Opinion
No. A06-2133.
Filed December 11, 2007.
Appeal from the District Court, Hennepin County, File No. 27-CV-05-008698.
Warren V. Bigelow, Jr., Merrick B. Williams, (for appellant)
James A. Reding, Jr., Curtis D. Ruwe, Reding Pilney, (for respondent Auto-Owners Ins. Co.)
Theodore J. Smetak, Paul E. D. Darsow, Arthur, Chapman, Kettering, Smetak Pikala, P.A., (for respondent Progressive Insurance Company)
Paul D. Peterson, Lori L. Burgan, Harper Peterson, P.L.L.C., (for amicus curiae Minnesota Trial Lawyers Association)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2006).
UNPUBLISHED OPINION
On appeal from dismissal of his claims against two different insurers, appellant argues the district court erred in (1) dismissing his claim against respondent Progressive Insurance Company for failure to state a claim upon which relief can be granted, (2) granting summary judgment to respondent Auto-Owners Insurance Company, and (3) denying his motion to confirm his arbitration award. Because we conclude that the district court correctly dismissed appellant's claim against Progressive for failure to state a claim upon which relief can be granted, we affirm in part. But because we conclude the district court erred in granting Auto-Owners's motion for summary judgment and in denying appellant's motion to confirm the arbitration award, we reverse in part and remand.
FACTS
On May 31, 1999, appellant Jason George saw his ex-girlfriend, Melissa DesMarais, and Daniel Evenson leaving a movie theater in Buffalo. A confrontation among the three ensued as DesMarais and Evenson were about to get into DesMarais's vehicle. When DesMarais got into the passenger side of her vehicle and Evenson got into the driver's seat, appellant positioned himself in front of the vehicle, blocking its path. Evenson backed up slightly and then moved forward, striking appellant.
Appellant retained counsel to pursue a personal-injury claim against Evenson and DesMarais within days of the incident. DesMarais, who owned the vehicle that struck appellant, had coverage through Farm Bureau Insurance Company with a policy limit of $100,000. Evenson, who was driving the vehicle when it struck appellant, had a $30,000 policy with respondent Progressive Insurance Company. At the time that appellant was injured, he lived at his father's home, and his father was insured by respondent Auto-Owners Insurance Company with underinsured-motorist (UIM) coverage of $50,000.
On July 22, 1999, appellant sent Auto-Owners a letter notifying it that he intended to assert a UIM claim. On September 19, 2003, Auto-Owners advised appellant that it was denying any UIM claim because it concluded that Evenson's actions in striking appellant were intentional and therefore outside the scope of the policy's coverage. On October 25, 2000, Progressive notified appellant that it was closing its file based on the intentional-act exclusion in its policy.
The next communication in the record between appellant and respondents occurred on April 14, 2005. At that time, appellant's attorney advised Progressive and Auto-Owners that a claim had been commenced against both DesMarais and Evenson and that Farm Bureau "ha[d] agreed to arbitrate the case on a binding high/low agreement" on April 29, 2005. The agreement provided for a high of $100,000 and a low of $15,000. Appellant's April 14 letter included nothing about the evidence that supported his claim, such as medical or employment records, or whether any independent medical evaluation or vocational assessment had been performed. Progressive acknowledged receipt of appellant's April 14 letter and indicated that it did not wish to participate in the arbitration, due to its previous denial of liability coverage to Evenson. Auto-Owners disputed receiving appellant's April 14 correspondence.
On April 29, 2005, appellant faxed letters to Progressive and Auto-Owners, informing them that the arbitration had been postponed until May 4, 2005. Because April 29 was a Friday, Auto-Owners did not receive the fax until Monday, May 2, two days before the date of the rescheduled arbitration. On May 3, Auto-Owners asked appellant to reschedule the arbitration, but appellant refused and proceeded with the arbitration on May 4, 2005.
The arbitration agreement limited appellant's ability to recover against Evenson and DesMarais to any applicable insurance coverage for either party. The agreement further capped Farm Bureau's liability at $100,000, DesMarais's coverage limit for her vehicle. The agreement stated that the arbitration would have no "res judicata or estoppel effects" in regard to Auto-Owners or Progressive unless they "participate herein." The arbitration award, issued on May 10, 2005, named DesMarais and Farm Bureau as respondents. Evenson was not a party.
