Becker v. State Farm Mut. Auto. Ins. Co.

Full title: Carol Becker, et al., petitioners, Appellants, v. State Farm Mutual…

Court: Minnesota Court of Appeals

Date published: Jul 25, 2000

No. C6-99-288 (Minn. Ct. App. Jul. 25, 2000)

Opinion

No. C6-99-288.

Filed July 25, 2000.

Appeal from the District Court, Freeborn County, File No. C1-97-580.

John P. Dehen, (for appellants)

Kay Nord Hunt, and Ken D. Schueler, (for respondent)

Considered and decided by Schumacher, Presiding Judge, Parker, Judge, and Schultz, Judge.^__

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

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).

UNPUBLISHED OPINION

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

We consider this matter on remand from the Minnesota Supreme Court's decision that appellants Carol and David Becker (the Beckers) are entitled to recover excess uninsured/underinsured motorist coverage under their personal automobile insurance policy pursuant to Minn. Stat. § 65B.49, subd. 3a(5) (1998). See Becker v. State Farm Mut. Auto. Ins. Co., 611 N.W.2d 7 (Minn. 2000). On remand, we consider respondent State Farm's claim that the district court erred by ruling that it was not prejudiced by the Beckers' failure to provide it with a proper Schmidt-Clothier notice and ruling that, as applied to the Beckers' claim for uninsured benefits, State Farm is not entitled to an offset for workers' compensation benefits already paid to Carol Becker.

FACTS

The facts of this case are fully set forth in the supreme court's decision and need not be repeated here. See Becker v. State Farm Mut. Auto. Ins. Co., 611 N.W.2d 7 (Minn. 2000).

DECISION

State Farm argues that the district court erred by ruling that it was not prejudiced by the Beckers' failure to give notice as required by Schmidt v. Clothier, 338 N.W.2d 256, 261-62 (Minn. 1983).

The decision in Schmidt protects the right of an underinsurer to subrogation. Subrogation is a limited right that comes into existence only after the insurer pays benefits to the insured. Id. at 261. But if the tortfeasor is released before payment by the insurer, no right to subrogation ever arises. Id. at 262. Recognizing that it would be unfair to deny an insurer the right to pursue the tortfeasor for benefits paid to the insured, the court held that an insurer is entitled to 30 days' notice of a tentative settlement between the insured and the tortfeasor and has the opportunity to protect its potential right to subrogation by substituting its payment for that of the tortfeasor. Id. at 263. Such notice provides the insurer a period of time in which to assess the case, evaluating such factors as: (1) the amount of settlement; (2) the amount of liability insurance remaining, if any; (3) the amount of assets held by the tortfeasor and the likelihood of recovery via subrogation; (4) the total amount of the insured's damages; and (5) the expenses and risks of litigating the insured's cause of action. Id.

The penalty for failing to provide adequate Schmidt-Clothier notice was outlined in American Family Mut. Ins. Co. v. Baumann, 459 N.W.2d 923, 927 (Minn. 1990). In addition to detailing what type of notice is required, the court held:

Absent the required 30-day written notice, release of the tortfeasor shall be deemed prejudicial to the underinsurer. That presumption of prejudice shall be rebuttable, but the burden of demonstrating by a preponderance of the evidence the absence of prejudice shall be borne by the insured. An insured's failure to sustain that burden of proving a lack of prejudice to the insurer shall result in forfeiture.

Id.

It is undisputed that the Beckers failed to provide a proper Schmidt-Clothier notice. The question is whether the Beckers rebutted the presumption of prejudice. The district court ruled that there was no prejudice because Augusta Watson, the tortfeasor, "would have been a very poor subrogation prospect."

In support of their position that State Farm did not suffer any prejudice, the Beckers introduced an Equifax report assessing the nature and extent of Watson's assets and the affidavit of Timothy Pryor, who then handled liability claims for his employer and was previously an insurance adjuster. The Equifax report stated that other than personal belongings, the only asset owned by Watson was her house that was worth approximately $22,334. The report also stated that "it is property that is tied up." Pryor stated that it is common practice in the insurance industry to rely on such Equifax reports when assessing whether to substitute a draft for that of the tortfeasor. Based on his experience and the information contained in the Equifax report, Pryor stated his opinion that Watson was "a very poor prospect for subrogation" and no reasonable insurance adjuster/company would substitute its draft for that of Watson's.

The Beckers have rebutted the presumption that State Farm has suffered prejudice by the their failure to provide proper Schmidt-Clothier notice. Given the limited assets of Watson and the poor prospect of recovery by State Farm against Watson, we affirm the district court and conclude as a matter of law that State Farm was not prejudiced by the Beckers' failure to provide proper Schmidt-Clothier notice.

Finally, State Farm argues that the collateral source statute, Minn. Stat. § 548.36 (1998), should apply to both the Beckers' uninsured and underinsured motorist claims. The district court ruled that State Farm was entitled to an offset for the workers' compensation benefits as it applied to the Beckers' underinsured motorist claim, but not to their uninsured motorist claim.

The Minnesota Supreme Court has repeatedly held that an employee may recover under uninsured motorist coverage without an offset for workers' compensation benefits already paid. In Brunmeier v. Farmers Ins. Exch., 296 Minn. 328, 336, 208 N.W.2d 860, 865 (1973), the supreme court allowed an injured employee to recover under his own uninsured motorist policy while receiving workers' compensation benefits. Later, in Fryer v. National Union Fire Ins. Co., 365 N.W.2d 249, 255 (Minn. 1985), the supreme court noted that if an employee's uninsured motorist benefits could be reduced by a workers' compensation award, the burden of loss would shift "from the auto injury reparations system to the workers' compensation system, and is inconsistent with the legislative coordination of the various reparation payments."

The enactment, in 1986, of the collateral source statute, Minn. Stat. § 548.36, did not erode the above decisions. In Western Nat'l Mut. Ins. Co. v. Casper, 549 N.W.2d 914, 918 (Minn. 1996), the supreme court held:

[T]he collateral source statute was not intended to shift the burden of loss for an auto accident from the auto injury reparations system to the workers' compensation system. For that reason we are also of the opinion that the rationale of Fryer and Brunmeier was not impaired by the adoption of the collateral source statute and still flourishes today.

We conclude that the district court did not err when he ruled State Farm was not entitled to a collateral offset for workers' compensation benefits paid to Carol Becker as it applies to the Beckers' claim for uninsured motorist benefits.

Affirmed.