Newsletters

Table of Contents

• Dead Deer Does Not Create UM Claim
• Year 2000 -- Insurance Coverage?
• UM Update
• No Indemnity After Subcontractor Finishes Work
• Attorney Fees In Coverage Actions
• Treatment Parameters
• Economic Loss Doctrine -- Not Just For Merchants
• No Social Host Liability
• The 16th Annual Client Seminar

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

Dead Deer Does Not Create UM Claim

by James Mahoney

The Minnesota Supreme Court has issued an opinion on uninsured motorist (UM) benefits in a case involving unusual facts. Wong v. American Family __ N.W.2d __ (Minn. 1998).

Peter Wong hit a deer while driving late at night on Highway 169 south of Grand Rapids. The evidence showed that some other motorist had hit the deer earlier and left its carcass lying on the roadway. Wong argued that the other motorist owed all other drivers a statutory duty to remove the carcass. Since the other driver was unidentified, Wong made a claim for UM benefits. The court of appeals affirmed the jury verdict apportioning 55% of the fault to the unidentified driver.

The supreme court reversed. There was no UM claim under these facts. Even if some other driver had struck and killed the deer, failing to remove the carcass did not breach any duty owed to other motorists. Minn. Stat. §169.42 was the source of the supposed duty. That is a criminal statute which forbids placing various forms of debris including animal carcasses on roads. Since it is a criminal statute, it must be strictly construed.

The court found that a driver who collides with a deer that wanders onto the highway has not violated the statute. The driver did not place the deer on the roadway and owes no duty to other motorists to remove it. Since no other motorist was involved in Peter Wong's injuries, he had no UM claim.

Year 2000 -- Insurance Coverage?

by Victor Lund

Most people know that a disaster of biblical proportions is looming on the horizon. In two short years, many computers will not know whether the year is 2000 or 1900 and consequently all date-sensitive software will work incorrectly or not work at all. The problem is known as the Y2K bug.

Prudent businesses have already begun taking steps to fix it, but the costs will be enormous and a complete fix will almost certainly not be in place by the turn of the millennium. Who is going to pay the costs of correcting the problem, and who will pay damages resulting from the uncorrected problem? The owners of computer equipment will certainly attempt to make the computer industry pay at least a portion of the costs of repair. All concerned parties will attempt to find coverage under their policies. Liability for the Y2K bug and coverage are questions which will have to be sorted out by litigation.

The computer industry may seek coverage for liability claims under its CGL policies.

This will raise numerous issues such as whether computer software is tangible property, whether software that functions exactly as intended can possibly be an occurrence, whether it was negligent for programmers to use two digits to represent the year, whether the Y2K bug is a known loss, and many others. If there is an occurrence, what is the date of occurrence? Under the accepted view of occurrence coverage in Minnesota, there is no occurrence until damage takes place. Since little damage seems to have taken place as of 1998, prudent insurers could write an appropriate exclusion into their policies in the next several years. Many insurers have already submitted draft Y2K exclusions to the insurance commissioners in the 50 states for approval.

An entirely separate issue is first-party coverage for impaired software under a business's property insurance. Additionally, officers and directors of corporations must start to fix the Y2K bug now or face claims. This in turn will raise issues of coverage under D&O policies.

This is an issue which will undoubtedly get much bigger. You can look for further articles on this topic in future issues of this newsletter.

UM Update

by Dale Lindman

The court of appeals has recently issued two opinions on UM claims. The first is Johnson v. State Farm Mutual, 574 N.W.2d 468 (Minn. App. 1998). Johnson answers the question whether a UM claimant must meet the no-fault thresholds.

Plaintiffs have always argued that the UM insurer agrees by contract to stand in the shoes of the uninsured tortfeasor. Since the tortfeasor did not bother to purchase insurance, the insurer should not be allowed to claim the protection of the no-fault thresholds. Defendants' responsive argument has always been that the UM insurer simply agrees to stand in the place of the liability insurance which the tortfeasor did not buy and therefore should have the benefit of the thresholds.

The court of appeals agrees with the defense. A UM claimant must meet one of the thresholds in order to prove up a claim for UM benefits. The UM insurer agrees to stand in the place of the tortfeasor's absent insurer. It should not be deprived of the benefit of a defense created by the No-Fault Act.

In another case, the court of appeals held that an uninsured driver may sue another driver and recover non-economic damages. Ramsamooj v. Olson, 574 N.W.2d 751 (Minn. App. 1998). Ramsamooj collided with Olson. Olson had insurance; Ramsamooj did not. Ramsamooj brought suit. The district court dismissed the claim for non-economic loss and scheduled trial to determine economic damages. The court of appeals reversed. An insured driver is not entitled to recover for economic loss, but may recover non-economic loss, i.e, pain and suffering. The legislature restricted an uninsured plaintiff's ability to collect economic losses, but made no such restriction for non-economic damages. The statute in question, Minn. Stat. §65B.51, does not require that plaintiff's vehicle be insured, only that some involved vehicle be insured.

