Orlowski v. State Farm Mutual Automobile Insurance Company Overrules
Heritage Mutual Insurance Company v. Graser

In Orlowski v. State Farm Mutual Automobile Insurance Company, 2012 WI 21, Lindy Orlowski was involved in a car accident with an underinsured driver.  Orlowksi recovered damages from the at-fault driver’s limited liability policy.  In addition, Orlowski had health insurance through United Healthcare, that paid for her medical expenses.  Orlowski filed a claim for underinsured motorist coverage (UIM) with her auto insurer, State Farm.  The UIM claim proceeded to arbitration.  The arbitration panel concluded that Heritage Mutual Insurance Company v. Graser, 2002 WI App 125, 254 Wis. 2d 851, did not allow Orlowski to recover medical expenses written off by the health insurer from her UIM coverage.  It therefore only awarded her $11,498.55 rather than the reasonable value of the medical services, $72,985.94.  Orlowski appealed to the circuit court, which modified the arbitration panel’s finding and awarded her the full amount of her medical expenses. 

State Farm appealed and argued they were only obligated to pay the amount of medical expense actually paid by the HMO or health insurer as opposed to the reasonable value of the expense relying on Graser.

Justice Crooks, writing for the unanimous Supreme Court, rejected State Farm’s analysis and reviewed the history and purpose of the Collateral Source Rule, noting  “Ensuring that a person injured by tortious conduct is fully compensated is no less important in a UIM case than it is in a negligence action.” Orlowski at ¶26.  The Court held that diverging from established case law and limiting the Collateral Source Rule was not justified in this case.

The Court noted that Orlowski had paid premiums for coverage under both her health insurance policy and her UIM policy.  The Court said, “Since Orlowski has paid a premium for both of these policies, she should receive the benefit from both.”  Orlowski at ¶27.
The State Farm policy contained an arbitration clause that “directed the arbitration panel to decide, first, whether Orlowski was 'legally entitled to collect damages from' an underinsured motorist. … The common, ordinary meaning of the amount that an insured is legally entitled to collect from the underinsured motorist is the amount that he or she could recover in a tort action against the underinsured motorist.” Orlowski at ¶34.

The Court noted that "[t]he proper measure of damages for medical treatment rendered in a personal injury action is the reasonable value of the medical treatment reasonably required by the injury." Leitinger, 302 Wis. 2d 110, 23. We further explained that '[t]he value of medical services made necessary by the tort can ordinarily be recovered although they have created no liability or expense to the injured person.' Id. Consistent with these principles and the operation of the collateral source rule, we have repeatedly held that an insured may recover the full reasonable value of medical services including the value of any written-off medical expenses.” Orlowski at ¶35.

The Court overruled Graser, “to the extent that it holds that the collateral source rule has no application in cases involving UIM coverage.” Orlowski at ¶40.

The case was handled by Kevin Kukor and Keith Stachowiak at the Murphy Practhauser law firm in Milwaukee.  Mark Thomsen, Ed Robinson and Brett Eckstein of Cannon Dunphy in Brookfield, submitted an Amicus Curiae Brief on behalf of the Wisconsin Association for Justice.

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