February 1998
Table of Contents
•· Minnesota Declines To Recognize Secondary Victims
•· Economic Loss Doctrine -- Not Just For Merchants
•· No Contractual Indemnity For Damages
•· Subrogation Against Co-Employer Based On Fault
•· Multiple Personalities Are Competent To Testify
•· Negligent Misrepresentation Does Not Apply To Physical Injuries
•· No Contractual Indemnity For Damages That First Appear After Job Is Completed
•· High Court Restricts Sex Abuse Statute Of Limitations
•· Economic Loss Doctrine -- Not Just For Merchants
•· No UM Claim Where Unidentified Motorist Stops
Victor Lund, Editor.
Mahoney, Dougherty and Mahoney, P.A. distributes this newsletter to its clients and others to keep them informed about developments in the area of tort and insurance law. The articles are not intended to be legal advice and should not be relied on without counsel.
Mahoney, Dougherty and Mahoney, P.A.
Attorneys and Counselors
801 Park Avenue
Minneapolis, MN 55404
Tel: 612-339-5863
Fax: 612-339-1529
Minnesota Declines To Recognize Secondary Victims
by Victor Lund
The creativity of plaintiffs' lawyers in trying to create new causes of action reached new heights in Mulinix v. Mulinix (unpublished Minnesota Court of Appeals October 3, 1997).
The case was spinoff litigation from a divorce proceeding. Michael Mulinix was the minister of a Lutheran church. He and Carol Mulinix divorced after 18 years. She said that he admitted to having extramarital affairs with women of the church during counseling sessions. He denied the accusations. The proceedings continued to go downhill. Eventually, the divorce went through and Carol sued her former husband, the church and the synod on a variety of theories, none of which were valid.
The most interesting one was a claim for damages against all defendants for negligently investigating the claims of sexual misconduct during counseling sessions. Michael Mulinix was a Lutheran minister at all times and was subject to a duty not to seduce his parishioners. However, assuming any sexual improprieties took place, Carol was not the victim. She claimed that she should be entitled to assert the claim anyway as a "secondary victim."
The court of appeals found that there is no such claim.
Minnesota does not recognize secondary victims.
Economic Loss Doctrine -- Not Just For Merchants
by Dale Lindman
In State Farm Mutual Automobile Ins. Co. v. Ford Motor Co., ___ N.W.2d ___ (Minn. App. 1997), the court of appeals held that the economic loss doctrine may apply to transactions involving consumers. The Andersons' Ford mini-van burst into flames and was destroyed. They had insurance with State Farm which paid the loss and started a subrogation suit against Ford. The court of appeals threw out the claim on the ground that the economic loss doctrine barred any tort claim. The only remedies available were those provided by the UCC. The court applied the economic loss statute as written. Minn. Stat. §604.10, subd. (c), bars a plaintiff from suing in tort for economic losses arising out of damage to the goods themselves. That subsection of the statute makes no exception for non-merchant transactions. The subject of the Andersons' transaction was the Ford van itself. That was the only item that was destroyed. Therefore, it was a UCC claim, not a tort claim.
No Contractual Indemnity For Damages
by Victor Lund
In a case argued by the editor, the Minnesota Supreme Court held that a standard AGC indemnification clause does not require a subcontractor to purchase completed operations coverage. Seward Housing Corp. v. Conroy Brothers Co., ___ N.W.2d ___ (Minn. 1998). Conroy Brothers subcontracted with Right-Way Caulking on a building project. The subcontract had a standard AGC indemnification clause which obligated Right-Way Caulking to procure a policy of general liability insurance. Right-Way Caulking never bought a policy. It completed its work without incident. More than a year later, the damages complained of first appeared. The general contractor settled with the owner and brought a claim for indemnity against Right-Way Caulking. Right-Way defended on the basis that even if it had bought a CGL policy, there would be no coverage for these damages anyway. Damages that first appear after the subcontractor completes its work would be covered only under a completed operations enforcement. The subcontract did not require it to buy completed operations coverage. The supreme court agreed. A CGL policy covers certain risks. Completed operations coverage covers much greater risks and the premium is higher. The subcontract required general liability insurance only. Since the damages appeared after the subcontractor completed its operations, there would be no coverage under a CGL.
Subrogation Against Co-Employer Based On Fault
by Gregory Zinn
In an earlier issue, we reported that both employers in a common enterprise are equally liable for workers' compensation benefits. Minnesota Brewing Co. v. Egan & Sons Co., 560 N.W.2d 111 (Minn. App. 1997). The supreme court accepted review of Minnesota Brewing and has now reversed.
