This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Auto-Owners Insurance Company,



Milwaukee Mutual Insurance Company,


Filed June 23, 1998


Randall, Judge

Nobles County District Court

File No. C7-95-5

William J. Wetering, Hedeen, Hughes, Wetering, & Kness, 1206 Oxford Street, P.O. Box 9, Worthington, MN 56187 (for respondent)

Thomas F. Ascher, Caldecott, Wheeler, Searles, Daniels, Forro, Koepke, & Ascher, P.L.C., 10 South Fifth Street, Suite 1020, Minneapolis, MN 55402 (for appellant)

Considered and decided by Randall, Presiding Judge, Kalitowski, Judge, and Schultz, Judge*.

*Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.



Appellant argues that the district court erred in granting summary judgment for respondent. Appellant claims that respondent impermissibly split its cause of action; that the district court erred in concluding that its policy provided primary coverage on the insured property; and that it is entitled to indemnification by respondent. We affirm on all issues.


The Murray County State Bank had a $31,500 mortgage on Byron Tandler's home on Lake Wilson. Tandler had a homeowner's policy with appellant Milwaukee Mutual Insurance Company. The homeowner's policy named the Bank as the mortgagee. Tandler defaulted on the mortgage, and in lieu of being foreclosed on, quitclaimed the property to the Bank. Milwaukee Mutual was not notified of this transfer of ownership from Tandler to the Bank. Later, the home was destroyed in a tornado.

The Bank submitted a claim under the homeowner's policy, claiming it was covered as mortgagee and that it was entitled to the full policy limit of $79,000 as owner of the property. Milwaukee Mutual denied the Bank's claim. The Bank then submitted a claim under its Bankers Foreclosure Property Policy to respondent Auto-Owners Insurance Company. This policy provided $500,000 in coverage for any given piece of realty in which the Bank had a mortgage interest. Auto-Owners paid the Bank $31,500, the amount of the Bank's unpaid mortgage interest in the property. Under Auto Owners' policy, $31,500 was the correct amount, and thus the extent of Auto Owners' exposure as to that mortgage parcel, and that amount is not in dispute.

The Bank then brought suit against Milwaukee Mutual in district court, arguing that it was entitled to the full $79,100, under the homeowner's policy because, at the time of the loss, it actually owned the home in fee simple rather than just a lender's mortgage interest. Milwaukee Mutual defended, arguing that it had not insured against this risk, and that the homeowner's policy was a personal contract that was not transferable from an individual to the Bank. Alternatively, Milwaukee Mutual claimed that if the Bank had a valid claim, the Bank's claim was limited to the amount of its mortgage interest ($31,500). The district court ruled that the Bank was covered under Tandler's homeowner's policy and that the Bank was entitled to the $79,100 for the total loss. The court limited the damages award to the difference between the $79,100 and the $31,500 the Bank had received from Auto-Owners. The court awarded the Bank $47,600 plus interests and costs. The matter was appealed, and this court affirmed. Murray County State Bank v. Milwaukee Mut. Ins. Co., 513 N.W.2d 1 (Minn. App.), review denied (Minn. May 3, 1994). Milwaukee Mutual satisfied the judgment.

Auto-Owners then instituted an action in district court against Milwaukee Mutual, claiming in subrogation the $31,500 it had paid to the Bank. In its answer, Milwaukee Mutual asserted that Auto-Owners' claim was barred because the cause of action had been impermissibly split and that the action was barred by the doctrines of res judicata and collateral estoppel. Milwaukee Mutual also counterclaimed, arguing that Auto-Owners owed it the $79,100 it paid to the Bank because its policy insured the Bank directly and the Bank's loss was found to be $79,100 in the previous action.

The parties agreed to submit the matter to the district court on cross-motions for summary judgment. The district court granted Auto-Owners' motion and denied Milwaukee Mutual's motion. This appeal follows.[1]


Summary judgment is appropriate when the parties do not dispute material facts and a determination of the applicable law will resolve the controversy. Boulevard Del, Inc. v. Stillman, 343 N.W.2d 50, 52 (Minn. App. 1984). Construction and interpretation of the language in an insurance contract is a question of law. Haarstad v. Graff, 517 N.W.2d 582, 584 (Minn. 1990). Similarly, the question of whether the right of subrogation exists is also a question of law. Fire Ins. Exch. v. Adamson Motors, 514 N.W.2d 807, 809 (Minn. App. 1994). Questions of law are reviewed de novo, and this court need not give deference to a decision of the district court. Frost-Benco Elec. Ass'n. v. Minnesota Pub. Util. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).

Milwaukee Mutual argues that Auto-Owners impermissibly split its cause of action when Auto-Owners failed to join its subrogation claim to the Bank's lawsuit. Under the principal of res judicata, or claim preclusion, a party is prevented from splitting claims into more than one lawsuit and further litigation of the same claim is barred. Loo v. Loo, 520 N.W.2d 740, 744 n.1 (Minn. 1994).

"A judgment on the merits constitutes an absolute bar to a second suit for the same cause of action, and is conclusive between parties and privies, not only as to every other matter which was actually litigated, but also as to every matter which might have been litigated therein."

Youngstown Mines Corp. v. Prout, 266 Minn. 450, 466, 124 N.W.2d 328, 340 (1963) (quoting Veline v. Dahlquist, 64 Minn. 119, 121, 66 N.W.141, 142 (1896)). Under this principle, an insurer generally cannot bring its subrogation claim following the conclusion of the insured's own lawsuit. See Hayward v. State Farm Mut. Auto. Ins. Co., 212 Minn. 500, 504, 4 N.W.2d 316, 318 (1942) (noting "cause of action could not be split by the insurer any more than it could by the insured."). But there are significant differences in this case.

