Law Firm Mahoney, Dougherty & Mahoney, P.A. Attorneys Minneapolis Minnesota Lawyers

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.
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Minneapolis, MN 55404
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The Court of Appeals recently released an important decision dealing with the competing claims of UIM insurers and health insurers to settlement proceeds received from a tortfeasor. Commercial Union Insurance Company v. Minnesota School Board Association, ___N.W.2d ___ (Minn. App. 1999). Person was driving his parents' automobile with one passenger, Brandt. Person's negligent driving resulted in a one-car accident. Brandt sustained severe injuries. Prudential covered the Person vehicle with liability limits of $100,000. Brandt had UIM benefits under her parents' policy with Commercial Union (CU) in the amount of half a million. She was also covered under a health plan of the Minnesota School Board Association (MSBA) which had paid in excess of $100,000 in medical bills. Brandt settled her UIM claim for $425,000. Meanwhile, Prudential tendered its policy limits in settlement of the claim against its insureds, the Persons. CU substituted its draft to preserve subrogation against the Persons and brought suit. MSBA intervened to protect its interests.

The defendants paid a total of $215,000 into court. Prudential paid its limits and the Persons paid $115,000. CU wanted its $100,000 back plus first priority to the remaining $115,000. MSBA moved for a declaration that its interests took priority. The trial court ruled that CU was entitled to get its $100,000 back first and that the parties were entitled to a pro rata distribution of the remaining proceeds. The matter then went up on appeal. The Court of Appeals affirmed that CU receives the money it paid to preserve subrogation first. As to the remaining $115,000, the court held that the health insurer had first priority. MSBA had a specific contractual subrogation clause. It had begun making payments to Brandt shortly after the accident. In contrast, CU did not make payment until two years following the accident. The interest of MSBA arose earlier in time than any subrogation interest of CU. Furthermore, the court held that a UIM insurer is closer to the risk than a health insurer for injuries arising out of a motor vehicle accident.

For years, attorneys representing bars in dram shop actions have tried to get claims dismissed by arguing that no one saw the allegedly intoxicated person (AIP) display any signs of intoxication. Plaintiffs' attorneys would counter with an affidavit from a toxicologist that an average person who had drunk as much as the AIP had would have displayed signs of intoxication; in other words, everyone in the bar failed to see what they would have seen if they had been paying attention.

Plaintiffs generally won that battle and the case proceeded to trial or settlement. That result may have changed. The Court of Appeals recently held that testimony from an expert does not create a genuine issue of material fact in the absence of any evidence that anyone saw signs of intoxication.

Hollermann was killed when Kraemer crashed into her vehicle. He had been drinking beer all night at several bars. An hour after the accident, he had a BAC of .15. Plaintiff's toxicologist opined that he would have shown obvious signs of intoxication. However, none of the witnesses saw any signs such as slurred speech, stumbling or loud or obnoxious behavior.

The Court of Appeals stated that a blood test alone is insufficient to make out a prima facie case of obvious intoxication. There must be additional evidence of intoxication to allow a jury to draw the inference.

The decision was two to one. Judge Shumaker dissented. It may be that the Supreme Court will decide to look at this case.

The Court of Appeals has decided two decisions dealing with claims for excess UIM benefits. Becker v. State Farm Mutual Automobile Ins. Co., 596 N.W.2d 697 (Minn. App. 1999) and Jirik v. Auto-Owners Insurance Company, 595 N.W.2d 219 (Minn. App. 1999). In Jirik, the claimant was a child who was a passenger when her mother collided with a truck. She collected liability money from both vehicles and substantial UIM benefits from the policy insuring the car she occupied. She then tried to get excess UIM benefits, allowed by Minn. Stat. §65B.49, subd. 3a(5), from another policy insuring a second uninvolved family vehicle. Since she was an insured under the policy covering the occupied vehicle, she was not entitled to excess UIM benefits under the plain language of the statute. Her creative argument to collect additional benefits went like this: she had collected liability proceeds because of her mother's negligent driving; however, because you generally can't get both liability and UIM benefits from the same policy, the UIM benefits paid from her mother's policy were because of the underinsured status of the other involved vehicle; therefore, she had not collected any UIM benefits for injuries attributable to the underinsured status of her mother's vehicle; therefore, she was entitled to excess UIM benefits from the family's other policy. The argument was imaginative but unpersuasive.

In the Becker decision, the court rejected Becker's attempt to get excess UIM benefits from her own policy. Becker was driving her employer's truck when she was involved in a head-on collision. The employer's policy provided UIM benefits which Becker collected in full. She also collected from the other driver. She then demanded excess UIM benefits from the insurer of her own automobile on the grounds that she was not an insured under the policy insuring her employer's truck. She was driving the truck with permission so obviously she was an insured by reason of occupancy. However, she was not a named insured under the employer's policy nor did she fall within the other categories in the definition of insured in the No-Fault Act. The court rejected these arguments. She was driving the truck with permission and in the course and scope of her employment. That made her an insured and disqualified her for excess UIM benefits from her own policy.

