MINNESOTA NO-FAULT ACT: WHEN IS AN INJURED CLAIMANT “OCCUPYING” A VEHICLE – “IN,” “ON,” “ENTERING INTO” AND “ALIGHTING FROM”


blog-2By Greg Johnson, Esq. Whether a person is “occupying” (or is an “occupant” of) a motor vehicle is often a significant issue in motor vehicle insurance coverage litigation. Under the Minnesota No-Fault Automobile Insurance Act, the determination of whether an injured person is entitled to recover first-party benefits (no-fault, uninsured and underinsured motorist coverage) at all, whether the injured person is disqualified from recovering benefits and which insurer has the primary obligation to pay benefits, often hinge on occupancy status.

For example, with respect to no-fault benefits, Minn. Stat. § 65B.43, subd. 3, the No-Fault Act’s definition of “maintenance or use” states: “’Maintenance or use of a motor vehicle’ means maintenance or use of a motor vehicle as a vehicle, including, incident to its maintenance or use as a vehicle, occupying, entering into, and alighting from it.” The same statute authorizes insurers to incorporate a no-fault benefits exclusion for “conduct in the course of loading and unloading the vehicle unless the conduct occurs while occupying, entering into or alighting from it.

Minn. Stat. § 65B.46, subd. 2, the extra-territorial provision of the No-Fault Act, requires Minnesota insurers to provide no-fault benefits to insureds and “the driver and other occupants” of the insured vehicle if the accident occurs outside Minnesota in the United States, United States possessions, or Canada.

Under Minn. Stat. § 65B.47, the priority statute for payment of no-fault benefits, the obligation to pay benefits is sometimes based on whether the injured person was a “driver or occupant” of a particular type of vehicle.

With respect to uninsured and underinsured motorist coverages, Minn. Stat. § 65B.49, subd. 3a(5), the UM/UIM priority statute,  imposes primary coverage on the insurer of the vehicle the injured person was “occupying” at the time of injury. Subdivision 3a(7) of the same statute provides that UM/UIM coverages “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.” Minn. Stat. § 65B.49.

So, when is an injured person “occupying” a motor vehicle?  The No-Fault Act has never defined the terms “occupying” or “occupant” or “occupied.” In Allied Mutual Insurance Co. v. Western National Mutual Insurance Co., 552 N.W.2d 561 (Minn.1996), the Minnesota Supreme Court rejected prior decisions from the Court of Appeals which had defined “occupying” in terms of a “reasonable geographic perimeter around a vehicle or a continuing relationship between a vehicle and the claimant.” 552 N.W.2d at 563. Instead, the Supreme Court observed that the “ordinary and commonly accepted meaning” of the term “occupy” means “to take possession of a place or to be resident or established in a place,” and held the term could not be altered by “creative definition.” Id. See also Ostendorf v. Arrow Insurance Co., 288 Minn. 491, 182 N.W.2d 190 (1970) (suggesting that the ordinary meaning of the word “occupying” contemplates that a person is physically inside the motor vehicle). Under the ordinary definition, at least some portion of a person’s body must physically be “in” a motor vehicle in order to be “occupying” it. See e.g., Campeau v. State Farm Ins. Co., 1997 WL 292146 (Minn. Ct. App. 1997) (noting that under Allied Mutual, “a person who is not actually in a vehicle, or at least in the act of getting in or out of a vehicle, is not ‘occupying’ the vehicle” and holding that a claimant who was outside his car and walking toward an oncoming vehicle was not occupying his vehicle).

Does Allied end the occupancy discussion? Not necessarily. While “occupying” means “in,” most motor vehicle insurance policies define the term “occupying” more expansively than its “ordinary and commonly accepted meaning” to also include any person who is “in, upon, entering into or “alighting from” the vehicle at the time of injury. See Allied Mutual, 552 N.W.2d at 564 (policies which defined “occupying” to include “in, upon, getting in, on, out or off,” is “broader than the commonly accepted meaning” of “occupying.”); Ostendorf, 182 N.W.2d at 191 (policy which defined “occupying” to mean “in or upon, entering or alighting from the insured automobile” reflects the insurer’s intent to provide coverage when the insured vehicle is parked and a person is outside the vehicle.)

A Minnesota insurer may always afford broader coverage than required by the No-Fault Act.  Accordingly, when presented with an “occupancy” issue, one must analyze the accident facts in light of the policy’s definition of “occupancy.”  As a matter of contract interpretation, the terms “upon” or “entering into” or “alighting from” are distinct from “in” and each term is intended to have a separate meaning.  See Wagenman v. State Farm Ins., 726 F. Supp. 1239, 1245 (D. Utah 1989) (“Courts logically find that the terms ‘in,’ ‘on,’ or ‘upon’ should mean something different than ‘entering into’ or ‘alighting from.’”); Pope v. Stolts, 712 S.W.2d 434, 437–38 (Mo. Ct. App. 1986) (“use of the disjunctive ‘or’ indicates that the words ‘in or upon or entering in or alighting from’ are to be viewed as alternative conditions, any one of which standing alone would constitute occupying the insured automobile.”); Christoffer v. Hartford Acc. & Indem. Co., 123 Cal. App. 2d Supp. 979, 267 P.2d 887, 890 (Cal. App. Dep’t Super. Ct. 1954) (“We must assume that it was the intention of the parties to the contract to include a class of persons within the meaning of the word ‘upon’ not necessarily included in the words ‘in’, ‘entering’, or ‘alighting from.’”); Wolf v. American Casualty Co., 2 Ill.App.2d 124, 118 N.E.2d 777 (Ill. Ct. App. 1954) (the word “upon” enlarges the area defined by the words “in” and “entering or alighting.”)

As most policies define occupancy to include “entering into” or “alighting from” or “upon” a motor vehicle (in addition to being “in” the vehicle), those terms are discussed below.

The Minnesota Two-Part “Occupancy” Test

The Minnesota Supreme Court has developed a two-part test for determining whether a claimant is “occupying” a motor vehicle when not physically “in” the insured vehicle. First, the injured claimant must be in close proximity to the vehicle. See Haagenson v. National Farmers Union Property & Casualty, 277 N.W.2d 648 (Minn.1979); State Farm Mut. Auto. Ins. Co. v. Levinson, 438 N.W.2d 110 (Minn. Ct. App. 1989). Second, there must be “some causal connection between the occupancy of the vehicle and the injury.” Allied Mutual Insurance Co. v. Western National Mutual Insurance Co., 552 N.W.2d 561, 564 (Minn.1996).

Proximity: “Entering in” or “Alighting From” a Motor Vehicle

The process of “entering into” or “alighting from” a motor vehicle is invariably covered by motor vehicle policies because the threshold of a vehicle creates an increased risk of injury.  Generally, one’s footing is not secure when engaged in the physical act of entering into or alighting from a motor vehicle and is consequently an insured risk.  See e.g., Putkamer v. Transamerica Ins. Corp. of Am., 454 Mich. 626, 563 N.W.2d 683, 686 (1997) (finding coverage when the insured fell on ice as she placed her foot on the floor board of her car); Padron v. Long Island Ins. Co., 356 So.2d 1337, 1338–39 (Fla.Dist.Ct.App.1978) (finding coverage where insured’s foot slipped as he was exiting the vehicle “causing his right leg to hit the bottom part of the car door and break his leg. The plaintiff did not slide out of the car, but injured himself on the car door threshold as he was alighting therefrom.”)

In Minnesota and elsewhere the intent to enter into a motor vehicle is not sufficient to constitute “entering into” a vehicle.  See e.g., Allied Mutual Insurance Co. v. Western National Mutual Insurance Co., 552 N.W.2d 561, 564 (Minn.1996) (“Decker was not occupying—i.e., in or getting in—McMillan’s automobile; and, in fact, she had no immediate expectation of occupying the car, which McMillan could not unlock.”) To enter or alight requires “an intent coupled with an overt act necessary to enter or exit the vehicle.” United Farm Bureau Mut. Ins. Co. v. Pierce, 152 Ind. App. 387, 283 N.E.2d 788, 791 (1972).

Approaching a motor vehicle is generally not sufficient either.  It is not the equivalent of the physical act of “entering into” a vehicle. See Ostendorf v. Arrow Insurance Co., 288 Minn. 491, 182 N.W.2d 190 (1970) (child who intended to get into her father’s vehicle but was struck by another vehicle while 10 feet away from her father’s vehicle was not “entering into” the vehicle — approaching a motor vehicle is not a part of the process of entering the vehicle); Testone v. Allstate Ins. Co., 165 Conn. 126, 328 A.2d 686 (1973) (although evidence showed that plaintiff was approaching the driver’s door of the car, the act of approaching is not the same as the act of entering). Cf Galle v. Excalibur Insurance Co., 317 N.W.2d 368, 370 (Minn.1982) (truck driver opening trailer door was “entering into” the truck); Haagenson, 277 N.W.2d at 652 (upholding jury’s finding that Haagenson had started to enter into vehicle by opening the door before he slipped and was electrocuted by a downed power line); Jorgensen v. Auto-Owners Insurance Co., 360 N.W.2d 397, 400 (Minn. Ct. App. 1985), rev. denied (Minn. Apr. 12, 1985) (plaintiff was “entering into” his father’s motor vehicle when he turned the trunk key in order to retrieve jumper cables from the trunk, heard a “pop,” and a gasoline exploded and burned him).

On the other hand, a person need not be physically touching the vehicle to satisfy this policy language (the words “in” and “upon” (or “on”) cover actual physical contact). See e.g., Ostendorf, 182 N.W.2d at 191; Levinson, at 113. The phrase “alighting from” extends to situations where the claimant’s body is no longer “in,” or “upon” the insured vehicle. Whitmire v. Nationwide Mutual Ins. Co., 254 S.C. 184, 174 S.E.2d 391 (1970) (“[a]lighting from” must … extend to a situation where the body has reached a point when there is no contact with the vehicle.”) How close a person must be to a vehicle in order to be “entering into” or “alighting from” it presents “a question of degree” to be based on all of the evidence. Haagenson, 277 N.W.2d at 652; Levinson, 438 N.W.2d at 114; Safeco Ins. Co. v. Goldenberg, 435 N.W.2d 616, 621, n. 2 (Minn. Ct. App. 1989), rev. denied (Minn. Apr. 19, 1989).

Generally, courts recognize that a person remains an “occupant” of a motor vehicle until the person has completed all acts reasonably incident to the disembarking (“alighting from”) process and thereafter commences a course of conduct which is unrelated to the continued operation or use of the vehicle. See Christensen v. General Accident Ins., 482 N.W.2d 510, 512 (Minn. Ct. App.1992), rev. denied (Minn. May 15, 1992) (a person completes the “alighting from” process when the person intends to undertake a new direction or activity and overtly acts based on that intention); Fidelity & Casualty Company of New York v. Garcia, 368 So.2d 1313 (Fla.Dist.Ct.App.1979), rev. denied, 378 So.2d 344 (Fla.1979) (“alighting from” ceases at “the time and place at which the insured shows an intention, evidenced by an overt act based on that intention, to undertake a new direction or activity.”) Typically, the claimant loses occupancy status “[w]hen the time and distance factors are no longer proximate to the risk to which a person exposes himself while alighting from a vehicle.”  Day v. Coca-Cola Bottling Co., Inc., 420 So.2d 518, 520 (La. Ct. App. 1982). See also Levinson, 438 N.W.2d at 114 (upholding trial court’s finding that 3-year-old girl struck by a passing vehicle was “alighting from” her parent’s truck where the passenger door was still ajar and she was found within a few feet of the truck).

