This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).




Western National Mutual Insurance Company,



Minnesota Workers' Compensation Insurers Association, Inc.,


Filed February 16, 1999


Schumacher, Judge

Hennepin County District Court

File No. 9619039

James T. Martin, Julian C. Janes, Gislason, Martin & Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Edina, MN 55435 (for respondent)

Thomas E. Harms, Dawn M. Knutson, Hessian & McKasy, P.A., 4700 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for appellant)

Considered and decided by Lansing, Presiding Judge, Schumacher, Judge, and Willis, Judge.



Appellant Minnesota Workers' Compensation Insurers Association, Inc. (MWCIA) challenges adverse summary judgment, claiming the district court erroneously interpreted the settlement agreement. We conclude the district court improperly considered extrinsic evidence and misapplied the statute of limitations. We reverse.


Respondent Western National Mutual Insurance Company (Western) is an insurer licensed to sell workers' compensation insurance in Minnesota. Western is a member of MWCIA, an organization that provides rating services to its member insurers.

In 1990, based on an erroneous rating formula, MWCIA members undercharged policyholders for workers' compensation premiums. When Western and several other MWCIA members retroactively charged policyholders for lost premiums, the policyholders filed a class action suit. All MWCIA members involved settled, except Western. Ultimately, this court concluded Western was not entitled to recover from the policyholders. D.J.'s Upholstery, Inc. v. Western Nat'l Mut. Ins. Co., 505 N.W.2d 379 (Minn. App. 1993), review denied (Minn. Nov. 16, 1993).

Western sued MWCIA to recover lost premiums, and the parties eventually settled. MWCIA and Western exchanged a series of letters transmitting a drafted settlement agreement. In a March 1, 1996 letter, Western's counsel expressed Western's understanding of an expected timetable to fulfill the agreement. On April 24, 1996, the parties executed a final settlement agreement.

The settlement agreement provided that MWCIA would accept Western's claim, but that, as a condition precedent to any payment to Western, MWCIA would afford other members an opportunity to submit claims. In the agreement, Western acknowledged that the claims process might reduce the net amount of Western's claim, as any member claims would be assessable against other MWCIA members, including Western. The agreement authorized MWCIA "in its reasonable discretion" to establish a cutoff date for member claims. The agreement also stated that "both parties agree to carry out the terms of this Agreement in good faith and with reasonable promptness."

MWCIA sent several letters to members, describing the settlement and claims process. Western objected to the delay in the claims process and sued MWCIA, claiming MWCIA breached the settlement agreement by failing to reasonably limit the time for allowing claims by other members. The district court issued an order permanently enjoining MWCIA from processing or paying any other claims. This court reversed and remanded, finding the injunction premature prior to a motion for summary judgment or a hearing on the merits. Western Nat'l Mut. Ins. Co. v. Minnesota Workers' Compensation Insurers Ass'n, Inc., No. C8-97-675 (Minn. App. Oct. 14, 1997).

On remand, Western moved for summary judgment. The district court ruled that the terms "reasonable promptness" and "good faith" are ambiguous, and that the March 1 letter shows the parties' understanding that MWCIA would act on all claims by August 1996. The pertinent paragraph of the March 1 letter states:

In accordance with our discussions in the mediation and at the time of reaching this agreement, Western National has entered this agreement with the following understanding of the expected timetable for "reasonable promptness" in fulfilling the agreement. You have stated that, as attorney for the MWCIA, you will be sending out the Notice to Members forthwith, and with the expectation that you will have an understanding by the time of the April 1996 Board meeting whether there will be claims asserted by other members. You also stated that it is your expectation that the Board will set the mechanism and deadline for such other claims at the April meeting, and further that it is your intention that the entire claims process should be completed by the time of the August 1996 Board meeting and that the Board will be in a position to finally act upon all claims at the August meeting. We recognize that the Board has yet to finally decide upon exact dates, but the above represents the timetable that you and I have discussed and, if followed, would meet Western National's expectations as to "reasonable promptness."

Based on this letter, the court concluded that MWCIA had violated the settlement agreement. The court also reasoned that the six-year statute of limitations barred the claims of other members. The district court ordered MWCIA to pay Western's claim, barred MWCIA from honoring any other claims, and awarded attorney fees to Western.


On appeal from summary judgement, this court must determine whether the district court erred in applying the law and whether there are any genuine issues of material fact. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). Here both parties agree that there are no material factual disputes. Where parties do not dispute material facts, this court need not defer to the district court's application of the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). This court "must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).

1. The primary purpose in construing a contract is to give effect to the intention of the parties as expressed in the language they used in drafting the entire contract. Art Goebel, Inc. v. North Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997). The determination of whether a contract is ambiguous is a question of law. Id. A contract is ambiguous if, based upon its language alone, it is reasonably susceptible to more than one interpretation. Id. This court does not consider extrinsic evidence when determining contractual ambiguity. In re Hennepin County 1986 Recycling Bond Litig., 540 N.W.2d 494, 498 (Minn. 1995).

