This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
STATE OF MINNESOTA
IN COURT OF APPEALS
Farm Bureau Insurance Company,
Clarendon National Insurance Company,
Filed December 18, 2007
Goodhue County District Court
File No. 25-CV-06-646
George F. Vogel, Vogel & Gorman, P.L.C., P.O. Box 39, Red Wing, MN 55066-0039 (for respondent Emily M. Beyersdorf Johnson)
Robert G. Benner, Dunlap & Seeger, P.A., 206 South Broadway, Suite 505, P.O. Box 549, Rochester, MN 55903-0549 (for respondent Farm Bureau Insurance Company)
William J. Cashman, Jason T. Bretto, Rajkowski Hansmeier, Ltd., 11 Seventh Avenue North, P.O. Box 1433, St. Cloud, MN 56302 (for appellant)
Considered and decided by Lansing, Presiding Judge; Dietzen, Judge; and Ross, Judge.
Appellant Clarendon National Insurance Company (Clarendon) challenges the district court order granting summary judgment in favor of respondent Farm Bureau Insurance Company (Farm Bureau), arguing that the district court erred in concluding that Clarendon’s liability policy provided the second layer of coverage and that Farm Bureau’s umbrella policy provided excess coverage. We affirm.
The material facts are not in dispute. In September 2004, respondent Emily Beyersdorf Johnson was involved in an automobile accident with Amy Frederixon, the at-fault driver. Johnson was driving a 2000 Pontiac Grand Am that she owned. Frederixon was driving a 1998 Dodge Durango with the permission of the owner, Arthur Reese.
At the time of the accident, Reese’s Dodge Durango was insured by Farm Bureau under an automobile liability policy with limits of $250,000 per person and $500,000 per occurrence. Farm Bureau also provided a catastrophe excess liability umbrella policy to Reese with limits of an additional $1,000,000. Farm Bureau required Reese to purchase the automobile liability policy as a condition precedent to his purchase of the umbrella policy.
Frederixon was covered by her parents’ automobile insurance through Clarendon, which provided coverage limits of $250,000 per person and $500,000 per accident. It is undisputed that Frederixon was an insured under the Clarendon policy as a scheduled driver on the policy’s declaration sheet and as a “resident relative” of her parents’ household.
The parties agreed that the Farm Bureau automobile policy provides the first layer of coverage for injuries Johnson sustained as a result of the automobile accident. But the parties disagreed on which policy provided the second layer of coverage—Clarendon’s automobile liability policy or Farm Bureau’s umbrella policy.
Johnson commenced this declaratory judgment action against Clarendon and Farm Bureau to determine the priority of coverage under their respective policies. Clarendon and Farm Bureau filed cross-motions for summary judgment. The district court concluded that the “other insurance” clauses of the two insurance policies were in conflict, that under applicable law Clarendon’s automobile liability policy provides the second layer of coverage, and that Farm Bureau’s umbrella policy provides excess coverage. This appeal follows.
D E C I S I O N
Initially, this court ordered the parties to submit additional briefing on the issue of justiciability, that is, whether this was a prohibited direct action by a third party against an insurance company. “Under Minnesota law, a third party cannot sue an insurance company directly but must first secure a judgment against the insured on the issue of liability.” Rinn v. Transit Cas. Co., 322 N.W.2d 357, 358 (Minn. 1982).
In response, the parties submitted memoranda confirming that Johnson brought a separate personal injury action against Frederixon, which was later settled for an amount exceeding the Farm Bureau automobile policy limits. In this declaratory judgment action, the parties do not dispute their obligation to defend or indemnify Frederixon. Cf. Cincinnati Ins. Co. v. Franck, 621 N.W.2d 270 (Minn. App. 2001) (dispute between insurance companies regarding obligation to defend or indemnify insured). Instead, the parties stipulate that the only remaining issue is the priority of coverage.
Thus, the case before us is similar to Rinn v. Transit Cas. Co. In Rinn, the plaintiff was injured while driving his employer’s truck, which was insured by two different companies. 322 N.W.2d at 357. When the plaintiff’s claim for no-fault benefits was denied by both insurers, the plaintiff brought a declaratory judgment action against both insurers. Id. at 358. The court held that the case was not a direct action, reasoning that “[t]here are no issues of liability to be resolved . . . before insurance coverage can be determined.” Id. While this case started out as a direct action, the underlying personal injury action was settled, and, like Rinn, there are no issues of liability that must be resolved before determining the priority of coverage. We turn then to the issues raised on appeal.
