"Broton and Johnson are Legislatively Overrule"
Article Author: James R. Schwebel
Automobile injury claims frequently give rise to uninsured (“UM”) and underinsured (“UIM”) claims. Determining when a claim falls within the ambit of UM or UIM coverage and the amount of the available coverage is frequently controversial. The controversy stems, in part, from legislative enactments in 1985, 1986, 1988 and 1989, and from appellate decisions such as Johnson v. American Family Mutual Insurance Co. and Broton v. Western National Mutual Insurance Co. The effective dates of the various tort reform changes are also unclear. This means that attorneys handling uninsured and underinsured motorist claims will need to interpret multiple time lines relating to complex coverage issues.
A brief discussion of the 1985 legislative changes and the case law interpreting those statutes is essentially to understand both the clarifying and substantive changes on the 1985 statutes, and on prior case law, essential strategies for handling UM and UIM claims will be discuss.
II. THE 1985 UM AND UIM LEGISLATIVE CHANGES
Prior to October 1, 1985, UIM coverage was optional. After that date, UIM coverage is mandatory in Minnesota. The 1985 legislation mandates UIM coverage in the sum of $25,000 per person and $50,000 per accident. This mandatory coverage applies to all policies that are “executed, issued, delivered, contained or renewed in this state after September 30, 1985.”
The 1985 statute made UIM coverage different from earlier UIM coverage in several significant ways. First, there is no requirement that UIM coverage be offered in an amount equal to the policyholder’s liability limits.
Second, UIM and UM coverages could be combined as a single coverage. Section 65B.49, Subd. 3a, specifically indicates that UIM and U shall be a single coverage. Since insurers were allowed to combine UIM and UM coverages into one unified coverage, the effect was a legislative reversal of Rector v. State Farm Mutual Automobile Insurance Co. which allowed for a recovery under both UM and UIM coverages in a multi-vehicle accident.
Third, liability insurance proceeds paid on behalf of a defendant driver were deducted from UIM limits. This is a significant change. Prior to the 1985 legislation, UIM coverage was simply an excess reservoir of coverage which arose whenever the defendant’s liability limits were not adequate to fully compensate an injured person. The 1985 statute indicate that available UIM coverage is to be reduced by the amount paid to the insured on behalf of any potential defendant. Specifically, the 1985 statute reads as follows:
With respect to underinsured motor vehicles, the maximum liability of an insurer is the lesser of the difference between the limit of underinsured motorist coverage and the amount paid to the insured by or for any person or organization who may be held liable for the bodily injury; or the amount of damages sustained but not recovered.
Therefore, under the 1985 statute, the amount of UIM coverage was the lesser of the following:
1. Actual uncompensated damages; or
2. Limits of underinsured motorist coverage minus the amount paid (or that will be paid) to the insured by any person or organization who may be held legally liable.
Fourth, under the 1985 UIM legislation, plaintiffs may now “recoup the gap.” It legislatively overruled the Minnesota Supreme Court’s decision in Schmidt that the UIM carrier is entitled to a credit for the gap between the amount of the liability limits and the liability settlement. If a plaintiff does file a liability claim prior to filing a UIM claim, and receives an amount of money less than the defendant’s liability limits, the plaintiff may recover the balance of his damages from the UIM carrier. This occurs because only the amount paid by the liability carrier is deducted from the UIM limits, not the amount of the defendant’s liability limits. Broton, supra.
Fifth, the new UIM legislation permits geographic restrictions on coverage. Prior to October 1, 1985, a UIM carrier could not impose any geographical restrictions on UIM coverage. An injured plaintiff could receive UIM benefits even though he was occupying a second vehicle that he owned which was uninsured. The new law prevents a policyholder from recovering UM or UIM benefits if the insured is injured while occupying a motor vehicle that he owns, but does not insure.
Most recently, the Minnesota Supreme Court in Hanson v. American Family Mutual Insurance Co. specifically upheld such a geographical restriction. In Hanson, the Supreme Court held that §65B.49, Subd. 3a(7), as enacted by the 1985 tort “reform” legislature, overruled Nygaard v. State Farm Mutual Automobile Insurance Co. and precluded UM coverage when the injured claimant is riding his own uninsured motorcycle, but has another insured motor vehicle.
