IN COURT OF APPEALS
Theresa Mary Mitsch,
American National Property and Casualty Company,
Filed July 31, 2007
Reversed and remanded
Dakota County District Court
File No. 19-C6-05-9317
Sharon L. Van Dyck, James G. Weinmeyer, Schwebel, Goetz & Sieben, P.A., 5120 IDS Center, 80 South 8th Street, Minneapolis, MN 55402 (for appellant)
Klay C. (KC) Ahrens, Elizabeth E. Caturia, Hellmuth & Johnson, PLLC, 10400 Viking Drive, Suite 500, Eden Prairie, MN 55344 (for respondent)
Considered and decided by Halbrooks, Presiding Judge; Lansing, Judge; and Hudson, Judge.
An insurance policy “reducing clause” that seeks to reduce the amount payable for underinsured-motorist benefits for liability payments made by an insurer on behalf of another at-fault, underinsured driver, violates Minn. Stat. § 65B.49, subd. 4a (2006), and is unenforceable.
Appellant challenges the district court’s decision to dismiss on summary judgment her claim seeking underinsured-motorist (UIM) benefits under an insurance policy issued by respondent American National Property and Casualty Company (ANPAC). Because (1) the application of that covered policy’s reducing clause in this context violates Minn. Stat. § 65B.49, subd. 4a (2006), and (2) appellant’s claim for UIM benefits does not result in a conversion of first-party coverage to third-party coverage, we conclude that the district court erred in granting summary judgment to ANPAC. We therefore reverse and remand.
On the afternoon of September 23, 2002, appellant Theresa Mary Mitsch was riding as a passenger on a motorcycle driven by her husband, Thomas Mitsch (Thomas). As they were traveling on the highway, a truck driven by Joseph Henry Frank (Frank) “invaded” their lane of traffic, forcing Thomas to swerve off the road and into a ditch. Appellant, who was thrown from the motorcycle, sustained significant injuries. Thomas conceded that he was driving his motorcycle at an excessive speed for the road conditions and thus acknowledged that the accident was partially due to his negligence. Frank also conceded that the accident was due, in part, to his negligence.
At the time of the accident, Frank was insured by Austin Mutual Insurance Company (Austin Mutual) with a liability limit of $30,000 per person. Thomas had coverage on his motorcycle with ANPAC that provided liability and UIM limits of $250,000 per person. Because appellant is the spouse of Thomas, the named ANPAC insured, she is an insured under that policy.
Appellant settled her liability claim against Frank for $30,000—the liability limit under the Austin Mutual policy. Appellant also settled her liability claim against Thomas for the liability limit on the ANPAC policy of $250,000. But because these amounts were not sufficient to fully compensate appellant for her injuries, she submitted a claim for UIM benefits to ANPAC. ANPAC denied appellant’s claim pursuant to the “Limits of Liability” clause in Part IV of its policy, otherwise known as “the reducing clause,” which states that UIM “[a]mounts payable will be reduced by: (1) a payment made by the owner or operator of the . . . underinsured motor vehicle, or organization which may be legally liable; [and] (2) a payment made under the Liability Coverage or Personal Injury Protection Coverage of this policy[.]”
sued ANPAC, seeking to recover UIM benefits.
ANPAC subsequently moved for summary judgment, arguing, in part, that
under the policy’s reducing clause, “any claimed UIM benefits would have to be
reduced by the already tendered liability claim of $250,000.00, which would
eliminate any potential UIM benefits, because the UIM benefits are limited to $250,000.00.” Appellant responded that the reducing clause
in ANPAC’s policy is contrary to
This appeal follows.
Did the district court err by granting ANPAC’s motion for summary judgment on the ground that the reducing clause in the ANPAC insurance policy is enforceable, thereby eliminating appellant’s claim for UIM benefits?
parties do not dispute the underlying facts.
In an appeal from a grant of summary judgment when there are no genuine
issues of material fact, “we review de novo whether the [district] court
erred in its application of the law.” Kelly v. State Farm Mut. Auto. Ins. Co.,
666 N.W.2d 328, 330 (
The extent of an
insurer’s liability is determined by the insurance contract with its insured as
long as that insurance policy does not omit coverage required by law and does
not violate applicable statutes. Lynch ex rel. Lynch v. Am. Family Mut. Ins.
