Wisconsin Insurance Battle Heats Up

Governor Jim Doyle has asked the legislature to pass the Truth in Auto Insurance law. The proposal, contained within the Governor’s budget, would reverse several pro-insurance-company provisions enacted in sweeping 1995 tort reform legislation and return Wisconsin law to its long-standing status.

Two of the proposed changes in insurance law would have considerable impact on the ability of Wisconsin residents to obtain a full measure of justice if they are injured in automobile accident cases. The governor’s proposal would forbid insurers from including in their policies two types of restrictive clauses the law now allows: anti-stacking clauses and reducing clauses.

Stacking

The essence of anti-stacking is that an insured with more than one policy is prohibited from accessing the proceeds of each paid for policy if the first policy does not cover his or her damages. In other words, if a Wisconsin consumer purchases two policies for two owned vehicles, or insures two vehicles on one policy that assigns separate premiums for each vehicle, and that consumer is injured by an uninsured motorist, the current law in Wisconsin limits the injured person’s maximum recovery to the uninsured motorist limits of just one of the policies (or one of the cars if both are insured on the same policy). Before the insurance lobby convinced the legislature in 1995 to enact anti-consumer provisions such as the anti-stacking provision, policyholders could rely on the sum of all their policies to pay their claims, up to the amount of their documented damages. The 1995 legislative reforms outlawed these provisions by enacting anti-stacking rules.

The governor’s proposal would return to the pre-1995 law allowing stacking of policies, thus affording Wisconsin consumers the right to access all the coverage for which they have in fact paid.

Reducing Clauses

Since 1995, if a person in Wisconsin has purchased underinsured motorist (UIM) coverage on their policy, the insurer generally has had the right to subtract from that policy limit the amount of any proceeds received from the negligent party’s liability insurance. Reducing clauses prevent the purchasers of UIM coverage from ever collecting the coverage they have paid for, because their recovery would automatically be reduced by the at-fault driver’s insurance payout. In other words, if a Wisconsin consumer purchases as part of his/her policy $100,000 of UIM coverage, and pays a premium for the full $100,000 of coverage, that $100,000 is reduced by the amount of money the injured person collects from the underinsured motorist, or from a worker’s compensation or disability policy. This guarantees that the injured and insured consumer can never collect the full limit of the UIM coverage purchased. Governor Doyle proposes doing away with such reducing clauses and allowing an insured to collect up to the full amount of his or her UIM coverage without regard for insurance payments received from the negligent party’s insurer.

This change would also apply to prevent other reductions from insureds’ policy limits, such as the amount of workers’ compensation or disability insurance payments.

The Governor’s Philosophy

The governor’s proposals are seen by consumer-friendly groups as positive because insured persons would receive the full amount of the coverage purchased on their policies, where appropriate. In essence, they would get all that they paid for. When insurance does not cover the full amount of damage from vehicular accidents, individuals, families, health insurers and public insurance programs are left to cover the rest of the medical and other expenses. The proposed changes in the law would help alleviate the burden of the losses sustained in a serious automobile accident from being dumped on the injured person, health insurers, or public programs such as Title IXX. It is the governor’s view that insurance coverage bought and paid for by the injured person ought to bear as much of this burden as the paid in premiums dictate.

Critics Respond

The insurance industry protests that prohibiting their ability to include anti-stacking provisions and reducing clauses in their policies will increase the cost of insurance in Wisconsin. Insurance companies argue that ultimately these changes would hurt policyholders because rates would increase to cover the higher insurance payouts, possibly resulting in more people having to drop coverage altogether.

Proponents of the changes point out, however, that the 1995 pro-insurance-industry changes did not result in any reduction in premiums and that the insurance companies are playing on people’s fears. If the anti-consumer legislation of 1995 did not reduce people’s automobile insurance rates there is little basis to believe that reversing the legislation and returning to the pre-1995 state of the law would lead to any appreciable increase in premiums.

Moreover, both anti-stacking provisions and reducing clauses ultimately serve to reduce the insurance funds available for those who are injured in auto accidents. When people lack sufficient insurance to pay for their medical bills, health insurers, Medicaid, SeniorCare, BadgerCare or other providers are forced to step in and cover the remaining health care costs. In this way, insufficient automobile insurance has contributed to the rapidly rising costs of health care in Wisconsin.

Awaiting the Outcome

The Wisconsin Joint Committee on Finance has eight members from each legislative branch and is charged with reviewing state spending matters, including the huge task every two years of analyzing the governor’s biennial budget proposal. Following a series of public hearings around the state and input from state agencies, the committee is currently grinding through the proposal line by line. After committee amendments, the budget bill will be considered first by the state assembly and then by the state senate. Differences between the houses will need to be negotiated before a final bill can be sent to the governor.

The target date for the budget becoming law is July 1. However, that date has been missed before given the immense complexity of the state budget. This year is no exception with the budget bill having over 1,500 pages.

The insurance industry and consumers await the outcome with immense interest, each group having high stakes in the outcome. It is the position of these authors that the greater good of Wisconsin residents is clearly served by reversing the tort reform measures passed in 1995 and returning to the state of the law which allows Wisconsin consumers to receive the full benefit of all the insurance coverage they have purchased.