Broton v. Western Nat. Mut. Ins. Co., C0-87-1124

• Decision Date: 20 October 1987
• Docket Number: No. C0-87-1124,C0-87-1124
• Citation: 413 N.W.2d 829
• Parties: William BROTON, as parent and natural guardian of John Broton, a minor, Respondent, v. WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Appellant, State Farm Mutual Automobile Insurance Company, Defendant.
• Court: Minnesota Court of Appeals

Page 829

413 N.W.2d 829

William BROTON, as parent and natural guardian of John Broton, a minor, Respondent, v. WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Appellant State Farm Mutual Automobile Insurance Company, Defendant.

No. C0-87-1124.

Court of Appeals of Minnesota.

Oct. 20, 1987.

Review Granted Dec. 23, 1987.

Syllabus by the Court

An injured party whose damages exceed the tortfeasor's liability limits may recover underinsured motorist benefits even if the tortfeasor's liability limits equal or exceed the injured party's own underinsured motorist limits.

Joseph F. Chase, O'Brien, Ehrick, Wolf, Deaner & Downing, Rochester, for respondent.

James T. Martin, Gislason, Martin & Varpness, P.A., Edina, for appellant.

Heard, considered and decided by POPOVICH, C.J., and RANDALL and STONE ^*, JJ.

OPINION

POPOVICH, Chief Judge.

This is a declaratory action seeking a determination of the effect of the 1985 legislative amendment to the No-Fault Automobile Insurance Act regarding underinsured motorist benefits. On cross-motions for summary judgment, the trial court ordered appellant to arbitrate respondent's claim for underinsured motorist benefits. We affirm.

FACTS

On March 31, 1986, John Bausman drove his father's car through a stop sign and struck another car. John Broton, a passenger in the Bausman car, was severely injured.

The Bausman vehicle was insured by appellant Western National Mutual Insurance Company with liability coverage of $100,000 per person and $300,000 per occurrence. The same policy also provided underinsured motorist (UIM) coverage in the amount of $100,000 per person and $300,000 per occurrence. The parties stipulated Broton's damages exceed $100,000.

In November 1986, respondent demanded appellant's payment of UIM benefits, because the liability coverage did not fully compensate John for his injuries. Appellant rejected respondent's demand because the UIM limits did not exceed the liability limits. Appellant did, however, tender a check in the amount of $100,000, representing the liability limits of the Bausman policy, and a release fully and finally settling all of respondent's claims against the Bausmans. Acceptance of the $100,000 check was expressly conditioned on execution of the release. Respondent did not cash the check, and returned it to appellant. This action followed.

ISSUES

1. After the 1985 legislative amendment to the No-Fault Act, may an injured party receive underinsured motorist benefits when the limits of such coverage do not exceed the limits of liability coverage?

2. Has respondent been "paid" within the meaning of Minn. Stat. Sec. 65B.49, subd. 4a (1986)?

ANALYSIS

1. Before the 1985 legislative amendment to the No-Fault Act, UIM coverage in Minnesota was "add on" coverage. UIM benefits were added to the liability benefits to the extent the insured's damages exceeded the tortfeasor's liability limits. "Difference of limits" coverage, where the insured only collects UIM benefits to the extent UIM limits exceed liability limits, had been rejected by the Minnesota courts. See Holman v. All National Insurance Co., 288 N.W.2d 244, 250 (Minn.1980); Hoeschen v. South Carolina Insurance Co., 378 N.W.2d 796, 799 (Minn.1985).

The bill containing the amendment involved in the present dispute was originally introduced as House File No. 345. Under the bill, UIM coverage in the amount of $25,000 per person and $50,000 per occurrence was made mandatory. The bill was adopted at the regular 1985 legislative session as part of Chapter 168. In addition to establishing the maximum liability of an insurer with regard to UIM benefits, the bill also prohibited stacking of uninsured and underinsured coverages. See 1985 Minn. Laws. ch. 168, Sec. 11, subds. 4, 4a.

Following the regular session, a special session was convened where proponents of stacking succeeded in amending the State Department appropriations bill which required insurers to offer insureds an election to stack uninsured and underinsured coverages. See 1985 Minn. Laws 1st Spec. Sess. ch. 13, Sec. 191, subd. 4(6). Opponents of stacking sought to restore the anti-stacking provisions enacted in the regular session by amending the Semi-States appropriations bill by three provisions: (1) Minn.Stat. Sec. 65B.49, subd. 4 was rewritten as Minn.Stat. Sec. 65B.49, subd. 3(a), using the original anti-stacking language; see 1985 Minn. Laws 1st Spec. Sess. ch. 10, Sec. 68; (2) Minn.Stat. Sec. 65B.49 subd. 4, which had been amended by the State Department appropriations bill, was repealed; 1985 Minn. Laws 1st Spec. Sess. ch. 10, Sec. 123, subd. 5; (3) because the order of passage of appropriations bills in a special session is unpredictable, a repealer provision provided any amendment to Minn.Stat. Sec. 65B.49, subd. 4 enacted at that same special session was void. 1985 Minn. Laws 1st Spec. Sess. ch. 10, Sec. 123, subd. 5. The two appropriations measures were enacted the same day without further amendments.

In Matter of State Farm Mutual Automobile Insurance Company, 392 N.W.2d 558 (Minn.Ct.App.1986), this court had to determine which of the two irreconcilable provisions was effective. We concluded the intent of the legislature in the 1985 regular and special sessions was to enact the "antistacking" language contained in chapter 168 and chapter 10.

The legislative history of the anti-stacking provisions is necessary because chapter 13 contained a provision not contained in chapter 10. It was not given effect of law in State Farm and is relevant to the determination of the issue in this case.

Subdivision 4(8) of chapter 13, section 191, provided:

The uninsured and underinsured motorist coverages required by this subdivision do not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements and proof of such is submitted to the insurer providing the uninsured and underinsured motorist coverages.

1985 Minn. Laws 1st Spec. Sess. ch. 13, Sec. 191, subd. 4(8). This exhaustion requirement is not a part of Minn.Stat. Sec. 65B.49 (1986).

Minn.Stat. Sec. 65B.49, subd. 4a, the heart of the controversy here, remained as originally enacted throughout the special session. It provides:

Liability on underinsured motor vehicles. With respect to underinsured motor vehicles, the maximum liability of an insurer is the lesser of the difference between the limit of underinsured motorist coverage and the amount paid to the insured by or for any person or organization who may be held legally liable for the bodily injury; or the amount of damages sustained but not recovered.

Id. (emphasis added). This requires only the amount paid to the injured party can be deducted from the limit of UIM coverage and there is no requirement the injured person exhaust underlying liability coverage before pursuing a UIM claim.

This interpretation is consistent with the definitions of UIM coverage and underinsured motor vehicle "Underinsured motorist coverage" means coverage for the protection of persons insured under that coverage who are legally entitled to recover damages for bodily injury from owners or operators of underinsured motor vehicles.

Minn.Stat. Sec. 65B.43, subd. 19 (1986).

"Underinsured motor vehicle" means a motor vehicle or motorcycle to which a bodily injury liability policy applies at the time of the accident but its limit for bodily injury liability is less than the amount needed to compensate the insured for actual damages.

Minn.Stat. Sec. 65B.43, subd. 17 (1986).

Appellant argues serious consequences flow from this interpretation: (1) UIM coverage, which appellant argues has always been considered an "excess reservoir" of coverage, would be transformed into the primary source of funds to which an injured party may resort; (2) claims against financially...