effect, but had actually increased only ~1% during 2010. Further, the study found that even after the additional protections of the TAIA were implemented, Wisconsin had the fourth-lowest auto insurance rates in the country. The report concluded that there was “no correlation” between the “enhanced consumer protections” in the TAIA and increased auto insurance premiums.
Legislators and supporters of the rollback acted hastily in their quick repeal, disregarding evidence that contradicts their claims on why the rollback was necessary. Supporters stated that the current limits are in line with other states, implying that they are therefore sufficient. However, simply being in line with the average minimums required across the country does not necessarily mean that the limits are adequate. Legislators additionally stated that the rollback corrected the increased rates that insurance companies had instituted in response to the TAIA. But, under the TAIA, even with Wisconsin’s increased minimums, insurance premiums in the state were still the fourth lowest in the nation. Scholars have asserted that compulsory auto insurance can actually cause a decrease in premiums due to increased regulation and competition within the state to write policies. This may have served to mitigate the costs of increased minimums during the first year that the TAIA was in effect, if such increases occurred. TAIA was repealed so quickly that it is impossible to determine what effects the law would have had on insurance premiums. Given the nature of increasing medical costs, the low minimum coverage amounts, and the allowance of stacking provisions and reduction clauses required under the current law, seriously accident victims may be subjected to incredible hardship. The repeal of the TAIA inWisconsin leaves them without adequate coverage and fails to keep pace with the passage of time and economic progression.
Illinois should not repeat Wisconsin’s mistake. Illinois, like Wisconsin, has minimum rates that are insufficient to cover the expenses of seriously injured accident victims. Currently, Illinoisdrivers are only required to purchase $20,000 of insurance coverage per person, $40,000 per occurrence, and $15,000 for property damage. Representative David R. Leitch introduced a bill that would raise these minimums to $100,000 per person, $300,000 per occurrence, and $100,000 for property damage, but his bill was rejected by the Illinois House Insurance Committee in February 2011. A second bill, introduced soon after Rep. Leitch’s bill, proposes raising the minimums to $50,000 per person, $100,000 per occurrence, and $40,000 for property damage. Should Rep. Leitch’s bill or any similar bill be taken up again in the near future, and passed by theIllinois legislature,Illinois should not repeatWisconsin’s mistake in immediately repealing those consumer protections.