Co., 626 N.W.2d 182, 185 (
With respect to underinsured motorist coverage, the maximum liability of an insurer is the amount of damages sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle. If a person is injured by two or more vehicles, underinsured motorist coverage is payable whenever any one of those vehicles meets the definition of underinsured motor vehicle in section 65B.43, subdivision 17. However, in no event shall the underinsured motorist carrier have to pay more than the amount of its underinsured motorist limits.
Here, the reducing
clause in ANPAC’s insurance policy states that UIM “[a]mounts payable will be
reduced by: (1) a payment made by the owner or operator of the . . . underinsured motor vehicle, or
organization which may be legally liable; [and] (2) a payment under the
Liability Coverage or Personal Injury Protection Coverage of this policy[.]” ANPAC contends that its reducing clause is
enforceable because it prevents the impermissible conversion of first-party UIM
coverage into third-party liability coverage.
The district court agreed, concluding that because “[t]he reducing
clause in [ANPAC’s] policy is enforceable as applied to the facts of this
case,” appellant was appropriately denied UIM benefits under the policy. The district court reasoned that “[r]educing
clauses have been upheld as consistent with established case law that prevents
converting first party UIM coverage into additional third party liability
coverage.” As noted, in support of its
decision, the district court cited to this court’s decisions in both Jensen and Engle v. Estate of Fischer, No. C9-02-1088, 2003 WL 174541 (Minn.
App. Jan. 28, 2003), review denied (
In Jensen, 12-year-old Katie Jensen was
severely injured when the vehicle in which she was riding was involved in a
single-vehicle accident. 524 N.W.2d at
537. The vehicle, which was owned by
Dennis Harker (the father of a friend), was being driven by Katie’s older
sister Shanna at the time of the accident.
insurer, State Farm, conceded coverage and paid its liability limit of
On appeal, this
court began by examining the Farmers Union policy, which contained a reducing
clause, stating that “[a]ny [UIM] amounts payable will be reduced by:
. . . [a]ny payment under the Liability Coverage of this
In Engle, “appellant Tiesha Engle was
injured in a motor vehicle accident while riding as a passenger in a vehicle
driven by Brandon Thompson.” 2003 WL
174541, at *1. Thompson’s vehicle
collided with a vehicle driven by Dorothy Fischer and insured by Farmers
Insurance Group (Farmers) with liability limits of $100,000.
trial, the jury found Fischer to be 100% at fault for the accident and awarded
Engle $206,690.50 in total damages.
argued to this court that Continental’s policy violated Minn. Stat. § 65B.49,
subd. 3a(1) (2002), because it created a “difference in limits” approach to UIM
benefits that was previously abrogated by the Minnesota Legislature.
Continental’s policy, which
provides that UIM benefits are available up to a per person limit of $100,000
after reduction for any amount paid by Continental under personal-liability
coverage is neither a “difference in limits” or “limits less paid” policy. Language similar to that contained in
Continental’s policy has been characterized as a “reducing clause.” Jensen
v. United Fire & Cas.
Appellant argues that Jensen is distinguishable from the facts here because she is not attempting to convert first-party UIM coverage into third-party liability coverage by seeking UIM benefits from ANPAC based on the premise that Thomas’s vehicle was underinsured. Instead, she is seeking UIM benefits based on the fact that Frank’s vehicle was an underinsured motor vehicle, thereby rendering the reducing clause unenforceable under section 65B.49, subdivision 4a. But respondent contends that, as in both Jensen and Engle, appellant seeks to recover UIM benefits under the same insurance policy that previously paid its liability limits for the negligence of its insured, and therefore, under the reducing clause, the available UIM benefits should be reduced by the liability payments.