Sixth, stacking of UIM coverages is now legislatively prohibited, Section 65B.49, Subd. 3A(6). This is contrary to the public policy of allowing an insured to receive benefits from each policy for which he has paid separate premiums. Additionally, it is contrary to the stated purposes of the Minnesota No-Fault Act in allowing full and adequate compensation for seriously injured citizens. Clearly, this is evidence of the effectiveness and strength of the insurance industry’s lobbying efforts in the 1985 legislative session.
III. JOHNSON AND BROTON
A. The Johnson Ruling
Handling UIM claims has always been complex. The complexity is increased when there is multi-party litigation, such as when an injured person has claims against multiple tortfeasors. T his complexity is illustrated by the facts in Johnson v. American Family Mutual Insurance Co. In that case, plaintiff Richard Johnson, a minor, was severely injured on October 12, 1978 when the school bus in which he was riding swerved into a ditch to avoid a collision with a car parked on the wrong side of the road.
The car had liability limits of $100,000. The bus had liability limits of $1,000,000. Johnson’s attorney negotiated a settlement in which the car’s liability limits of $100,000 were paid. The liability insurer for the bus also contributed $35,000. It was undisputed that the total compensation of $135,000 did not fully compensate Johnson for his severe orthopedic injuries.
Johnson then commenced a UIM claim against his own insurer, American Family, alleging that the UIM insurer was required to pay his damages to the extent that such damages exceeded $135,000. The UIM arbitration panel held that the UIM insurer was entitled to a setoff for the total liability limits for both liability insurers ($1,100,000). The Court of Appeals reversed, holding that an underinsured motorist carrier is liable for an injured’ party’s damages to the extent that the damages exceed the liability limits of the “primary culpable defendant.”
The Supreme Court then reversed the Court of Appeals and held that Johnson did not have a UIM claim because the value of his injuries did not exceed the combined liability limits of all tortfeasors:
Because Johnson’s injuries did not exceed the combined liability limits of all tortfeasors, the vehicles are not really underinsured… We think that the only way for the underinsurance concepts to have consistency is to consider the liability limits of all tortfeasors in determining the amount recoverable by an injured insured … We hold that underinsured motorist benefits cover only those damages in excess of the combined liability insurance limits of all tortfeasors.
Although Johnson was a major victory for the insurance industry, there is some dictum in that case which suggests a silver lining to an otherwise black cloud for Minnesota consumers. Specifically, the Court acknowledged that at the time of the occurrence of Johnson’s accident, each tortfeasor was jointly and severally liable for the entire award. The Johnson court emphasized that only under circumstances where each defendant could be liable for the entire amount would the liability insurance limits of both be considered a setoff allowed to the underinsured motorist carrier.
This suggests that the decision in Johnson might have been different if the new joint and several liability statute were applicable. Section 604.01 now requires that a tortfeasor be more than 15% at fault before that tortfeasor can be held liable for the entire damages.
The current joint and several liability statute certainly complicates the task of the arbitrators or jury in determining the amount of the tortfeasor’s liability limits to which the UIM carrier is entitled to setoff.
An example helps the same facts as problem. Assume the same facts as in Johnson with the arbitrators finding the bus driver only 10% at fault. Under Minn. Stat. §604.02, Subd. 1 (1988), the bus company’s liability would be limited to four times its 10% negligence, or 40% of plaintiff’s total damages. IT would therefore, be inequitable to give the UIM carrier a setoff for the bus company’s $1,000,000 liability limit. At a maximum, the setoff should be limited to 40% of Johnson’s total damage plus the $100,000 liability limits already paid by the primarily culpable tortfeasor.
The 1985 UIM statute was not a “difference of the limits” statute, which is common in many states. A “difference of the limits” statute allows a UIM carrier to deduct from the amount of its limit an amount equal to the defendant’s liability limit. If the Minnesota Legislature had desired to write a “difference of the limits” statute, it could easily have done so by using typical language such as that used by the State of North Carolina in its definition of an underinsured highway vehicle:
[A] highway vehicle with respect to the ownership9 maintenance, or use of which, the sum of the limits of liability under all bodily injury liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of liability under this insurance coverage.
