On July 27th, 2000 in Scheibel v. Illinois Farmers Insurance Company, 615 N.W.2d 34 (Minn. 2000) the Minnesota Supreme Court determined: "what no-fault insurance coverage will be available to [an insured] to achieve full reparation for his loss when that insured has been involved in two automobile accidents, both of which contribute to injuries causing him economic loss."1 Scheibel addresses a recurring no-fault scenario familiar to any attorney who handles automobile accident cases.
Insureds and their no-fault insurers have for many years been engaged in a battle over which insurer and which policy is required to pay no-fault benefits for the losses incurred after the second accident. A quick read of Scheibel suggests that the answer is "both." Upon closer examination, however, the answer changes to "both – sometimes, and under certain conditions." A quick review of the caselaw leading to Scheibel is helpful for understanding what Scheibel’s holding is and what it is not.
The Minnesota Court of Appeals addressed the two accident no-fault issue for the first time in 1993 in Rodgers v. Progressive Specialty Insurance Company.
2 Rodgers, which involved two accidents and two different insurers, held that the Minnesota No-Fault Act requires an insurer to compensate the insured only for medical expenses arising from an automobile accident for which it insured the party, and not for "pre-existing" injuries that arose from a prior accident.
3 The Rodgers court based its decision on the definition of ‘loss’ contained in the No-Fault Act. Loss is defined as "economic detriment resulting from the accident causing the injury."
4 Focusing on the reference to a single accident, the Rodgers court failed to consider the well-known rule of statutory construction that "the singular includes the plural."
5 That pronouncement began what is now known as the apportionment doctrine. Under the apportionment doctrine no-fault insurers were able to escape responsibility for the payment of medical expense and other no-fault benefits that were causally related to one accident simply because the insured was unfortunate enough to exacerbate the original injury in a second accident. No-fault insurers routinely attempted to apportion damages between first and second accidents, a practice that frequently resulted in the insured, who was caught between the two insurers, receiving only partial compensation for injuries clearly caused in part by both accidents.
In 1996, while addressing the subrogation rights of no-fault insurers, the Minnesota Supreme Court addressed the apportionment concept articulated by the Court of Appeals in Rodgers in a footnote In Great West Casualty Company v. Northland Insurance Company6 the Supreme Court expressly disapproved apportionment of PIP benefits in the multiple accident context. While acknowledging that its subrogation holding "cast a long shadow" over Rodgers, Great West did not overrule it. Thus the battle over apportionment continued, although with better results for many plaintiffs. The stage was set for full review of the multiple accident, exacerbated injury, benefit apportionment issue. Plaintiffs lawyers sought express confirmation of the principles articulated in footnote four in Great West. Insurers on the risk for a second accident continued to rely upon Rodgers, arguing that Great West’s footnote four was dicta. Those same insurers, when on the risk associated with a first accident argued that Great West placed all of the obligation on the second policy. The controversy culminated in Scheibel v. Illinois Farmers Insurance Company.7 The result is the burial of Rodgers, the modification of Great West’s footnote four, and the advent of yet more questions about how to handle multiple accident no-fault claims.
The Scheibel facts were critical to the outcome. Daniel Scheibel suffered injuries causally related to two separate automobile accidents, both of which occurred when he was insured by Illinois Farmers Insurance Company. The first accident resulted in what appeared to be a soft tissue neck injury. Illinois Farmers paid approximately $3,000 in medical expense benefits. Two months after the first accident Scheibel was involved in a second. The second accident significantly exacerbated his neck injury. Scheibel ultimately underwent surgery on his cervical spine. Illinois Farmers paid its $20,000 medical expense benefits limit from the policy covering the second accident. When Mr. Scheibel incurred additional medical expenses, Illinois Farmers refused to pay despite acknowledging that these ongoing medical expenses were incurred treating injuries caused in part by the first as well as the second accident. Illinois Farmers argued that under Great West’s footnote four, only the second policy was available to cover Mr. Scheibel’s continuing medical expenses.
