July 2001
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.
COURT APPROVES SPLIT LIMITS FOR OWNER AND PERMISSIVE DRIVER
Victor E. Lund
The court of appeals has again considered whether a garage policy may provide high limits to the garage which owns a large number of vehicles, but provide only the statutory minimum coverages for permissive drivers such as customers who get loaner vehicles. State Farm Mutual Automobile Insurance Co. v. Universal Underwriters Insurance Co. , 625 N.W.2d 160 (Minn. App. 2001). The court held that the No-Fault Act does not prevent a policy from providing differing levels of coverage for different classes of persons. The facts were not complicated. Zeppelin brought his car in to Gilleland Chevrolet and received a loaner. He was in an accident while driving the loaner. State Farm insured Zeppelin. Universal Underwriters insured Gilleland Chevrolet under a garage policy which limited liability coverage for permissive drivers to the statutory minimum. Gilleland itself had much higher limits for its liability as owner. Universal acknowledged that it was primary for the first $30,000, but took the position that State Farm's coverage should apply next with the balance of the Universal policy applying after State Farm's, if necessary. State Farm argued that Universal's entire half million limits should apply first. The court agreed with Universal. The No-Fault Act does not preclude split limits.
This issue goes back at least to the supreme court's 1991 decision of McClain v. Begley , 465 N.W.2d 680 (Minn. 1991). In 1994, the court held that split limits were permissible in Agency Rent-A-Car, Inc. v. American Family Mutual Automobile Ins. Co. , 519 N.W.2d 483 (Minn. App. 1994). Agency involved a self-insured auto rental company. The limit of liability coverage for permissive drivers appeared in the rental contract rather than in an insurance policy. The current decision tells us that it makes no difference whether the limiting provisions appear in the rental contract or a policy. The No-Fault Act does not require the same limits for owners and permissive drivers.
YOU CAN GET PUNITIVE DAMAGES FOR PROPERTY CLAIMS AFTER ALL
Victor E. Lund
Last year the court of appeals held that punitive damages were not available in cases alleging property damage only. Some personal injury was necessary. Jensen v. Walsh , 609 N.W.2d 251 (Minn. App. 2000). The case was a squabble between two neighbors. The property damage included punctured tires, cut phone and electrical lines, obscenities spray-painted on the garage, a blocked access road, and similar acts. The court of appeals acknowledged the willful and deliberate maliciousness of the actions but felt bound by precedent to restrict the claim to actual damages and not punitive damages. The supreme court has now reversed. Jensen v. Walsh , 623 N.W.2d 247 (Minn. 2001). The court reviewed the history of punitive damages, both as a matter of common law and statute. The purpose of punitive damages is to punish those who commit torts with "fraudulent or evil motive" and to deter others from doing the same. 623 N.W.2d at 249. The court concluded that the legislature intended to allow punitive damages regardless of the nature of the underlying harm.
Victor E. Lund
The Minnesota Supreme Court recently issued its most important decision dealing with UM claims since 1985. The decision is Kwong v. Depositors Insurance Co. , 627 N.W.2d 52 (Minn. 2001) reversing the court of appeals' decision reported at 612 N.W.2d 184 (Minn. App. 2000). Kwong was injured in a three-car collision, one of which was uninsured. He advised his insurer, Depositors, of a potential UM claim. Depositors wrote back that it foresaw no UM exposure because an insured vehicle was primarily responsible. Depositors took no further action. Kwong sued both the insured and the uninsured motorists in district court. He gave notice to Depositors of the action, but Depositors did not attempt to intervene. He settled with the insured motorists on the eve of arbitration on a Pierringer release. Kwong then proceeded with arbitration against the uninsured driver and obtained a default judgment. Depositors refused his demand for payment of judgment citing a policy clause stating that judgments against insured or uninsured motorists would not be binding on it without its consent. The court of appeals held that the exclusionary clause was valid and enforceable. Kwong was entitled to start an arbitration against his own UM insurer but could not require his own insurer to pay a default judgment entered against the uninsured driver.