The arbitration award found appellant 45% at fault and Evenson 55% at fault, with total damages of $535,159.82. Appellant's recovery after fault apportionment was $294,337.90. Farm Bureau paid its policy limit of $100,000, leaving $194,337.90 outstanding.
On May 12, 2005, appellant sent letters to Auto-Owners and Progressive, notifying them of the award. The letter to Progressive stated that appellant intended to place the matter in suit before the statute of limitations expired on May 31, 2005. On May 13, 2005, appellant sent what he labeled a Schmidt notice to Auto-Owners, stating that he intended to accept Farm Bureau's payment of $100,000 pursuant to the arbitration award unless Auto-Owners substituted its draft. On May 19, 2005, Auto-Owners faxed a letter to appellant, stating that it did not wish to substitute its draft. The following day, appellant served a summons and complaint on Auto-Owners and Progressive that named Evenson and DesMarais in addition to Auto-Owners and Progressive as defendants. On February 15, 2006, after the complaint was served, appellant entered into what he termed a Miller Shugart agreement with DesMarais and Evenson.
Progressive moved to dismiss appellant's complaint under Minn. R. Civ. P. 12.02(e) for failure to state a claim on which relief can be granted, and Auto-Owners moved for summary judgment. Appellant moved to confirm the arbitration award, for default judgment against Evenson and DesMarais, and for declaratory judgment that he was entitled to Auto-Owners's and Progressive's insurance-policy limits.
The district court dismissed with prejudice appellant's claim against Progressive and granted Auto-Owners's motion for summary judgment. It also denied appellant's motions for declaratory judgment and confirmation of his arbitration award. Appellant requested reconsideration, which the district court granted based on appellant's later assertion that additional liability coverage for Evenson through Austin Mutual Ins. Co. might be applicable. In a second amended order for judgment, the district court granted in part appellant's motion for default judgment against DesMarais and Evenson but stated that the $194,333.90 judgment could not be executed against DesMarais and Evenson personally but only against any other applicable insurance coverage other than that provided by Progressive and Auto-Owners.
This appeal follows.
DECISION I.
Appellant challenges the district court's order dismissing his claim against respondent Progressive for failure to state a claim on which relief can be granted under Minn. R. Civ. P. 12.02(e). "When reviewing cases dismissed for failure to state a claim on which relief can be granted, the only question before the reviewing court is whether the complaint sets forth a legally sufficient claim for relief." Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997). This court reviews a dismissal under Minn. R. Civ. P. 12.02(e) de novo. Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550, 553 (Minn. 2003). In doing so, it considers only the facts alleged in the complaint, accepting those facts as true and construing all reasonable inferences in favor of the nonmoving party. Id.
When appellant served his complaint on Progressive on May 20, 2005, the named defendants were DesMarais, Evenson, Auto-Owners, and Progressive. But appellant had not obtained any judgment against Evenson, Progressive's insured. Therefore, by naming Progressive in his complaint, appellant attempted to sue Progressive directly. Minnesota law does not allow a direct action against an insurer when there is no judgment against its insured. Drake v. Ryan, 514 N.W.2d 785, 787-88 (Minn. 1994); Miller v. Market Men's Mut. Ins. Co., 262 Minn. 509, 511-12, 115 N.W.2d 266, 268 (1962).
"It is established in this state that an injured person possesses no direct cause of action against the insurer of the tortfeasor prior to recovery of judgment against the latter." Miller, 262 Minn. at 511-12, 115 N.W.2d at 268; see also Morris v. Am. Family Mut. Ins. Co., 386 N.W.2d 233, 237 (Minn. 1986) ("[A]n injured third party claimant . . . cannot sue an insurer directly for failure to pay a claim but must first obtain a judgment against the insured"). This longstanding rule has been applied in the context of excess insurers. "Because insurance contracts in Minnesota are contracts of indemnity, the plaintiff must obtain a judgment against the insured on the issue of liability in order to reach the excess liability insurer and the insurance proceeds." Drake, 514 N.W.2d at 787-88. The rule proscribing direct actions against insurers also bars plaintiffs from bringing declaratory-judgment actions, seeking to establish that an insurer is obligated to cover its insured tortfeasor before judgment has been obtained against the tortfeasor. Anderson v. St. Paul Fire Marine Ins. Co., 414 N.W.2d 575 (Minn.App. 1987). Accordingly, appellant's complaint fails to allege facts on which relief can be granted, and the district court properly dismissed his claim against Progressive.