Clarendon contends the district court erred as a matter of law in concluding that it must provide the second layer of coverage under its automobile liability policy and that Farm Bureau’s umbrella policy is excess coverage. When the facts are undisputed, an appellate court “need only review the [district] court’s application of the law in interpreting the language of the two insurance [policies].” Interstate Fire & Cas. Co. v. Auto-Owners Ins. Co., 433 N.W.2d 82, 85 (Minn. 1988). Interpretation of insurance policy language is a question of law, which this court reviews de novo. Vue v. State Farm Ins. Cos., 582 N.W.2d 264, 265 (Minn. 1998).
In determining the priority of insurance coverage, the court must first evaluate whether the policies’ “other insurance” clauses are in conflict. Integrity Mut. Ins. Co. v. State Auto. & Cas. Underwriters Ins. Co., 307 Minn. 173, 174-75, 239 N.W.2d 445, 446 (1976). If the insurance policies do not conflict and have established an order for payment, that order must be respected. Eckblad v. Farm Bureau Mut. Ins. Co., 371 N.W.2d 78, 81 (Minn. App. 1985), review denied (Minn. Sept. 26, 1985). If the court determines that the other insurance clauses do conflict, the court must move to an analysis of the priority of coverage.
The other insurance clause of Farm Bureau’s umbrella policy provides:
8. Other Insurance
If other valid and collectible insurance is available to the insured for ultimate net loss we cover under this policy, our obligations under this policy are limited as follows:
a. Excess Insurance
This insurance is excess over any other insurance, whether primary, excess, contingent or on any other basis, except such insurance as is specifically purchased to apply in excess of this policy’s Limit of Insurance.
Clarendon’s automobile liability other insurance clause provides:
If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.
The district court concluded that the clauses conflicted because “[b]oth clauses indicate that they provide excess coverage if other insurance is available.” Farm Bureau contends that the clauses do not conflict. But Farm Bureau did not file a notice of review, and, therefore, the issue is not properly before us. Minn. R. Civ. App. P. 106. But even if we did reach the merits, we would conclude that the clauses conflict. See Federated Mut. Ins. Co. v. American Family Mut. Ins. Co., 350 N.W.2d 425, 427 (Minn. App. 1984) (policies are deemed to conflict when both claim to be excess).
Minnesota courts have employed two different methods in determining the priority of conflicting insurance policies: (1) the total-insuring-intent test and (2) the closest-to-the-risk test. Interstate, 433 N.W.2d at 86 (total insuring intent); Auto-Owners Ins. Co. v. Northstar Mut. Ins. Co., 281 N.W.2d 700, 704 (Minn. 1979) (closest to the risk). Under the first test, the court “allocat[es] respective policy coverages in light of the total policy insuring intent, as determined by the primary policy risks and the primary function of each policy.” Interstate, 433 N.W.2d at 86. Under the second test, the court assigns liability based on which policy is “closest to the risk” by evaluating three factors: (1) which policy describes the accident-causing instrumentality; (2) which premium greater reflects the risk; and (3) whether the policy’s coverage is primary or incidental. Auto-Owners, 281 N.W.2d at 704.
Clarendon contends that we should apply the closest-to-the-risk test. We disagree for three reasons. First, the closest-to-the-risk test is difficult to apply under the facts of this case; specifically, neither policy names the accident-causing instrumentality, and the record contains no information on the premiums paid. Second, the total-insuring-intent test typically applies to policies that cover risks differing both in kind and size. Ill. Farmers Ins. Co. v. Depositors Ins. Co., 480 N.W.2d 657, 661 (Minn. App. 1992). Clearly, the polices in this case cover differing risks; the Clarendon automobile policy provides coverage for automobile-related occurrences up to $250,000 per person, $500,000 per occurrence, and the Farm Bureau umbrella policy provides coverage for a broad array of catastrophic accidents, injuries, or liabilities up to $1,000,000. Third, the Interstate court applied the total-insuring-intent test under analogous facts, that is, a priority-of-coverage dispute between an umbrella policy and a homeowner’s policy. The court determined that “rather than applying the three-part ‘closest-to-the-risk’ test, it is more helpful to use the broader approach . . . of allocating respective policy coverages in light of the total policy insuring intent.” Interstate, 433 N.W.2d at 86. Thus, we conclude that the total-insuring-intent test applies to the facts of this case.
