IN COURT OF APPEALS
Northwestern National Insurance Company
as Subrogee for David Jerome Swanberg, creditor,
Dawn Marie Carlson, debtor,
Farmers Insurance Group,
a foreign corporation, garnishee,
Filed March 7, 2006
Hennepin County District Court
File No. DC CJ 99-018426
Anthony S. Aspnes, 5200 West 73rd Street, Edina, Minnesota 55439 (for respondent Northwestern National Insurance Company)
Roger L. Kramer, Gislason & Hunter, LLP, Suite 215E, 9900 Bren Road East, P.O. Box 5297, Minnetonka, Minnesota 55343-2297 (for appellant)
Considered and decided by Klaphake, Presiding Judge; Peterson, Judge; and Hudson, Judge.
S Y L L A B U S
An insured’s cause of action against a liability insurer for breach of its contractual duty to indemnify does not accrue and, therefore, the statute of limitations does not begin to run until the insured is legally obligated to pay damages as a result of a judgment or settlement.
O P I N I O N
On appeal from summary judgment in a garnishment action, the garnishee insurer argues that the district court erred in concluding that the debtor insured’s breach-of-contract action arising out of the insurer’s duty to indemnify was not barred by the statute of limitations. Because the debtor insured’s breach-of-contract action did not arise until the creditor insurer obtained a judgment against her, we affirm.
garnishment action arises out of an automobile accident that occurred on August
11, 1994. On that date, respondent
Northwestern National Insurance Company’s (Northwestern National) insured,
David Swanberg, was injured when he was hit by a car driven by respondent Dawn Carlson. Carlson believed that she had liability
coverage on the date of the accident through appellant Farmers Insurance Group
(Farmers) and submitted her claim on August 12, 1994. When Carlson reported the accident to
Farmers, Farmers notified Carlson that no coverage was in place because Farmers
had canceled the policy for nonpayment of premium in July. Carlson denied that Farmers provided the
advance written notice of cancellation required by
Swanberg sought compensation for his injuries from Northwestern National under his uninsured motorist coverage. In December 1995, Northwestern National paid Swanberg $21,000 in full settlement of his uninsured motorist claims and, in October 1996, commenced a subrogation action against Carlson to recover $21,000, the sum paid to Swanberg under its uninsured motorist coverage. Carlson advised Northwestern National that a coverage dispute existed between her and Farmers, and she maintained that she was insured under a motor vehicle liability policy from Farmers entitling her to indemnity for any liability she might have to Northwestern National or Swanberg.
In May 1999, Northwestern National and Carlson stipulated for settlement of Northwestern National’s subrogation action and, pursuant to Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982), agreed to entry of judgment against Carlson for the $21,000 that Northwestern National had paid Swanberg. Northwestern National agreed to collect the stipulated judgment only from any liability insurance Carlson might have for the loss. The district court entered Northwestern National’s stipulated judgment against Carlson on January 5, 2000.
In January 2004, Northwestern National commenced a garnishment action against Farmers to enforce the judgment entered on January 5, 2000. Farmers filed a nonearnings disclosure disclaiming any liability to Carlson because there was no policy in effect on the date of the accident. In February 2004, Northwestern moved for leave to serve Farmers with a supplemental complaint to determine the issue of Farmers’s indebtedness to Carlson. The district court granted leave to serve the supplemental complaint.
Farmers moved for summary judgment, arguing that the claims alleged in the supplemental complaint were barred by the six-year statute of limitations for insurance actions set forth in Minn. Stat. § 541.05 (2004). Farmers conceded in its summary judgment motion that it had no evidence to dispute the claims in the supplemental complaint. Accordingly, the parties stipulated that if the court rejected Farmers’s statute-of-limitations defense, Northwestern National would be entitled to judgment in its favor against Farmers.
The district court denied Farmers’s motion for summary judgment and ordered judgment against Farmers for $21,132 plus interest, costs, and disbursements. The district court entered judgment on March 22, 2005. This appeal follows.
Did the district court err in concluding that a liability insurer’s contractual duty to indemnify does not arise and, therefore, the statute of limitations does not begin to run, until the insured is legally obligated to pay damages?