Proximity: “Upon” or “On” a Motor Vehicle

The insurance policy terms “upon” (or “on”) are intended to have meanings separate and distinct from “in” or “entering into” or “alighting from” a motor vehicle. See e.g., Wagenman v. State Farm Ins., 726 F. Supp. 1239, 1245 (D. Utah 1989) (“Courts logically find that the terms ‘in,’ ‘on,’ or ‘upon’ should mean something different than ‘entering into’ or ‘alighting from.’”); Christoffer v. Hartford Acc. & Indem. Co., 123 Cal. App. 2d Supp. 979, 267 P.2d 887, 890 (Cal. App. Dep’t Super. Ct. 1954) (“We must assume that it was the intention of the parties to the contract to include a class of persons within the meaning of the word ‘upon’ not necessarily included in the words ‘in’, ‘entering’, or ‘alighting from’.”); Wolf v. American Casualty Co., 2 Ill.App.2d 124, 118 N.E.2d 777, 779 (Ill.Ct.App1954) (the word “upon” enlarges the area defined by the words “in” and “entering or alighting.”) Rather, the terms “connote some physical relationship between himself and the car that enlarged the area defined by the words “entering or alighting” and the word ‘in.’ United Farm Bureau Mut. Ins. Co. v. Pierce, 152 Ind. App. 387, 283 N.E.2d 788, 791 (1972).

The common and ordinary meanings of the words “upon” and “on” are essentially the same. Beasley v. State Farm Mut. Auto. Ins. Co., 9 Kan. App. 2d 561, 682 P.2d 689, 692 (1984) (citing Webster’s Third New International Dictionary pp. 1575 and 2517 (3d ed. 1976) (defining “upon” by reference to the word “on” and defining the term “on” to mean “a position of contact with or against a supporting surface, or a motion into or toward such position.”)). The term “upon” does not mean that one must be couched on the top roof of the car or sitting on the hood. See Lambert v. Coregis Ins. Co., 950 So. 2d 1156, 1162 (Ala. 2006) (“the only plain and common meaning of those terms [“on” or “upon”] in relation to the term “occupying” is for “upon” or “on” to mean in contact with and supported by the top surface of or in contact with an outer surface.”) The terms “upon” and “on” in a motor vehicle policy are not restricted to “on top,” because “there [are] many positions, not normally taken while using an automobile … which could still be termed ‘upon’ the vehicle.” R.P. Davis, Annotation, Scope of Clause of Insurance Policy Covering Injuries Sustained While “in or on” or “upon” Motor Vehicle, 39 A.L.R.2d 1958 § 4 (1955 & Later Case Service 2005) (citing cases). See also Goodwin v. Lumbermen’s Mut. Cas. Co., 199 Md. 121, 85 A.2d 759, 763 (Md. 1952) (“One would not expect to find a person wholly above the top, the fenders, the hood, or the bumpers if the car were being lawfully used.”); Christoffer v. Hartford Acc. & Indem. Co., 123 Cal. App. 2d Supp. 979, 267 P.2d 887, 890 (Cal. App. Dep’t Super. Ct. 1954) (as the policy does not describe “how or in what manner the assured was to be upon the automobile (such as standing upon, sitting upon, kneeling upon, pushing upon, pulling upon, riding upon, resting upon, etc.), we conclude that respondent was ‘upon the automobile’ as the term is employed in the policy.”)

As one Supreme Court summarized:

In the context of the present situation, “upon” and “on” are used in defining the term “occupying,” and the definitions of the words “upon” and “on” must be interpreted in relation to the term they are used to define. *** As noted earlier, “upon” in modern usage is the equivalent of “on.” The applicable definitions of “on” found in Merriam–Webster’s Collegiate Dictionary 865 (11th ed. 2003) are as follows: “1 a—used as a function word to indicate position in contact with and supported by the top surface of … b—used as a function word to indicate position in or in contact with an outer surface … c—used as a function word to indicate position in close proximity with….” Although it may be possible to give multiple meanings to the terms “on” or “upon” when those terms are standing alone, the only plain and common meaning of those terms in relation to the term “occupying” is for “upon” or “on” to mean in contact with and supported by the top surface of or in contact with an outer surface. *** As written, in order to provide UM coverage under the policy Lambert must have been “upon” or “on” the covered vehicle, because those terms are used in defining “occupying.”

Lambert v. Coregis Ins. Co., 950 So. 2d 1156, 1162 (Ala. 2006).

In Minnesota, being “near” or “in proximity” to the insured vehicle is not sufficient to be “upon” a vehicle. Short v. Midwest Family Mutual Insurance Co., 602 N.W.2d 914, 916 (Minn. Ct. App. 1999) (rejecting suggestion that words “upon” and “on” should be broadly construed to mean “near to” and “in proximity to.”)  See also Testone v. Allstate Ins. Co., 165 Conn. 126, 328 A.2d 686, 691 (1973) (holding the term “upon” requires “the injured party’s actual physical contact with the insured vehicle at the time of the injuries” and finding that while the plaintiff was adjacent to the insured vehicle, he was not in physical contact with it and, therefore, was not “upon” the vehicle within meaning of policy language).

Numerous courts across the country have interpreted the terms “upon” or “on” in motor vehicle occupancy clauses.  An injured claimant is “upon” (or “on”) a motor vehicle when she is in physical contact with the vehicle at the time of injury. “By the clear weight of authority actual physical contact with the insured’s automobile, when shown, is sufficient to sustain a recovery under a policy requiring the injured claimant to be injured “while in or upon” the insured vehicle. Henderson v. Hawkeye-Sec. Ins. Co., 252 Iowa 97, 106 N.W.2d 86, 89 (1960). See also S.C. Farm Bureau Mut. Ins. Co. v. Kennedy, 398 S.C. 604, 609, 730 S.E.2d 862, 864, 868 (2012) (noting that “by the weight of authority actual physical contact with the insured’s automobile is sufficient to establish that the insured was Upon the vehicle as contemplated by such policies” and finding that claimant was “upon” his employer’s vehicle where he had his hand on the truck when another vehicle careened towards him, forcing him to relinquish his contact in an unsuccessful attempt to avoid being injured); DeStefano v. Oregon Mutual Insurance Co., 762 P.2d 1123, 1126 (Utah Ct.App.1988) (driver who was pouring gasoline into the tank of his vehicle on the side of a highway was “in, upon, or entering into the vehicle” when struck by another motorist); Pope v. Stolts, 712 S.W.2d 434, 438 (Mo. Ct. App. 1986) (plaintiff was “upon” automobile as he was standing over it with his stomach resting against the grill and his legs against the bumper preparing to connect jumper cables to its battery); Beasley v. State Farm Mut. Auto. Ins. Co., 9 Kan. App. 2d 561, 682 P.2d 689, 693 (Kan. Ct. App. 1984) (claimant whose arm was caught inside a trash compactor attached to a truck while completing the packing process was “in and on” the insured vehicle within meaning of the policy insuring the truck); Hart v. Traders and General Ins. Co., 487 S.W.2d 415 (Tex.Ct.App.1972) (individual leaning into vehicle’s engine to install a new fuel pump was “upon” vehicle when struck by another motorist); United Farm Bureau Mutual Insurance Co. v. Pierce, 152 Ind. App. 387 283 N.E.2d 788, 791 (1972) (driver was “upon” car when he was injured while attempting to free tires from an accumulation of snow and cut his hand while pushing on front fender; an injured party need not be on top of or physically supported by an insured vehicle in order to have been “upon” it at the moment of injury.); McAbee v. Nationwide Mutual Ins. Co., 249 S.C. 96, 152 S.E.2d 731, 732 (1967) (claimant who was crushed between his employer’s truck and another vehicle while pushing his employer’s truck was “upon” the truck – the policy term “upon” cannot be construed to mean only “on top of.”); Cont’l Cas. Co. v. U. S. Fid. & Guar. Co., 303 F.2d 821, 822–23 (5th Cir. 1962) (claimant was either “upon” the truck with one of his knees and holding onto the truck with one hand or was “entering into” the truck); Henderson v. Hawkeye-Security Ins. Co., 252 Iowa 97, 106 N.W.2d 86, 90 (1960) (claimant who was struck by a vehicle while leaning against her stalled car attempting to put down the hood was “in or upon” her vehicle); Christoffer v. Hartford Acc. & Indem. Co., 123 Cal. App. 2d Supp. 979, 267 P.2d 887, 891 (Cal. App. Dep’t Super. Ct. 1954) (person injured when struck by motorist while leaning over vehicle changing a flat tire was ‘upon’ it within contemplation of the policy); Goodwin v. Lumbermen’s Mut. Cas. Co., 199 Md. 121, 85 A.2d 759, 763 (Md. 1952) (Blum was “upon” and entering into the insured car when struck by another car as she was standing near the right front door of the insured car and, after opening the right front door with a key, leaned in the car to release the tab so that the rear right-hand door could be opened); Sherman v. New York Casualty Co., 78 R.I. 393, 82 A.2d 839 (RI 1951) (claimant who had placed his hands and knees upon the insured car in an effort to prevent it from rolling into a wall was “upon” the car within meaning of policy; Lokos v. New Amsterdam Cas. Co., 197 Misc. 40, 93 N.Y.S.2d 825 (1949), aff’d 96 N.Y.S.2d 153 (1950) (plaintiff who was struck by another motorist was “upon” his parked car because he was leaning over its bumper in preparation for tying the bumper up after one end of the bumper had fallen off).

The common denominator in the foregoing cases is the fact that in each case the claimant either was, or intended to be, an operator or passenger of the insured vehicle and was injured while in physical contact with the vehicle. In many cases, the reason for leaving the vehicle, and the claimant’s activities after leaving the vehicle, were directly related to the continued operation or use of the vehicle because it had malfunctioned or sustained damage and the claimant was either trying to repair the damage or prevent further damage. Where the injuries relate to the continued operation or use of the vehicle, the injured claimant is typically afforded insured status. (Note that had the case of Klein v. United States Fidelity & Guar. Co., 451 N.W.2d 901 (Minn. Ct. App.1990) rev. denied (Minn. Mar. 27, 1991) involved the issue of whether Klein was “upon” or “on” the insured pick-up truck, Klein would have qualified for coverage as he was struck by another highway motorist while in the process of changing a flat tire on the pick-up truck).

By contrast, claimants who were neither actual nor intended operators or passengers of an insured vehicle at the time of injury have been denied insurance coverage because, although there was evidence of physical contact, the claimant had no “connection” to the insured vehicle other than the injury-causing impact. See e.g., Hollingworth v. American Guarantee and Liability Insurance Co., 105 R.I. 693, 254 A.2d 438, 439 (1969) (“In all the recited cases, the injured plaintiff had some connection with the injuring automobile other than the ultimate impact which caused the injuries for which recovery was sought. In the case at bar, however, plaintiff had no connection with the injuring automobile prior to the time when it lurched forward and pinned him against the building.”)