The clear language of Minnesota’s 1985 UIM statute provides for the limit of UIM coverage to be reduced only by any amounts actually paid to the insured on behalf of any liability defendant:
With respect to underinsured motor vehicles, the maximum liability of an insurer is the lesser of the difference between the limit of underinsured motorist coverage and the amount paid to the insured by or for any person organization who may be held legally liable for the bodily injury, or the amount of damages sustained by not recovered.
Since the 1985 UIM statute was not phrased as a “difference of the limits” statute, the Court of Appeals held that the defendant’s liability limits were not automatically deducted from the UIM limit.
Ignoring the clear statutory language and relying instead upon its perceived view of “legislative intent,” the Minnesota Supreme Court reversed Broton and held that the UIM carrier was entitled to a deduction for any amount which had been paid or will be paid to the insured by the tortfeasor or tortfeasors:
In summary, then, the amount recoverable under UIM coverage is not a matter of timing; the limit of UIM coverage is not dependent on whether the UIM coverage is made before or after the UIM insured has disposed of his or her claim against the tortfeasor. We hold that the maximum liability of the insurer with respect to underinsured motorist coverage is the lesser of the difference between the limits of UIM coverage set out in the policy declarations or schedules and the amount which has been paid or will be paid to the insured by or for the tortfeasor or tortfeasors, or the amount of damages sustained but not recovered.
The practical effect of the Broton decision is to severely emasculate UIM coverage by rendering it useless in all instances except where the amount of the coverage shown on the insured’s declaration sheet exceeds the combined liability limits of all motor vehicle tortfeasors. The illusory and deceptive nature of the coverage is illustrated by the definition of “underinsured motor vehicle,” Minn. Stat. §65B.43, subd. 17 which defines the coverage consistent with an “add-on” basis for calculating UIM benefits. This deception is highlighted by Justice Yetka in his concurring opinion in Broton:
Under this definition, a purchaser of UIM coverage might reasonably believe he or she is gaining protection against any case where the tortfeasor’s liability coverage is insufficient to compensate fully for all damages. Yet, the existence of damages in excess of the tortfeasor’s liability limit does not, as we hold today, guarantee availability of the added protection of UIM benefits. Ordinarily, if the tortfeasor has liability equal to or greater than the limits of the UIM coverage, then no UIM benefits will be available even if damages far exceed the tortfeasor’s liability limits. Only where the limits of the UIM coverage (as well as damages) exceed the tortfeasor’s liability limits will UIM benefits be available.
The majority explains the statutory definition as the first step in determining whether UIM benefits are available. I see this definition as potentially misleading to the purchasers of UIM coverage. Although a particular vehicle may fall within this definition and a person injured by such a vehicle may have purchased UIM coverage, there is no guarantee UIM benefits will be available. In short, while I agree with the majority that the legislature intended a “difference of the limits” basis for calculating UIM benefits, the existence of the statutory definition of “underinsured motor vehicle” leads me to write separately to put purchasers of UIM coverage on notice that they may not be getting the type of protection they think they are purchasing.
Unfortunately, the Broton decision defectively converted Minnesota’s underinsured motorist coverage to a “difference of the limits” statute. This restrictive interpretation of UIM coverage had not been the law in Minnesota since Lick v. Dairyland Ins. Co., which was overruled (retroactive to 1975) by the Minnesota Court in Holman v. All Nations Ins. Co. The Holman Court concluded that the 1977 legislative amendments had the effect of overruling this “difference of the limits” method articulated in Lick for determining a UIM carrier’s maximum liability.
The Broton Court’s conservative interpretation of Minnesota’s UIM statute is also based on its perception of legislative concern with increasing insurance premiums at the time of the 1985 legislative session. The abandonment of thirteen years of “add-on” UIM coverage in 1988, a year when insurance carriers reaped enormous profits, seems painfully contradictory to Minnesota policyholder.
As with Johnson, there are some silver linings behind the dark Broton cloud. Specifically, the Broton Court held that the defendant’s “liability limits” are not always to be deducted when determining the amount of available UIM coverage. The Broton Court gave three examples of when the defendant’s liability limits were not to be deducted when determining the amount of available UIM coverage: (1) when liability insurance is exhausted by the claims of other persons injured in the same accident; (2) when the limits of the tortfeasor’s liability insurance may be distributed among multiple claimants in such fashion that no one claimant receives the full per person limits; and (3) when questionable liability makes settlement for the full amount of the tortfeasor’s insurance impossible although the parties might be able to reach a suitable compromise.
