July 2000
Table of Contents
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
Converting UIM Into Liability Coverage
by Victor Lund
Every year this newsletter reports on a decision of the court of appeals dealing with the question of when you can get both UIM and liability coverages from the same policy. The rule of thumb is that you can't. This dates back to the old case of Myers v. State Farm, 336 N.W.2d 288 (Minn. 1983). A few years ago, the court of appeals found a narrow exception to the Myers rule. An injured passenger can sometimes get liability money from the policy insuring the occupied vehicle and UIM benefits from the same policy. The payment of liability money is attributable to the fault of the driver of the occupied vehicle. Payment of UIM benefits is attributable to the underinsured status of the other driver. Lahr v. American Family, 528 N.W.2d 257 (Minn. App. 1995). The Lahr exception to the Myers rule applies when there are at least two drivers and a driver other than the driver of the occupied vehicle is underinsured.
The court of appeals readdressed Myers and Lahr in an opinion with unusual facts. Lynch v. American Family, ___N.W.2d ___ (Minn. App. 2000). Ian Lynch was seriously injured as a passenger in a van driven by his mother, Kathleen Lynch. She had borrowed the van from a neighbor. She had never driven it before. Kathleen crossed the center line and collided head-on with another vehicle. Ian sued his mother, the neighbor who owned the van and the driver of the other vehicle. It was determined that the mother was 100% at fault for the accident. The other driver was liable to pay nothing because she was not at fault. The insurer of the owner paid its liability policy limits. American Family insured the Lynches and their vehicles. It paid its liability policy limits but denied UIM coverage. Judge Steven Lange of Hennepin County District Court agreed with American Family that no UIM was payable because any claim for UIM benefits would amount to an impermissible conversion of cheap UIM benefits into more expensive liability coverage. The Lahr exception to the Myers rule did not apply because the other driver was not at fault and consequently not underinsured.
The court of appeals reversed in an opinion written by Judge Amundson. The court of appeals relied on definitions in the American Family policy. The definition of underinsured motor vehicle excluded vehicles owned or furnished or available for the regular use of any member of the household. This definition incorporated the Myers rule. However, the accident occurred when Kathleen Lynch was driving a borrowed van. She did not own it. No one in the household owned it. It was not available for the regular use of any member of the household. Consequently, the van did fall within the definition of underinsured motor vehicle. The issue was basically whether the Myers rule is a matter of policy definitions or a matter of public policy of the State of Minnesota. The court concluded that it depends upon the policy language and so found that UIM benefits were payable.
We question this decision. The facts present a plain case of converting UIM benefits into liability coverage that the family had decided not to buy. Judge Amundson emphasized that the Lynch family had no control over the amount of liability coverage on the neighbor's van. This is certainly true, but it ignores the fact that the Lynch family had absolute control over how much liability coverage they had on their own vehicles. American Family paid those liability limits. It turns out that those limits were inadequate to fully compensate their son, but the courts have never before found that a reason to allow conversion of UIM into liability. Another unexplained aspect of the opinion is why the Lynches did not first pursue UIM benefits from the policy covering the occupied vehicle, (i.e., the van). That policy should be the primary source for UIM. The Lynches' own policies would provide excess UIM benefits to the extent the limits exceeded the UIM limits on the van.
Warning To Parents - Don't Let Teenagers Drink
by Gregory Zinn
In the last session, the Legislature enacted a bill which may affect all households in the state with resident teenagers. The Legislature created statutory liability against anyone 21 or older who furnishes or purchases alcoholic beverages for a minor or has control over premises where minors are consuming alcoholic beverages and who knowingly or recklessly permits the consumption. A spouse, child, parent, guardian, employer or other person has a cause of action against anyone who furnishes or permits consumption of alcohol by minors. Damages extend to personal injury, property damage or loss of means of support. The act basically extends the existing dram shop statute to a new class of potential defendants. As in the dram shop statute, auto insurers have no right of subrogation against persons whose liability arises out of this new law. The Legislature went on to declare that there shall be no coverage under a homeowners policy for this liability unless it is specifically covered either in the policy itself or in a rider. This peculiar provision relating to coverage expires on December 31, 2001. The governor signed the bill on April 18, 2000. The law became effective on August 1.
We understand that this bill resulted more or less directly from the unfortunate accident a few years ago in St. Paul involving teenagers who got drunk at a party in a private home and crashed a car later that evening. The provision denying homeowners coverage for liability is puzzling. The wisdom of creating a cause of action and at the same time taking away the most plausible source of recovery is open to question. The scope of liability is uncertain. Does it mean that adults in a household with resident teenagers must keep beer, wine and liquor under lock and key?
