When Does Public Policy Override Insurance Contracts?
Insurance policies are legal agreements, but sometimes public policy—the principles that protect fairness and the public good—can take priority over the terms in those contracts. Understanding when this happens is important for both policyholders and insurers.
The case of Miller v. West Bend Mutual Insurance Company is an excellent example of how courts weigh public policy against the wording of insurance policies in Wisconsin.
What Is Public Policy In Insurance Law?
Public policy in insurance law is about ensuring fairness and accountability in insurance practices. Courts may step in to void or adjust parts of an insurance contract if those terms are unfair, illegal, or go against the broader public interest. Examples of when public policy might be involved include:
● Ensuring policyholders are treated fairly.
● Protecting the rights of third parties affected by an insurance claim.
● Preventing terms that violate state laws or unfairly restrict coverage.
What Happened In Miller v. West Bend Mutual Insurance Company?
Donald Miller was injured in an accident involving a government-owned snowplow. He sought underinsured motorist (UIM) coverage under an insurance policy from West Bend Mutual. However, the policy specifically excluded government-owned vehicles from UIM coverage, meaning Miller’s claim was denied.
Initially, a lower court sided with Miller, saying that the exclusion violated the reasonable expectations of policyholders and public policy. The court believed that Miller should have been covered, especially since Wisconsin’s insurance laws are designed to protect drivers.
But the Wisconsin Court of Appeals overturned this decision. It ruled that West Bend’s policy was valid because Wisconsin law now allows insurers to define UIM coverage, including exclusions like this one. Legislative changes in 2011 had given insurers more freedom to set their own rules for UIM coverage, so the court upheld the contract as written.
When Does Public Policy Override Insurance Contracts?
While the Miller case upheld the insurance company’s policy, there are times when public policy can override contract terms. Here are some examples:
1. Breaking The Law
If a policy includes terms that violate Wisconsin laws, those terms are invalid. For example, mandatory coverage like uninsured motorist protection cannot be excluded by an insurance contract.
2. Misleading Or Confusing Policies
If a policy creates reasonable expectations for coverage but then denies it because of unclear or tricky language, courts may step in. Public policy ensures that policyholders are not unfairly misled.
3. Protecting Third Parties
Insurance policies can’t strip away the rights of people injured in accidents. For instance, liability insurance must cover claims from injured third parties, even if the policy tries to exclude certain situations.
4. Unfair Terms
Courts may strike down contract terms that are overly harsh or leave policyholders without adequate protection. For example, a policy that excludes all claims involving certain vehicles might be deemed unfair.
5. Public Safety
If a contract undermines public safety, it can be overridden. For instance, even if a policy denies coverage for illegal activities, it might still have to provide basic protection to innocent third parties injured in an accident.
Lessons From The Miller Case
The Miller case shows how legislative changes can impact the balance between public policy and insurance contracts. Since 2011, Wisconsin has allowed insurers more flexibility to define their policies, which means courts are less likely to override clearly written terms.
This highlights two key points:
● For Policyholders: Always read your policy carefully. Don’t assume you’re covered without understanding the fine print.
● For Insurers: Clear and transparent language is crucial to avoid disputes and ensure policyholders understand what is and isn’t covered.
Have You Been In An Accident And Need Help Navigating Insurance Disputes?
Understanding the details of your insurance policy and your rights under Wisconsin law can be challenging. At Bosshard Parke, we can help injured parties navigate complex insurance issues, from disputes over denied claims to understanding policy terms. Our experienced attorneys in La Crosse and Sparta, Wisconsin, are here to support you.
If you have been in an accident and face an insurance dispute or have questions about your coverage, contact us today to schedule a consultation.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. For personalized legal guidance, please consult an attorney at Bosshard Parke.