Examples help illustrate the exceptions that Justice Coyne carved out from the Broton rule:
BROTON EXCEPTION NO. 1:
Assume that you represent the three children of Mr. and Mrs. Smith. The Smiths were killed when a drunk driver crossed over the center line and struck the Smith vehicle head-on. The drunk driver had liability limits of $100,000. The Smith vehicle had UIM coverage of $100,000. Assume further that Mrs. Jones also was a passenger in the Smith vehicle, and her husband has brought a claim against the drunk driver. Also assume that the liability insurer for the drunk driver has paid its $100,000 to Mr. Jones. This hypothetical situation shows on of the silver linings behind the dark Broton could. Justice Coyne indicated that whenever the liability limits are exhausted by claims of other persons injured in the same accident, then the defendant’s liability limits need not be deducted when determining the amount of available UIM coverage. Instead, the amount actually paid by the liability insurer to each plaintiff is the amount deducted from the available UIM benefits.
BROTON EXCEPTION NO. 2:
Assume that a defendant driver fails to yield at a stop sign and broadsides a bus, killing or severely injuring twenty passengers. Assume further that the liability insurer for the car that failed to yield only had a $30,000 policy. Also assume that the available UIM coverage is $25,000. Further assume that the liability insurer has tendered its policy limits to all potential claimants.
This hypothetical situation illustrates the second exception to the Broton rule. Justice Coyne’s comments clearly indicate that Broton would not apply to this fact situation.
BROTON EXCEPTION NO. 3:
Assume that you represent John Smith who was involved in an automobile collision with Mr. Jones. The accident occurred in the middle of an intersection controlled by a semaphore. Smith and Jones each claim to have had the green light. Assume further that there is one independent witness, Sister Mary. Also assume that the defendant’s liability limits are only $30,000. Your client’s UIM limits are $25,000.
In this hypothetical, liability for your client is poor. The jury will probably believe the one independent eye witness and the result will be a no liability verdict. However, because your client’s injuries are severe, the liability insurer offers $15,000 to settle the claim.
Will settlement destroy the UIM claim, assuming a proper Schmidt notice is given? No – this is another illustration of when the defendant’s liability limits are not to be deducted from the UIM policy limits when determining the amount of available UIM coverage. Whenever there is questionable liability which makes settlement for the full amount of the tortfeasor’s insurance impossible, then a UIM claim is appropriate and Broton is not applicable.
The Broton Court also made two other statements which are significant victories for the plaintiff’s bar and Minnesota consumers. First, Broton held that by pegging the UIM carrier’s maximum limit to the “amount paid,” the Legislature had effectively codified the position of the dissent in Schmidt, which argued that an insured who communicates a tortfeasor’s settlement to the UIM insurer should be entitled to settle for less than the limit and recover the gap from the UIM insurer.
An example helps illustrate how Broton changes the way in which “the gap” is calculated. Assume that the liability limits are $100,000 and the UIM limits are $300,000. Further assume that there is a $90,000 settlement with the liability insurer. Prior to Broton, the UIM insurer would be entitled to a credit of $100,000, even though the plaintiff only recovered $90,000 from the liability insurer. The $10,000 gap was a loss to the plaintiff. After Broton, the $10,000 gap inures to the plaintiff’s benefit and the available UIM benefits will be $210,000.
Second, the Broton Court acknowledged that an insured does not have to exhaust liability coverages before pursing a UIM claim. To require such exhaustion would discourage settlement. The Court again affirmed the statement in Schmidt that exhaustion clauses of this nature are void as against public policy. This is a significant setback for the insurance industry and their highly-paid lobbyists. Now defense lawyers are unable to continue with their arguments that the 1985 “tort reform” changes permitted exhaustion clauses in UIM contracts.
C. RECONCILING JOHNSON AND BROTON
The effect of the Broton decision on the holding in Johnson is less than clear. Johnson and Broton are obviously in conflict concerning an insured’s right to proceed with a UIM claim. The conflict in the two cases concerns what to doe with the difference between the liability limits and liability settlement, and the available UIM limits. This is commonly referred to as “the gap” problem.