Appellant's only proffered defense to this defect in his claim is to argue Progressive must first bring a declaratory-judgment action to determine whether it has a duty to defend Evenson before it can properly be dismissed from this action, citing Praham v. Rupp Constr. Co., 277 N.W.2d 389 (Minn. 1989.). Praham states that an insurer has a duty to defend its insured if their conduct is "arguably" within the scope of the insurance policy. 277 N.W.2d at 390. The supreme court goes on to state in dicta that, to avoid the conflict of interest that will occur if an insurer is both contesting coverage of its insured and at the same time defending its insured, the insurer might consider bringing a declaratory-judgment action on the issue of coverage beforehand. Id. at 391 n. 2. But the case in no way requires such an action. And as Progressive further notes, none of this affects whether appellant's complaint fails to state a claim against it on which relief can be granted.
In the alternative, appellant contends that if his claim against Progressive must be dismissed, the district court abused its discretion by dismissing it with prejudice. Appellant argues that he should be allowed to enforce his partial default judgment or Miller v. Shugart stipulation against Progressive.
Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982), addressed a procedure whereby a tortfeasor whose insurer denies coverage settles with a plaintiff and assigns the insured tortfeasor's right to contest insurance coverage to the plaintiff. Here, appellant entered into such a stipulation with Evenson and DesMarais roughly nine months after filing his complaint in district court.
We review a district court's dismissal of a claim with prejudice under an abuse-of-discretion standard. Minn. Humane Soc'y v. Minn. Federated Humane Soc'ys, 611 N.W.2d 587, 590 (Minn.App. 2000) (citing Firoved v. General Motors Corp., 277 Minn. 278, 283, 152 N.W.2d 364, 368 (1967)). Minn. R. Civ. P. 41.02(c) provides that unless the court specifies otherwise, any dismissal, except dismissals for lack of jurisdiction, forum non conveniens, or failure to join an indispensable party, operates as an adjudication on the merits. See also Royal Realty Co. v. Levin, 243 Minn. 30, 32, 66 N.W.2d 5, 5-6 (1954) (concluding that a dismissal under rule 12.02 is governed by rule 41.02(c) and is thus on the merits); Lampert Lumber Co. v. Joyce, 405 N.W.2d 423, 425 (Minn. 1987) (stating that rule 41.02(c) provides for dismissal with or without prejudice).
Appellant essentially asks this court for a second opportunity to bring a claim against Progressive. The only basis for his argument that the district court abused its discretion in dismissing his claim with prejudice is his submission that he now might be able to maintain a claim against Progressive pursuant to the Miller v. Shugart stipulation that DesMarais and Evenson signed on February 15, 2006, or his partial default judgment. The district court's refusal to give appellant a second chance to assert a claim against Progressive is not an abuse of discretion. See Martens v. Minn. Mining Mfg. Co., 616 N.W.2d 732, 748 (Minn. 2000) (remanding for dismissal with prejudice where the complaint failed to state a claim upon which relief could be granted).
II.
Appellant asserts that the district court erred in granting Auto-Owners's motion for summary judgment. "On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact; and (2) whether the [district] courts erred in their application of the law." Schafer v. JLC Food Systems, Inc., 695 N.W.2d 570, 573 (Minn. 2005); see also Minn. R. Civ. P. 56.03. There is no genuine issue of material fact if "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986). On appeal, we view the evidence in the light most favorable to the party against whom summary judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
Appellant contends that the district court incorrectly concluded that (1) his arbitration was akin to the binding conclusion of a tort action so that Malmin principles govern and (2) he released Evenson and DesMarais from liability before giving proper Schmidt notice to Auto-Owners and therefore forfeited his UIM claims.