Under the total-insuring-intent test, the court establishes priority of coverage by examining the primary risks and functions of each policy. Interstate, 433 N.W.2d at 86. Applying this test, the district court concluded that Clarendon’s policy provides the second layer of coverage, reasoning that it is “more specifically designed to cover automobile accidents than is the [u]mbrella [p]olicy, and, moreover, specifically contemplates the risk of liability from Frederixon’s driving.” Additionally, the district court noted that the Farm Bureau umbrella policy “provides more general coverage, not only confined to automobile accidents.”
Clarendon argues that the district court erred in its interpretation of the policies’ purposes. Specifically, Clarendon contends that because Farm Bureau required Reese to purchase an underlying automobile policy before it would issue the umbrella policy, the primary purpose of the umbrella policy is to provide coverage for the Dodge Durango. We disagree. Here, the primary purpose of the umbrella policy is to provide coverage for a broad array of catastrophic accidents, injuries, or liabilities. While automobile-related occurrences fall into this general description, the primary purpose of the umbrella policy is much broader than solely providing coverage for the Dodge Durango. In contrast, the primary purpose of Clarendon’s automobile policy is to provide automobile liability coverage. See Nat’l Farmers Union Prop. & Cas. Co. v. Farm & City Ins. Co., 689 N.W.2d 619 (S.D. 2004) (noting that the “majority of courts in this country . . . require the non-owner’s liability policy to be exhausted before looking to the umbrella policy”). Thus, we conclude that the district court did not err in concluding that the primary risks and function of the Clarendon policy was to cover automobile accidents and, therefore, is primary to the Farm Bureau umbrella policy.
But even if we were to apply the three factor closest-to-the-risk test, our conclusion would not change.
The first factor considers whether either policy specifically described the accident-causing instrumentality. The district court concluded that this factor does not weigh in favor of either policy. Clarendon argues that the umbrella policy implicitly describes the Dodge Durango because it refers to the underlying Farm Bureau automobile policy. Farm Bureau contends that Clarendon’s automobile policy arguably describes the Dodge Durango because it provides coverage “for any automobile” driven by its insured. We conclude that neither policy specifically “described” the “accident-causing instrumentality.” Thus, the district court did not err in its finding that this factor was neutral.
The district court did not make findings on the second factor. The third factor considers whether one policy contemplated the risk and use of the accident-causing instrumentality with greater specificity. The district court concluded that this factor favors Farm Bureau on the ground that Clarendon’s automobile policy “specifically contemplates the risk of exposure to liability from an automobile accident involving Frederixon” because she is an “insured” and she is named on the declarations sheet. Further, the district court concluded that the Farm Bureau umbrella policy “provides coverage for a broad array of risks, with no specific contemplation of exposure to liability stemming from Frederixon’s involvement in an automobile accident.”
Clarendon argues that the district court erred in concluding that the umbrella policy only incidentally contemplated the risk of Frederixon’s accident. We disagree. Clearly, Clarendon’s automobile policy contemplates coverage of an accident involving Frederixon, who is both an insured as a “resident relative” of her parents’ household and a scheduled driver on the declarations sheet. Further, Farm Bureau’s umbrella policy is clearly incidental to an automobile policy.
Finally, Clarendon asserts that Minn. Stat. § 65B.49, subd. 3(3)(d), of the Minnesota No-Fault Act requires “the policy of insurance on the involved motor vehicle takes priority over insurance coverage that provides coverage to the driver of a non-owned vehicle.” But here, there is no dispute that the underlying Farm Bureau automobile policy on the Dodge Durango provides the first layer of coverage. Clarendon is apparently arguing that the purpose and function of the umbrella policy is the same as the Farm Bureau automobile policy, and therefore it should be treated as a primary policy on the automobile. As discussed earlier, we reject this argument because the umbrella policy serves a different purpose and primary function.
 The statute provides: “[A] residual liability insurance policy shall be excess of a nonowned vehicle policy whether the nonowned vehicle is borrowed or rented, or used for business or pleasure. A nonowned vehicle is one not used or provided on a regular basis. Minn. Stat. § 65B.49, subd. 3(3)(d) (2006).