The supreme court reversed. The exclusionary clause was not enforceable. Since the company received notice of the proceedings, it could have intervened to protect its interest but did not do so. The court recognized that the insurer had legitimate interests to protect, but held that the company's interest can be safeguarded by notice of the proceedings and an opportunity to participate.
The court noted its previous decision of State Farm v. Galloway , 373 N.W.3d 301 (Minn. 1985). Galloway has remained the law of the state on UM claims for the last 16 years. Galloway invalidated an exclusionary clause of the kind at issue in Kwong to the extent it required the company's consent to a lawsuit or judgment against someone other than the uninsured motorist. The plaintiff's right to control the cause of action prevails over the policy, so Galloway was entitled to settle with the insured driver on a Pierringer and then proceed in arbitration against her own UM carrier. Now we know from Kwong that the company cannot require its own consent to a claim against the uninsured motorist, at least as long as the company has an opportunity to intervene. Presumably Kwong would not have been entitled to enforce the default judgment if he had not given notice of the claim to Depositors.
This case is interesting because it shows the court is interested in minimizing the number of separate proceedings that can arise out of a single automobile collision. This is a theme that began in the frequently cited Nordstrom decision of several years ago. The concern with giving the company notice of a claim and an opportunity to intervene comes from Malmin v. Minnesota Mutual , 552 N.W.2d 723 (Minn. 1996) but Malmin was a UIM case. Kwong represents the first time the court has extended these concerns to a UM claim.
PERMANENT TOTAL DISABILITY UPDATE
Patrick E. Mahoney
Recall that in 1995 the Legislature amended the first part of Minn. Stat. § 176.101, subd. 4, to delete language indicating that the minimum weekly benefit for permanent total disability was equal to the minimum temporary total disability rate, and substituted language indicating that the minimum weekly compensation for permanent total disability was equal to 65% of the statewide average weekly wage (the supplemental benefit rate).
After that amendment, questions arose as to the application of the offset provision for simultaneous receipt of governmental disability benefits. Employees' attorneys were taking the position that the minimum benefit payable the employee, even after offsetting for Social Security or other governmental disability benefits, was 65% of the statewide average weekly wage, and that the benefit rate could not dip below that floor. Needless to say, employers' attorneys disagreed and felt that there should be a dollar-for-dollar offset for simultaneous receipt of governmental disability benefits even if that dipped the employee below the 65% level.
This issue has now been decided by the Minnesota Supreme Court in a decision filed May 31, 2001, involving consolidated cases ( David Vazeena v. Best Western in Maplewood , and Lloyd G. Shelton v. National Painting and Sandblasting ). In this decision, the court has indicated that there is, in fact, a dollar-for-dollar offset, and that workers' compensation benefits of a permanently totally disabled employee shall be offset by the amount of any government disability program benefit occasioned by the same injury or injuries which give rise to benefits under Minn. Stat. § 176.101, subd. 4, even though the offset may result in a reduction of benefits below the floor set by the statute, that being 65% of the statewide average weekly wage.
The court reviewed the legislative history and the arguments of the Legislature at the time the 1995 amendments were promulgated, and found that the statute was simple and straightforward in its provision that compensation benefits are offset dollar-for-dollar by other benefits paid under other government programs. The court felt that it was important to note that the 65% floor was indeed a minimum, but that it was an aggregate of benefits paid under the compensation law and other government disability programs such as Social Security.
This clarifies this nagging issue, and will benefit evaluation of cases by removing that argument from the arsenal of the employees' attorneys.