Some courts have held that an operator of an insured vehicle who alights from the vehicle and sustains injuries almost immediately thereafter when another vehicle strikes the insured vehicle and the insured vehicle is, in turn, pushed into the operator, is “upon” the insured vehicle. See e.g., Motor Vehicle Accident Indemnification Corp. v. Oppedisano, 41 Misc.2d 1029, 246 N.Y.S.2d 879 (1964) (injured claimant was “upon” vehicle within meaning of auto policy where a hit and run vehicle struck the claimant’s parked vehicle which, in turn, struck the claimant); Wolf v. American Casualty Co., 2 Ill.App.2d 124, 118 N.E.2d 777 (Ill. Ct. App. 1954) (claimant was “upon” his parked vehicle when it was pushed into him after being struck by another car from the rear). The Minnesota Court of Appeals appears to have implicitly adopted this analysis in Horace Mann Ins. Co. v. Neuville, 465 N.W.2d 432 (Minn. Ct. App.1991), rev. denied (Minn. Mar. 27, 1991).  There, Neuville had been driving a 1978 Mazda GLC which he owned and failed to insure. The Mazda broke down, and his mother, with her car, pushed the Mazda along a county road. His mother’s car started to overheat, and she left to get help. Neuville stayed with his car. Another car, owned and operated by Perona, struck the rear of the Mazda. The collision pushed the Mazda forward striking Neuville, who was standing somewhere in front of his car. At the time of the accident, Neuville’s mother was insured under a policy issued by Horace Mann. Neuville qualified as a resident relative under the policy. Neuville sought underinsured motorist (“UIM”) benefits under the policy. Consistent with Minn. Stat. § 65B.49, subd. 3a(7), the Horace Mann policy excluded coverage if the insured was “occupying” an owned, uninsured motor vehicle. Although Neuville was not engaged in the physical act of exiting the vehicle when injured, the trial court and Court of Appeals determined that Neuville was “occupying” the uninsured Mazda at the time of the accident and was therefore precluded from recovering UIM benefits from Horace Mann.

It is important to note that while the vast majority of courts have held that physical contact is required to be “upon” (or “on”) a motor vehicle, the Minnesota Court of Appeals has also held that physical contact need not occur simultaneously with the injury; it is sufficient if the contact occurred immediately prior to the moment of injury. See Illinois Farmers Insurance Co. v. Marvin, 707 N.W.2d 747 (Minn. Ct. App. 2006) (claimant was “in, on, [or] getting into or out of” vehicle where “the upper half of her body had been in the [cargo area of the] vehicle mere moments before the accident” and her legs were then crushed between the bumper of that vehicle and another vehicle).

Some courts reject the plain meaning of the term “upon” (or “on”) and its physical contact requirement if there was a sufficient relationship between the claimant and the vehicle so that it can reasonably be said that the claimant was an “occupant”. In such jurisdictions, the person claiming insurance benefits must typically: (1) be in close geographic proximity to the insured vehicle; (2) be vehicle oriented; and (3) engaged in an activity essential to the vehicle’s use. See e.g., D’Amour v. Amica Mut. Ins. Co., 153 N.H. 170, 891 A.2d 534, 537 (2005) (recognizing the “vehicle orientation standard,” under which a claimant “engaged in a transaction essential to the use of the insured vehicle at the time of the accident” may be “occupying” the vehicle”); Simpson v. United States Fid. & Guar. Co., 562 N.W.2d 627, 630–31 (Iowa 1997) (holding that uninsured motorist coverage extended to anyone “in close proximity to the [covered auto]” and “engaged in an activity relating to the use of the [covered auto]”); Cocking v. State Farm Mut. Auto. Ins. Co., 6 Cal. App. 3d 965, 968–71, 86 Cal. Rptr. 193, 198 (Ct. App. 1970) (claimant injured by motorist while standing one to four feet away from the insured vehicle in preparation for putting snow chains on the vehicle was “upon” the vehicle; affixing snow chains placed the claimant in the requisite physical relationship to the car so as to bring him within the protection of the policy.) In light of the Minnesota Supreme Court’s holding in  Allied Mutual, 552 N.W.2d 561, 563 (Minn.1996) (rejecting decisions which had defined “occupying” in terms of a “reasonable geographic perimeter around a vehicle or a continuing relationship between a vehicle and the claimant”) and the Court of Appeals’ holding in Short v. Midwest Family, 602 N.W.2d 914 (Minn. Ct. App. 1999) (rejecting argument that words “upon” and “on” could be construed to mean “near to” and “in proximity to”), Minnesota courts would no doubt reject reliance on any foreign case law which has interpreted the policy term “upon” (or “on”) in light of a close geographic proximity.  

 

Causal Connection Requirement:  Nexus between Injury and Occupancy

In addition to the “proximity” requirement, the Minnesota two-part occupancy test also requires a causal connection “between the occupancy of the vehicle and the injury.” Allied Mutual Insurance Co. v. Western National Mutual Insurance Co., 552 N.W.2d 561, 564 (Minn.1996). This is somewhat similar to the causal connection required to demonstrate that an injury arises out of the use of a vehicle, which looks at the connection “between the injury and the use of a motor vehicle” (see e.g., Dougherty v. State Farm Mut. Ins. Co., 699 N.W.2d 741, 743 (Minn. 2005)), but addresses different issues.

For there to be a connection “between the occupancy of the vehicle and the injury” the claimant must have either been “in” the insured vehicle or, although outside it, engaged in conduct normally associated with the operation or “use” of the insured vehicle.

This second element of the Minnesota test serves to restrict “occupancy” status to persons who were (1) “in” the vehicle, (2) had an expectation of “entering into” the vehicle or (3) were engaged in conduct associated with the operation or use of the vehicle, as opposed to persons who are mere pedestrians or bystanders. See e.g., Balderrama v. Milbank Mut. Ins. Co., 324 N.W.2d 355, 358 (Minn. 1982) (“This is not a case where plaintiff has attained bystander or pedestrian status. His automobile was only temporarily stopped in a hazardous area, Interstate Highway No. 94.”) Thus, a person who was outside the insured vehicle, but in physical contact with it while filling it with gas, would be covered by the policy on the insured vehicle as he was “upon” (or “on”) the vehicle and his conduct was associated with the continued operation of the vehicle (see e.g., Balderrama, 324 N.W.2d 355), while one who is simply standing in the vicinity of an insured vehicle would not be covered. See Allied Mutual, 552 N.W.2d at 564 (“When Ms. Decker was struck by the Larson vehicle she was a pedestrian. That she was standing in the vicinity of the McMillan automobile was mere happenstance. Decker was not occupying—i.e., in or getting in—McMillan’s automobile; and, in fact, she had no immediate expectation of occupying the car, which McMillan could not unlock. *** [T]here was no conceivable causal connection between the McMillan automobile and Decker’s injuries.”)

Other courts have reached the same result as the Minnesota two-part test by giving each of the words (“in,” “upon,” “entering into,” and “alighting from,”) its own distinct meaning and at the same time construing each term with reference to the word it defines (“occupying”). For example, in Pennsylvania Nat. Mut. Cas. Ins. Co. v. Bristow, 207 Va. 381, 150 S.E.2d 125 (1966), Zahn’s vehicle stalled on a highway, so he pulled over. Bristow was a passenger in a panel truck that pulled over to assist Zahn.  Bristow, opened the hood and leaned over the motor and reached in to check some of the wiring. His legs were touching the bumper with his stomach touching the car. At that moment, the Zahn’s car was struck in the rear by an uninsured motorist. The impact threw Bristow into the ditch and injured him.  Bristow made claim for uninsured motorist benefits from Allstate Insurance Company, which insured Zahn’s vehicle.  The policy extended coverage to persons “occupying” the insured vehicle and defined the term to mean “in or upon or entering into or alighting from.”

The crucial question was whether Bristow was “upon” the Zahn vehicle at the time of the accident, within the meaning of Allstate’s policy. In holding that Bristow’s physical contact with the vehicle was insufficient to be “upon” Zahn’s motor vehicle, the Virginia Supreme Court stated:

“[T]he word cannot be viewed as if in a vacuum nor can it be read out of context with the place and manner in which it is employed in the policy. The word “upon” must be viewed with relation to the word in the policy which it defines, that is, the word “occupying.” The word “upon” must be read together with the other words in the phrase in which it is found, that is, the words “in … or entering into or alighting from.” When the disputed word is so viewed and read, it is clear that to be “upon” an insured vehicle is to have some connection with “occupying” it. To give the word such a meaning is to fit it snugly into the context of the phrase in which it appears, all the other words of which are directly connected with “occupying.” Within the purposes contemplated here, a person may be said to be “upon” a vehicle when he is in a status where he is not actually “in,” or is not in the act of “entering into or alighting from,” the vehicle, but whose connection therewith immediately relates to his “occupying” it. Bristow’s situation, at the time of his injury, does not fall within the meaning which we conclude must be given to the word “upon.” He had not occupied the Zahn vehicle, to which Allstate’s policy applied, nor did he intend to occupy it. His touching of the vehicle was merely incidental to his kindly act as a Good Samaritan. Commendable though his actions might have been, it cannot be said that he was “upon” the vehicle in the sense of “occupying” it, within the meaning of the language of Allstate’s policy.

See also, Maryland Auto. Ins. Fund v. Baxter, 186 Md. App. 147, 973 A.2d 243, 247–49 (2009) (“MAIF cites no case (nor have we found one) from any jurisdiction supporting its contention that a pedestrian, who had no prior connection with the insured vehicle, was nevertheless ‘occupying’ that vehicle simply because he or she was struck by it. We hold that a pedestrian who has had no connection with the insured vehicle, except for the fact that he or she was struck by it, was not “upon” the vehicle and thus was not ‘occupying’ it….”); Rednour v. Hastings Mutual Insurance Co., 468 Mich. 241, 661 N.W.2d 562, 566–67 (2003) (rejecting an interpretation of the word “upon” that would “provide (and require payment for) supplemental coverage in the form of uninsured motorists benefits for anyone who happened to be near the covered automobile and injured when the auto is struck by an uninsured motorist even though the person has no connection with the owner, named insured, or covered vehicle.”)

The Minnesota Court of Appeals has addressed several “occupancy” cases, both before and after the Minnesota Supreme Court’s decision in Allied Mutual, 552 N.W.2d 561, 564 (Minn.1996).  In some cases the result would have been the same; in others, the result would have been different. 

Assuming the policy at issue in Klein v. United States Fidelity & Guar. Co., 451 N.W.2d 901 (Minn. Ct. App.1990) rev. denied (Minn. Mar. 27, 1991) had extended coverage to persons “upon” (or “on”) the insured vehicle, the injured claimant in Klein, who was struck by another motorist while changing a flat tire on a pick-up truck alongside a highway, would have qualified for coverage.

In Dohman v. Housely, 478 N.W.2d 221 (Minn. Ct. App. 1991), rev. denied (Minn. Feb. 11, 1992), the court held that a police officer who had parked and left his squad car to investigate suspicious persons in another vehicle was not “occupying” the squad car when the other vehicle sped away and ran over the officer’s foot. This decision would have been the same under the Allied Mutual test even had the policy extended coverage to persons “upon” (or “on”) the insured vehicle — the officer was not in contact with the squad car and was not engaged in conduct associated with the continued operation or use of the squad car when injured.

In Conlin v. City of Eagan, 482 N.W.2d 519 (Minn. Ct. App. 1992), the policy covered any person “occupying” the insured vehicle and defined “occupying” as being “in, upon, getting in, on, out or off” the vehicle. A tow truck driver was struck by another motorist while crouching down to remove a car’s front license plate before towing it.  The Court of Appeals held that the tow truck driver was “occupying” the tow truck when he was injured. The appellate court applied an expansive meaning to the term “occupying,” construing it “to refer to a reasonable geographic perimeter around a vehicle or a continuing relationship between a vehicle and an injured person.” Id. at 520.  The result in Conlin would have been the same after Allied Mutual had the car had been physically attached to the tow truck. The tow truck driver would have been “upon” the insured vehicle and the tow truck driver would have been engaged in conduct associated with the continued use of the tow truck.

