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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