We conclude that the facts in Jensen and Engle are distinguishable from the facts here. In Jensen, a single-vehicle accident, the plaintiff sought UIM benefits under the Farmers Union policy to cover her unpaid expenses caused by the negligence of a tortfeasor who was an insured under the Farmers Union policy and for whom the Farmers Union policy had already paid its liability limits. This court held that, under those facts, a reducing clause stating that amounts payable under the UIM provision would be reduced by payments made under the liability coverage section is enforceable because it prevents the conversion of less expensive UIM coverage into a second layer of liability coverage. Specifically, we explained that Farmers Union was not attempting to use liability payments by other tortfeasors to reduce the available UIM coverage, but instead was attempting to reduce UIM coverage for liability payments made under that same policy.
Similarly, in Engle, the plaintiff was seeking UIM benefits under the Continental policy. But Continental moved to reduce the amount recoverable based on the amount it had already paid under the liability portion of its own policy on behalf of its insured. Relying on Jensen, this court again upheld the validity of the reducing clause and reduced Continental’s UIM payments by the amount it paid under the liability portion of the policy to settle the plaintiff’s claim against its insured.
Accordingly, if appellant here brought a claim to recover UIM benefits from ANPAC for injuries caused by Thomas’s negligence, appellant would be improperly attempting to convert first-party UIM coverage into third-party liability coverage. Because ANPAC has already made liability payments under the same policy, the ANPAC reducing clause would limit such recovery under Jensen and Engle.
But unlike Jensen and Engle, appellant is not seeking UIM benefits under the ANPAC policy
to compensate for injuries caused by Thomas’s negligence. Instead, her claim for UIM benefits is based
on the injuries she suffered as a result of Frank’s negligence. It is undisputed that Frank’s vehicle meets
the definition of an underinsured motor vehicle under the ANPAC policy. Accordingly, we find that the facts here are
more akin to our decision in Lahr v. Am.
Family Mut. Ins. Co., 528 N.W.2d 257 (
In Lahr, plaintiff Almira Lahr, riding as
passenger in a vehicle driven by Elizabeth Peura, was injured when Peura
collided with another vehicle driven by Mary Kay Kivisto. 528 N.W.2d at 258. Peura’s vehicle was insured by American Family
Mutual Insurance Company (American Family) with liability and UIM limits of
(Peura’s insurer) paid Lahr $50,000 under its liability coverage. After Lahr notified American Family that she
intended to settle with Kivisto and American Family declined to substitute
payment for the proposed Atlantic Mutual settlement, Lahr settled her liability
claim against Kivisto for $80,000.
reversed and remanded, concluding that “[t]he district court erred in granting
American summary judgment on Lahr’s claim for UIM benefits.”
Where a vehicle other than the one in which the passenger is riding is potentially at fault, the prohibition against converting the passenger’s driver’s UIM coverage into liability coverage is not applicable because the driver’s lack of adequate liability coverage is not at issue. Rather, the other vehicle’s lack of sufficient liability coverage is what triggers the passenger’s claim for UIM benefits from her driver’s insurer. There is no conversion into third-party liability coverage because Peura’s UIM benefits are not substituting for Peura’s inadequate liability coverage but for Kivisto’s inadequate liability coverage.
While we recognize that the dispute in Lahr centered on was over the effect of the “owned vehicle exclusion” in the American Family policy and not the enforceability of a “reducing clause,” the facts in Lahr are similar to those in this case. And the Lahr court’s decision is similarly focused upon avoiding coverage conversion. As in Lahr, appellant properly seeks UIM benefits from ANPAC for Frank’s vehicle’s lack of adequate liability coverage. Indeed, the Minnesota Supreme Court stated in Kelly:
UIM coverage is designed to “protect against . . . the risk that a negligent driver of another vehicle will have failed to purchase adequate liability insurance; that is, it is intended ‘to protect the named insured and other additional insureds from suffering an inadequately compensated injury caused by an accident with an inadequately insured automobile.’”
666 N.W.2d at 331 (quoting Meyer v. Ill. Farmers Ins. Group, 371
N.W.2d 535, 537 (
[i]f there is another motoring tortfeasor, unrelated to the claimant, there is no obstacle to collecting both the liability coverage and the underinsured motorist coverage under one single policy because there are then two distinct, separately insured ‘risks.’” One such risk involves the liability claim. If there is a second, unrelated vehicle which is also at fault, that other unrelated vehicle involves a separate risk. . . . If the other vehicle were inadequately insured, it would trigger precisely the underinsured motorist ‘risk’ for which the UIM coverage was issued.