A. Proper Characterization of Appellant's Arbitration Agreement
We begin with an analysis of whether this arbitration award resulted in resolution of a tort action (triggering Malmin principles) or a settlement from which a UIM claim could arise under Schmidt. Appellant asserts that the arbitration produced a settlement and that the settlement was governed by Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), which requires appellant to give Auto-Owners notice and a chance to protect its subrogation rights before he could accept payment from Farm Bureau. In its order, the district court characterized the arbitration as the binding conclusion of a tort action, thereby reasoning that the case of Malmin v. Minn. Mut. Fire Cas. Co., 552 N.W.2d 723 (Minn. 1996), governed the relationship between appellant and Auto-Owners. Based on this characterization, the district court granted Auto-Owners's motion for summary judgment because it concluded that appellant failed to comply with Malmin's notice requirements.
A later legislative revision to Minnesota's no-fault insurance laws superseded the holding of an unrelated section of the Schmidt opinion. 1985 Minn. Laws ch. 309, §§ 5-6, at 1538-39; see also Broton v. W. Nat'l Mut. Ins. Co., 428 N.W.2d 85, 89-90 (Minn. 1988) (acknowledging and discussing the statutory alteration of part of the Schmidt opinion). The opinion's requirement that an underinsurer receive sufficient and timely notice of a tentative settlement potentially implicating its financial interests remains good law.
"Contract principles apply to agreements to arbitrate." Murray v. Puls, 690 N.W.2d 337, 343 (Minn.App. 2004) (citing Lucas v. Am. Family Mut. Ins. Co., 403 N.W.2d 646, 648 (Minn. 1987)), review denied (Minn. Mar. 15, 2005). Contract interpretation is primarily a question of law. Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998). This court's review of a district court's interpretation of an arbitration agreement is de novo. Michael-Curry Co. v. Knutson Shareholders Liquidating Trust, 449 N.W.2d 139, 141 (Minn. 1989).
"The cardinal purpose of construing a contract is to give effect to the intention of the parties as expressed in the language they used in drafting the whole contract." Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997). "We construe a contract as a whole and attempt to harmonize all clauses of the contract." Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn. 1990). Phrases and sentences cannot be dissected and read separately and out of context with the entire agreement. Metro Office Parks Co. v. Control Data Corp., 295 Minn. 348, 352, 205 N.W.2d 121, 124 (1973). "Because of the presumption that the parties intended the language used to have effect, we will attempt to avoid an interpretation of the contract that would render a provision meaningless." Chergosky, 463 N.W.2d at 526; see also Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530 N.W.2d 539, 543 (Minn. 1995) ("A contract must be interpreted in a way that gives all of its provisions meaning.").
For a plaintiff to bind his or her UIM insurer to a judgment against a tortfeasor, Malmin requires the plaintiff give sufficient and timely notice of the pending claim to the UIM insurer. Malmin, 552 N.W.2d at 728, 728 n. 4. The Malmin court indicated that notice to a UIM insurer within 60 days of service of process would be considered timely notice. Id. at 728 n. 4. Such notice "would permit the insurer to consider the nature of the tort claim and the tortfeasor's liability limits, and thereby determine whether to attempt to intervene in the litigation in order to protect its own financial interests." Id.
If proper Malmin notice is given, the plaintiff can recover UIM benefits from his or her underinsurer should the judgment exceed the tortfeasor's insurance coverage. See id. at 728 (binding Malmin's UIM insurer). If notice is untimely, the plaintiff forfeits any UIM benefits unless he can rebut the presumption of prejudice to the UIM insurer that arises as a result of that untimely notice. Kluball v. Am. Family Mut. Ins. Co., 706 N.W.2d 912, 917-18 (Minn.App. 2005).
Conversely, if a plaintiff and tortfeasor reach a tentative settlement of a claim, the plaintiff must comply with the requirements of Schmidt v. Clothier and its progeny in order to preserve a claim for UIM benefits. In situations where an insured plaintiff plans to settle and release the tortfeasor from liability and then pursue further benefits from his UIM insurer, Schmidt dictates that the plaintiff first give the underinsurer notice of the tentative settlement. Schmidt, 338 N.W.2d at 263. The plaintiff must then allow the underinsurer 30 days to evaluate the claim, the settlement offer, and the tortfeasor's financial circumstances. Id. If the underinsurer wants to preserve its subrogation rights, it can substitute its draft for the tortfeasor's settlement payment and subsequently seek to recoup this payment from the tortfeasor. Id. If the underinsurer declines to substitute its draft, its insured may accept the tortfeasor's settlement, release the tortfeasor from liability, and seek further recovery of UIM benefits from the underinsurer. Id.