The Scheibel court framed the issue in terms of "the fact that Scheibel was in two accidents, both of which contributed to his injuries, but he has not been fully reimbursed for his losses because Illinois Farmers has attributed his injuries totally to the second accident and applied the per accident policy limit to cap his recovery."8 The Scheibel court’s framing of the issue is critical to the outcome. Illinois Farmers had argued that the Great West footnote required injuries that are caused by two accidents to treated as though they entirely from the second accident for the purpose of determining the amount of benefits payable. The Scheibel court refused to adopt this reasoning. It pointed out that the Great West decision deals with the question of "who pays." The issue in Scheibel on the other hand addresses the question of what no-fault insurance coverage is available to the insured to achieve full reparation for his loss. These issues are not the same, and must be dealt with differently. In resolving the available coverage question, the Scheibel court held that in addition to the $20,000 medical expense benefits paid under the policy triggered by the second accident, Scheibel was entitled to additional reimbursement under the policy covering him for the first accident for those losses attributable to the first accident.
Inherent in this holding are two basic concepts that are critical to its practical application. First, the insurer on the second accident is obligated to pay up to its $20,000.00 maximum policy limits for the injuries following the second accident, regardless of the extent to which each accident contributed to those injuries. Second, the injured insured must demonstrate that any ongoing additional economic loss was caused at least in part by an injury suffered in the first accident. The first requirement contains a trap for the unwary, and is already generating additional litigation.
The Scheibel decision clearly places the burden for paying medical expenses following the second accident upon the second insurer. That payment obligation is capped only by full compensation to the insured or payment of the policy limits, which ever occurs first. In the real world, however, most insurers do not pay their full no-fault liability limits absent one or even multiple no-fault arbitrations. The more common scenario involves a no-fault insurer on the second accident refusing to pay benefits long before reaching the no-fault liability limits. In the event that the insured wishes to settle with the second no-fault insurer for less than those policy limits, what is the effect upon the insured’s continuing claim against the first insurer?
The answer to this question has not been decided. Predictably, the insurance industry has taken the position that Scheibel incorporates an exhaustion requirement that would prohibit an injured insured from ever settling his second no-fault claim for less than the no-fault policy limits. The Scheibel court did not address this issue, since under the facts of Scheibel those limits had already been paid. Examination of Scheibel, however, does not support the exhaustion requirement argument. The opinion places that payment obligation in these cases on the second insurer up to the second insurers policy limit. One insurer’s obligation to pay up to its policy limit is not equivalent to an exhaustion requirement for the benefit of a second insurer. Nevertheless, it is unlikely that the appellate courts will permit a plaintiff to receive continuing no-fault benefits from a first accident insurer when he has settled his second no-fault claim for less than full value. Since the Scheibel decision refers expressly to policy limits in describing the obligation of the second accident insurer, the most reasonable resolution of this issue is a rule requiring an injured insured to give the first accident insurer a credit for the difference between the amount of benefits paid in the second accident settlement and the second accident policy limits. Insureds facing a settlement offer from a second accident insurer should take this likely "cover the gap" requirement into consideration when reviewing a second accident no-fault settlement offer.
The impact of Scheibel in the no-fault settlement arena remains an open issue, but probably not for long. The Court of Appeals has recently accepted discretionary review of Tawfiq Khawaja v. State Farm Insurance Companies, Ct. App. No. C9-00-1698. In Khawaja the trial court declined to adopt an exhaustion requirement, and implemented a gap/credit provision with respect to a second accident no-fault settlement, directing the parties to return to no-fault arbitration to determine what portion of the ongoing economic losses were causally related to the first accident. The Minnesota Court of Appeals granted discretionary review of that order on October 17th, 2000.
Scheibel was clearly intended to be a reasonable compromise between the extreme positions taken by some injured victims and insurance companies regarding how much insurance coverage is available to an insured suffering an injury causally related to two automobile accidents. Predictably, new issues have arisen based upon the language of Scheibel itself. Until the latest procedural issues are resolved, no-fault insureds and their attorneys must continue to tread carefully through the mine field of two accident no-fault litigation.
1 Scheibel v. Illinois Farmers Insurance Company, 615 N.W.2d 34, 38 (Minn. 2000).
2 499 N.W. 2nd 61 (Minn. App. 1993).
3 Rodgers v. Progressive Specialty Insurance Company, 499 N.W.2d 61, 63 (Minn. App. 1993).
4 Minn. Stat. section 65B.43 subd. 7
5 Minn. Stat. section 645.08(2).
6 548 N.W.2d 279 (Minn. 1996).
7 615 N.W.2d 34 (Minn. 2000).
8 Scheibel, 615 N.W.2d at 37.