Theodore J. Smetak, Underinsured Motorist Coverage in Minnesota: Old Precedents in a New Era, 24 Wm. Mitchell L. Rev., 857, 902 (1998); see also Theodore J. Smetak et al., Minnesota Motor Vehicle Insurance Manual 401 (3d ed. 2000) (“The Myers case also has no application in a case where the guest passenger is seeking recovery of UIM benefits under the host driver’s vehicle policy based on the fault of the ‘other’ motorist. The passenger is permitted to recover under the liability coverage on the host vehicle for the negligence of the host driver and under the UIM coverage of the host policy based upon the negligence and inadequate coverage of the other at-fault motorist. In such a case, there is no improper conversion of UIM into additional liability coverage because the UIM claim is based on the negligence of the driver of the other motor vehicle.” (citations omitted)).
Here, appellant is not attempting to convert first-party UIM coverage into additional third-party liability coverage, as in Jensen and Engle. Instead, ANPAC is seeking to use liability payments made by Austin Mutual, Frank’s insurer, on behalf of another underinsured tortfeasor (Frank), to reduce the UIM benefits payable to appellant under the ANPAC policy. This contravenes the statute. Therefore, we conclude that the first portion of ANPAC’s reducing clause, which states that UIM benefits may be reduced by “a payment made by the owner or operator of the . . . underinsured motor vehicle, or organization which may be legally liable,” violates Minn. Stat. § 65B.49, subd. 4a, and is therefore unenforceable. Thus, we also conclude that the district court erred when it granted ANPAC’s motion for summary judgment after determining that the reducing clause is enforceable.
Because the first prong of the reducing clause in ANPAC’s
insurance policy violates Minn. Stat. § 65B.49, subd. 4a (2006), in this
context and is therefore
unenforceable, we conclude that the district court erred by granting ANPAC’s motion for summary judgment.
Reversed and remanded.
 ANPAC also argued that Thomas’s vehicle did not “meet the policy definition of an underinsured motor vehicle because of the owned-vehicle exclusion in the policy,” and therefore appellant could not recover UIM benefits under the policy. Appellant concedes that Thomas’s vehicle is not an underinsured motor vehicle as defined in the policy. But appellant argues that her claim for UIM benefits is based on Frank’s vehicle being an underinsured vehicle, and thus the owned-vehicle exclusion in the policy does not apply. The district court determined that the owned-vehicle exclusion in the policy does not apply to Frank’s vehicle, that Frank’s vehicle is an underinsured vehicle under the relevant statute, and therefore that appellant has a legitimate claim “for UIM benefits based on . . . Frank’s negligence and . . . Frank’s underinsured vehicle.” The owned-vehicle exclusion has not been raised on appeal.
With regard to the United Fire policy, this court held that because the named
insured in the commercial policy was Eagle Excavating, and not an individual,
the policy did not apply to Katie, and therefore summary judgment for United
Fire was appropriate.
 Appellant also argues that this court incorrectly decided Engle and that we should now disregard that decision. Specifically, appellant contends that because the jury in Engle ultimately determined that Fischer was 100% at fault for causing the accident, Engle therefore must have sought UIM coverage under the Continental policy based on Fischer’s negligence. But despite the fact that the jury ultimately concluded that Fischer was the sole tortfeasor and that Thompson was not at fault for the accident, Continental was still responsible for the pretrial $70,000 liability settlement it agreed to pay on behalf of Thompson, and thus Engle initially sought UIM coverage alleging that Thompson was an underinsured motorist. Accordingly, as in Jensen, we held that the reducing clause in Continental’s insurance policy applied so as to reduce “Continental’s UIM payment by the $70,000 it paid to settle Engle’s liability claim against Thompson,” its insured, and not that the reducing clause applied so as to reduce UIM compensation based on Fischer’s negligence, as appellant suggests. Engle, 2003 WL 174541, at *5.