The Shugarts possessed a personal automobile insurance policy through Allstate Property and Casualty Company, which also included UIM coverage.

In November 2011, the Shugarts hired an attorney, who sent notice of retainer to Progressive. In January 2012, Progressive denied coverage, basing the denial on the assertion that Mr. Mohr's striking of the squad car was an intentional act and thus not covered under its policy.

The Shugarts proposed a $600,000 settlement with Progressive in April 2013. In May 2013, Progressive turned down the offer, persisting in its assertion that the intentional act exclusion in Mr. Mohr's policy served as a defense to coverage.

After Progressive rejected their offer, the Shugarts filed a lawsuit in June 2013. Progressive continued to deny coverage, but offered to settle the case for $10,000. It also provided the Shugarts with a declarations page from Mr. Mohr's policy indicating that it contained a bodily injury liability limit of $50,000 per person.

Subsequently, on October 13, 2014, Progressive changed its position on coverage. It offered to pay the Shugarts the policy limit of $50,000 if WMMIC waived any subrogation claim. On October 28, 2014, the Shugarts sent a notice to Allstate advising that counsel had been retained “with regard to injuries [Mr. Shugart] sustained in an automobile accident which occurred on October 11, 2010.”

After additional correspondence between the Shugarts' attorneys and Allstate, on February 9, 2015, the Shugarts sent Allstate a notice that stated that Progressive had offered to settle the Shugarts' claim for the policy limit of $50,000. Further, the notice explained that “[i]n evaluating Mr. Shugarts' injuries, we believe that Mr. Shugarts' claim is well in excess of the policy limits afforded by Progressive Insurance.”

The Shugarts filed an amended complaint in March 2015, adding Allstate as a defendant. Allstate answered the complaint, raising untimeliness as an affirmative defense. It stated that there was “no coverage available to the plaintiffs under the Allstate policy given the failure of the plaintiffs to provide timely notice of their intention to make a claim as a result of the subject accident as required under the Allstate policy.”

Allstate moved for summary judgment, arguing that the Shugarts had not provided “timely notice to Allstate of the October 11, 2010 motor vehicle accident as required by the Allstate policy.”

The trial court granted Allstate's motion. The Shugarts appealed, and the court of appeals affirmed.

The dispute reached the Wisconsin Supreme Court.

The Allstate Policy

A provision in the liability portion of Allstate's policy, entitled “What To Do In Case Of An Auto Accident Or Claim” (the “notice of accident” provision), stated:

If a person insured has an auto accident, we must be notified of all details as soon as reasonably possible. If a person insured is sued as the result of an auto accident, we must be notified immediately. 

The UIM portion of the Allstate policy stated:

As soon as possible, you or any other person making claim must give us written proof of claim. It must include all details we may need to determine the amounts payable. We may also require any person making claim to submit to examination under oath and sign the transcript.

Its “exhaustion” provision stated:

We are not obligated to make any payment for bodily injury under this coverage which arises out of the use of an underinsured motor vehicle until after the limits of liability for all liability protection in effect and applicable at the time of the accident have been exhausted by payment of judgments or settlements. 

The court reversed.

In its decision, the court explained that the Shugarts' insurance policy was separated into seven parts, including a part entitled “Automobile Liability Insurance” and a part entitled “Underinsured Motorists Insurance.” The court observed that the notice of accident provision was located in the liability section of the Allstate policy, and not in the UIM section.

The court rejected Allstate's contention that the notice of accident provision nevertheless applied with equal force to UIM claims even though the UIM section did not specifically state that an insured had to provide notice of an accident.

The court said that a “reasonable insured reading the policy” would likely conclude that the provisions located in the liability section applied in the liability section only. Even if this were not the case, the court added, at the very least the “notice of accident” provision in the liability section of the policy was “ambiguous as to its application to UIM claims.” Accordingly, it ruled, the provision had to be construed against the insurer, which drafted it. Therefore, the court decided, the “notice of accident” provision in the liability section of the Shugarts' policy did not apply to UIM claims.

The court next examined the proof of claim provision in the policy's UIM section, noting that a “reasonable insured would ascribe importance to this location in the policy, making it the operative notice provision for UIM claims.”

The provision, the court found, required that a claimant submit proof of “claim,” not proof of “accident” or proof of “loss.” The court pointed out that neither the word “accident” nor the word “loss” appeared in the provision.

The court added that, pursuant to the proof of claim provision, a person making a UIM claim had to submit “proof of claim” “as soon as possible.” It then found that, under the exhaustion clause, Allstate owed UIM benefits to the Shugarts only when Mr. Mohr's liability insurance was insufficient to cover their damages. “In other words,” according to the court, tortfeasor drivers were “not by definition 'underinsured' until their policy limits” were “exhausted.” Giving effect to the exhaustion clause, the court concluded that the operative event triggering the notice requirement in the Shugarts' UIM policy was “the tender of the tortfeasor's underlying policy limit.”

The court distinguished UIM coverage – as “excess” – from uninsured motorist (“UM”) coverage – as “first party coverage” that also was “first dollar” coverage because the tortfeasor had no insurance.

UIM coverage, the court concluded, was not triggered by the incident itself but by the tender of the tortfeasor's underlying policy limit. Here, application of the exhaustion clause indicated that the Shugarts' UIM coverage had not been triggered until the $50,000 policy limit of Mr. Mohr's Progressive policy was exhausted. That occurred on October 13, 2014, when Progressive offered its policy limit to settle the case. Before that date, the court held, the Shugarts had no UIM “claim” about which they could give notice.

After receiving Progressive's offer to settle for the full policy limit, the court ruled, the Shugarts “did not unduly delay notifying Allstate of the offer.” On October 28, 2014 – 15 days after receiving the offer from Progressive – the Shugarts sent Allstate a notice of retainer. Correspondence between the Shugarts and Allstate ensued, and the Shugarts ultimately sent a notice on February 9, 2015 advising Allstate of its ability to substitute payment and thereby protect its subrogation rights. This timeline was “sufficient to satisfy the policy's requirement that notice of claim be provided 'as soon as possible.'”

The court concluded by rejecting Allstate's contention that the Shugarts should have provided notice shortly after the accident, or at the very latest in August 2013 after receiving the declarations page of the Progressive policy showing the policy limit of $50,000, pointing out that the Allstate policy required notice of “claim,” not notice of “possible claim.” Accepting Allstate's argument would lead to the “absurd result” that an accident victim would be required to file a notice of a UIM claim after every auto accident to prevent forfeiting such a claim if the tortfeasor's underlying liability limits did not cover the full loss, the court said.

The case is Shugarts v. Mohr, No. 2016AP983 (Wisc. April 5, 2018). Attorneys involved include: For the plaintiffs-appellants-petitioners, there were briefs filed and an oral argument by Harry R. Hertel and Hertel Law Offices, S.C., Eau Claire. For the defendant-respondent, there was a brief filed by Leah M. Cameron, John M. Swietlik, Jr., and Kasdorf, Lewis & Swietlik, S.C., Milwaukee. There was an oral argument by John M. Swietlik, Jr. An amicus curiae brief was filed on behalf of Wisconsin Association for Justice by Edward E. Robinson and Cannon & Dunphy, S.C., Brookfield, with whom on the brief were William C. Gleisner, III and Law Offices of William C. Gleisner, III, Brookfield, and Lynn R. Laufenberg, Mark L. Thomsen, and Gingras, Cates, Luebke, S.C., Waukesha. There was an oral argument by Edward E. Robinson.