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Municipal tort liability cap collides with No-Fault Act

Author / Coordinator: Barbara L. Jones
Minnesota Lawyer
November 2001

Holidazzle litigation may resolve interplay of statutes

Two well-established principles of automobile accident law have bumped up against each other in litigation stemming from the 1998 tragedy at the Holidazzle parade in downtown Minneapolis — municipal tort liability limits and the state’s No-Fault Act.

The much-publicized lawsuit arose when a police vehicle went out of control and ran into the crowd at the holiday event, killing two and injuring seven others.

On Monday, Oct. 29, the Minnesota Supreme Court heard oral arguments in the case of Loven, et al. v. City of Minneapolis, et al.

Under Minn. Stat. sec. 466.04, the city’s liability was capped at $750,000 at the time of the accident. (The cap has since been raised to $1 million.) However, Minn. Stat. sec. 65B.44 provides for economic loss benefits to victims of automobile accidents, including wage loss benefits of up to $20,000, another $20,000 for medical bills, as well as compensation for some other out-of-pocket losses.

Relying on the statutory liability cap, the city, which is self-insured, deposited $750,000 with the Hennepin County District Court. (It is clear that the actual damages were well in excess of this amount.)

The city argued that this payment represented its total potential liability. However, attorneys for some of the plaintiffs disagreed, seeking additional wage loss and medical payments under the No-Fault Act totaling $60,000.

A Hennepin County District Court judge ruled for the city, concluding the plaintiffs’ total recovery from the city, including No-Fault benefits, could not exceed the $750,000 statutory liability cap.

But the Court of Appeals sided with the plaintiffs, ruling last May that the municipal tort liability limits did not apply to the claim for no-fault benefits. The court reasoned that if the Legislature had intended the no-fault payments to be limited by the municipal tort liability cap, it would have expressly provided that this was to be the case.

The Supreme Court now has the task of resolving the question of how the municipal liability cap should interplay with the No-Fault Act.

Balancing act

At the oral argument, Minneapolis City Attorney James Moore told the Supreme Court justices that the case hinges on a balancing of public and private interests.

When the Legislature passed the No-Fault Act, it was fully aware that the law already limited the city’s exposure to tort damages, he said.

“We have a situation where the insurance coverage is inadequate to cover the damages,” Moore said. “It happens. It’s unfortunate. But here the important public policy reason is to protect municipal self-insureds. When the Legislature enacted the No-Fault Act it made no specific provision to overrule that cap, and in order to give meaning to both statutes as they exist on the books today the cap of $750,000 must apply to these tort damage claims.”

In response to a question by Chief Justice Kathleen Blatz, Moore acknowledged that the fact that the city is self-insured is not determinative, and that if the city had purchased insurance with limits of $750,000 the same issue would have been presented.

Justice Russell Anderson asked Moore if it was his position that if the commissioner of insurance in approving the city’s self-insurance coverage was including potential No-Fault benefits as part of the $750,000 liability cap.

“Absolutely,” replied Moore. “I think that’s what the statute says. A fair reading of the [version of the statute in effect at the time of the plaintiffs’ injuries] the city has up to $750,000 [in coverage]. The No-Fault Act provides for basic economic loss benefits. When you look at the definition of basic economic loss benefits, it covers funeral and burial expenses, replacement services, medical expenses — and tort damages.”

Justice Edward Stringer interjected, “But not all tort damages, right?”

Moore replied, “Correct. And that gets us to the question of why the No-Fault Act was enacted in the first place. The statutory purpose for the No-Fault Act was to alleviate the undue burden on injured parties and to provide some system to limit the amount of tort litigation coming out of automobile accidents. It does not eliminate tort litigation. It does not establish a system where no-fault is the rule of the day. It preserves, in serious cases like the one at hand here, a tort litigation regime that will in the end avoid duplicate recoveries.”

Returning to the language of the No-Fault Act, Stringer asked: “How do we deal with Minn. Stat. sec. 65B.46, which says that every person suffering loss ... has the right to basic economic loss benefits. You’re saying, ‘not against the city — once you bump up against our cap, you’re out.’”

