By 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.