This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
STATE OF MINNESOTA
IN COURT OF APPEALS
Farm Insurance Company,
State Farm Insurance Company,
Subrogee of Erma
Filed July 26, 2005
No. CT 04-003533
Tillitt, Anthony Gabor, Gislason & Hunter, L.L.P., 9900 Bren Road East,
Suite 215E, P.O. Box 5297, Minnetonka, MN
55343-2297 (for appellant)
Karen R. Cote, Brett W. Olander, Brett
W. Olander & Associates, 1000
Fifth Street Center, 55 East Fifth Street, St. Paul, MN 55101-2701 (for respondents)
Considered and decided by Willis, Presiding
Judge, and Shumaker,
P U B L I S H E D O P I N I O N
Scott O’Brien brought this declaratory judgment action against respondents
State Farm Insurance Company and State Farm Insurance Company, as subrogee for
Erma Walker, seeking a determination that State Farm waived its subrogation
rights against him when it failed to substitute its draft for his settlement
check within 30 days after receiving a post-verdict, pre-judgment notice under Schmidt v. Clothier, 338 N.W.2d 256
(Minn. 1983). On cross motions for summary
judgment, the district court determined that a Schmidt notice was “never
consummated” because Walker did not fully release
O’Brien and specifically preserved State Farm’s
subrogation rights against him. The
court further concluded that O’Brien cannot use a Schmidt notice as a way to avoid exposure to State Farm’s
subrogation rights and that the procedures set forth in Schmidt do not apply to this situation, when a verdict has been
returned against the tortfeasor in an amount in excess of his liability limits
and when judgment has not yet been entered.
Because Schmidt cannot be
used to defeat the UIM carrier’s subrogation rights in this post-verdict
situation involving partial release of the tortfeasor, we affirm the district
court’s grant of summary judgment to State Farm.
D E C I S I O N
State Farm moved to strike an exhibit contained in O’Brien’s appendix and references to the exhibit in his
brief. By order dated March 18, 2005,
State Farm’s motion to strike was deferred to this panel.
disputed exhibit is a December 30, 2002 letter from O’Brien’s
counsel to Walker. As O’Brien notes,
however, this letter was filed with the district court as Exhibit D to his
amended complaint. Because the disputed
exhibit was part of the record on appeal, we deny State Farm’s motion to
strike. See Minn.
R. Civ. App. P. 110.01 (stating that record on appeal consists of “papers filed
in the trial court, the exhibits, and the transcript of the proceedings, if
Farm argues that if this letter is not stricken, then it should be allowed to
supplement the record with letters dated January 24 and January 30, 2003, from Erma Walker’s
attorney to O’Brien and to State Farm. State Farm admits that these letters are not
part of the record. In addition, State Farm
does not claim that these letters were omitted from the record due to error or
accident. See Minn.
R. Civ. App. P. 110.05 (allowing appellate court to supplement record if
necessary to correct misstatement or material omitted due to error or accident). We therefore deny State Farm’s alternative
motion to supplement the record.
judgment is proper when there are no genuine issues of material fact and when
either party is entitled to judgment as a matter of law. Minn.
R. Civ. P. 56.03. On undisputed facts,
an appellate court applies a de novo standard of review to determine whether
the district court erred in its application of the law. Washington v. Milbank Ins. Co., 562 N.W.2d 801,
In Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), the supreme
court was faced with the dilemma presented “where the best settlement available
to an insured with the tortfeasor is less than the liability limits of the
tortfeasor’s policy but the insured’s policy contains an ‘exhaustion clause,’
whereby [UIM] coverage is only available after the limits of the tortfeasor’s
liability policy are exhausted.” Schwickert, Inc. v. Winnebago Seniors, Ltd.,
680 N.W.2d 79, 83 (Minn.
2004). The Schmidt court held that
“exhaustion clauses are void as against the policies of the no-fault act” and
the “insured may recover [UIM] benefits where the total damages sustained (as
determined by either arbitration or judgment) exceed the limits of the
tortfeasor’s liability policy even where the insured settles with the
tortfeasor for less than the liability limits.”
338 N.W.2d at 261. The court further
adopted a procedure to balance the right of the insurer to preserve its
potential subrogation claims with the right of the insured to settle with a tortfeasor
and obtain full compensation. Id. Giving more weight to the insured’s right to
full compensation, the court held that if an insured gives the insurer 30 days’
notice of a tentative settlement agreement with the tortfeasor for an amount at
or below the tortfeasor’s liability limits, the insurer must either pay the
insured an amount equal to the tentative settlement, and thus preserve its
subrogation rights, or waive its subrogation rights. Id. at 263.
the supreme court has held that an injured claimant must do one of two things
before initiating a UIM claim:
The injured claimant can either, (1) pursue a tort claim
to a conclusion in a district court action, and then, if the judgment exceeds
the liability limits, pursue underinsurance benefits; or (2) settle the tort
claim for “the best settlement,” give a Schmidt-Clothier notice to the
underinsurer, and then maintain a claim for underinsurance benefits.
Employers Mut. Cos.
v. Nordstrom, 495 N.W.2d 855, 857 (Minn.
insists that Walker
chose the second option.
of O’Brien’s position, however, requires us to find
that the release executed by Walker fully released O’Brien and defeated any subrogation rights State Farm might
have had against him. But the release
was only partial and specifically reserved State Farm’s subrogation
rights. There is nothing in Schmidt or in cases decided after Schmidt that prohibit a UIM carrier from
insisting that any post-verdict, pre-judgment settlement entered into by an
insured may not fully release the tortfeasor and that such a release must
specifically preserve any subrogation rights that the carrier might have. Cf.
Liberty Mut. Ins. Co. v. Am. Family Mut. Ins. Co., 463 N.W.2d 750, 753-54 (Minn. 1990) (recognizing
that dynamics of settlement of claim that has been reduced to judgment differ
significantly from settlement reached prior to trial, and that insurer is
entitled to right of subrogation against tortfeasor in event of any settlement
reached after trial).
agree with the district court’s reasoning as follows:
never was a settlement of all claims fully releasing O’Brien,
a Schmidt v. Clothier settlement was
never consummated. O’Brien
cannot use a Schmidt v. Clothier
notice as a way to avoid exposure to State Farm’s subrogation rights. The specific procedures set forth in Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983) do not apply
to this situation.
. . . . The procedure outlined in Schmidt was not intended to
allow a tortfeasor to limit its liability by waiting until a verdict is
rendered, offering to settle . . . and defeating the UIM carrier’s subrogation
rights when it fails to respond to notice of that settlement under Schmidt. [Moundson
v. Bitzan, 588 N.W.2d 169, 172 (Minn.
As in Moundson, State Farm was given a Schmidt v. Clothier notice after a jury verdict but before judgment
was entered and did not substitute its draft while maintaining it was entitled
to subrogation. The Partial Release
clearly notified all parties that State Farm intended to preserve any
subrogation rights. Walker
did not sign a general release and the Partial Release cannot be viewed as a
final and complete settlement which would prompt the requirements of Schmidt v. Clothier. State Farm’s subrogation rights were
State Farm paid the UIM policy
limits to Walker. Walker subsequently assigned
her judgment against O’Brien to State Farm. At no time did State Farm waive its
subrogation rights and State Farm is entitled to summary judgment and recovery
We therefore affirm the district court’s grant of summary
judgment to State Farm.
Affirmed; motions denied.