Proper Schmidt notice "shall identify the insured, the tortfeasor and the tortfeasor's insurer and shall disclose the limits of the tortfeasor's automobile liability insurance and the agreed upon amount of the settlement." Am. Family Mut. Ins. Co. v. Baumann, 459 N.W.2d 923, 927 (Minn. 1990). Absent a 30-day notice containing these requirements, it is presumed that the UIM insurer's subrogation rights are prejudiced. Id. Similar to Malmin, if the plaintiff does not rebut this presumption of prejudice, UIM benefits are forfeited. Baumann, 459 N.W.2d at 927. This court has previously permitted a plaintiff to provide Schmidt notice following an arbitration award the parties agreed to treat as a settlement. Murray, 690 N.W.2d at 341 (concluding that "arbitration is an appropriate way to arrive at a 'best settlement'").
If we were to construe Malmin as governing appellant's arbitration agreement, we would agree with the district court that appellant's notice to Auto-Owners was untimely and raised the presumption that its financial interests were prejudiced. See Kluball, 706 N.W.2d at 918 (presumption of prejudice raised by short Malmin notice). There were only 19 days between appellant's April 14 letter advising Auto-Owners of the arbitration and the May 4 hearing. This time period falls far short of the Malmin guidance for notice. Malmin, 552 N.W.2d at 728 n. 4 (notice within 60 days of service of process is proper). We further note that in other contexts, the Minnesota Supreme Court requires at least 30 days' notice to allow an underinsurer time to properly evaluate a claim implicating its financial interests. See Schmidt, 338 N.W.2d at 263 (30 days' notice required to underinsurer before a plaintiff can accept a settlement that will destroy the underinsurer's subrogation rights). The lack of any meaningful information with which to evaluate appellant's claim in the April 14 letter only serves to further compound the prejudice already presumed by this untimely notice.
But in the present case, based on the language of the arbitration agreement, we conclude that the district court was incorrect in construing appellant's arbitration as that of a binding tort action governed by Malmin.
Relevant excerpts of the arbitration agreement state as follows:
WHERAS, DesMarais, Evenson and Farm Bureau . . . have agreed to binding, high/low arbitration, subject to Schmidt v. Clothier notice. After payment of the Arbitration award by Farm Bureau, the parties agree to release Farm Bureau and satisfy any award or judgment and eliminate any personal liability of DesMarais and Evenson, over and above all applicable insurance coverages.
. . . .
WHERAS, it is the intent of the parties that this agreement be interpreted in accordance with the case of . . . Drake v. Ryan. . . . It is not the intent of the parties to completely extinguish the claim against DesMarais and Evenson, but to enter into this agreement, releasing only the obligations and duties of Farm Bureau, to provide a defense as to DesMarais and Evenson, up to the amount of its policy limits of $100,000.00 while . . . reserving and preserving George's claims, rights and causes of action covered by Progressive, Auto-Owners, and other insurers, without res judicata or estoppels effects, unless other insurers participate herein.
NOW THERFORE, for the consideration set forth herein, the parties stipulate and agree:
. . . .
2. To accept payment of the Award hereunder made by Farm Bureau, as a partial satisfaction of any claims George may have against DesMarais and Evenson, to the extent of the first $100,000 which may be adjudged against them, and covered by Farm Bureau Insurance. . . .
3. Payment of the award by Farm Bureau, up to $100,000.00 shall release Farm Bureau from all obligations under its policy. . . .
. . . .
5. George may provide Schmidt v. Clothier and other applicable notices to Auto-Owners, Progressive and other insurers and proceed as if the payment due by Farm Bureau is tantamount to a settlement offer.
6. This agreement shall be governed and construed in accordance with the principles and rules established in the case of . . . Drake v. Ryan. . . .
. . . .
