Hasper v. Center Mut. Ins. Co.

• Citation: 2006 ND 220,723 N.W.2d 409
• Decision Date: 23 October 2006
• Docket Number: No. 20050316.,20050316.
• Parties: Jason HASPER, Plaintiff and Appellant, v. CENTER MUTUAL INSURANCE COMPANY, Defendant and Appellee.
• Court: United States State Supreme Court of North Dakota

723 N.W.2d 409

2006 ND 220

Jason HASPER, Plaintiff and Appellant, v. CENTER MUTUAL INSURANCE COMPANY, Defendant and Appellee.

No. 20050316.

Supreme Court of North Dakota.

October 23, 2006.

David S. Maring (argued) and Anthony J. Weiler (on brief), Maring Williams Law Office, Bismarck, N.D., for plaintiff and appellant.

Steven A. Storslee, Storslee Law Firm, P.C., Bismarck, N.D., for defendant and appellee.

KAPSNER, Justice.

[¶ 1] Jason Hasper has appealed from a judgment dismissing his claim for underinsured motorist ("UIM") benefits against Center Mutual Insurance Company ("Center Mutual"). We reverse and remand for further proceedings, concluding that a UIM insurer which seeks to deny coverage based upon the insured's failure to notify the insurer of a proposed settlement with the tortfeasor must demonstrate that it suffered actual prejudice resulting from the lack of notice.

I

[¶ 2] In November 2000, Hasper was injured in an automobile accident in South Dakota while riding as a passenger in a vehicle driven by his cousin, Chris Goehring. The vehicle was insured by a policy from Allied Insurance issued to Goehring's parents, Larry and Susan Goehring. Allied's claim representative contacted Hasper and advised him that the Goehrings' policy carried a limit of $100,000. On January 17, 2001, Hasper received the $100,000 policy limits from Allied and executed a release discharging Larry and Susan Goehring, "and all other persons for whose fault the Released Party is or is claimed to be liable," from all claims arising out of the accident.

[¶ 3] At the time of the accident, Hasper was a resident of his parents' household and his parents had an automobile insurance policy from Center Mutual which provided UIM coverage and personal injury protection ("PIP") coverage. Hasper did not contact or provide any notice to Center Mutual prior to signing the release and accepting the $100,000 from Allied. In April 2001, Hasper's attorney sent a letter to Center Mutual indicating Hasper would be making a claim for UIM benefits and stating that Hasper "intends to sign a release releasing the other driver, Chris Goehring," unless Center Mutual preserved its subrogation claim against Goehring by substituting its own check for $100,000 to Hasper. Center Mutual declined to substitute its check, stating that it was aware Hasper had previously signed a release and accepted the policy limits from Allied.

[¶ 4] In May 2002, Hasper sued Center Mutual seeking to recover UIM and PIP benefits. On cross-motions for summary judgment on the UIM claim, the district court determined that Hasper's failure to give prior notice of the settlement to Center Mutual prohibited him from now seeking UIM benefits. An order dismissing the UIM claim was entered, and the PIP claim went to trial. In July 2005, judgment was entered awarding Hasper damages against Center Mutual upon his PIP claim. Hasper appealed, alleging the district court erred in granting partial summary judgment dismissing his UIM claim against Center Mutual.

II

[¶ 5] Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. State ex rel. North Dakota Hous. Fin. Agency v. Center Mut. Ins. Co., 2006 ND 175, ¶ 8, 720 N.W.2d 425; Farmers Ins. Exch. v. Schirado, 2006 ND 141, ¶ 8, 717 N.W.2d 576. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Witzke v. City of Bismarck, 2006 ND 160, ¶ 7, 718 N.W.2d 586; Schirado, at ¶ 8. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. Witzke, at ¶ 7; Schirado, at ¶ 9. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact and entitled the moving party to judgment as a matter of law. Schirado, at ¶ 9. Whether the district court properly granted summary judgment is a question of law which we review de novo on the entire record. Center Mutual, at ¶ 8; Witzke, at ¶ 7.

III

[¶ 6] The dispositive issue on appeal is whether Hasper's failure to provide prior notice to Center Mutual of the settlement with the Goehrings precludes him from collecting UIM benefits from Center Mutual.