We think that the Ramsamooj decision is technically correct, but unfortunate. The No-Fault Act ought to provide every possible encouragement for all drivers to purchase their own insurance. This decision is an invitation to the legislature to amend the No-Fault Act.

No Indemnity After Subcontractor Finishes Work

by Victor Lund

In a case argued by your editor, the supreme court rejected a claim for contractual indemnity where the subcontractor had completed its work long before the damages appeared. Seward Housing v. Conroy Brothers, 573 N.W.2d 364 (Minn. 1998). Conroy Brothers acted as the general contractor for a building project. Right-Way subcontracted for the caulking work. The subcontract contained a standard indemnity clause. The indemnity clause, which required the subcontractor to purchase general liability coverage. More than a year after Right-Way finished its work, cracks appeared in the exterior wall. Conroy made a claim for contractual indemnity which the trial court dismissed.

The supreme court, reversing the court of appeals, reinstated the trial court's decision. Since the damages occurred long after the indemnitor completed its work, no policy of general liability insurance would have covered the claim. Only a completed operations endorsement would have covered damages appearing after completion of the work. However, the indemnity paragraph required the subcontractor to obtain general liability coverage only, not completed operations coverage.

Attorney Fees In Coverage Actions

by Richard Mahoney

Insurers know that they can be liable for their insured's attorney fees in a declaratory action to determine coverage if the court finds that the company wrongfully denied a duty to defend. Ordinarily, the company is not liable for the insured's attorney fees if the company agrees to provide a defense. See, American Standard v. Le, 551 N.W.2d 923 (Minn. 1996) reported in Comments, January 1997. However, this rule is not absolute. The company may sometimes be liable for fees even if it agrees to defend the underlying action. The court of appeals reached this result in Church Mutual v. Redeemer Lutheran Church (Minn. App., unpublished, April 28, 1998). Church Mutual agreed to defend the underlying minister sex abuse claim and started a declaratory action to determine coverage. It lost the coverage action. The district court then awarded the church its attorney fees in the declaratory action even though Church Mutual agreed to defend. The court of appeals affirmed. The court relied upon a clause in the policy obligating the company to pay reasonable expenses incurred at its request. This reasoning is found in an old Supreme Court decision called Security Mutual v. Luthi, 303 Minn. 161, 226 N.W.2d 878 (1975).

We think this decision is correct based on Luthi. It is important to keep in mind that the Luthi reasoning will not apply in very many cases. The ISO amended the clause regarding expenses incurred at the company's request in 1984. We are aware of no cases in Minnesota finding a duty to pay attorney fees under the post-1984 language. The only reason the Luthi rationale had any validity in Redeemer was the sex abuse took place in the 1960s. Therefore, Church Mutual's policy had the old language.

Treatment Parameters

by Patrick Mahoney

The Minnesota Supreme Court, in Jacka v. Coca-Cola, __ N.W.2d __ (Minn. 1998), has finally ruled on the validity of the permanent treatment parameters. In a consolidated case certified to the Supreme Court by the Office of Administrative Hearings, the Supreme Court has ruled that the permanent treatment parameters do not exceed the authority delegated to the Department of Labor and Industry for rule making, that the parameters do not conflict with the requirement that the insurer provide reasonable and necessary medical care and treatment, and are constitutional under the due process clause of the Federal and State Constitutions. In addition, the Supreme Court has ruled that the permanent treatment parameters are to be used by compensation judges as "standards" which establish the limits of compensable treatment in all but the most exceptional circumstances, with the understanding that the compensation judges, as the fact finders, have the ultimate discretion in ruling on the treatment parameters. The treatment parameters apply to all treatment provided after January 4, 1995, irrespective of the date of injury.

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 Social Host Liability

by Gregory Zinn

In Koehnen v. Dufour, (Minn. App., unpublished, April 21, 1998), plaintiff claimed that the Civil Damages Act provided a cause of action to a plaintiff against a social host. Plaintiff was assaulted by three minors who had attended a party in the same neighborhood given by a 17-year-old at her father's home. The minor host charged for cups to be used for drinking keg beer.

Plaintiff contended that the minor illegally sold alcohol to the person that injured him. The Civil Damages Act gives a person who is injured a right of action against "a person who caused the intoxication" of another "by illegally selling alcoholic beverages." Minn. Stat. §340A.801, subd. 1. The Court of Appeals upheld the district court's ruling that the "person" in the statute must be defined as a liquor vendor, not a social host. That is consistent with prior decisions on this issue.

The Court of Appeals agreed with the district court that there is no cause of action against a social host under the Civil Damage Act, "regardless of the social host's age." Certainly, common law tort claims for sales to a minor survive this decision. In this case, however, the seller was also under 21 years of age. The Act and common law are silent as to claims under such circumstances. The Court did not comment on the viability of such claims. In addition, no claim was made against the parents of the 17-year-old social host.

Mark Your Calendar

The 16th annual client seminar will be held on Thursday, October 1, 1998.

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