An example helps illustrate this problem. Assume liability limits of $100,000, a liability settlement of $90,000 and UIM limits of $300,000. The $10,000 gap between the liability limits and liability settlement is the subject of this controversy. Under pre-Broton law, the UIM carrier is entitled to a credit of $100,000, even though the plaintiff only received $90,000. The $10,000 gap inures to the benefit of the UIM insurer. The plaintiff is entitled to all damages in excess of $100,000, but limited to the $300,000 UIM limits.
In Johnson, the plaintiff settled with a minimally liable defendant for $35,000 on a $1,000,000 liability policy. The gap of $965,000 inured to the benefit of the UIM insurer.
Just weeks after Johnson, the Minnesota Supreme Court decided Broton. Although there was no specific need for the Broton Court to comment on the gap problem, it did so. The Broton Court specifically held that a UIM insured could now enter into a settlement with the tortfeasor for an amount less than the limit of the tortfeasor’s liability insurance and then recoup the gap from the UIM insurer. Incredibly, the Broton court did not cite or even mention this significant deviation from its earlier decision in Johnson.
Are Johnson and Broton totally irreconcilable concerning what to do wit gap-type problems? No – the cases are reconcilable because Johnson involved an injury date before October 1, 1985, and Broton was a post-October 1, 1985, injury. This is the only way that Broton and Johnson can be viewed as intellectually consistent.
None of the 1985 “tort reform” changes were applicable in Johnson. On the other hand, in Broton, the entire decision rested upon the Court’s interpretation of the 1985 “tort reform” changes in the area of UIM law. The Broton Court specifically stated that in 1985 the Legislature totally revamped the method by which UIM claims were being handled. Interpreting Johnson and Broton in its fashion is appropriate. Otherwise, the “right” given by Broton to settle for less than the defendant’s liability limits is illusory.
IV. THE 1989 LEGISLATIVE CHANGES ABROGATING JOHNSON AND BROTON
The 1989 legislature passed major UM and UIM legislation that reads as follows:
A bill for an act relating to insurance; clarifying the calculation of underinsured motorist benefits amending Minnesota Statutes 1988, §65B.49, subdivisions 3a and 4a. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: Section 1. Minnesota Statutes 1988, section 65B.49 subdivision 3a, is amended to read:
Subd. 3a. [UNINSURED AND UNDERINSURED MOTORIST COVERAGES.] (1) No plan of reparation security may be renewed, delivered or issued for delivery, or executed in its state with respect to any motor vehicle registered or principally garaged in this state unless separate uninsured and underinsured motorist coverage are provided therein. Each coverage, at a minimum, must provide limits of $25,000 because of injury to or the death of one person in any accident and $50,000 because of to or the death of two or more persons in any accident. In the case of injury to, or the death of, two or more persons in any accident, the amount available to any one person must not exceed the coverage limit provided for injury to, or the death of, one person in any accident. For purposes of this subdivision, uninsured and underinsured motorist coverage shall be a single coverage.
(2) Every owner of a motor vehicle registered or principally garaged in this state shall maintain uninsured and underinsured motorist coverages as provided in this subdivision.
(3) No reparation obligor is required to provide limits of uninsured and underinsured motorist coverages in excess of the bodily injury liability limit provided by the applicable plan of reparation security.
(4) No recovery shall be permitted under the uninsured and underinsured motorist coverages of this section for basic economic loss benefits paid or payable, or which would be payable but for any applicable deductible.
(5) If at the time of the accident the injured person is occupying a motor vehicle, the limit of liability of uninsured and underinsured motorist coverages available to the injured person is the limit specified for that motor vehicle. However, if the injured person is occupying a motor vehicle of which the injured person is not an insured, the injured person may be entitled to excess insurance protection afforded by a policy in which the injured party is otherwise insured. The excess insurance protection is limits to the extent of covered damages sustained, and further is available only to the extent by which the limit of liability for like coverage applicable to any one motor vehicle listed on the automobile insurance policy of which the injured person is an insured exceeds the limit of liability of the coverage available to the injured person from the occupied motor vehicle.
If at the time of the accident the injured person is not occupying a motor vehicle, the injured person is entitled to select any on limit of liability for any one vehicle afforded by a policy under which the injured person is insured.