A

[¶ 7] In North Dakota, UIM coverage is essentially a function of statute. Score v. American Family Mut. Ins. Co., 538 N.W.2d 206, 209-10 (N.D.1995). Under N.D.C.C. § 26.1-40-15.3(1), an insurer must provide UIM coverage at limits equal to the uninsured motorist coverage, and the UIM coverage must pay compensatory damages which the insured would be legally entitled to collect from the owner or operator of the underinsured vehicle. A UIM insured who wishes to settle with the underinsured tortfeasor generally must give written notice of the proposed settlement to the UIM insurer, and coverage may be excluded if the insured fails to give notice:

The uninsured and underinsured coverages provided for in sections 26.1-40-15.1 through 26.1-40-15.7 do not apply to bodily injury, sickness, disease, or death resulting therefrom of an insured:

....

7. When the insured, without the written consent of the insurer, shall make any agreement or settlement with any person who may be legally liable therefor, if such agreement adversely affects the rights of the insurer. The insurer is not bound by any agreement or settlement without its prior knowledge and consent. This limitation does not apply to underinsured motorist coverage when the insured has advised the insurer, in compliance with subsection 2 of section 26.1-40-15.5, and the insurer has failed to advance the required payment to protect its right of reimbursement and subrogation.

N.D.C.C. § 26.1-40-15.6(7); see Sandberg v. American Family Ins. Co., 2006 ND 198, ¶ 10, 722 N.W.2d 359. Upon receipt of notice of a proposed settlement, the UIM insurer must substitute its own funds for the proposed settlement to preserve its subrogation rights against the underinsured tortfeasor:

No insurer providing underinsured motorist coverage has a right of subrogation against an underinsured motorist if the insurer has been provided with a written notice in advance of an agreement, settlement, or judgment between its insured and the underinsured motorist, and the insurer fails to advance a payment to the insured in an amount equal to the tentative agreement or settlement within thirty days following receipt of such notice. An insurer advancing such payment has full rights of subrogation.

N.D.C.C. § 26.1-40-15.5(2).

[¶ 8] The language of the UIM endorsement to the Haspers' policy from Center Mutual essentially corresponds to the statutory provisions. Section A(2) of the endorsement provides for UIM coverage if the policy limits of the underinsured motorist have been exhausted by judgments or payments, or if Center Mutual has advanced funds to substitute for a proposed settlement. Section E(2)(c) of the endorsement creates the duty of the insured to notify Center Mutual of a proposed settlement:

A person seeking Underinsured Motorists Coverage must also promptly notify us in writing of a tentative settlement between the "insured" and the insurer of the "underinsured motor vehicle" and allow us 30 days to advance payment to that "insured" in an amount equal to the tentative settlement to preserve our rights against the insurer, owner or operator of such "underinsured motor vehicle".

[¶ 9] Under North Dakota law and these policy provisions, the insured should promptly notify the UIM carrier if a tentative settlement has been reached with the tortfeasor and the tortfeasor's insurer. The UIM insurer then has thirty days to investigate and determine whether there is a reasonable possibility of collecting more than the policy limits from the underinsured tortfeasor. The insurer then may decide whether to substitute its check in an amount equal to the proposed settlement to its insured and preserve its subrogation rights.

B

[¶ 10] The crucial question presented in this case is whether Hasper's acceptance of the settlement and release of the Goehrings without providing prior notice to Center Mutual "adversely affects the rights of the insurer." N.D.C.C. § 26.1-40-15.6(7). The district court concluded Center Mutual's rights were adversely affected because Center Mutual could have sought a judgment against Chris Goehring which may have been collectable in the future. In essence, the court held that failure to provide prior notice of a settlement will always, as a matter of law, adversely affect the UIM insurer because it will have lost its right to pursue a subrogation claim which theoretically might be collectable some time in the future. The district court thereby effectively read the requirement of an adverse effect out of the statute because, under the court's rationale, there will always be a loss of subrogation rights and a corresponding adverse effect.

[¶ 11] The vast majority of courts considering similar notice-of-settlement or consent-to-settle clauses have held that the insurer has the burden of establishing that an unauthorized settlement had an actual adverse effect on the insurer's interests. See, e.g., Shelter Mut. Ins. Co. v. Bough, 310 Ark. 21, 834 S.W.2d 637, 640 (1992) (insurer failed to show insured's unauthorized settlement with tortfeasor and tortfeasor's insurance carrier prejudiced its right of subrogation or possible recovery from tortfeasor or any other potentially liable party); Taylor v. Government Employees Ins. Co., 90 Hawai`i 302, 978 P.2d 740, 749 (Haw.1999) (...