The district court correctly stated:

Generally, a subrogee is entitled to no greater rights than the subrogor possessed. The subrogee merely stepped into the shoes of the subrogor. However, in this case the rights of Plaintiff Auto-Owners, the subrogee, were severed from those of the Bank, the subrogor, by the trial court in the first proceeding. Plaintiff Auto-Owners did not sleep on its rights during the first proceeding. Its interests were being protected by the Bank who sought to recover the entire amount of the loss, including the $31,500.00 paid by Plaintiff. There was no need to intervene in the first proceeding. It was in the judgment that the trial court in the first proceeding split the cause of action. This action was brought within a reasonable time following the appeal.

Plaintiff [Auto-Owners] should not be penalized in this action as a result of the first proceeding, especially as the trial court specifically recognized a separate claim belonging to Plaintiff. That is the law of the case. Consequently, this Court believes that Plaintiff [Auto-Owners] should be able to proceed with its subrogation action in this proceeding and that res judicata should not apply.

(Emphasis added.) We adopt the well-reasoned and practical analysis of the district court on this issue, and we likewise conclude that Auto-Owners did not impermissibly split its cause of action.

Milwaukee Mutual argues that the district court erred when it concluded that its policy provided "primary" and not "secondary" coverage and that Auto-Owners' policy provided excess coverage only. Milwaukee Mutual also argues that it insured the Bank only indirectly through the homeowner's policy. We disagree.

Here, the district court found that the Bankers Foreclosure Property Policy issued by Auto-Owners contained an excess coverage clause and that the homeowner's policy issued by Milwaukee Mutual contained a "pro rata" clause. The district court correctly found that the two policies were in conflict when it came to the "other insurance" clause because "pro rata" clauses conflict with excess clauses. See CPT Corp. v. St. Paul Fire & Marine Ins. Co., 515 N.W.2d 747, 751 (Minn. App.) (holding "[a] pro rata clause conflicts with an excess clause"), review denied (Minn. July 27, 1994). The court then applied the "total policy insuring intent" analysis as articulated in Interstate Fire & Cas. Co. v. Auto-Owners Ins. Co., 433 N.W.2d 82, 85-86 (Minn. 1988) (citing Integrity Mut. Ins. Co. v. State Auto. & Cas. Underwriters Ins. Co., 307 Minn. 173, 175, 239 N.W.2d 445, 446 (1976)). Under this analysis, the court examines the primary policy risks on which each policy's premiums were based and the primary function of each policy. Integrity, 307 Minn. at 175, 239 N.W.2d at 446.

The court found that the primary function of the homeowner's policy was to provide coverage to the homeowner for damages sustained to the property, whereas the primary function of the Bankers Foreclosure Property Policy was to provide coverage to the Bank only for damages sustained to any property the Bank acquired through foreclosure, and, thus, only to the extent of the Bank's unpaid interest when it acquired the property. Thus, the amount would vary on each single claim depending on the unpaid mortgage balance at the time of foreclosure. The court noted that the homeowner's policy specifically identified the property to be insured and that the premiums paid on the homeowner's policy were based on the face value of the property. In contrast, the Bankers Foreclosure Property Policy did not identify any particular property to be insured; the premiums paid were based on the value of all the foreclosed property held by the Bank. As such, the homeowner's policy contemplated greater exposure to this risk than the Bankers Foreclosure Property Policy. The district court concluded that in light of the total insuring intent of the policies, Milwaukee Mutual's homeowner's policy provided primary coverage. We agree. The district court carefully considered each policy, the premiums paid, the risk on which those premiums were based, and the primary purpose of each policy. The homeowner's policy provided primary coverage on the property.

Milwaukee Mutual's argument that its homeowner's policy only indirectly insured the Bank ignores this court's decision in the prior action. In that case we held that Milwaukee Mutual was obligated to provide full coverage under the homeowner's policy because, after the quitclaim, the Bank was owner in fee simple of the property. Murray County State Bank, 513 N.W.2d at 3. As we stated in that case, the bank, as fee simple owner, was "an insured party under the homeowner's insurance policy and correctly afforded full coverage for loss under that policy." Id. The homeowner's policy insures the property against the very loss that occurred in the case. Thus, as the district court in this case correctly ruled, the Bank was insured directly under Milwaukee Mutual's homeowner's policy.

Finally, Milwaukee Mutual argues that it is entitled to indemnification by Auto-Owners in the amount of $47,600. As an excess insurer, Auto-Owners was liable for coverage only when the limits under the homeowner's policy provided by Milwaukee Mutual, the primary insurer, were exhausted. See Continental Cas. Co. v. Reserve Ins. Co., 307 Minn. 5, 9, 238 N.W.2d 862, 865 (1976) (noting excess coverage designed to cover liability only after primary policy limits are exhausted). Auto-Owners is not required to indemnify Milwaukee Mutual because its Bankers Foreclosure

Property Policy provided excess coverage only. The homeowner's policy limits had not been exceeded.


[ 1] Respondent Auto-Owners failed to file a brief in this matter and this court ordered the matter to proceed pursuant to Minn. R. Civ. App. P. 142.03, which provides a case may be decided on the merits even if respondent fails to file a brief.