(6) Regardless of the number of policies involved, vehicles involved, persons covered, claims made, vehicles or premiums shown on the policy, or premiums paid, in no event shall the limit of liability for uninsured and underinsured motorist coverages for two or more motor vehicles be added together to determine the limit of insurance coverage available to an injured person for any one accident.
(7) The uninsured and underinsured motorist coverages required by this subdivision do not apply to bodily injury of the insured while occupying a motor vehicle owned by the insured, unless the occupied vehicle is an insured motor vehicle.
Sec. 2. Minnesota Statutes 1988, section 65B.49, subdivision 4a, is amended to read:
Subd. 4a. [LIABILITY ON UNDERINURED MOTOR VEHICLE.] With respect to underinsured motorist coverage, the maximum liability of an insurer is … the amount of damage sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle. If a person is injured by two or more vehicles, underinsured motorist coverage is payable whenever any one of those vehicles meets the definition of underinsured motor vehicle in Minnesota Statutes, section 65B.43, subdivision 17. However, in no event shall the underinsured motorist carrier have to pay more than the amount of its underinsured motorist limits.
Sec. 3. [EFFECTIVE DATE.]
Sections 1 and 2 are effective for all contracts issued or renewed on or after August 1, 1989, or for all injuries occurring on or after August 1, 1989, or for deaths occurring as the result of injuries sustained on or after August 1, 1989.
Subd. 3a of the new statute provides that underinsured and uninsured will now be separate coverages with each coverage having the minimum limits of $25,000 for injury or death to one person in an accident and $50,000 for two or more persons that are injured or killed. The 1989 legislative changes specifically repeal the 1985 statutory language that combined UIM and UM coverages into one unified coverage. The effect of this portion of the 1985 changes is a return to the ruling in Rector v. State Farm Mut. Auto. Ins. Co. which allowed for recovery under both UM and UIM coverages in a multi-vehicle accident. This is a significant victory for Minnesota consumers. Now Minnesotans injured in multi-vehicle accidents will be able to recover both UM and UIM benefits if they can prove that the accident resulted from the negligence of an uninsured vehicle and also an underinsured vehicle.
The second major change in the 1989 legislation is the statutory language regarding how to calculate underinsured motorist benefits. The 1989 legislation provides that in calculating underinsured motorist benefits a UIM insurer’s maximum liability is the amount of damages sustained by the insured but no recovered from the insurance policy of the driver of the at fault vehicle. However, in no event will the UIM insurer have to pay more than the amount of its UIM coverage limits with that individual. T his is a reversal of the Broton decision and in effect codified the opinion set forth by Justice Yetka in that decision. This also returns Minnesota UIM law to its pre-1985 status in which UIM coverage was simply an excess reservoir of coverage which arose whenever the defendant’s liability limits were not adequate to fully compensate an injured person.
An example helps illustrate how to calculate UIM coverage after the 1989 legislative changes. Assume that Paul Plaintiff is properly insured under a policy containing UIM coverage in the mount of $25,000/$50,000. Paul Plaintiff is rear-ended by a vehicle driven by Dan Defendant. Defendant’s liability coverage is $30,000/$60,000. Assume further that Plaintiff settles his liability claim against Defendant for $30,000. After Defendant’s liability carrier tenders the limits of the liability coverage, assume that Plaintiff still remains uncompensated to the extent of $25,000. After the 1989 legislative changes, the mathematical computation for UIM coverage would be as follows:
Total Damages Sustained $55,000.00
Less Defendant’s Liability Coverage ($30,000.00)
Uncompensated Damages After Payment by Defendant’s Liability Carrier $25,000.00
Less Underinsured Motorist Coverage ($25,000.00)
Amount Plaintiff Remains Uncompensated $0.00
Clearly, the 1989 legislation returns Minnesota to the status of an “add-on” UIM jurisdiction. No longer is Minnesota part of the minority of jurisdictions that calculate UIM coverage based on a difference of the limits theory. Most importantly this means that there will always be at least $55,000 in available coverage to compensate an injured person in a Minnesota motor vehicle accident ($30,000 of liability coverage and $25,000 of UIM coverage).