ARBITRATORS MAY APPORTION NO-FAULT CLAIMS, AT LEAST SOMETIMES
Victor E. Lund
The Minnesota Supreme Court issued a decision on no-fault benefits giving arbitrators the power to decide that a portion of the claimant's injuries were not caused by an automobile accident and to refuse to award benefits to that extent. The decision is Pususta v. State Farm Insurance Co. , ___N.W.2d ___ (Minn. 2001). Mariah Pususta fell off a horse in 1992 which caused injuries for which she received chiropractic treatment. In 1994, her chiropractor asked her health insurer to authorize 24 visits per year. Three years later, she was in a motor vehicle collision which aggravated the injuries from the horse accident. State Farm paid benefits following the motor vehicle collision but cut her off after it determined that continuing treatment was related to the horse accident and not the auto collision. Pususta filed for arbitration. The arbitrator questioned whether and to what extent her injuries were related to an auto collision rather than the previous accident. However, he concluded that he had no power to apportion the claim by virtue of case law by the Minnesota Supreme Court. The district court and the court of appeals agreed, but the supreme court reversed. The court acknowledged that related issues had come up recently in Great West v. Northland , 548 N.W.2d 279 (Minn. 1996) and Scheibel v. Illinois Farmers , 615 N.W.2d 34 (Minn. 2000). However, both those earlier cases involved more than one automobile accident. The specific context in Great West was subrogation and contribution among auto insurers. The claimant in Scheibel was injured in two separate auto collisions for which he sought two separate no-fault limits. In contrast, the facts in Pususta presented one auto related accident and a second earlier accident which everyone acknowledged had nothing to do with an automobile. Injuries from the automobile accident fall within the no-fault system. Injuries from the horse accident do not. The court gave the following example: If the horse had stepped on Pususta's foot, and she injured her shoulder in the later auto collision, there could be no reasonable argument that the no-fault insurer would have any obligation to pay for treatment related to the foot. The actual facts were not quite so clear-cut, but the arbitrator had the power and the duty to determine what injuries were caused or aggravated by the automobile accident and to make an award of those damages only. The court rejected Pususta's argument that the No-Fault Act requires the no-fault insurer to take the claimant as it finds her. Justice Gilbert dissented. In his view, the Pususta decision was based on equitable apportionment which Justice Gilbert thought the Great West decision had rejected.
RECOVERY OF PAYMENT UNDER MISTAKE OF FACT
Patrick E. Mahoney
When can a workers' compensation carrier recover from third parties for benefits the insurance company claims to have paid under a mistake of fact?
Addressing this question in a recently decided unpublished decision ( American Compensation Insurance Company v. Blue Cross Blue Shield of Minnesota , File No. C1-00-1209; 2/5/01) the court of appeals decided that the insurance company could not. In this matter, American Compensation Insurance Company provided workers' compensation coverage to an employer of a minor employee who was injured as a result of a motor vehicle accident while in a company car. American Compensation paid, on behalf of the employer, approximately $15,000 in benefits and intervened. An underlying district court decision found that the injuries did not arise out of or in the course and scope of employment.
As this would normally dispose of any potential claim for reimbursement American Compensation had, it attempted to amend its complaint to claim that the no-fault insurer and health insurer should reimburse American Compensation for benefits under a theory of unjust enrichment. In addition, American Compensation sought to recoup from the minor employee and the employer for benefits paid because of the determination that the minor employee's injuries were not work related. The court easily resolved the claim American Compensation was bringing against the employer (its insured), by simply stating that the rule of law is that an insurer cannot subrogate against its own insured. In addition, there is no provision under the Minnesota workers' compensation law (see Minn. Stat. § 176.179) to recoup benefits paid under a mistake of fact, absent fraud. Therefore, there would be no claim against the minor employee.
Further, the court found that there was no claim available for unjust enrichment, as there was no allegation of illegal or unlawful conduct on the part of the no-fault carrier or the health insurer that would substantiate an unjust enrichment claim.
The court's rule of law, therefore, was that a workers' compensation insurance company that mistakenly pays benefits cannot recover in a common law claim for unjust enrichment against the insured's liability or health insurance carrier.
Our advice is to make sure of your facts before payment, because once payment is made, unless you can show fraud or illegal conduct, you will not be able to recoup the funds either by way of the workers' compensation statute or at common law.