In Geiser v. Home Indem. Co., 484 N.W.2d 256 (Minn. Ct. App. 1992), the Court of Appeals held that a police officer who was injured while directing traffic 30 to 150 feet away from his patrol vehicle was not “occupying” his vehicle. The Home Indemnity policy’s underinsured coverage applied to “anyone occupying a covered auto.” “Occupied” was defined as “in, upon, getting in, on, out or off.” The appellate court, in reversing the trial court, held that the police officer did not satisfy the reasonable geographic perimeter of or maintain a continuous and uninterrupted relationship with the vehicle. Id. at 258. The court held that the police officer’s connection with his vehicle was too tenuous to satisfy the continuing and uninterrupted relationship test. Id. This decision would have been the same under the Allied Mutual test as the claimant did not satisfy either element of the two-part test.

In Short v. Midwest Family Mutual Insurance Co., 602 N.W.2d 914 (Minn. Ct. App. 1999), the policy covered any person “occupying” the insured vehicle and defined “occupying” as being “in, upon, getting in, on, out or off” the vehicle. A tow truck driver, Randall Short, was injured on as he prepared to tow a stalled automobile. He had just locked the car onto a lift device and was walking toward the lift controls at the rear of the tow truck when a pickup truck collided with the car and pushed it into Short. After recovering applicable liability insurance proceeds, he brought an action against his employer’s insurer, Midwest Family, to obtain underinsured motorist (“UIM”) benefits. Although the tow truck driver was engaged in conduct associated with the continued operation or use of the tow truck, the district court, applying the first factor of the Allied Mutual test (“proximity”) concluded that, because Short was walking toward the back of the tow truck when injured, he was not “in, upon, getting in, on, out of or off” the insured vehicle. The Court of Appeals agreed: “[T]he starting point is the policy definition, if there is one, or common usage, if there is no specific policy definition. In view of Allied Mutual, we hold that the district court did not err in applying the plain meaning of the policy definition of “occupying” here.”

In Illinois Farmers Ins. Co. v. Marvin, 707 N.W.2d 747 (Minn. Ct. App. 2006), a post-Allied Mutual case, Mariese Marvin was injured as a result of being pinned between two automobiles – a vehicle owned and driven by Betz and a parked Ford Explorer owned by Tonya Weigel. There was no question that Marvin’s injuries “arose out of” the use of Betz’s vehicle as Betz backed his vehicle into the Ford Explorer, crushing Marvin’s legs between the bumpers of the two automobiles. Marvin settled her liability claim against Betz, exhausting the liability coverage. She then sought underinsured motorists (“UIM”) coverage from the Illinois Farmers policy insuring Weigel’s Ford Explorer.  The UIM policy defined an “insured” to include any person “occupying [the] insured car” and defined occupying to mean “in, on, [or] getting into or out of” the insured car. As Marvin was clearly in physical contact with the Ford Explorer while engaged in an activity associated with the “use” of the vehicle at the time of the injury (i.e., she was unloading boxes from the rear cargo area of the vehicle and also in the process of alighting from it), Marvin was “occupying” the Ford Explorer and was, thus, entitled to UIM benefits from Illinois Farmers.

This article is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson, Attorney ©All rights reserved 2017.

Posted in BAP, Coverage, No-Fault Act, PAP | Tagged , , , , , , , , , , | Leave a comment

MN AUTO COVERAGE: NON-EXISTENT POLICY EXCLUSIONS, CONFORMITY CLAUSES & THE NO-FAULT ACT


1273a11By Greg Johnson, Esq. Every once in a while, a Minnesota motor vehicle insurer will claim that its policy incorporates an exclusion or limitation authorized by the No-Fault Act, but not found in the policy, to defeat coverage for a claim. The insurer may point to a “conformity clause” in its policy stating something along the lines of: “The terms of this policy which are in conflict with the statutes of the State wherein this policy is issued are hereby amended to conform to such statutes.” Can the insurer do this? Can an insurer defeat coverage based on a statutory provision it failed to include in the policy it issued? The short answer is no. A Minnesota motor vehicle insurer who failed to incorporate a statutorily authorized exclusion or limitation into its insurance contract cannot rely on the statutory exclusion to deny coverage for the claim. An insurer’s liability is governed by the terms of the insurance contract between the parties. Kelly v. State Farm Mut. Auto. Ins. Co., 666 N.W.2d 328, 331 (Minn.2003). The insurer does not get two bites at the apple.

The long answer is as follows:

“The No–Fault Act sets forth the statutorily prescribed minimum coverage for automobile insurance policies.” Auto Owners Ins. Co. v. Perry, 749 N.W.2d 324, 326, n.1 (Minn. 2008); Am. Family Ins. Group v. Schroedl, 616 N.W.2d 273, 280 (Minn. 2000) (citing Hertz Corp. v. State Farm Mut. Ins. Co., 573 N.W.2d 686, 689–90 (Minn. 1998)). An insurer may never provide less coverage than is required by the Act. Am. Nat. Prop. & Cas. Co. v. Loren, 597 N.W.2d 291, 292 (Minn. 1999) (citing Hertz, 573 N.W.2d at 690.) If a motor vehicle policy provides less coverage than required by the Act, the policy is rewritten to provide the required coverage. See Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 803 (Minn. 2004) (“unless the policy provides greater protection for the insured than the No Fault Act, the terms of the policy must be conformed to the provisions of the Act.”); Kwong v. Depositors Ins. Co., 627 N.W.2d 52, 55 (Minn.2001); Am. Nat’l. Prop. & Cas. Co. v. Loren, 597 N.W.2d 291, 292 (Minn. 1999); Hanbury v. Am. Family Mut. Ins. Co., 865 N.W.2d 83, 86 (Minn. Ct. App. 2015), review denied (Minn. Aug. 25, 2015).

Conversely, a motor vehicle insurer may always provide greater coverage in its policy than is mandated by the No-Fault Act. See Minn. Stat. § 65B.49, subd. 7 (“[n]othing in [the No-Fault Act] shall be construed as preventing the insurer from offering … coverages in addition to those required to be offered under this section”); Illinois Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 802 (Minn. 2004) (“An insurer may … provide an insured with broader coverage than the No–Fault Act or Rules mandate.”); Gaalswyck v. General Cas. Co. of Wisconsin, 372 N.W.2d 435, 437 (Minn. Ct. App. 1985) (“an insurer may offer greater protection than required by statute.”). Consequently, if the No-Fault Act authorizes an exclusion from coverage, but the insurer does not incorporate the exclusion into its policy (or its policy exclusion does not precisely track the statute), the policy will not be not rewritten to contain the authorized but omitted, exclusion. See e.g., Burgraff v. Aetna Life & Cas. Co., 346 N.W.2d 627, 632 (Minn. 1984) (insurance policy which failed to exclude coverage for resident relatives “identified by name in another contract for a plan of reparation security” as authorized by No-Fault Act’s definition of “insured (Minn. Stat. § 65B.43, subd. 5) provided coverage to the resident relative despite the fact that the resident relative was identified by name in her own auto insurance policy. “For whatever reason, the insurer elected to use language in its policy exclusion which does not track the statute. It seems to us, as a matter of public policy, that it is preferable in this instance to refuse to rewrite the policy exclusion, since judicial rewriting of the policy to save the exclusion would only condone insurers’ drafting overbroad policy exclusions.”); Ryan v. Progressive Cas. Ins. Co., 386 N.W.2d 837, 840 (Minn. Ct. App. 1986) (only a policy exclusion which “tracks the language” of the No-Fault Act is enforceable). Stated another way, if a motor vehicle insurer fails to incorporate a statutorily authorized exclusion into its insurance contract, it cannot rely on the statutory exclusion to defeat coverage. The insurer does not get two bites at the apple.

One of the best expressions of this principle is found in Krueger v. State Farm Fire & Cas. Co., 510 N.W.2d 204 (Minn. Ct. App. 1993), which addressed the interpretation of fire insurance policies. Like the No-Fault Act, the Minnesota Standard Fire Insurance Policy statute, Minn. Stat. § 65A.01, “guarantees a minimum level of coverage that supersedes any attempt to limit coverage to less than the statutory minimum.” Watson v. United Servs. Auto. Ass’n, 566 N.W.2d 683, 690 (Minn. 1997). “Insurance companies may, however, incorporate additional or different terms into their policies that offer more coverage than the statutory minimum.” Id. (citing Krueger, 510 N.W.2d at 209). In Krueger, the insurer argued that the sixty-day vacancy/non-occupancy clause authorized by the statutorily prescribed standard fire policy was incorporated into its policy and barred coverage (the policy did not include such a clause). The court rejected the argument: “Because there was a policy in effect, the trial court erred in using the statute to determine the extent of Krueger’s coverage. By using the standard policy against the insured to impose a vacancy clause not found in the policy, the trial court used the statute as a sword for the insurer, rather than a shield for the insured. This remedial statute guarantees coverage that will supersede any attempt to limit coverage to less than the statutory minimum. But when an insurer has issued a fire insurance policy providing more coverage than the statutory minimum, the insurance contract between the parties determines the extent of the insured’s coverage.” Id. at 209. (emphasis supplied.)

The Krueger decision is entirely consistent with the Minnesota Supreme Court’s decision in Burgraff, 346 N.W.2d 627 (Minn. 1984). Because the scope of coverage under a motor vehicle policy may always be greater than the statutory minimum, an insurer cannot rely on a statutorily authorized exclusion not found in its policy to defeat coverage. This principle is also consistent with the provisions of the No-Fault Act. With a few exceptions, policies issued under the No-Fault Act must contain all of the agreements of the parties. See e.g., Minn. Stat. § 65B.49, subd. 1 (requiring that “[a] plan of reparation security shall state … the coverage afforded by the policy….”) See also Minn. Stat. §60A.08, subd. 1 (requiring that “[a] statement in full of the conditions of insurance shall be incorporated in or attached to every policy ….”) An example of an exception to this statutory principle is found in Minn. Stat. § 65B.49, subd. 3(3)(a) (“Every [policy] … shall be subject to the following provisions which need not be contained therein….”) (emphasis supplied.)

Some insurance policies contain a “conformity clause” which may operate to reform an insurance policy in situations where the policy contains a provision which is in direct conflict with a statute. See e.g., Lessard v. Milwaukee Ins. Co., 514 N.W.2d 556 (Minn. 1994) (involving a conformity clause which stated: “The terms of this policy which are in conflict with the statutes of the State wherein this policy is issued are hereby amended to conform to such statutes.”) Occasionally, an insurer will argue that such clauses allow the insurer to incorporate statutory provisions into its insurance policy that are not found in the policy. This argument is incorrect. Only an insured may rely on such clauses to reform a policy to provide the coverage required by law. Moreover, and more importantly, conformity clauses have no application in the context of motor vehicle insurance policies issued pursuant to the No-Fault Act. Conformity clauses only apply when there is a direct conflict between a policy provision and a statute. See Lessard, 514 N.W.2d at 559 (“A conformity clause in an insurance policy operates to substitute a statutory provision for a policy provision only where the two provisions are in direct conflict”) (citing Atwater Creamery Co. v. Western Nat’l Mut. Ins. Co., 366 N.W.2d 271, 275 (Minn. 1985)). Because an insurer may always provide greater coverage than mandated by the No-Fault Act (see Minn. Stat. § 65B.49, subd. 7) and an insurer’s liability is governed by the terms of the insurance contract between the parties (see Kelly v. State Farm Mut. Auto. Ins. Co., 666 N.W.2d 328, 331 (Minn.2003)), there can be no direct conflict.