The 1989 legislation changes also overrule the Minnesota Supreme Court’s decision in Johnson v. American Family Mut. Ins. Co. In Johnson, the Minnesota Supreme Court held that a UIM claim is not appropriate unless the claimant firsts exhausts the combined liability limits of all tortfeasors. Fortunately, for Minnesota consumers and injured persons, the 1989 legislature rejected this harsh interpretation of UIM coverage.
Specifically, the 1989 legislature amended Subd. 4a to §65B.49 to read:
“With respect to underinsured motor coverage, the maximum liability of an insurer is the amount of damages sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle. If a person is injury by two or more vehicles, underinsured motorist coverage, payable whenever any one of those vehicles meets the definition of underinsured motorist vehicle in Minn. Stat. §65B.43, subd. 17.”
In effect, the 1989 Minnesota legislature codified the Minnesota Court of Appeals ruling in Johnson that an underinsured motorist carrier is liable for an injured party’s damages to the extent that the damages exceed the liability limits of any at fault defendant.
An example of how the 1989 legislation applies to multi-vehicle cases is instructive. Assume that Paul Plaintiff is severely injured when the car in which he was riding as a passenger swerves into a ditch to avoid a collision with an oncoming vehicle. Assume further that the oncoming vehicle had liability limits of $100,000. The car that Paul Plaintiff is a passenger in has liability limits of $1,000,000. Further assume that Paul Plaintiff’s attorney negotiates a settlement in which the oncoming car’s liability limits of $100,000 is paid. However, the liability insurer for the car in which Paul is a passenger only wants to contribute $20,000 because there is little, if any negligence on the part of the driver of the car in which Paul Plaintiff is a passenger. If Paul Plaintiff’s injuries are worth more than $100,000 then the 1989 legislative changes specifically permit him to commence a UIM claim without having to exhaust the $1,000,000 coverage on the car in which he is passenger. Paul Plaintiff’s UIM insurer is not entitled to set-off for the total liability limits for both liability insurers ($1,100,000).
The effective date of the 1989 legislative changes is also of significance. The effective date language in the new statute reads as follows:
Sections 1 and 2 are effective for all contracts issued or renewed on or after August 1, 1989, or for all injuries occurring on or after August 1, 1989, or for deaths occurring as a result of injuries sustained on or after August 1, 1989.
Clearly then, the effective date of the 1989 legislation will be at least as soon as August 1, 1989. However, there is also strong argument that the 1989 legislative changes might apply even before August 1, 1989 because the title of the bill for an act reads:
“Relating to Insurance, Clarifying the Calculation of Underinsured Motorist Benefits; Amending Minnesota Statutes 1988, §65B.49, Subd. 3a and 4a.”
Since the 1989 legislative changes were meant to “clarify” the calculation of UIM benefits then the validity of Broton must be called into question even for injuries occurring before August 1, 1989. The Broton court disregarded the clear statutory language in the 1985 legislation and relied instead upon its perceived view of “legislative intent” to reach its harsh decision. We now know that the Minnesota Supreme Court erred in trying to comprehend the legislature’s “intent.” The “clarifying” preamble of the 1989 legislative supports the argument of its retroactive effect. It is also important to note that there is nothing in the 1989 legislative changes that alter the Broton court’s holding that the plaintiff can “recoup the gap” from a UIM carrier following a “less than limits” liability settlement. This important portion of the Broton holding remains intact. Therefore, at least that portion of Broton that gives the benefit of the gap to injured plaintiffs remains good law.
V. STRATEGIES FOR HANDLING UM AND UIM CLAIMS POST 1989 LEGISLATIVE CHANGES
As an advocate, the plaintiff’s lawyer should approach every case with a sense of mission and understanding of how all of the various insurance coverages apply. In essence, plaintiff’s counsel becomes a quarterback looking for every available source of insurance coverage.
One of the important sources of coverage will be UM and UIM insurance. Plaintiff’s counsel must immediately make inquiry into the amount of available UM and UIM coverage in effect on the vehicle that the injured party occupied at the time of the accident. Once this determination is made, an inquiry must then be made to determine whether the injured party is entitled to excess insurance coverage by reason of being an insured under any additional policies. This excess coverage applies whether the injured party is a named insured or has an insured status by reason of being a relative resident of the named insured’s household.