When reviewing an appeal
from a grant of summary judgment, this court determines whether there are any
genuine issues of material fact and whether the district court erred in
applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (
Northwestern National’s garnishment
of Farmers is based on Farmers’s duty to indemnify Carlson under Farmers’s
motor vehicle liability insurance policy issued to Carlson. As the creditor, Northwestern National’s
rights against Farmers in a garnishment action are no greater and no less than
Carlson’s rights. See Johnson Motor Co. v. Cue, 352 N.W.2d 114, 116 (
Farmers argues that Northwestern
National’s garnishment action is barred by the six-year statute of limitations
applicable to breach-of-contract claims under Minn. Stat. § 541.05
(2004). The duty to indemnify is
contractual. Fallon McElligott, Inc. v. Seaboard Sur. Co., 607 N.W.2d 801, 803
(Minn. App. 2000) (citing Meadowbrook,
Inc. v. Tower Ins. Co., 559 N.W.2d 411, 415 (
Farmers argues that the statute of limitation for Carlson’s breach-of-contract claim against Farmers for failure to indemnify her against liability started running in August of 1994, when Farmers notified Carlson that they would not defend or indemnify Carlson for her claim and, therefore, the instant garnishment action—filed roughly 10 years later—is barred. Northwestern National argues that the statute of limitations did not begin to run until the district court entered the stipulated judgment against Carlson in January 2000, because Farmers could only breach its duty to indemnify Carlson after Carlson became liable for the judgment.
In order to determine whether the statute of limitations had expired for Carlson’s breach-of-contractual-duty-to-indemnify claim, we must first determine when the insurer breached the duty to indemnify: If Farmers had an immediate duty to perform in August 1994, at the time they denied coverage for Carlson’s claim, then that denial was a nonperformance of duty constituting a breach of contract and triggering the limitations period.
time that actual performance is due is controlled by the insurance
contract. The interpretation of
insurance contracts is governed by general principles of contract law. Thommes
v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (
Examining the above language, we conclude that Farmers’s interpretation of the contract distorts the plain meaning of the language and fails to give effect to all of the contract provisions. Farmers had an obligation to indemnify Carlson only for the sums that she became “legally obligated to pay as damages” because of injuries or damage to which the insurance applied. The contract is devoid of any language indicating that Farmers had a duty to indemnify before Carlson was legally obligated to pay damages. In August 1994, at the time that Farmers notified Carlson that it would not provide coverage for her claim, Carlson was not legally obligated to pay damages for her alleged negligence. Accordingly, Farmers did not have an immediate duty to indemnify her at the time of their denial. Because Farmers was not required to immediately perform its duty to indemnify, the initial refusal to indemnify could not have been the basis for a breach of contract. Rather, as Northwestern National argues, the breach of contract occurred when Farmers refused to indemnify Carlson after the district court entered judgment against her, or after she was legally obligated to pay damages.
This interpretation is consistent
Farmers argues that Northwestern
National’s interpretation would result in unfair prejudice to insurance
carriers who have denied coverage because, as in this case, roughly ten years
can pass before the duty to indemnify is triggered. Moreover, Carlson could have brought a
declaratory judgment action following Farmers’s denial of coverage in August of
1994 to clarify whether she had coverage and, therefore, Carlson or any other
future insured would not be prejudiced by running the statute of limitations
from the date the insurer denies coverage.
But, the supreme court has recognized that inequities exist in a typical
insurer/insured relationship: Insurers are more sophisticated and more familiar
with their duties under their contracts and how those duties have been
interpreted by the courts. See Home Ins. Co. v. Nat. Union Fire Ins.,
658 N.W.2d 522, 533 (
D E C I S I O N
Because Carlson’s cause of action against Farmers for breach of its contractual duty to indemnify did not accrue until she was legally obligated to pay damages pursuant to a district court judgment, Northwestern National’s garnishment action—brought within six years from that judgment—was not barred by the statute of limitations.
 In Miller v. Shugart, 316 N.W.2d 729, 731 (Minn. 1982), the supreme court held that when an insurer unreasonably disputes coverage, the plaintiff and the insured tortfeasor may stipulate a settlement in plaintiff’s favor and agree that the judgment will be taken from the insurance policy and not from the tortfeasor’s personal assets.
 Because neither party submitted Carlson’s insurance policy into the record or objected to the use of the No-Fault Act’s provisions at the district court, we are relying on the standard language provided in the No-Fault Act.