With few exceptions, Minnesota courts have consistently applied these principles since the No-Fault Act was enacted forty years ago.  One exception was the Minnesota Court of Appeals’ decision in Himle v. Am. Family Mut. Ins. Co., 445 N.W.2d 587 (Minn. Ct. App. 1989), review denied (Minn. Nov. 22, 1989).

In that case, Himle and Sumption were loading an untrained horse into a horse trailer, which was attached to a truck. During the loading process, the horse bolted and crushed Himle’s leg. Himle sued Sumption for negligence in a personal injury action. The liability coverage of Sumption’s motor vehicle policy contained standard provisions obligating his insurer to protect Sumption against liability for injuries arising out of the use of the insured vehicle. The policy’s liability coverage did not contain a “loading and unloading” exclusion (as motor vehicle policies issued in Minnesota do not). Nonetheless, the Minnesota Court of Appeals held that Sumption’s liability insurance did not apply. The court held: “[T]he statutory definition of ‘maintenance or use of a motor vehicle,’ with the loading/unloading exclusion, applies to all auto insurance policies issued pursuant to Minn. Stat. Ch. 65B.Himle, 445 N.W.2d at 590. While this holding could be viewed as dicta (the court went on to note that “Sumption’s premises liability insurance appears to be a more appropriate source of compensation” than his motor vehicle insurance policy), it was also applied by the Court of Appeals in two subsequent unpublished decisions. See Grinnell Mut. Reinsurance Co. v. Bunne, 1998 WL 297510 (Minn. Ct. App. 1998); Melchert v. Farm Bureau Mut. Ins. Co., 1995 WL 593061 (Minn. Ct. App. 1995).

There are two fundamental problems with the Himle decision.

First, the exclusions from “maintenance or use” that are authorized by § 65B.43, subd. 3 do not apply to third-party residual liability coverage or other fault-based coverages. Residual liability coverage contains its own, self-contained insuring requirement  (see Minn. Stat. § 65B.48, subd. 1, requiring that “[e]very owner of a motor vehicle … maintain … a plan of reparation security … insuring against loss resulting from liability imposed by law for injury … sustained by any person arising out of the ownership, maintenance, operation or use of the vehicle”), and nothing therein suggests that a policy may validly exclude coverage for tort liability an insured may incur as a result of negligence in loading or unloading.

The No-Fault Act authorizes motor vehicle insurers to exclude coverage for first-party no-fault benefits if the injured party is engaged in certain defined conduct at the time of the injury and is not within a certain geographic proximity to the vehicle when injured. Minn. Stat. § 65B.43, subd. 3 authorizes an insurer to include no-fault policy exclusions for injured persons who sustain injury as a result of “(1) conduct within the course of a business of repairing, servicing, or otherwise maintaining motor vehicles unless the conduct occurs off the business premises, or (2) conduct in the course of loading and unloading the vehicle unless the conduct occurs while occupying, entering into or alighting from it.” These exclusions were derived verbatim from Section 1 of the Uniform Motor Vehicle Accident Reparations Act (“UMVARA”), 14 U.L.A. § 1(a)(6) (1972). Under the UMVARA (and, thus, § 65B.43, subd. 3), a policy may limit “basic reparation benefits” (a/k/a no-fault benefits) for loading or unloading injuries to injuries sustained while “occupying, entering into or alighting from” a motor vehicle. Id. In drafting § 1(a)(6), the UMVARA Commissioners were addressing the concerns of the insurance industry about having to provide no-fault coverage for loading and unloading injuries sustained while far removed from the parked motor vehicle. The geographic limitation in § 1(a)(6) of the UMVARA (and, thus, § 65B.43, subd. 3), was intended to address this concern and leave injuries that do not occur within the geographic limitation to other forms of insurance, such as premises insurance. The Commissioners’ Commentary noted that the § 1(a)(6) exclusions were limited to first-party claims for no-fault benefits and had no application to liability coverage for tort liability: “basic reparation benefits are not available unless the conduct in loading or unloading took place while the injured person was occupying, entering into, or alighting from the vehicle. This limitation produces coverage which is narrower than present day medical payments coverage….Id. The Commentary further states that the “loading and unloading” exclusion was not intended to apply to third-party liability insurance for tort liability arising from loading and unloading. Id.

The distinction between first-party no-fault coverage and third-party liability coverage as it relates to § 65B.43, subd. 3’s exclusions is consistent with the history and development of motor vehicle insurance laws in Minnesota. As the Minnesota Supreme Court has repeatedly stated: “[E]ven though the No-Fault Act requires liability coverage, the ‘Minnesota No-Fault Act leaves unaltered the basic framework of the law of liability insurance.’” Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 250 (Minn. 1998) (citing Toomey v. Krone, 306 N.W.2d 549, 550 (Minn.1981)). “[B]ecause the No-Fault Act’s primary purpose is to ensure the availability of first-party benefits, the law of liability insurance that addresses third-party benefits [was] virtually unaffected by the No-Fault Act.” Lobeck, 582 N.W.2d at 250. A contrary conclusion – that Minnesota insurers could issue liability insurance excluding coverage for their insured’s negligence in “loading and unloading” a motor vehicle (a “use” of a motor vehicle) — would create a gaping hole in an insured’s tort liability protection for injuries relating to negligent loading or unloading, and leave an injured person without a source of recovery, unless the injured person happened to be occupying, entering into, or alighting from the vehicle at the time of injury. A pedestrian, bystander, bicyclist or motorist who sustained injuries as a direct result of being struck by cargo that fell from, was blown out of, or become detached from, a motor vehicle due to negligent loading or unloading would have no available source of compensation for his or her non-economic injuries or damages. Cf Waseca Mut. Ins. Co. v. Noska, 331 N.W.2d 917, 920 (Minn. 1983) (extensive fires which resulted when insured loaded uncovered barrels of live embers onto his truck and drove the truck on the highway arose out of the use of the truck); Minneapolis, St. P. & S.S.M. R. Co. v. St. Paul Mercury Indem. Co., 268 Minn. 390, 129 N.W.2d 777 (1964) (injuries sustained by a trucker who was crushed when a large, top-heavy crate weighing 900 pounds fell on him during loading process arose out of the use of the insured truck); Kern v. Auto Owners Ins. Co., 526 N.W.2d 409 (Minn. Ct. App.1995) (pedestrian in shopping center parking lot who was struck and injured by building materials that had been loaded into an open pick-up truck and blew out of the truck arose out of use of truck); N. Star Mut. Ins. Co. v. Doree, 2008 WL 5215969 (Minn. Ct. App.2008) (death of a highway motorist who lost control of his vehicle after being struck by a large, flotation tube that had been loaded, but not secured, in a boat trailer that was being pulled by a truck on the highway, arose out of the use of the truck).

Further, Minnesota courts have recognized that in order for § 65B.43, subd. 3’s exclusions to apply, the injured claimant, as opposed to a third party, must have been engaged in the statutorily described conduct at the time of the injury. Stated another way, the exclusions authorized by the statute do not apply to injuries arising out of “conduct [by anyone],” — the injured claimant, not a third party, must have engaged in that conduct. See e.g. Horace Mann Ins. Co. v. Goebel, 504 N.W.2d 278 (Minn. Ct. App. 1993) (holding that “repair and service” exclusion authorized by § 65B.43, subd. 3 applies only to a person who is engaged in a business of repairing or servicing motor vehicles, not a customer who is injured on the premises of a business that repairs and services motor vehicles); Petrick v. Transport Ins. Co., 343 N.W.2d 876, 878 (Minn. Ct. App. 1984) review denied (Minn. April 25, 1984) (noting that for no-fault coverage “loading and unloading” exclusion to apply, the question is whether “the plaintiff [was] engaged in conduct in the course of loading or unloading the vehicle” at the time of the injury.)  Accordingly, with the exception of Himle (and unpublished decisions which have cited Himle), Minnesota courts have only considered “loading and unloading” exclusions to bar coverage for no-fault claims of persons who were injured while they were engaged in loading or unloading conduct when injured. See e.g., Galle v. Excalibur Insurance Co., 317 N.W.2d 368 (Minn.1982) (addressing no-fault claims involving workmen who sustained back injuries while lifting heavy boxes inside truck); Krupenny v. West Bend Mutual Ins. Co., 310 N.W.2d 133 (Minn.1981) (involving no-fault claim of a trash hauling business employee who was injured by a dumpster); Huynh v. Illinois Farmers Ins. Co., 421 N.W.2d 390 (Minn. Ct. App. 1988) (no-fault claimant injured while loading cooler into the trunk of a vehicle); Minkel v. Progressive Cas. Ins. Co., 1998 WL 811559 (Minn. Ct. App. 1998) (no-fault claimant injured in fall from bed of pick-up truck while loading china hutch); Jorgensen by Jorgensen v. Auto-Owners Ins. Co., 360 N.W.2d 397 (Minn. Ct. App. 1985) (no-fault claimant injured while attempting to remove jumper cables from vehicle trunk); Petrick v. Transport Insurance Co., 343 N.W.2d 876, 879 (Minn. Ct. App.1984), review denied (Minn. April 25, 1984) (involving no-fault claim of truck driver who slipped on oil on bed of trailer during unloading).

Other no-fault jurisdictions which, like Minnesota, adopted the UMVARA’s “loading and unloading” provision have specifically addressed the argument that it also applies to third party liability coverage and have rejected the argument. The “loading and unloading” exclusion applies only to first-party claims for no-fault benefits, not liability coverage. See Truck Ins. Exch. v. Home Ins. Co., 841 P.2d 354, 357 (Colo. Ct. App. 1992) (“This [loading and unloading] section applies only to insureds who are entitled to receive personal injury protection benefits.”); Milbank Mutual Insurance Co. v. Dairyland Insurance Co., 373 N.W.2d 888, 892 (N.D.1985) (statutory exclusion for “loading and unloading” conduct “is not applicable to liability portion of a motor vehicle liability insurance policy, but is applicable to ascertaining the situations which trigger no-fault benefits.”)

As a result of the foregoing, § 65B.43, subd. 3’s “loading and unloading” exclusion is found only in the no-fault coverage of a Minnesota motor vehicle policy, not in a policy’s liability coverage or in other fault-based coverage such as uninsured and underinsured motorist coverage. A typical Minnesota policy will contain an exclusion in its no-fault coverage for injuries “aris[ing] out of conduct in the course of loading or unloading any ‘motor vehicle’ unless the conduct occurs when such person is ‘occupying’ such ‘motor vehicle.’”

This leads to the second fundamental problem with the Himle decision. Even assuming § 65B.43, subd. 3 had been intended to authorize an insurer to include a loading and unloading exclusion in a policy’s liability coverage (and it was not, as described above), Sumption’s liability coverage did not contain a loading and unloading exclusion. Nonetheless, Minnesota’s intermediate court held that “the loading/unloading exclusion applies to all auto insurance policies issued pursuant to Minn. Stat. Ch. 65B.Himle, 445 N.W.2d at 590 (emphasis supplied.) This conclusion is contrary to Minnesota insurance law principles, including the Minnesota Supreme Court’s holding in Burgraff v. Aetna Life & Cas. Co., 346 N.W.2d 627 (Minn. 1984). If a Minnesota motor vehicle insurer issues a policy that does not incorporate a statutorily authorized exclusion or limitation, it cannot rely on the statutory exclusion or limitation to defeat coverage for the claim. As noted by the Minnesota Court of Appeals in Krueger v. State Farm Fire & Cas. Co., 510 N.W.2d 204 (Minn. Ct. App. 1993): “[W]hen an insurer has issued a[n] … insurance policy providing more coverage than the statutory minimum, the insurance contract between the parties determines the extent of the insured’s coverage.” Id. at 209.