No settlements of any type with liability insurers, UM or UIM insurers should ever be entertained without knowing the total amount of liability, UM and UIM coverages. Only after plaintiff’s counsel is certain as to all the various coverages should any strategy decisions be made.
Assuming that all of the available coverages are know, then plaintiff’s counsel should consider the following strategies. First, never settle with any liability insurer without complying with the Schmidt notice requirements. The Schmidt court held that plaintiff’s counsel must provide the UIM insurer with thirty days’ written notice of the potential settlement with the liability insurer so that the UIM carrier has an opportunity to substitute its own check for that of the liability insurer. If the UIM insurer substitutes its draft, it protects its own subrogation interest. If the UIM carrier does not substitute its draft, it loses its interest. If the plaintiff’s lawyer fails to follow this notice procedure, as a matter of law the UIM Insurer’s subrogation rights will be prejudiced. A UIM claim is then barred.
Second, plaintiff’s counsel should rarely sue out both the liability, UM and UIM claims at the same time. This dual litigation places the plaintiff at a strategic disadvantage. The insured will be subjected to multiple adverse examinations and obviously will be “double-teamed” by the UM, UIM and the liability insurers’ counsel throughout the trial. Only when statute of limitation problems mandate such dual litigation should plaintiff’s counsel sue out both the liability, UM and UIM claims together.
Third, be wary of Pierringer releases. Although a Pierringer release may bring in some “easy money,” such a release executed n favor of any defendant serves to destroy joint and several liability, except as amount the non-settling defendants. A Pierringer settlement forever releases the plaintiff’s claim to that portion of his total damages multiplied by the percentage of negligence of the settling defendant. The injured party must therefore, proceed very cautiously in settlement discussions involving a multi-vehicle accident. If a plaintiff enters into any release with any defendant, he runs the risk of the release being given a Pierringer effect.
The correct strategy is to always pursue the UM or UIM claim without Pierringering out marginally negligent defendants. This is particularly true for cases involving injuries that arose before October 1, 1985.
Fourth, the plaintiff’s lawyer should carefully review all liability releases to make sure that such release will not impede the UM or UIM claim. Normally, the liability carrier’s release is so broad that it releases “all other persons or insurer that may be liable …” You will want to strike this offensive language from any liability release because it potentially destroys a UM or UIM claim.
Likewise, releases in multi-party litigation must be carefully scrutinized. An example helps illustrate the importance of carefully reviewing such releases. Assume that your client and two other persons were seriously injured in a two-vehicle collision. The liability limits are $100,000 and the UIM limits are $100,000. Assume further that the collision occurred after October 1, 1985, but before August 1, 1989. Further assume that the liability insurer is offering its $100,000 policy limits to your client and to the other two injured plaintiffs. Also assume that all three plaintiffs are willing to share equally in the $100,000 liability limits offered.
In this illustration, it is critical that you advise your client to sign a separate liability release clearly indicating that his share of the liability limits is only $33,333. If your insured signs a release with the other two plaintiffs indicating that all three parties are receiving $100,000 without mentioning how the liability limits are being allocated, then the exception to the Broton rule discussed earlier may not apply.
Fifth, plaintiff’s counsel must argue that the Johnson Court’s reference to “tortfeasors” only refers to defendant motorists. Plaintiff’s counsel must not permit dram shop or products liability tortfeasor coverage to be aggregated with the liability coverage of a UIM motorist when determining the total amount of available “tortfeasor’s limits”.
Finally, plaintiff’s counsel must be certain to understand the interplay between Johnson and Broton. Johnson appears to be clearly limited only to injuries occurring prior to October 1, 1985. This critical distinction must be argued vigorously to all Courts and arbitration panels. Otherwise, UIM coverage may be illusory. Additionally, plaintiff’s counsel should be aware of the arguments that the 1989 legislation “clarifying the method of calculating UIM coverage” may mean that Broton and Johnson have no validity even for injuries preceding August 1, 1989.
An abundance of legislative and judicial changes in the uninsured and underinsured motorist area has created a complex patchwork quilt of substantive and procedural law. It has become a specialized area of personal injury law which requires counsel to be aware of complex strategies in order to maximize the pool of insurance assets available to the injured person.