10. Nothing in this document, nor the actions of the parties pursuant thereto shall prejudice or affect, in any way, manner or scope, the rights and duties of George, Progressive, Auto-Owners, or other applicable insurers.
One of the introductory paragraphs of the agreement specifically states the arbitration award is "subject to Schmidt v. Clothier notice" and this notice only applies in the context of settlements. Furthermore, paragraph five allows appellant to "provide Schmidt v. Clothier . . . notice to Auto-Owners . . . and proceed as if the payment due by Farm Bureau is tantamount to a settlement offer." This language strongly indicates the parties intended the arbitration to be characterized as a settlement subject to Schmidt notice. Treating an arbitration award as a settlement subject to Schmidt notice is acceptable in Minnesota. Murray, 690 N.W.2d at 341.
In addition to the multiple references to Schmidt, paragraph six states the "agreement shall be governed and construed in accordance with the principles and rules established in the case . . . of . . . Drake v. Ryan." In Drake, the supreme court condoned a procedure in which a plaintiff settles with a tortfeasor and his or her primary insurer up to the primary insurer's liability limits but preserves any remaining claims against other nonsettling insurers for their respective policy limits. 514 N.W.2d at 790. In a Drake-type settlement, the plaintiff's decision to partially settle his claim with the tortfeasor and primary insurer in no way binds a nonsettling insurer. See id. at 790 (discussing evidentiary issues at a theoretical later trial over Drake's remaining claims against the excess insurer with which he did not settle). The language in paragraph six, stating the agreement should be "construed in accordance" with the rules of a case permitting nonbinding, partial settlements provides further evidence that the parties intended their arbitration and any resultant award to be treated as a settlement.
Further, a separate clause in the agreement dictates the arbitration will not have "res judicata or estoppel effects" as to Progressive or Auto-Owners "unless [they] participate herein." This language is consistent with the terms indicating that any award should be treated as a settlement and is inconsistent with an intent to treat the arbitration as the binding conclusion of a tort action governed by Malmin.
We do note that much of appellant's conduct during the course of the arbitration and subsequent litigation is contradictory to the express language of his own agreement. Appellant has repeatedly tried to treat the arbitration as binding upon Auto-Owners under Malmin principles. Appellant cannot have it both ways; he must choose one path when pursuing UIM benefits. Kluball, 706 N.W.2d at 916. We conclude that he made his choice in drafting and signing the arbitration agreement containing the above-discussed language and should not be allowed to now ignore his own contractual agreement.
Under the applicable principles of contract interpretation, we must construe it to meet this intent. See Art Goebel, Inc., 567 N.W.2d at 515 ("The cardinal purpose of construing a contract is to give effect to the intention of the parties as expressed in the language they used in drafting the whole contract."). Because we conclude that the outcome of the arbitration agreement should be construed as a settlement, subject to Schmidt notice, the district court erred in granting summary judgment to Auto-Owners on the basis of a deficient Malmin notice.
B. Effect of Appellant's Schmidt Notice
Because we conclude the arbitration award should be construed as a nonbinding settlement subject to Schmidt notice, we next address whether appellant's purported Schmidt notice to Auto-Owners was proper.
Three days after the May 10 arbitration award, appellant sent a letter to Auto-Owners labeled " Schmidt Clothier Notice." This notice stated that "George intends to accept [the] Arbitration Award in the event Auto-Owners does not substitute its draft." Appellant's Schmidt notice to Auto-Owners identified George as the insured, Evenson as the tortfeasor, Progressive as Evenson's excess insurer, the amount of the arbitration award, and that Farm Bureau was obligated to pay appellant $100,000 under the award. As such, the letter met the substantive elements of Schmidt notice that the Baumann case requires. See Baumann, 459 N.W.2d at 927.
Auto-Owners responded to appellant's May 13 Schmidt notice on May 19, stating that it did not wish to substitute its draft for Farm Bureau's settlement payment of $100,000. Approximately three weeks later, Farm Bureau tendered its $100,000 draft, and appellant accepted the draft and released Evenson, DesMarais, and Farm Bureau from liability up to that tendered policy limit.
