STATE OF MINNESOTA
IN COURT OF
Filed December 5,
File No. 27-CV-05-011913
Robert W. Owens, Jr., Owens Law, L.L.C., 5270
West 84th Street, Suite 300, Bloomington, MN 55437 (for respondent)
Deborah C. Eckland, Alan P. King, Goetz &
Eckland P.A., Exposition Hall at Riverplace, 43 Main Street Southeast, Suite
400, Minneapolis, MN 55414 (for appellant)
Considered and decided by Minge,
Presiding Judge; Lansing, Judge; and Klaphake, Judge.
Y L L A B U S
Income-loss benefits under the
Minnesota No-Fault Automobile Insurance Act include compensation for the salary loss of an
employee who is the sole shareholder of the employing corporation and are not
contingent on proof that the employee’s injuries resulted in a reduction of the
corporation’s gross business income.
P I N I O N
Westfield Group, an issuer of
automobile insurance policies, appeals from the district court’s denial of Westfield’s motion to
vacate an arbitration award of income-loss benefits under the Minnesota
No-Fault Automobile Insurance Act.
Westfield argues that the arbitrator exceeded his authority when he
allowed the insured, an employee of a corporation in which he is the sole
shareholder, to prove income loss by establishing the amount of salary loss as
a result of his accident-related injuries without demonstrating a decrease in
the corporation’s gross business income.
A C T S
An arbitrator awarded Kenneth Neutgens $20,000 in
income-loss benefits under the Minnesota No-Fault Automobile Insurance Act for
injuries sustained in a November 2002 automobile accident. At the arbitration hearing Neutgens presented
medical evidence of the extent and severity of injuries to his head and spine. Neutgens was hospitalized for two nights and
recuperated at home for several months following the accident.
To establish his accident-related income loss, Neutgens
provided his W-2 income-tax forms. Neutgens,
who owned and operated an excavating business, testified that the injuries
sustained in the accident prevented him from performing the responsibilities
that he had previously performed for the corporation. These responsibilities
included handling the bidding, telephones, receivables, payables, and also
grading, excavating, repairing equipment, and transporting equipment and parts. Neutgens’s testimony describing his reduced
ability to function physically and cognitively was supported by medical records
and additional testimony from his wife and son.
Because Neutgens could not perform his usual work responsibilities after
the accident, he stopped drawing his usual salary.
Westfield Group, Neutgens’s insurer, withheld Neutgens’s
income-loss benefits because Neutgens did not submit the income-tax records for
his excavating business. At the hearing Westfield argued that the
applicable legal standard required Neutgens to prove a reduction in his gross
business income to establish income-loss benefits. Neutgens provided the corporation’s income-tax
records but disputed Westfield’s
argument that they were necessary to establish his income loss. The arbitrator rejected Westfield’s argument and based the award on
Neutgens’s reduction in salary.
moved in district court to vacate the arbitration award. As the basis for its motion, Westfield argued that the arbitrator had
exceeded his authority by holding that Neutgens was not required to prove a
reduction in his gross business income in addition to his loss in salary. The district court denied Westfield’s motion and confirmed the award. Westfield
I S S U E
the arbitrator exceed his authority when he determined income-loss benefits
under the Minnesota No-Fault Automobile Insurance Act by calculating the salary
loss of the injured employee of a corporation in which he is the sole
shareholder, without requiring proof of a reduction in the corporation’s gross
N A L Y S I S
law, an arbitrator’s findings of fact are final, but courts must vacate
arbitration awards when arbitrators exceed their authority. Minn. Stat. § 572.19, subd. 1(3) (2004); Karels v. State Farm Ins. Co., 617
N.W.2d 432, 434 (Minn. App. 2000). No-fault arbitrators exceed their authority
when they interpret rather than simply apply the Minnesota no-fault insurance statutes. Johnson
v. Am. Family Mut. Ins. Co., 426 N.W.2d 419, 421 (Minn.
1988); see also Weaver v. State Farm Ins.
Cos., 609 N.W.2d 878, 882 (Minn. 2000)
(“[N]o-fault arbitrators are limited to deciding questions of fact, leaving the
interpretation of law to the courts.”).
To determine whether a no-fault arbitrator has interpreted, rather than
applied, the law, we review de novo “the arbitrator’s legal determinations
necessary to granting relief.” Weaver, 609 N.W.2d at 882.
On appeal Westfield
does not dispute that Neutgens was a salaried employee of the corporation
before the accident or that Neutgens was unable to work after the
sole argument is that the arbitrator exceeded his authority because Minnesota no-fault law
requires a self-employed business owner to prove income loss by demonstrating a
reduction in gross business income rather than a loss of salary. Our review of the relevant statutes and case law
shows that the arbitrator correctly applied the law.
The Minnesota No-Fault Automobile Insurance Act provides that
an insured may receive up to $20,000 for income loss arising out of injuries
sustained in an auto accident. Minn.
Stat. § 65B.44, subd. 1(a)(2) (2004).
The Act defines income as “salary, wages, tips, commissions,
professional fees, and other earnings from work or tangible things of economic
value produced through work in individually owned businesses, farms, ranches or
other work.” Minn. Stat. § 65B.43, subd.