The district court concluded that the terms "good faith" and "reasonable promptness" as used in the settlement agreement are ambiguous. These terms may have varying meanings, but that does not necessarily or conclusively show ambiguity. See Board of Regents v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892 (Minn. 1994) (just because a word has more than one meaning does not mean it is ambiguous). "The sense of a word depends on how it is being used; only if more than one meaning applies within that context does ambiguity arise." Id.

This court must interpret the terms "good faith" and "reasonable promptness" in the context of the contract as a whole. See Art Goebel, Inc., 567 N.W.2d at 515 (words or phrases not to be read in isolation). The paragraph in which these terms appear states that the provision does not "in any way" limit MWCIA's ability to act on members' claims. Other contractual language expressly provides MWCIA with reasonable discretion to set a claims cutoff date. Based upon the contract language alone, it is not reasonable to interpret "good faith" and "reasonable promptness" to mean completion of the claims process by a certain deadline. We conclude that the settlement agreement is not ambiguous as a matter of law.

Even if we were to conclude that the settlement agreement is ambiguous, the extrinsic evidence relied on by the district court does not establish a firm timetable. The March 1, 1996 letter specifically recognizes that the MWCIA board had not yet decided on exact dates. This is consistent with the plain language of the settlement agreement providing MWCIA reasonable discretion to establish cutoff dates. Furthermore, even if the March 1 letter entailed a conclusive timetable agreement, it became inoperative when the settlement agreement was finalized on April 24, 1996. Pursuant to general contract law, the terms of a final and integrated written expression may not be contradicted by evidence of previous "understandings and negotiations * * * for the purpose of varying or contradicting the writing." Apple Valley Red-E-Mix, Inc. v. Mills-Winfield Eng'g Sales, Inc., 436 N.W.2d 121, 123 (Minn. App. 1989) (citations omitted), review denied (Minn. Apr. 26, 1989).

2. The district court concluded that MWCIA could not accept other members' claims because they were not "substantially similar" to Western's claim as they had not been "reduced to litigation." Contract interpretation is a question of law that we review de novo. Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998). The settlement agreement defines "members' claims" to mean "any and all claims for reimbursement received from members of MWCIA, other than Western, in response to the Notice of Settlement." The term "substantially similar" appears once in the agreement, when describing settlement notices:

MWCIA shall have sent to each member company * * * which MWCIA reasonably believes could have a claim substantially similar to the Western claim, a Notice of Settlement.

Substantially similar as used here relates to MWCIA's discretion in sending settlement notices to members. The settlement agreement has no substantially similar requirement limiting MWCIA's ability to act on members' claims.

Even if the agreement contained a "substantially similar" requirement for acceptance of members' claims, "substantially similar" does not mean other claims reduced to litigation. We should interpret the agreement to give meaning to all its provisions and will not construe its terms so as to lead to an absurd result. Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). The settlement agreement plainly lays out a claims process in which MWCIA can solicit other members' claims. To interpret the agreement to limit other members' claims to those previously litigated leads to a meaningless claims process. As the district court found, Western is the only member with a claim "reduced to litigation." It is absurd to suggest that other members must litigate their claims before MWCIA can act on such claims in accordance with the claims process of the settlement agreement. We conclude that "substantially similar" does not mean claims previously litigated.

3. The district court concluded that the six-year statute of limitations barred MWCIA from accepting other claims. See Minn. Stat. § 541.05, subd. 1(1) (1998) (contract actions shall be commenced within six years). The settlement agreement contains no reference to the statute of limitations. The statute of limitations applies to "actions" filed in court. See Minn. Stat. § 645.45(2) (1998) ("action" is court proceeding); see also Har-Mar, Inc. v. Thorsen & Thorshov, Inc., 300 Minn. 149, 152-53, 218 N.W.2d 751, 754 (1974) ("action" is confined to judicial proceedings). Here, pursuant to a private agreement, MWCIA voluntarily solicited and accepted members' claims. These claims are not civil actions. Accordingly, MWCIA's voluntary acceptance of other claims does not violate the statute of limitations.

4. Concluding that MWCIA acted in bad faith, the district court awarded attorney fees to Western. This court reviews an award of attorney fees for abuse of discretion. Radloff v. First Am. Nat'l Bank, 470 N.W.2d 154, 156 (Minn. App. 1991), review denied (Minn. July 24, 1991). Minnesota law provides for the award of attorney fees if a party improperly delays litigation. Minn. Stat. § 549.211 (1998). Such an award is appropriate "only where the bad faith occurs with respect to the litigation itself, not with respect to the underlying cause of action." Bank of Elbow Lake v. First State Bank, 439 N.W.2d 53, 56 (Minn. App. 1989), review denied (Minn. July 12, 1989). The district court determined that MWCIA wrongfully attempted to dilute and defeat the settlement agreement. Hence, any bad faith relates to the underlying cause, not MWCIA's conduct during litigation. Accordingly, the award of attorney fees was an abuse of discretion.