Henning Allocation Revisited
by Patrick Mahoney
The Minnesota Court of Appeals in a recently filed decision, Drake v. Reile's Transfer and Delivery, ___ N.W.2d ___ (Minn. App. 2000), has expanded the plaintiff/employee's ability to obtain non-statutory distribution of third-party liability settlement proceeds.
In Drake, the court of appeals was presented with the question of whether a plaintiff/employee could seek a post-verdict allocation between recoverable and non-recoverable damages under the Henning v. Wineman formula. In Henning, 306 N.W.2d 550 (Minn. 1981), the supreme court allowed an employee to apply to the district court to allocate proceeds, as an alternative to applying to the Department of Labor and Industry for allocation under Minn. Stat. §176.061. The supreme court held that application to the district court to allocate the proceeds between recoverable and non-recoverable damages was allowable as long as it was understood that the employee, in selecting this option, forfeited his statutory right to receive a one-third share of the settlement.
In Drake, however, the plaintiff/employee petitioned for allocation of a judgment following a jury verdict, rather than a pretrial settlement. The insurer attempted to argue that such an allocation was contrary to statute and case law, as well as against policy reasons; however, the court of appeals rejected all of those arguments. The court concluded that the district court did not err by permitting a post-trial Henning allocation of the jury verdict, especially where the jury had already allocated the award between recoverable and non-recoverable damages on the special verdict form. The court of appeals found that the district court properly applied the statutory formula to that portion of the judgment that involved damages recoverable under workers' compensation. This is something that the industry needs to be aware of. Henning allocations are typically seen in cases where there is either a very small amount of money recoverable from the liable third party (i.e., minimal insurance coverage), or where the damages are so catastrophic as to make the odds of receiving a larger percentage of the verdict more likely. Henning distributions are also less simple than submitting a petition for third-party recovery to the Department, and sometimes involve extended argument, testimony, and briefing to the district court judge.
Workers' Compensation Update
by Patrick Mahoney
The legislature recently changed some of the elements of the workers' compensation law. In order to advise our clients accordingly, we highlight the important provisions.
- Daily Wage. Daily wage now includes vacation pay and holiday pay earned within the 26 weeks before the date of injury. In addition, if an employee worked or earned less than a full day's worth of wages, vacation pay, or holiday pay, the total amount earned is to be divided by the corresponding portion of that day.
- Subrogation. Subrogation or indemnity claims can now be brought against a responsible third party regardless of whether the workers' compensation benefits are recoverable by the employee or the employee's dependents at common law or by statute.
- Right of Contribution. Minnesota Statute §176.061 has been substantially revised to now read that contribution by a third party against the employer is limited to an amount proportional to the employer's percentage of fault not to exceed the net amount the employer recovered under 176.061, subd. 6. The employer may avoid contribution exposure by affirmatively waiving, before selection of the jury, the right to recover workers' compensation benefits paid and payable, thus removing compensation benefits from the damages payable by any third party. Should the employer do so, the employee does have the right to present all common law or wrongful death damages whether recoverable by the Workers' Compensation Act or not to the jury. Following the verdict, the trial court will deduct any damages that are awarded that are duplicative of workers' compensation benefits paid or payable.
- Attorney's Fees. A provision has been added to the attorney fee statute indicating that a Statement of Attorney's Fees must be filed within 12 months of the date of written notice.
- Benefit Rates. There has been adjustment to various benefit rates as follows:
- Temporary total disability -- maximum rate as of October 1, 2000 is $750.00;
- Minimum compensation rate as of April 1, 2000 is increased to $130.00 per week;
- Permanent partial disability benefit -- this Schedule has been completely revised. For permanency amounts in excess of 26%, the dollar figures have been increased and the 0-25% category has been split into a number of categories.
- Payment of permanency. Permanency can now be paid as a lump sum if requested by the employee, and therefore must be paid within 30 days of the date of the request, with a discount to present value calculated at up to a maximum 5%.
- Notification of Limitation on Temporary Total Disability Benefits. The employer and insurer must notify the employee in writing of the 104-week limitation on temporary total once 52 weeks of temporary total has been paid.
- Retirement Presumption. For injuries after October 1, 2000, the presumption has been expanded to include an employee who receives any service-related governmental retirement pension.
- Death Cases. The minimum amount of dependency compensation paid to a person entitled to dependency benefits due to a death is increased to $60,000.00.
- Burial Expenses. Increased to $15,000.00.