If an employer who is engaged in a common enterprise with some other business pays compensation benefits to an injured employee, any subrogation for benefits paid against the other member of the common enterprise must be based on fault. There is no statutory obligation that each party to the common enterprise contribute 50% of compensation benefits. Minnesota Brewing Co. v. Egan & Sons Co., ____N.W.2d ____, (Minn. 1998).
Multiple Personalities Are Competent To Testify
by Richard Mahoney
In an interesting case of first impression, the court of appeals has held that testimony by multiple personalities of a single individual may be admissible. Wall v. Fairview Hospital and Healthcare Services, 568 N.W.2d 194 (Minn. App. 1997).
The two female plaintiffs sued the estate of their former psychiatrist, the psychiatrist's nurse, and the hospital for injuries arising out of sexual abuse by the psychiatrist who had since committed suicide. Both of the plaintiffs suffered from multiple personality disorder, now known as dissociative identity disorder (DID).
One plaintiff, age 38, had a variety of female alter egos, most of them young girls, but also including"grandma." The other plaintiff, age 45, had male and female alters, including "the Destroyer," and "the Silent One." The trial court granted summary judgment in favor of the hospital and dismissed the nurse during trial. The case resulted in substantial damages against the estate of the psychiatrist. The court of appeals reversed and remanded for further proceedings against the nurse on the theories of negligent infliction of emotional distress and violation of the Vulnerable Adults Act.
The novel issue was whether testimony from plaintiffs in their various dissociated personalities was competent. The court of appeals affirmed the decision to allow the plaintiffs and all their personalities to testify. The court rejected the argument that hypnotic testimony is not admissible. Dissociative states are not the same as hypnotic states. The plaintiffs were able to call forth their various personalities at the request of counsel without any sort of external stimulus as is required for hypnosis. Each personality was subject to cross-examination. It was for the jury to determine whether any of the testimony was worthy of credence.
We think that the court's ruling on the negligent infliction of emotional distress theory is questionable. In the past that theory has always required a showing that plaintiff was in some sort of zone of danger of personal physical injury before there can be any recovery. In this case, the claim is that the nurse's failure to report the doctor for abuse of patients and alcoholism placed the patients in a zone of danger of further abuse by him. This reasoning expands the scope of the tort beyond what has ever been permitted in the past. The danger is the risk of continued sexual abuse or simply incompetent psychiatric treatment. That is not a zone of danger of physical injury. The supreme court has accepted review.
Negligent Misrepresentation Does Not Apply To Physical Injuries
by Victor Lund
In another case of first impression, the supreme court has refused to extend the tort of negligent misrepresentation to physical injuries. In the past, negligent misrepresentation has always applied in cases of economic loss where, for example, one party supplies misinformation which leads to another's monetary loss.
In Smith v. Brutger Companies, 569 N.W.2d 408 (Minn. 1997), the Smiths sued their landlord for negligent misrepresentation, among other theories, for injuries received when an intruder broke into their apartment and sexually assaulted Mrs. Smith. The negligent misrepresentation claim was that the landlord had made incorrect statements about the building's safety features and that they relied on those misrepresentations in deciding to rent an apartment there. The court found that negligent misrepresentation was not presented by these facts even if the law recognized it as an available theory. The intruder entered through an open window after he cut the screen. The window had a functioning lock which the Smiths had not bothered to use. Therefore, the claim failed for lack of any causation. However, in a case with better facts, the court might adopt the tort of negligent misrepresentation leading to personal injuries.
No Contractual Indemnity For Damages That First Appear After Job Is Completed
In a case argued by the editor, the Minnesota Supreme Court held that a standard AGC indemnification clause does not require a subcontractor to purchase completed operations coverage. Seward Housing Corp. v. Conroy Brothers Co., ___ N.W.2d ___ (Minn. 1998).
Conroy Brothers subcontracted with Right-Way Caulking for a building project. The subcontract had a standard AGC indemnification clause which obligated Right-Way Caulking to procure a policy of general liability insurance. Right-Way Caulking never bought a policy. It completed its work without incident. More than a year later, the damages complained of first appeared. The general contractor settled with the building owner and brought a claim for indemnity against Right-Way Caulking. Right-Way defended on the basis that even if it had bought a CGL policy, there would be no coverage for these damages anyway.
