April 6, 2018 – The Wisconsin circuit and appeals courts ruled that Robert Shugarts could not tap his underinsured motorist coverage because his claim was untimely. Recently, the Wisconsin Supreme Court unanimously reversed in favor of Shugarts.

In October 2010, Shugarts was on duty as deputy sheriff for Eau Claire County when hit-and-run suspect Dennis Mohr struck his squad car. Shugarts had been in pursuit of Mohr and he was severely injured in the crash. Mohr had an auto policy with Progressive Ins. Co. The policy limit for bodily injury liability was $50,000.

Ultimately, after Shugarts filed a lawsuit in June 2013, Progressive offered to settle at the policy limit of $50,000 if the county waived a subrogation claim. Eau Claire County insured the squad car with an underinsured motorist (UIM) policy.

Shugarts had a personal auto liability policy with Allstate Ins. Co., including UIM coverage. In October 2014, four years after the accident, Shugarts filed a notice of retainer with Allstate. And in February 2015, Shugarts filed the notice required by Vogt v. Schroeder, which says an underinsurer is entitled to a notice of proposed settlement.

The notice provides a period of time for the underinsurer to decide whether to intervene in the settlement process and protect any subrogation rights it may have.

In this case, Shugarts’ notice to Allstate indicated that Progressive offered to settle for $50,000, but the claim, based on his injuries, would far exceed that amount.

In March 2015, Shugarts added Allstate to the lawsuit in an amended complaint. Allstate raised an affirmative defense of untimeliness: no coverage was available, Allstate argued, because Shugarts failed to provide timely notice of his intention to make a claim.

Allstate, in a motion for summary judgment, argued that Shugarts failed to timely notify Allstate of the accident, which had occurred almost five years earlier in 2010.

The circuit court granted summary judgment to Allstate and an appeals court affirmed. The appeals court ruled that Shugarts “was required to provide Allstate with proof of his UIM claim as soon as possible after the incident giving rise to the claim.”

But in Shugarts v. Mohr, 2018 WI 27 (April 5, 2018), the Wisconsin Supreme Court reversed, concluding that “the operative event triggering the notice requirement in the Shugarts’ UIM policy is the tender of the tortfeasor’s underlying policy limit.”

That is, Shugarts met the notice requirements established in the UIM policy with Allstate and a state statute that requires notice of proof of loss within one year after the time it was required by the policy did not apply to the UIM policy provision at issue.

“Consequently, we determine that the Shugarts provided Allstate with timely proof of their UIM claim as required by the policy language,” Justice Ann Walsh Bradley wrote.

What Did the Policy Say?

The Allstate policy had seven parts. The “liability” section said if the insured is in an auto accident, “we must be notified of all details as soon as reasonably possible. If a person insured is sued as a result of the auto accident, we must be notified immediately.”

Allstate argued that this provision applied to UIM claims, even though it was not in the UIM section. The UIM section did not specifically state that the insured needed to provide notice of an accident, but Allstate said the notice still applied to UIM claims.

But the supreme court said that was not a reasonable interpretation. “A reasonable insured reading the policy would likely conclude that the provisions located in the liability section apply in the liability section only,” Justice A.W. Bradley wrote.

The supreme court also rejected Allstate’s argument that a “proof of claim” provision in the UIM policy required Shugarts to provide notice earlier that he did.

That provision required a person making a claim for UIM coverage to provide notice “as soon as possible.” The supreme court noted that the language said proof of “claim,” not proof of “accident” or proof of “loss.” The notice was tied to the “claim.”

Another provision of importance to the supreme court was in the UIM section and said coverage would not trigger until the tortfeasor’s liability limits were exhausted.

“Giving effect to the exhaustion clause, we therefore conclude that the operative event triggering the notice requirement in the Shugarts’ UIM policy is the tender of the tortfeasor’s underlying policy limit,” Justice A.W. Bradley wrote.

Allstate argued that Shugarts should have provided notice as soon as possible after Progressive disclosed the policy limit of $50,000, in August 2013. The supreme court disagreed because the policy language required “notice of claim,” not possible claim.

The Shugarts filed the notice of retainer 15 days after Progressive offered to settle for the policy limit and filed the Vogt notice within four months after that. Thus, the supreme court ruled that the notice was timely, and the case for UIM coverage can proceed.

Finally, the court rejected Allstate’s argument that notice was untimely under Wis. Stat. section 631.81(1), the statute that requires “proof of loss” within one year after the time it was required by the policy because the UIM policy did not require “proof of loss.”