6 (2004). Thus, in the ordinary case, an
insured receives income-loss benefits by establishing that accident-related injuries
resulted in a loss of personal income evidenced by a reduction in salary,
wages, tips, commissions, or fees.
Westfield argues that this method of
determining income loss does not apply to Neutgens because he was the sole
shareholder of the corporation that employed him. For this argument, Westfield relies on
language in Rotation Eng’g & Mfg. Co.
v. Secura Ins. Co., 497 N.W.2d 292 (Minn. App. 1993). In Rotation,
the business owner was paid a salary, but his salary was not reduced when he
missed 339 hours of work as a result of his disability. 497 N.W.2d at 293-94. Because there was no decrease in the
business’s gross income, the business owner was ineligible for income-loss
at 295. In reaching this conclusion, the
court discussed the computation of income-loss benefits for a self-employed
at 294. The opinion states that if the
“gross income produced by a self-owned business has decreased during the period
of the self-employed owner’s disability, and the decrease is attributable
directly and solely to the owner’s disability, that decrease, in the absence of any salary or wage paid,
represents ‘other earnings from work.’” Id.
at 294 (quotation omitted) (emphasis added).
reliance on this language as support for its argument is flawed in two
significant ways. First, the language is
directed, by its own terms, to claims for income loss “in the absence of any
salary or wage paid.” Because it is
undisputed that Neutgens received a salary, the language does not apply to
Neutgens’s claim. Second, the language
is directed at establishing “other earnings from work,” which is a method of
demonstrating income loss when the injured claimant does not have available the
usual measures of salary, wages, tips, commissions, or professional fees. See Minn. Stat. § 65B.44, subd. 3 (2004) (listing types
of earnings that qualify as income).
The language in Rotation
is drawn from, and substantially consistent with, Rindahl v. Nat’l Farmers Union Ins. Cos., 373 N.W.2d 294 (Minn. 1985). In Rindahl, the court examined an
income-loss claim for a farm co-owner who did not receive a wage or salary for
farm work. Id.
at 298-99. The court recognized that
“the self-employed person who takes no salary or wage from the business may
recover income loss benefits by proving . . . loss of
‘other earnings from work.’” Id.
at 299. Because Rindahl did not receive
a wage or salary, she could not demonstrate a decrease in the ordinary way but,
under the statute, could attempt to show the loss of “other earnings from
court held that, although Rindahl’s evidence was not adequate to demonstrate an
accident-related loss of earnings, the statute would allow a self-employed
individual, who did not receive a salary or wage, to prove loss of “other
earnings” if the individual could show that the loss was directly attributable
to the individual’s injuries. Id. But Rindahl
does not require that a salaried employee who is the sole shareholder of the
employing corporation must demonstrate not only a loss of wages or salary, but
also a loss in business earnings. Unlike
Rindahl, Neutgens took a salary from the corporation. Thus, Neutgens was able to demonstrate his
loss by showing the decrease in his salary.
Contrary to Westfield’s
argument, neither Rindahl nor Rotation holds that a reduction in gross
business income is the only means by
which a self-employed person canprove
income loss. Rather, each case acknowledges
that gross business income is a satisfactory gauge of loss for a self-employed
person when the ordinary measures are unavailable. The Act recognizes that when the customary
measures of “salary, wages, tips, commissions, or professional fees” are not
available, income may be determined by showing “other earnings” from work or
economic production in an individually owned business. Minn. Stat.
§ 65B.43, subd. 6.
It is undisputed that Neutgens drew a salary before his
auto accident. Consequently, it is
unnecessary to resort to proof of individual earnings through other means. Following the accident, Neutgens stopped
drawing a salary because his injuries prevented him from returning to work in
his preaccident capacity. Westfield does not
dispute that Neutgens’s inability to work was caused by his injuries. As a salaried employee, Neutgens demonstrated
a statutorily-defined measure of income for the arbitrator to consider in
reaching his decision on loss attributable to the accident. Neutgens was not required to prove by
alternative means what he could demonstrate by primary means.
We recognize that a claimant who is the sole shareholder
of the employing corporation will likely have the power to influence the amount
of his or her postaccident salary. But
“loss” is defined as the “economic detriment resulting from the accident
causing the injury.” Minn.
Stat. § 65B.43, subd. 7 (2004).
Thus the arbitrator determines, as a fact question, whether the income
loss is “proximately caused” by the injury.
Stat. § 65B.44, subd. 3 (2004) (providing for disability and income-loss
benefits); Keim v. Farm Bureau Ins. Co.,
482 N.W.2d 823, 825 (Minn. App. 1992), review denied (Minn. May 21, 1992)
(stating that actual amount of income loss is factual question for arbitrator). In this case, however, it is undisputed that
Neutgens’s personal-income loss was directly and solely attributable to his
In allowing Neutgens to pursue his claim by proving
personal-income loss, the arbitrator applied existing law. “Having been required merely to apply, and
not to interpret, plain, settled law, the arbitrator did not exceed his
authority.” Karels, 617 N.W.2d at 435.
D E C I S I O N
Because Minnesota no-fault law permits an individual
to prove income loss by showing a reduction in personal income and does not
exclude individuals who are employed by corporations in which they are the sole
shareholder, the arbitrator did not exceed his authority by relying on the
individual’s salary loss to demonstrate this income loss, and we affirm the