As noted above, the Himle court’s conclusion could potentially be viewed as dicta. The court also emphasized that “Sumption’s premises liability insurance appears to be a more appropriate source of compensation” than his motor vehicle policy, stating:  “Even if … the loading/unloading exclusion were found inapplicable to accidents involving the loading of a horse trailer, it is questionable whether automobile liability insurance should be extended so far as to cover this kind of accident … Sumption’s premises liability insurance appears to be a more appropriate source of compensation….” Himle, 445 N.W.2d at 591.

This article is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson, Attorney ©All rights reserved 2017.

 

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Minnesota No-Fault Coverage: “Stacking” the Weekly Rate-of-Pay-Limit


By Greg Johnson, Esq. The Minnesota No-Fault Automobile Insurance Act requires that every policy issued in Minnesota afford “a minimum of $40,000 for loss arising loss arising out of the injury of any one person, consisting of: (1) $20,000 for medical expense loss arising out of injury to any one person; and (2) a total of $20,000 for income loss ….” Minn. Stat. §65B.44, subd. 1.

Assume the injured insured’s gross weekly wage at the time of the accident is $900 and the insured had two insured motor vehicles. Section 65B.44, subd. 3(a) of the No-Fault Act states that “disability and income loss benefits shall provide compensation for 85 percent of the injured person’s loss of present and future gross income from inability to work proximately caused by the nonfatal injury subject to a maximum of $500 per week …” So, is the injured person in this hypothetical entitled to collect weekly benefits based on 85% of his weekly wage: (a) subject to the weekly rate-of-pay limit of $500, meaning the injured insured can only collect $500 per week; or (b) subject to a weekly rate-of-pay limit of $1,000, meaning the injured insured can collect $765 per week?

Prior to an 1985 amendment, when an injured person insured two or more motor vehicles (whether under the same policy or separate policies), the limit of liability for basic economic loss (a/k/a “no-fault) benefit coverages applicable to each insured vehicle were “stacked” (added together) by operation of law. Weiss v. Farmers Insurance Group, 302 N.W.2d 353, 355 & n.2 (Minn.1981). Thus, if an insured had two insured vehicles, the no-fault limits of liability would be $40,000 (medical expense)/$40,000 (income loss) instead of $20,000/$20,000. (See Minn. Stat. §65B.44, subd. 1).

The issue of whether an injured insured could “stack” the weekly rate-of-payment limit applicable to two or more insured vehicles under pre-1985 law was addressed by the Minnesota Supreme Court in Peterson v. Iowa Mut. Ins. Co., 315 N.W.2d 601 (Minn. 1982). The insurer in Peterson argued that the weekly rate-of-pay limit in section 65B.44, subd. 3, could not be added together (such that the injured insured in the above-hypothetical would only be entitled to $500 in weekly income loss benefits). The Supreme Court disagreed, holding that the weekly rate-of-payment limits could be added together in the same vertical fashion as the limits of liability. The Court noted that Iowa Mutual had presented “no evidence of a legislative intent to treat the rate-of-pay ceiling in section 65B.44, subd. 3, differently from the other limits set forth in section 65B.44.” Id. at 602. Further, a contrary rule “would force many households onto a budget well below their usual standards, regardless of the injured wage earner’s prior income or the number of policies on which premiums are being paid.” Id.

Thus, prior to the 1985 amendment, if the injured person had two insured vehicles, both the limits of liability and weekly rate-of-pay limit would be added together. As a result, the injured insured in the above-hypothetical was entitled to collect weekly income loss benefits of $765 ($900 x 85%, subject to weekly rate-of-pay limit of $1,000) rather than $500 ($900 x 85%, subject to rate-of-pay limit of $500).

So, what’s the result after 1985? At least one large motor vehicle insurer has recently argued that the Peterson holding does not apply to post-1985 claims. In 1985, the Minnesota legislature enacted a so-called “anti-stacking” amendment. Minn.Stat. § 65B.47, subd. 7 states as follows:

Unless a policyholder makes a specific election to have two or more policies added together the limit of liability for basic economic loss benefits for two or more motor vehicles may not be added together to determine the limit of insurance coverage available to an injured person for any one accident. An insurer shall notify policyholders that they may elect to have two or more policies added together.

Under the 1985 amendment, stacking by operation of law was eliminated. If two or more vehicles are insured under a policy, the named insured has to elect to add together the no-fault coverages on those vehicles and pay an extra premium. Otherwise, stacking of no-fault coverages is not permitted.

Is the Supreme Court’s decision in Peterson v. Iowa Mut. Ins. Co., 315 N.W.2d 601 (Minn. 1982) good law after 1985?

Yes.

First, the 1985 legislature was aware of the Supreme Court’s holding in Peterson. While the 1985 amendment refers to the “limit of liability” applicable to each vehicle and does not specifically mention the weekly rate-of-pay limit, nothing in the 1985 amendment or legislative history suggests that the legislature intended to treat stacked no-fault coverages, including the weekly rate-of-pay limit, different from that which had been the case before 1985.

Second, since 1985, an insured has had to pay an extra premium to purchase the stacking option. If the weekly rate-of-pay limit applicable to two or more insured vehicles were not added together in the fashion described in Peterson, the stacking option would be essentially useless insofar as income loss benefits are concerned. Regardless of the number of vehicles insured, stacking premiums paid and the insured’s level of income, the injured insured would always be subject to the $500 weekly rate-of-pay ceiling. This would defeat one of the primary purposes for purchasing the stacking option. As the Minnesota Supreme Court noted in Meister v. W. Nat. Mut. Ins. Co., 479 N.W.2d 372 (Minn. 1992), “[i]n electing to increase coverage . . . an insured is choosing to add first-party coverage for losses not covered because of the limitations on no-fault benefits in the Act.” Id. at 375. One of the limitations an injured insured seeks to avoid by purchasing the stacking option is the weekly rate-of-pay ceiling. As a result, the Peterson holding should remain good law.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. G Johnson Law PLLP © All rights reserved 2017.

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G Johnson Law: Neutral Insurance Coverage Evaluations


Mr. Johnson provides neutral insurance coverage evaluations in Minnesota. This is a form of non-binding, alternate dispute resolution where disputing parties agree to submit their coverage positions to a subject expert in writing to evaluate whether coverage exists for a given situation. The evaluator is, typically, a disinterested party with a high level of experience in the form of coverage under dispute. A neutral coverage evaluation can be of great benefit where the outcome of the case hinges on insurance coverage (e.g., the damages are fixed, the damages exceed the policy limits, an insured has entered into a Miller-Shugart type settlement, the parties otherwise have a good sense of the damages, etc.). The evaluation can be presented in any number of forms, depending only on the creativity of the parties. Mr. Johnson may, for example, be retained to: (1) provide both parties a written assessment of the coverage issues similar to a trial court or appellate decision, (2) provide to each party a confidential written assessment of the likelihood that the party will prevail on the coverage issues; or (3) conduct a conference where the assessment is discussed orally with each party or both parties. Depending on the complexity of the case and coverage issues involved, the evaluation can often be provided on a flat-fee basis so the parties know exactly how much the process will cost up-front.

Greg has over twenty-five years of experience in analyzing and litigating insurance coverage disputes on behalf of policyholders and insurers under various coverage forms including commercial and personal auto, garage (auto dealer) liability, trucking, transportation network company, commercial general liability, homeowners and professional liability policies. Over the course of his legal career, he has prevailed in over 85% of substantive motions and appeals to the Minnesota Court of Appeals, Minnesota Supreme Court, United States District Court and Eighth Circuit Court of Appeals. (Reported decisions can be found on the “cases” page).

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. G Johnson Law PLLP © All rights reserved 2017.

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Minnesota Auto Coverage: Supreme Court holds that Non-Licensed Insurers Must Pay Minnesota Benefits Too


thIAFM15N9By Greg Johnson, Esq. The Minnesota Supreme Court recently issued its decision in Founders Ins. Co. v. Yates, No. A15-1174, 2016 WL 7118918 (Minn. Dec. 7, 2016), a case I handled at the Supreme Court level on behalf of Yates.

In Yates, the Supreme Court overturned over 30 years of Court of Appeals case-law in holding that the Minnesota No-Fault Automobile Insurance Act, Minn. Stat. §§ 65B.41–.71 (2014) requires that all motor vehicle insurers who issue policies to non-resident policyholders must provide the minimum coverages mandated by the No-Fault Act to non-resident policyholders when the out-of-state insured vehicle is driven into Minnesota regardless of whether the insurer was licensed to write motor vehicle insurance in Minnesota. Prior to Yates, this obligation was only imposed on Minnesota licensed insurers.

This article addresses the Yates decision as well as the obligations of insurers who issue motor vehicle insurance policies to “non-resident policyholders.” For purposes of this article, a “non-resident policyholder” is a person who was not a resident of Minnesota when the policy was issued. (The Minnesota Supreme Court has previously held that a non-resident policyholder becomes a “Minnesota policyholder” only when s/he actually purchases a motor vehicle insurance policy in Minnesota or the policy is renewed in Minnesota. See Cantu v. Atlanta Cas. Companies, 535 N.W.2d 291, 292 (Minn. 1995)).

Background Facts

Founders Insurance Company issued a motor vehicle insurance policy to James Yate when he lived in Illinois. Founders was not licensed to write motor vehicle insurance in Minnesota. Yates was injured when his car collided with another car in Minnesota. After the accident, Yates sought basic economic loss (a/k/a “no-fault”) benefits from Founders under the Minnesota No-Fault Automobile Insurance Act, Minn. Stat. §§ 65B.41–.71 (2014).

Founders filed a declaratory judgment action contending it had no obligation to provide Minnesota basic economic benefits because it was not licensed to write motor vehicle insurance in Minnesota. While that action was pending, Yates was awarded over $19,000 in a no-fault arbitration proceeding. The district court confirmed the arbitration award. The Court of Appeals reversed, holding that the arbitrator exceeded his authority in awarding basic economic loss benefits because Founders was not licensed to write motor vehicle insurance in Minnesota. In reaching its decision, the Court of Appeals relied on its earlier 1985 decision in Burgie v. League Gen. Ins. Co. 355 N.W.2d 466, 469-70 (Minn.Ct.App.1984), review denied (Minn. Feb. 16, 1985), where the court interpreted § 65B.50 to apply only to Minnesota licensed insurers, not insurers who are not licensed to do business in Minnesota. Because Founders had issued the policy to Yates in Illinois – a state which does not require no-fault coverage — Yates was only entitled to receive the $1,000 med pay coverage of the policy, not the $20,000 of benefits Minnesota requires.

Supreme Court Reverses Court of Appeals

The Minnesota Supreme Court reversed, holding that the plain language of Minn. Stat. § 65B.50, subd. 2 requires a non-licensed insurer to provide Minnesota basic economic loss benefits to a non-resident policyholder when the insured vehicle was in Minnesota and the non-resident was involved in a motor vehicle accident in Minnesota. (Although the Supreme Court’s decision only addressed basic economic loss benefits, the Supreme Court’s analysis also applies to the minimum residual liability (bodily injury and property damage) coverage mandated by the Minnesota No-Fault Act.) Thus, the Court of Appeal’s interpretation of § 65B.50 in Burgie — which had been the law in Minnesota for over 30 years — is no more.

The Yates decision is good for Minnesota accident victims as well as all Minnesota licensed motor vehicle insurers. Section 65B.50 was never intended to insulate non-licensed insurers from paying their share of the damages, injuries and losses caused by, or resulting to, nonresident policyholders when involved in accidents in Minnesota. Rather, it was specifically intended to place the costs of such accidents on all insurers of nonresident policyholders, regardless of insurer licensure, to the levels of protection mandated by the No-Fault Act.