Damages that first appear after the subcontractor completes its work would be covered only under a completed operations enforcement.
The subcontract did not require it to buy completed operations coverage. The supreme court agreed. A CGL policy covers certain risks. Completed operations coverage covers much greater risks and the premium is higher. The subcontract required general liability insurance only. Since the damages appeared after the subcontractor completed its operations, there would be no coverage under a CGL.
High Court Restricts Sex Abuse Statute Of Limitations
by Victor Lund
The Minnesota Supreme Court continues to give the sexual abuse statute of limitations a restrictive reading. The statute says that the period of limitation does not begin to run until "the plaintiff knew or had reason to know that the injury was caused by the sexual abuse." Minn. Stat. §541.073.
In 1996, the Minnesota Supreme Court held that sexual abuse and personal injury are basically the same. A person who is sexually abused is injured at the same time. Any reasonable person would know that he or she was injured at the same time he knows of abuse. Blackowiak v. Kemp, 546 N.W.2d 1 (Minn. 1996).
The supreme court has recently reaffirmed the Blackowiak rule. W.J.L. v. Bugge, ___N.W.2d ___ (Minn. 1998). It is now fairly well settled that a claim for sexual abuse will generally accrue on the date of abuse and expire six years thereafter as long as the claimant recognizes the wrongful conduct as sexual abuse. In many cases, it might be a fact question whether the plaintiff recognized at the time that the conduct was sexual abuse, but if the plaintiff has always known that the conduct was improper, lack of recognition that the abuse caused damage will not toll the statute.
A plaintiff seeking to delay the accrual of his or her cause of action has a heavy burden of showing some legally recognized disability. Medical testimony that the plaintiff repressed all recollection of the sexual abuse might delay accrual of the claim. Simply not thinking about the abuse for several years is not good enough.
Economic Loss Doctrine -- Not Just For Merchants
by Victor Lund
In State Farm Mutual Automobile Ins. Co. v. Ford Motor Co., ___N.W.2d ___ (Minn. App. 1997), the court of appeals held that the economic loss doctrine may apply to transactions involving consumers. The Andersons' Ford mini-van burst into flames and was destroyed. They had insurance with State Farm which paid the loss and started a subrogation suit against Ford. The court of appeals threw out the claim on the ground that the economic loss doctrine barred any tort claim. The only remedies available were those provided by the UCC. The court applied the economic loss statute as written. Minn. Stat. § 604.10, subd. (c), bars a plaintiff from suing in tort for economic losses arising out of damage to the goods themselves. That subsection of the statute makes no exception for non-merchant transactions. The subject of the Andersons' transaction was the Ford van itself. That was the only item that was destroyed. Therefore, it was a UCC claim, not a tort claim.
No UM Claim Where Unidentified Motorist Stops
by James Mahoney
A pedestrian, Lhotka, was struck by a car. The driver stopped and came over to ask if she was all right. They conversed for a few minutes. Lhotka stated that she thought she was uninjured. The driver left without providing any identification. Lhotka did not ask for identification and did not even note a license plate number. The next day she felt pain and reported the matter to the police. Farmers denied her claim for UM benefits and she sued. The district court granted summary judgment in favor of Farmers and the court of appeals affirmed. As a matter of law, there was no uninsured or "hit-and-run" motorist. Neither the statute nor the policy defines hit-and-run.
A hit-and-run accident is one where the driver flees from the scene to avoid being identified. There is no hit-and-run where the driver stops to talk to the injured party, makes no effort to hide his or her identity, and leaves only after determining that there are no apparent injuries. This is not a question of fact. The interpretation of an insurance policy is a matter of law. Lhotka v. Illinois Farmers Ins. Co., ___N.W.2d ___ (Minn. App. 1998).
by Richard Mahoney
The taxing authorities are looking at personal injury awards more and more closely. Damages recovered for personal injury in general are not taxable but other recoveries may be. In Bagley v. Commissioner of Internal Revenue, ___ F.3d ___ (8th Cir. 1997), the Eighth Circuit Court of Appeals affirmed a decision of the tax court determining that a portion of the party's settlement was taxable.
Bagley agreed to settle his libel claim for $1.5 million. The settlement agreement recited that all of the money was intended as compensation for personal injuries and that nothing was allocated to his claim for punitive damages. The tax court disregarded the party's allocation and determined that a portion of the award settled the claim for punitive damages and was therefore taxable.