Moore said that is exactly his view of how the municipal tort liability cap interplays with the No-Fault Act.

Returning to the point that the city is self-insured, Moore observed: “Every person would have the right to some amount of benefits but ... in this hypothetical we would get to a point where not everybody would get what they might otherwise have coming because of the operation of the other statute and the important statutory purposes for the limitation here. There’s a difference between a municipality providing these benefits under a self-insured scheme with a limitation on its liability and an insurance company. The insurance company can do an actuarial study and set premiums designed to cover its risk. A self-insured municipality doesn’t do that. Self-insured municipalities have $750,000 coverage for any event, which is determined by the Legislature, so they are different creatures and need to be treated differently.”

Stringer pointed out that “the city of Minneapolis didn’t have to self-insure. It could have gone into the insurance market and bought any amount it wanted. So your argument that ‘the way we did it sets the cap’ doesn’t go very far against the statute which says, ‘every person shall [be entitled to coverage for basic economic loss].’”

Moore replied that the city self-insured in anticipation of a fair reading of the statute that included no-fault benefits within the cap.

“It’s a fact that whether it is in a municipality context or an insurance context, there are going to be underinsured claimants, people who don’t get paid everything they have coming to them,” said Moore.

A contract is a contract

During his presentation, plaintiffs’ attorney James Ballentine of Minneapolis emphasized the difference between a contract claim and a tort claim. A no-fault claim is a contract claim because the city contracted to provide no-fault benefits when it received its self-insured certificate, he said.

The statute limiting municipal tort liability is just that — a tort liability statute, he said, adding that the cap applies only to claims brought under the municipal tort liability statute.

“We did not bring a claim for basic economic loss benefits under the municipal tort liability statute,” Ballentine explained. “It’s a contract claim and it is brought under the Minnesota No-Fault Act.”

No-fault benefits are first-party coverage and do not arise out of a negligence claim, he told the justices.

“The Court of Appeals got it right when it said that what we have here are two separate obligations by the city — basic economic loss claims and tort claims,” Ballentine said.

Justice Alan Page pointed out that “economic loss benefits look a lot like benefits you would receive as a result of a tort action.” He questioned whether the enactment of the No-Fault Act changed the character of the benefits.

Ballentine said that it did. “To say it is not a contract claim, to couch this as a tort claim, is to deny that there is a contract the city entered in to and in which it said it would provide first-party coverage because it owns and operates a motor vehicle,” Ballentine argued.

However, Stringer said that this argument misses the point, which is that tort damages and basic economic loss damages are the same thing. “What we are talking about is the nature of the loss,” the justice observed.

In response to Ballentine’s argument that the damages are not the same because there is a collateral source deduction from a verdict for no-fault benefits paid, Stringer replied, “that makes my point even stronger. These are part of the same pot.”

Ballentine countered that the collateral source deduction furthers a separate purpose of the No-Fault Act, which is to prevent double recovery.

“I don’t question the fact that basic economic loss benefits are originally in the nature of No-Fault damages but the No-Fault Act changes everything,” he said. “The No-Fault Act becomes part of the contract so I think you have a shift to a contract claim.”

Justice Paul Anderson said that the contract obligation discussed by Ballentine really was an obligation imposed by the Legislature.

“The Legislature has also enacted a policy that has some limits on capping municipal liability,” the justice stated. “Is it an omission that they don’t have any cap on the contract obligation? How do we deal with these two policies? There’s a policy that you have a contract obligation, on the other hand the Legislature has expressed a policy that we’re going to limit municipal exposure, but there’s no limit on the amount of the economic loss.”

While there is no per-occurrence limit on no-fault benefits, there is a per-person limit of $20,000 in medical benefits and $20,000 in wage loss benefits, responded Ballentine.

In the present case, payment of the no-fault benefits would result in an additional $60,000 in liability for the city, Ballentine pointed out. If those payments must be made out of the $750,000 on deposit with the District Court, that would only leave a pot of $690,000 to split for all the other damages, he noted, adding that all parties agree that even the full $750,000 is clearly insufficient to compensate the plaintiffs.