The Becker opinion does not say whether the employer's policy specifically included employees as additional insureds. If Becker did not get excess UIM benefits because she was an insured under her employer's policy simply by virtue of occupancy, then the decision is somewhat troubling. Anyone who occupies a motor vehicle, other than a thief, is an insured under the policy covering that vehicle by virtue of occupancy. If being an insured by virtue of occupancy is enough to defeat a claim for excess benefits under one's own policy, it is difficult to understand when there would ever be a claim for excess benefits.

Employers prefer not to be held liable for criminal acts of their employees. Criminal acts are usually outside the scope of employment but that isn't true in all cases. A cookie salesman who punched out a grocer in a dispute over shelf space was still within the scope of his employment. Lange v. National Biscuit Co., 211 N.W.2d 783 (Minn. 1973). A psychologist who had affairs with patients may still have been acting within the scope of his employment. Marston v. Minneapolis Clinic, 329 N.W.2d 306 (Minn. 1982). The Supreme Court recently reconsidered the Marston standard in a decision that may make the standard even broader. The case is Fahrendorff v. North Homes, Inc., 597 N.W.2d 905 (Minn. 1999). Fahrendorff, age 15, was in a temporary crisis shelter where Kist was a program counselor. He provided Fahrendorff with cigarettes, beer and tried to fondle her. She complained and sued. The employer group home moved for summary judgment arguing that Kist's behavior was outside the scope of his employment as a matter of law. There was no dispute that his offending activities took place within work-related limits of time and place. The issue was whether his activities were related to the duties of his employment or were foreseeable. Fahrendorff opposed the motion with an affidavit from someone in the field who stated that the risk of counselors engaging in inappropriate behavior was well known.

Based on this affidavit and the Marston standard, the Supreme Court reversed summary judgment and remanded for a jury trial. The court noted that foreseeability was the deciding factor in Marston. The expert's affidavit established foreseeability of an assault by a counselor. However, foreseeability in this context does not mean the same thing as foreseeability as a test for negligence. In the context of employment, foreseeability simply means that "an employee's conduct is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer's business." 597 N.W.2d 192. Interestingly, the Court of Appeals decided a scope of employment decision one week later without even citing Fahrendorff. Williams v. Mesabi Regional Medical Center (unpublished, Court of Appeals, August 17, 1999). The Williams court held that one employee's offensive touching of other employees was not within the scope of his employment as a matter of law.

The Fahrendorff decision arguably expands an employer's potential liability significantly. It seems that plaintiffs will be able to keep employers in the case whenever they can come up with an affidavit of someone in the field who will say that whatever the employee did is a known risk and it is not unfair to require the employer to pay damages as the cost of doing business.

Three years ago the Supreme Court rejected apportionment among no-fault insurers where the claimant had been involved in a series of motor vehicle accidents. The insurer on the date of the last accident owes all no-fault benefits. Great West Casualty Co. v. Northland Ins. Co., 548 N.W.2d 279 (Minn. 1996). Great West was a subrogation case. One insurer was trying to recover what it had paid from other insurers. The Court of Appeals recently followed the Great West rule in a case where the injured party was making a direct claim for benefits from two insurers. Scheibel v. Illinois Farmers Insurance Company (unpublished, Court of Appeals, June 21, 1999). Scheibel was involved in two accidents. The second one was more severe than the first. In fact, he exhausted his no-fault benefits for the second accident. The arbitrator attributed 35% of his injuries to the earlier accident. Scheibel wanted an apportionment to get more money since he had not exhausted the benefits for the first accident. The court held that this is not permissible under Great West. Only one accident can be the cause of an injury. It makes no difference that Great West was a subrogation case and that Scheibel was making a claim on his own behalf. There is no apportionment of no-fault benefits.

An insurer must pay the other side's fees in a declaratory judgment action to determine coverage only if it has breached some obligation under the policy, usually a duty to defend the insured in an underlying action. If the company defends under a reservation of rights and brings a separate declaratory action to determine coverage, it does not owe the insured's attorney fees even if it loses on coverage.

The Eighth Circuit has reviewed these rules in a case presenting a few unusual departures from the usual facts. Chicago Title Insurance Co. v. FDIC, 172 F.3rd 601 (8th Cir. 1999). This was a mechanic's lien foreclosure action. The FDIC tendered defense to Chicago Title which finally accepted the tender two years later subject to a reservation of rights. The parties agreed that the reservation was so extensive that it created a conflict of interest. Chicago Title agreed to reimburse FDIC for reasonable fees of counsel of its own choice. When Chicago Title received the bill, it refused to pay on the grounds that the fees were unreasonably high. It then brought a declaratory judgment action to recover the amount it paid to settle the underlying action. FDIC counterclaimed for its attorney's fees.

The Eighth Circuit held that Chicago Title breached its duty to defend by forcing FDIC to resort to litigation to get its attorney's fees paid. Therefore, it owed the FDIC reasonable attorney's fees in both the underlying action and the declaratory action. However, the court agreed that the requested fees were unreasonably high. It affirmed a special master's decision to reduce the award by 30%.