Note: the Yates decision does not apply to other mandatory coverages mandated by the No-Fault Act, such as uninsured and underinsured motorist coverages. Subdivision 2, by its express terms, only applies to the “basic economic loss benefit coverages and residual liability coverages required by sections 65B.41 to 65B.71.” Further, the No-Fault Act does not require that non-residents maintain uninsured and underinsured motor vehicles when operating a vehicle in the state of Minnesota. See Minn. Stat. § 65B.48.

Possible Exception — Constitutional Issues

As noted in a footnote in the Yates opinion, the Supreme Court did not address any constitutional issues that may arise by virtue of imposing Minnesota’s coverages on non-licensed insurers under 65B.50, subd. 2 when the only “contact” the insurer had with Minnesota is that its insured vehicle was in Minnesota at the time of the accident. “[A]pplying Minn. Stat. § 65B.50, subd. 2, to non-licensed … insurers could present one or more constitutional issues in an appropriate case.” Founders did not raise a constitutionality challenge so the issue was not before the court. As to constitutional law issues, it is important to note that § 65B.50, subd. 2 was taken almost verbatim from section 9(b) of the Uniform Motor Vehicle Reparations Act (1972). In the Commentary, the UMVARA Commissioners, citing Clay v. Sun Ins. Office, 377 U.S. 179 (1964), stated their belief that use of a motor vehicle in Minnesota would provide a sufficient basis for Minnesota to impose its minimum mandatory coverages on non-licensed insurers:

Given the ready ability of the owner of a motor vehicle to drive his vehicle from state to state within a few days over an interstate highway system, it is unreasonable for an insurer to argue that it could not contemplate out-of-state use of the motor vehicle, or that it could only contemplate or foresee use within a limited geographic area. Accordingly, operation of the insured vehicle within the State, standing alone, should be a sufficient contact allowing the State to impose its substantive laws upon the out-of-State insurer of an out-of-State vehicle.

The Minnesota Court of Appeals addressed similar constitutional law issues in State Farm Mutual Ins. Co. v. Tennessee Farmers Mutual Insurance Co., 645 N.W.2d 169 (Minn. Ct. App. 2002), which should be consulted should a personal jurisdiction/minimum contacts issue be raised in the case.

Section 65B.50 – Application to Policies issued to Non-Resident Policyholders

Section 65B.50 only applies when the vehicle insured under the policy is in Minnesota and the non-resident policyholder (or his/her spouse or resident relatives) is involved in a motor vehicle accident in Minnesota. See e.g., Western National Mutual Ins. Co. v. State Farm Ins. Co., 374 N.W.2d 441 (Minn.1985). Further, resort to § 65B.50 only becomes necessary if the insurance policy issued to the non-resident policyholder: (a) does not provide basic economic loss and/or residual liability coverage in at least the minimum amounts mandated by the Minnesota No-Fault Act; and (b) does not contain a contractual “conformity” clause requiring the policy to be written-up when operated in another jurisdiction. A typical conformity clause provides:

Out-of-State Coverage Extensions

While a covered “auto” is away from the state where it is licensed will:

(1) Increase the Limit of Insurance for Liability Coverage to meet the limit specified by a compulsory or financial responsibility law of the jurisdiction where the covered auto” is being used. This extension does not apply to the limit or limits specified by any law governing “motor carriers” of passengers or property.

(2) Provide the minimum amounts and types of other coverages, such as No-Fault, required of out-of-state vehicles by the jurisdiction where the covered “auto” is being used.

If the policy contains a conformity clause obligating the insurer to provide basic economic loss and/or residual liability coverage in the minimum amounts mandated by the Minnesota No-Fault Act, the insurer must provide coverage based on its contractual undertaking and there is no need to look to 65B.50.

If the policy does not contain a conformity clause, § 65B.50 comes into play. Section 65B.50, subd. 2 applies to both Minnesota licensed and non-licensed insurers. Perhaps the easiest way to analyze a claim involving a policy issued to a non-resident policyholder is to invert subdivisions 1 and 2 of § 65B.50 and read them as follows:

Subd. 2. Notwithstanding any contrary provision in it, every contract of liability insurance for injury, wherever issued, covering obligations arising from ownership, maintenance, or use of a motor vehicle … includes basic economic loss benefit coverages and residual liability coverages required by sections 65B.41 to 65B.71, while the vehicle is in this state, and qualifies as security covering the vehicle.

Subd. 1. Every insurer licensed to write motor vehicle accident reparation and liability insurance in this state shall … as a condition to such licensing, file with the commissioner and thereafter maintain a written certification that it will afford … in the case of nonresident policyholders … security … with respect to accidents occurring in this state.

If the policy does not contain its own conformity clause, subdivision 2 will function as a statutory conformity clause and reform the policy by operation of law to provide Minnesota’s version of basic economic loss ($20,000/$20,000) coverage and residual liability ($30,000/$60,000/$10,000) coverage. Section 65B.50, subd. 2 is the No-Fault Act’s primary mechanism for ensuring that nonresident vehicle owners satisfy the insuring obligations imposed upon them by § 65B.48, subdivision 1. See e.g., Hedin v. State Farm Mut. Auto. Ins. Co., 351 N.W.2d 407, 409 (Minn.Ct.App.1984). Under the Act, the nonresident vehicle owner must maintain basic economic loss and residual liability coverages “continuously throughout the period of the operation, maintenance or use of such motor vehicle within this state with respect to accidents occurring in this state ….” Minn. Stat. § 65B.48, subd. 1. Thus, § 65B.50, subd. 2 was intended to make sure that all non-resident policyholders have the minimum levels of residual liability and basic economic loss coverages mandated by § 65B.48, subd. 1 when operating their insured motor vehicles in the state of Minnesota.

With respect to policies issued to non-resident policyholders, one needs to look to §65B.50, subd. 1 – which is restricted in application to Minnesota licensed insurers — only if the claim at issue cannot be resolved by application of subdivision 2. Subdivision 1 requires that Minnesota licensed insurers extend basic economic loss and residual liability coverage to non-resident policyholders (again, assuming the insured vehicle is in Minnesota and the non-resident policyholder or his/her spouse or resident relative is involved in a motor vehicle accident in Minnesota). At first glance, the language of subdivision 1 (referenced above) would not seem to be necessary as subdivision 2 requires that “every insurer” (which includes both licensed and non-licensed insurers) afford these two types of coverage. However, subdivision 1 serves a “safety valve” function in the event subdivision 2 cannot be applied to the claim due to constitutional law constraints. See UMVARA Commentary, § 9(b) (1972). For example, if the Minnesota Supreme Court held that §65B.50, subd. 2 could not be constitutionally applied to claims where the only contact the insurer had with Minnesota was that its insured drove the insured vehicle into Minnesota, §65B.50, subd. 1 would nonetheless require that an insurance policy issued by a Minnesota licensed insurer be reformed to extend these coverages. In that event, the insurer’s obligation “arises from the duties imposed upon [the insurer] for the privilege of doing business in Minnesota …” under subdivision 1, not subdivision 2. Petty v. Allstate Ins. Co., 290 N.W.2d 763, 766 (Minn.1980).

Checklist – Claims involving Policies issued to Non-Resident Policyholders

If basic economic loss (a/k/a “no-fault”) or residual liability coverages are sought under a motor vehicle insurance policy that was issued to a non-resident policyholder, the following issues should be considered:

1. Does the policy contain a provision which states that its coverages will not be written up to provide the minimum coverages mandated by the jurisdiction where the accident occurs? If so, the provision is void and unenforceable under §65B.50, subd. 2 (“Notwithstanding any contrary provision in it ….”)

2. Does the policy contain a contractual “conformity” clause requiring that the policy be written-up to provide the minimum coverages mandated by the Minnesota No-Fault Act? If so, the insurer must provide the minimum no-fault and liability coverages mandated by the No-Fault Act based on its contractual undertaking and there is no need to look to §65B.50 or the Yates decision.

3. If the answer to no. 2 is “no”, was the insurer licensed to write motor vehicle insurance in Minnesota at the time of the accident? If so, the insurer must provide the minimum no-fault and residual liability coverages mandated by the Minnesota No-Fault Act pursuant to §65B.50, subd. 1.

4. If the answer to nos. 2 and 3 is “no”, did the insurer file a written certificate at any time pursuant to §65B.50, subd. 1 and neglect to revoke it? If so, the insurer must provide the minimum no-fault and residual liability coverages mandated by the Minnesota No-Fault Act pursuant to §65B.50, subd. 1.

5. If the answer to nos. 2, 3 and 4 is “no”, the insurer must provide the minimum no-fault and residual liability coverages mandated by the Minnesota No-Fault Act pursuant to §65B.50, subd. 2 and the Yates decision subject to constitutional law issues raised by the insurer. If a personal jurisdiction/minimum contacts issue is raised, the UMVARA commentary (section 9(b)) and State Farm Mutual Ins. Co. v. Tennessee Farmers Mutual Insurance Co., 645 N.W.2d 169 (Minn. Ct. App. 2002) will be relevant.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. © All rights reserved. 2016.

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Minnesota First-Party Coverages: Recovering Consequential Damages in Addition to the Policy Benefits when the Insurer Declines or Unreasonably Delays Payment.


bad faithBy Greg Johnson, Esq. Sometimes an unpublished appellate decision has some important rulings. In Swanny of Hugo, Inc. v. Integrity Mutual Ins. Co., 2015 WL 9437571 (Minn. Ct. App. 2015), the Minnesota Court of Appeals addressed the issue of whether an insured can recover consequential damages in addition to first-party insurance benefits when an insurer unreasonably delays payment of policy benefits. The Minnesota appellate court, in a decision released on December 28, 2015 held that an insured can recover consequential damages if the policy benefits are not “effectively or genuinely in dispute,” the damages are caused by the insurer’s conduct and were either a natural result of the breach or reasonably foreseeable when the policy was purchased. Most significantly, the court held that an insured need not prove the insurer engaged in willful, wanton, or malicious conduct to recover consequential damages from a first-party insurer.

The General Prohibition on Consequential Damages & the Olson Exception

At common law, Minnesota prohibited an insured from recovering damages in addition to insurance policy benefits in first-party insurance claims regardless of the insurer’s conduct. See Independent Grocery Co. v. Sun Ins. Co., 146 Minn. 214, 178 N.W. 582, 583 (1920) (insured’s damages limited to policy limits plus interest regardless of insurer’s malicious or wrongful breach of contract). Stated another way, the terms of the insurance policy ordinarily delineate the extent of an insurer’s liability to its insured. See Mattson Ridge, LLC v. Clear Rock Title, LLP, 824 N.W.2d 622, 630 (Minn. 2012); Reinsurance Ass’n of Minn. v. Hanks, 539 N.W.2d 793, 797 (Minn.1995); Emp’rs Mut. Cas. Co. v. Kangas, 310 Minn. 171, 174, 245 N.W.2d 873, 875 (1976).

However, the Minnesota Supreme Court recognized an exception to the general rule in Olson v. Rugloski, 277 N.W.2d 385, 387 (Minn. 1979). In Olson, the insured sought to recover lost profits after its insurer failed to pay actual damages the insured’s trucks sustained in a fire. Id. at 387. The parties disagreed about the maximum recovery per truck under the policy, but both parties agreed that the insured was entitled to a minimum payment of $5,000 per truck. Id. at 388. The insurer nevertheless refused to pay any benefits, which caused the insured to sustain lost profits while the trucks were not in service. Id. In awarding consequential damages to the insured, the court stated the following rule: “[w]hen the insurer refuses to pay or unreasonably delays payment of an undisputed amount, it breaches the contract and is liable for the loss that naturally and proximately flows from the breach.” Id. at 387–88.