Auto-Owners contends appellant's May 13 Schmidt notice and its May 19 reply were academic because appellant had actually released Evenson and DesMarais from liability the day they signed the agreement to arbitrate approximately two weeks earlier. It contends it was Evenson's and DesMarais's conduct in simply agreeing to arbitrate the dispute that released them from liability, not any subsequent payment by Farm Bureau.
Appellant counters that the language of the arbitration agreement states that it is the tender and acceptance of payment from Farm Bureau that releases Evenson and DesMarais from liability up to Farm Bureau's $100,000 policy limit. Appellant argues that because he did not accept Farm Bureau's payment until after Auto-Owners refused to substitute its draft, he complied with Schmidt and remains free to seek UIM benefits from Auto-Owners.
Auto-Owners cites no language in the arbitration agreement to support its claim about the timing of release from liability. An opening clause of the arbitration agreement states: " After payment of the Arbitration award by Farm Bureau, the parties agree to release Farm Bureau and satisfy any award or judgment and eliminate any personal liability of DesMarais and Evenson, over and above all applicable insurance coverages." Furthermore, paragraph three of the agreement declares: " Payment of the arbitration award by Farm Bureau . . . shall release [it] from all obligations under its policy." This language evinces an intent on the part of the parties that Farm Bureau's payment be a condition precedent to appellant's release of liability for Evenson, DesMarais, and Farm Bureau.
We conclude that because appellant's Schmidt notice to Auto-Owners met the applicable requirements, his UIM claim against Auto-Owners is not barred. We note, however, that this conclusion in no way binds Auto-Owners to the arbitration award, including its determination of damages. Appellant, by complying with Schmidt, merely preserved his ability to seek further recovery from Auto-Owners. The terms of appellant's own arbitration agreement reinforce this conclusion, as they state the arbitration will have no res judicata or estoppel effect on Auto-Owners. Auto-Owners remains free to contest coverage under the intentional-act exclusion contained in its UIM policy and/or to relitigate both liability and damages surrounding the events causing appellant's injuries.
III.
The last issue is whether the district court erred by denying appellant's motion to confirm the arbitration award. The district court denied confirmation of the award, reasoning that the issue was moot because confirmation would provide appellant no effective relief and that because Auto-Owners was not party to the arbitration, there is no basis to confirm the award against it.
This court reviews de novo a district court's decision confirming an arbitration award. See Indep. Sch. Dist. No. 279 v. Winkelman Bldg. Corp., 530 N.W.2d 583, 586 (Minn.App. 1995) (reviewing de novo a district court order vacating an arbitration award), review denied (Minn. July 20, 1995). Minn. Stat. § 572.18 (2006) governs confirmation of arbitration awards and states: "Upon application of a party, the court shall confirm an award, unless within the time limits hereinafter imposed grounds are urged for vacating or modifying or correcting the award, in which case the court shall proceed as provided in sections 572.19 and 572.20." "Upon the granting of an order confirming . . . an [arbitration] award, judgment or decree shall be entered in conformity therewith and be enforced as any other judgment or decree." Minn. Stat. § 572.21 (2006).
The district court was correct that appellant had no right to confirm his arbitration award as against Auto-Owners, which was not party to the arbitration. But the language of section 572.18 states that an award "shall" be confirmed upon the motion of a "party" to the arbitration absent conditions not present here. Appellant was indisputably a party to the arbitration. Thus, in this instance, section 572.18 mandates that the district court confirm the award against DesMarais and Farm Bureau, the named respondents in the arbitration. See Minn. Stat. § 645.44, subd. 16 (2006) (defining the word "shall" as meaning "mandatory").
This court has previously held that a plaintiff must reduce an arbitration award to a judgment before pursuing UIM benefits based on the award. In Murray, this court stated:
The plain language of [Minn. Stat. §§ 572.18 and 572.21] indicates that an arbitration award is not the equivalent of a tort judgment. An arbitration award cannot be entered as a judgment unless it is confirmed by the court. Therefore, before a person may recover UIM benefits from his or her underinsured-motorist insurer based on an arbitration award, the award must be judicially confirmed.
690 N.W.2d at 342. Thus, under Murray, appellant must have his award confirmed before he can seek UIM benefits from Auto-Owners. See id. On remand, the district court should confirm appellant's arbitration award.