The Eighth Circuit held that the proposed testimony by plaintiff's expert was not sufficiently reliable under Daubert. Without any expert testimony, plaintiff's claim failed. McDougal v. Associated Mill Producers, Inc., ___F.3rd___ (8th Cir. 1999).

McDougal worked at a cheese plant for 15 months. During that time, the Associated Milk Producers, Inc. (AMPI), a dairy cooperative, delivered five truck loads of milk which contained Aflatoxin M-1 (AFM) in excess of FDA limits. Four years later, McDougal was diagnosed with laryngeal cancer. He sued AMPI. He needed to show some causal link between exposure to AFM and laryngeal cancer. That was the expert testimony which the court refused to admit because it was too unreliable. Plaintiff could point to no scientific studies or medical literature showing a link between exposure to AFM and laryngeal cancer. None of the proposed experts were oncologists. There was evidence that McDougal's tumor had been developing for at least eight years.

Although this was a close case, the Eighth Circuit concluded that the trial court did not abuse its discretion in refusing to allow the experts to testify. The experts were able to rule out smoking or drinking as causes of the cancer, but they were not able to rule in exposure to the toxic chemical.

The Minnesota Supreme Court has ruled that the attorney fee caps of Minn. Stat. §176.081 are unconstitutional. Irwin v. Surdyk's Liquor, 599 N.W.2d 132, Minn. 1999). The Court's determination that the caps were constitutionally invalid was based on a separation of powers argument. The Court basically felt that the 1994 legislative rewrite of §176.081, insofar as it did not afford the Supreme Court the opportunity to review attorney's fees (by eliminating any ability to petition for excess attorney's fees over and above the presumptive limitation of $13,000.00), denied the Supreme Court the ability to regulate the legal profession, which area the Court has vigorously protected as its own turf. The Court, in dicta, did suggest that the $13,000.00 limitation on fees was probably appropriate. Therefore, we read this case to signify that $13,000.00 is a presumptive limitation, but employees' attorneys may petition for excess fees over and above the $13,000.00 presumptive level.

In the same case the Court held that attorney's fees under Minn. Stat. §176.135/176.081 (commonly referred to as Roraff fees) are to be awarded on medicals obtained for the employee, with the calculation on the extent of fees to be performed on the amount of medicals awarded or paid per the fee schedule, not the amount billed. In addition, Roraff fees are not available on future medicals because of their speculative nature.

In a twist that shows how poorly the Legislature edits its legislative tinkering with the Workers' Compensation Statute, the Supreme Court held that Subd. 7 attorney's fees are due on all attorney's fees awarded under Minn. Stat. §176.081. Because Roraff fees have now been legislatively codified as part of the attorney's fees allowed under Minn. Stat. §176.081, and because in that rewrite of the statute the reimbursement of attorney's fees language under Minn. Stat. §176.081, Subd. 7, was not edited, Roraff fees are now the basis for reimbursement to the employee of attorney's fees under Minn. Stat. §176.081, Subd. 5, as those fees are now included in the base fee for calculation of reimbursement of "all attorney's fees under this section."

The Minnesota Supreme Court recently ruled that an employee's death by suicide arising out of work-related stress is compensable under the Minnesota Workers' Compensation Act, provided that the work-related stress is proven to be both the medical and the legal cause of the employee's suicide. Middleton v. Northwest Airlines, ____ N.W.2d ____ (Minnesota Supreme Court, October 14, 1999).

This recent pronouncement by the Supreme Court seems to be the first step in whittling away the longstanding position that mental injuries and/or mental illness are noncompensable (Lockwood v. ISD #877, 312 N.W.2d 924 (Minn. 1981)), and potentially opening up the flood gates for mental type claims.

The employer attempted to raise the defense that it was not liable for compensation for a self-inflicted injury. However, the Court has allowed compensation for a death from suicide resulting from psychotic depression precipitated by a work-related incident. Anderson v. Armour & Company, 101 N.W.2d 435 (Minn. 1960). For a period of time the Workers' Compensation Act specifically excluded coverage for death by suicide; however the Legislature removed that language in 1973; subsequently the Court did allow compensation for a suicide death that had resulted from depression precipitated by a work-related back injury. Meiss v. North- western Bell Company, 355 N.W.2d 710 (Minn. 1984).

There, the Court held that the burden was on the claimant to establish by substantial evidencethe unbroken chain of causation between the work-related injury, mental derangement, and the suicide.

Because in the Middleton case legal causation was raised but not reached by the WCCA, the matter was remanded to the WCCA for determination of legal causation. The Supreme Court reversed the WCCA's determination that a suicide may never be compensable unless it stems from a compensable physical injury. There was a vigorous dissent by Justice Anderson, who noted that the majority had provided a solution for a legal issue not properly before the Court. There was a question in the Justice's mind as to whether the petitioner had actually proven a work- related injury. The Justice chastised the majority for erroneous factfinding, disregarding a compensation judge's finding, and substituting its own. Justice Page joined in the dissent of Justice Anderson, and Justice Stringer added his own dissent in which he would have deferred to the factfinder on the issue of whether the employee sustained a work-related injury.

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