Some insurance industry commentators have suggested that Olson limits consequential damages based on the breach of an insurance contract to a “bad-faith” breach and that bad faith requires a “willful, wanton, and malicious” refusal to make payment. However, in Swanny, the court found this interpretation of Olson too restrictive. 2015 WL 9437571 at * 2. While the unreasonable refusal to pay the undisputed minimum amounts in Olson constituted willful, wanton, and malicious conduct, nothing in the Olson opinion suggests that an insured must prove the insurer engaged in willful, wanton, and malicious misconduct to recover consequential damages. Id. Rather, for an insured to recover damages in excess of the policy limit, as in Olson, “it must prove the insurer unreasonably delayed payment of an undisputed amount of benefits and that its [consequential damages] were a natural and proximate consequence of [the insurer’s] breach of the … policy.” Mattson Ridge, LLC v. Clear Rock Title, LLP, 824 N.W.2d 622, 630 (Minn. 2012).

The Swanny Case

In Swanny, Carpenter’s Steak House in Hugo, Minnesota, was destroyed by fire in early January 2010. Integrity Mutual insured the restaurant. The policy covered various losses including the structure, business personal property and computers. It also provided limitless coverage for loss of business income (BI) over a 12–month restoration period.

Integrity immediately noted that the building was a total loss and advised the insured it would be covered by the policy’s BI-loss provisions. The insured submitted a proof-of-loss statement on January 28, 2010 for the restaurant structure and a $164,772 BI claim prepared by a public adjustor. Integrity’s investigation into possible arson and fraud lasted more than 100 days. During this period, the insured attempted unsuccessfully to open another restaurant. Although the insured successfully negotiated a lease, it lacked the funds to complete the deal. Integrity eventually paid policy-limit payments for damages to the restaurant structure, business personal property and computers, but paid nothing for BI loss after its accountant finished a report in December 2010 concluding the insured had no BI loss.

The insured sued Integrity, claiming that Integrity breached the policy by denying BI loss coverage and by failing to timely pay other covered losses, resulting in consequential damages. A jury found that Integrity breached the policy by refusing BI coverage at all and by failing to timely pay benefits. It awarded $275,000 in BI loss damages and $859,500 in consequential damages. (Although not clear from the appellate court’s opinion, the consequential damages must have been related to the non-BI coverages). On appeal, Integrity asserted, among other arguments, that the $859,500 of consequential damages were not permissible as a matter of law.

Integrity first claimed that Olson limited consequential damages to a bad-faith refusal to pay and bad faith in the context of an insurance contract required a “willful, wanton, and malicious” refusal to make payment. As noted above, the Court of Appeals rejected this argument.

Integrity next claimed that Olson required proof that the insurer conditioned payment on an unreasonable demand before becoming eligible for consequential damages. While Olson involved an unreasonable demand – i.e., insisting on a release in exchange for payment of the undisputed minimum amounts due under the policy. — the Swanny court held that Olson did not require proof of the same. Further, Integrity cited no case interpreting Olson in this narrow fashion, and the court was aware of none.

Integrity next argued that Olson does not allow consequential damages where the claims under the policy were disputed. Integrity argued that consequential damages may be recovered only “[w]hen the insurer refuses to pay or unreasonably delays payment of an undisputed amount.” Id. at * 3 (quoting Olson, 277 N.W.2d at 387-88)). While noting this argument presented a “close issue,” the Court of Appeals upheld the jury’s award because the evidence suggested the benefit amounts were not “effectively or genuinely” in dispute for a significant length of time. The court stated:

Immediately after the fire, Integrity claims adjustor Bodenheimer informed [the insured] that the building was a total loss and that [the insured] would be covered under the BI provision of the policy. After [the insured] submitted a proof-of-loss statement to Integrity in January 2010, it took six weeks for Integrity even to acknowledge it received the statement. Although Integrity announced that it would withhold payments until after it completed its investigation, the jury heard from [the insured’s] expert that no fraud indicators were ever present and that it was “very clear” as early as mid-January 2010 that the coverage would reach the policy limits. There was sufficient evidence from which the jury could find that the coverage amounts were not effectively or genuinely in dispute for a significant majority of the payment-delay period.

The courts in Olson and Swanny did not specifically address the legal standard by which to measure a first-party insurer’s conduct – i.e., when are first-party benefits “not in dispute” (Olson) or not “effectively or genuinely” in dispute (Swanny)? The legal standard under Olson and Swanny may be similar, if not identical, to the “fairly debatable” standard applied to claims under Minn. Stat. § 604.18, the first-party bad faith statute. See Friedberg v. Chubb & Son, Inc., 800 F.Supp.2d 1020, 1025 n. 1 (D.Minn.2011) (citing Wynia v. Metropolitan Life Ins. Co., Inc., 2010 WL 2816264 *9 (E.D. Wash. 2010) (noting the majority of jurisdictions apply the “fairly debatable” standard)). Whether there is a knowledge requirement similar to the bad faith statute — i.e., the insurer knew there was no dispute that benefits were payable or recklessly disregarded the same and whether such knowledge, if required, would be based on an objective or subjective standard, appear to be open issues. While the Swanny court held that an insured need not prove the insurer acted with a willful, wanton or malicious intent, courts may require an insured to prove some level of knowledge or culpability to recover consequential damages.

Under Olson, the insured must also show the consequential damages were caused by the insurer’s conduct and were either a natural result of the insurer’s conduct or reasonably foreseeable when the policy was purchased. See Mattson Ridge, LLC v. Clear Rock Title, LLP, 824 N.W.2d 622, 630 (Minn. 2012) (“[f]or an insured to recover in excess of the policy limit, as in Olson, it must prove the insurer unreasonably delayed payment of an undisputed amount of benefits and that its [consequential damages] were a natural and proximate consequence of [the insurer’s] breach of the … policy”); Elder v. Allstate Ins. Co., 341 F. Supp. 2d 1095, 1106 (D. Minn. 2004) (consequential damages were not recoverable because there were “no facts upon which a reasonable jury could conclude either that such damages arose naturally from the breach, or that such damages were contemplated by Swanson or Allstate when the Policy was issued”). Whether damages were reasonably foreseeable at the time the insurance policy was purchased is generally a question of fact for the jury. Lassen v. First Bank Eden Prairie, 514 N.W.2d 831, 838 (Minn.Ct.App.1994).

The Minnesota Court of Appeals also addressed the foreseeability requirement in Swanny. There, Integrity argued that consequential damages could not be awarded because the damages were not foreseeable when the insurance policy was purchased. After noting that Minnesota had adopted the foreseeability rule of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854) in Paine v. Sherwood, 21 Minn. 225, 232 (1875), the appellate court held the jury was properly instructed and there was enough evidence of foreseeability to sustain the jury’s verdict for the insured. The court stated:

Michael Anderson testified that when the policy began he believed that the BI coverage would protect the flow of the business following a catastrophic event. Insurance expert Elliott Flood opined that an insurance company would have known that failure to make timely payments could prevent a business from reopening. Integrity’s assertion that it lacked prior knowledge of [the insureds] specific financial vulnerability is also unavailing because the jury can hold a defendant liable for damages that a reasonable person ought to have foreseen as likely to result from a breach. Franklin Mfg. Co. v. Union Pac. R.R. Co., 311 Minn. 296, 298, 248 N.W.2d 324, 325 (1976). We are satisfied that the damages awarded here arise naturally from the breach or can “reasonably be supposed to have been contemplated by the parties when making the contract.” Lassen, 514 N.W.2d at 838.

The insured in Swanny also asserted a statutory bad-faith claim under Minn. Stat. § 604.18 relative to Integrity’s denial of the BI claim. To prevail on a statutory bad-faith claim, an insured must prove two elements: (1) the insurer lacked a reasonable basis to deny benefits; and (2) either the insurer knew about the lack of a reasonable basis or recklessly disregarded the lack of reasonable basis in denying benefits. Id. While a claim under the bad faith statute and a claim under Olson and Swanny both allow an insured to recover amounts in excess of the policy limits, the primary difference is that the statute focuses on the amount of policy “proceeds” (i.e., policy benefits) awarded to the insured. The statute allows the court to later add to the judgment the lesser of “one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000” (as well as reasonable attorney’s fees) if the insurer violates the statute. By contrast, under Olson and Swanny, the insured is entitled to recover different, consequential damages that result from the insurer’s failure to pay insurance policy benefits.

In Swanny, after noting that a majority of states with similar bad-faith statutes had adopted the “fairly debatable” standard for evaluating an insurer’s denial of benefits. (see Friedberg v. Chubb & Son, Inc., 800 F.Supp.2d 1020, 1025 n. 1 (D.Minn.2011)), the district court determined the BI claim was “fairly debatable” based on the different opinions reached by the parties’ experts as to how the BI provision functioned, the different opinions as to what sales data should be used to calculate BI loss, and the conflicting results in the calculation of the BI loss. The district court also found that Integrity had a reasonable basis to deny the BI loss claim because its understanding of the policy language differed from the insured’s and because its expert indicated the insured was not entitled to BI payments. Thus, the insured could not recover under the statute. On appeal, the Court of Appeals affirmed, concluding there was sufficient evidence in the record supporting the district court’s findings and the district court did not clearly err by denying the bad-faith claim.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney. Gregory J. Johnson ©All rights reserved 2016.

Posted in Bad Faith, Coverage, First Party Coverages | Leave a comment

Auto Coverage: Minnesota No-Fault Act Does not Apply to Out-of-State Insurers?


thIAFM15N9By Greg Johnson, Esq. In Founders Insurance Company v. Yates, A15-1174 (Minn. Ct. App. Feb. 29, 2016), the Minnesota Court of Appeals recently held that an auto insurer that is not licensed to write motor vehicle insurance in Minnesota (“out-of-state insurer”) is not required to provide minimum basic economic-loss and residual liability coverage to its named insured policyholder when involved in an accident in Minnesota. Although the Court of Appeals noted that the No-Fault Act “could be interpreted as applying to all insurers regardless of licensure, and the result would be consistent with the purposes of the no-fault act,” it ultimately held it was “bound by” its decision in Burgie v. League Gen. Ins. Co., 355 N.W.2d 466, 469-70 (Minn.Ct.App.1984), review denied (Minn. Feb. 16, 1985), where the court said that subdivisions 1 and 2 of Minn. Stat. 65B.50 must be read together such that they apply only to licensed insurers.

I have recently been retained to appeal the case to the Minnesota Supreme Court. Review with the Supreme Court is discretionary, but the case satisfies the requirements for further review. It presents the issue the Supreme Court specifically left unaddressed over 35 years ago in Petty v. Allstate Ins. Co., 290 N.W.2d 763, 765, n. 1 (Minn.1980) (“[w]e are not confronted with the problem of a … motor vehicle insured by a company not licensed to do business in Minnesota and do not pass on this issue”), has statewide impact (the Burgie rule followed in Yates creates a significant gap in Minnesota’s otherwise comprehensive auto insurance system) and will continue to recur until resolved by the Supreme Court as Minnesota’s minimum mandatory coverages exceed those of the vast majority of jurisdictions, including each of its surrounding states. So, stay tuned for (hopefully) further developments in this case.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. Gregory J. Johnson © All rights reserved. 2016.

Posted in BAP, Coverage, PAP | Tagged , | Leave a comment