Most people have never heard of a reducing clause until they, or a family member, are seriously injured in a car crash. Prior to Governor Walker's repeal of the Truth in Auto legislation reducing clauses were illegal in Wisconsin. Reducing Clauses are provisions in Wisconsin auto insurance policies (check the fine print) that let your insurance company take credit for amounts already paid and deduct these amounts from your policy limits. Most reducing clauses go so far as to deduct any worker's compensation benefits you may receive from your policy limits. Thus, no matter what someone pays in premiums for uninsured motorist or underinsured motorist (UM/UIM) coverages, they will never receive the full benefit amount they are paying for.
When the amount of the injured person's damages is larger than the amount of the at-fault driver's insurance limits, the injured person is then forced to tap into their own UM/UIM benefits to make up the difference.
Example of How Reducing Clauses Work
a). You are seriously injured in a crash, the at-fault driver is 100% negligent and your reasonable damages are $300,000;
b). Negligent driver who hit you has the new state minimums of $25,000 per person/$50,000 per claim;
c). You have UM/UIM coverage of $100,000 per person/$300,000 per claim; and
d). You collect the $25,000 maximum owed by the at-fault driver's insurance
Since the injured person's damages are still greater than $25,000, they would then turn to their own UIM policy for payment of additional benefits. Most people would think that they are going to get the $100,000 in UIM benefits they are paying a separate premium for, and that their own insurance company would look out for them and treat them fairly.
Unfortunately, under Gov. Walker's new law your UIM coverage will only pay you an additional $75,000 because your own insurance company is now allowed to deduct the $25,000 you already received from your $100,000 policy limit.
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