Alton M. Johnson Co. v. M.A.I. Co.

• Decision Date: 21 November 1990
• Docket Number: No. C3-89-1042,C3-89-1042
• Parties: ALTON M. JOHNSON CO., a/k/a Alton M. Johnson Company, judgment creditor, Petitioner, Respondent, and Gary Frederickson, Intervenor, Respondent, v. M.A.I. COMPANY, formerly Mutual Agency, Inc., et al., Judgment Debtors, and Employers Reinsurance Corporation, garnishee, Petitioner, Appellant.
• Court: Minnesota Supreme Court

Page 277

463 N.W.2d 277

ALTON M. JOHNSON CO., a/k/a Alton M. Johnson Company judgment creditor, Petitioner, Respondent and Gary Frederickson, Intervenor, Respondent, v. M.A.I. COMPANY, formerly Mutual Agency, Inc., et al. Judgment Debtors and Employers Reinsurance Corporation, garnishee, Petitioner, Appellant.

No. C3-89-1042.

Supreme Court of Minnesota.

Nov. 21, 1990.

NOTE: THE LAWYERS OF THIS OPINION ARE CORRECTED AT 467 N.W.2d 825.

Syllabus by the Court

A party is not entitled to a jury trial on the reasonableness of a Miller-Shugart settlement. Prejudgment interest on the stipulated judgment accrues against the garnishee from the time of the commencement of the garnishment action.

Peter Lind, Foster, Waldeck & Lind, Ltd., Minneapolis, for appellant.

Vicki Rizzolo, American Family Ins., Eden Prairie, Marcus Christianson, Christianson, Stoneberg, Giles & Myers, Marshall, for respondent.

Peter W. Riley, DeParcq, Hunegs, Stone, Koenig & Reid, P.A.; R.M. Blanchard, William M. Hart, Raymond L. Tahnk-Johnson, Meagher & Geer; Phillip A. Cole, Kay Nord Hunt, Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, and Kathleen Mock, Ins. Federation of Minnesota, St. Paul, for amicus curiae.

Heard, considered, and decided by the court en banc.

SIMONETT, Justice.

In this appeal, the garnishee insurer claims it was erroneously denied a jury trial on whether the Miller-Shugart settlement made by its insured with the injured claimant was a reasonable settlement, hence binding on the insurer. ¹ We agree with the trial court and the court of appeals that "reasonableness" was not a jury issue, and affirm.

The litigation leading up to this case needs to be briefly related. The Alton M. Johnson Company (Johnson Company) was served with suit papers in a serious personal injury case commenced by claimant Gary Frederickson. Johnson Company discovered it did not have coverage under its liability policy for the Frederickson claim, ² so it hired legal counsel and defended the personal injury suit at its own expense. The result was a verdict, reduced for comparative fault, of $320,000. In addition, Johnson Company incurred attorney fees of $70,000 and suit expenses of $25,000, plus preverdict and postverdict interest. The total liquidated liability was in excess of $400,000.

This precipitated more litigation. Johnson Company commenced a lawsuit against LeRoy Larson, its insurance agent, and M.A.I. Company (Mutual Agency Insurance), the insurance agency for which Larson worked. We will refer to these defendants collectively as the Mutual Agency. Johnson Company alleged that its insurance agent had negligently failed to provide it with "tail" coverage (see footnote 2), and that it had thereby sustained damages in excess of $400,000. Mutual Agency tendered defense of the lawsuit to its errors and omissions carrier, Employers Reinsurance Corporation; the carrier, however, denied coverage on the grounds it had not received notice of the claim within the policy period. Rather than try the lawsuit, Johnson Company and Mutual Agency entered into a Miller-Shugart settlement. Defendant Mutual Agency stipulated that plaintiff Johnson Company could enter judgment against it for $300,000, the limits of the errors and omissions policy; Mutual Agency also assigned whatever rights it might have under its policy to Johnson Company. In turn, Johnson Company agreed it would not seek collection of its judgment from Mutual Agency personally. Employers Reinsurance was informed of these settlement negotiations but declined to get involved.

We now arrive at the litigation giving immediate rise to this appeal. Judgment for $300,000 having been entered in favor of plaintiff and against defendants, plaintiff Johnson Company filed a supplemental complaint in garnishment against Employers Reinsurance, as garnishee.

The trial court separated the two issues presented by the garnishment action as follows: (1) whether there was errors and omissions coverage for Johnson Company's claim; and (2) whether the Miller-Shugart judgment was reasonable so as to be collectible by the judgment creditor under the errors and omissions coverage. As it happened, the trial court tried the "reasonableness" issue first. Over the garnishee's objection, the case was tried to the court without a jury, and the trial court found the settlement to be reasonable. Next the trial court tried the coverage issue as a jury case. The jury found notice of claim had been duly given to the insurer so that there was coverage. The trial court ordered judgment entered in favor of plaintiff Johnson Company and against garnishee Employers Reinsurance for $300,000, plus interest, plus $16,250 for attorney fees in pursuing the insurance coverage issue.

On appeal the court of appeals held that the reasonableness of the Miller-Shugart settlement was properly tried without a jury and affirmed the trial court's findings of a reasonable settlement. The court of appeals also affirmed the award of attorney fees to Johnson Company, but reversed the trial court's award of prejudgment interest against the garnishee. Alton M. Johnson Co. v. M.A.I. Co., 451 N.W.2d 651 (Minn.App.1990). We granted the petition for further review of the garnishee, Employers Reinsurance. Johnson Company's petition for review, wherein it claimed the court of appeals erred in denying it prejudgment interest, was also granted.

I.

The sole issue raised by the garnishee insurer is whether it was entitled to a jury trial on the reasonableness of the Miller-Shugart settlement.

The court of appeals in several cases has held that reasonableness is an issue for the court. See Hartfiel v. McLennan, 430 N.W.2d 215, 220 (Minn.App.1988); Traver v. Farm Bureau Mutual Ins. Co., 418 N.W.2d 727, 732 (Minn.App.1988), pet. for rev. denied (Minn. Apr. 15, 1988); Osgood v. Medical, Inc., 415 N.W.2d 896, 903 (Minn.App.1987), pet. for rev. denied (Minn. Feb. 12, 1988). We agree. We might observe, in passing, that reasonableness is not a "question of law" here but a question of fact; it is an issue of fact, however, to be decided by the court as the factfinder. ³

In Miller v. Shugart, 316 N.W.2d at 735, we said:

The test as to whether the settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant would have settled for on the merits of plaintiff's claim. This involves a consideration of the facts bearing on the liability and damage aspects of plaintiff's claim, as well as the risks of going to trial.

A jury trial is guaranteed in those types of cases thought to be "legal" rather than "equitable" at the time of the adoption of our constitution. Rognrud v. Zubert, 282 Minn. 430, 165 N.W.2d 244, 247 (Minn.1969) (no entitlement to a jury trial in an action for specific performance). Employers Reinsurance argues this case is no different than a historically "legal" action for the recovery of money. We believe, however, this case is more accurately portrayed as an action to enforce an agreement against an indemnifier who was not a party to the agreement. The decisionmaker is being asked to apply its sense of fairness to evaluate a compromise of conflicting interests, a characteristic role for equity. In short, this action is more like an action in equity, which traditionally is tried to the court. Id.

Moreover, the nature of the evidence does not lend itself well to appraisal by a jury. The ultimate issue to be decided is the reasonableness of a settlement which avoids a trial. Reasonableness, therefore, is not determined by conducting the very trial obviated by the settlement. Consequently, the decisionmaker receives not only the customary...