Hughes v. State Farm Mut. Auto. Ins. Co., 78-1626

• Decision Date: 17 August 1979
• Docket Number: No. 78-1626,78-1626
• Citation: 604 F.2d 573
• Parties: Maurine HUGHES, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 573

604 F.2d 573

Maurine HUGHES, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 78-1626.

United States Court of Appeals,

Eighth Circuit.

Submitted May 9, 1979.

Decided Aug. 17, 1979.

Douglas A. Christensen, Pearson & Christensen, Grand Forks, N. D., for appellant.

Mart R. Vogel and C. Nicholas Vogel, of Vogel, Brantner, Kelly Knutson, Weir & Bye, Fargo, N. D., for appellee.

Before LAY, STEPHENSON and McMILLIAN, Circuit Judges.

LAY, Circuit Judge.

Plaintiff Maurine Hughes brought this action against State Farm Mutual Automobile Insurance Company (State Farm) seeking a declaration of the rights and obligations of the parties under a recreational vehicle insurance policy issued to plaintiff by State Farm. Although the policy did not provide uninsured motorist coverage, plaintiff seeks a declaration that State Farm is required by the financial responsibility laws of North Dakota to provide uninsured motorist coverage of $20,000, the statutory minimum of $10,000 for each of two snowmobiles allegedly insured under the policy. The claim arises out of injuries sustained by plaintiff in a collision between a snowmobile driven by her husband, Donald T. Hughes, on which she was a passenger, and another snowmobile owned and operated by Vernon Sander. The Sander snowmobile was uninsured.

Initially plaintiff commenced an action in state court against her husband and Sander. While Sander answered, Hughes defaulted. State Farm refused to defend Hughes because of an household exclusion clause in the policy, and a judgment for $146,327.40 was entered against him. Following the decision in Hughes v. State Farm Mut. Auto. Ins. Co., 236 N.W.2d 870 (N.D.1975), in which the North Dakota Supreme Court ruled the family exclusion clause was void as violative of public policy and financial responsibility laws, State Farm paid its policy limits of $100,000 plus interest and costs.

Thereafter plaintiff notified State Farm of her intent to proceed against State Farm for uninsured motorist coverage for any judgment obtained against Sander and requested State Farm to enter settlement negotiations. State Farm notified plaintiff's counsel that it was "not interested in exploring settlement."

Plaintiff and Sander subsequently executed a Stipulation for Judgment and Compromise Agreement, by which Sander agreed to be indebted to plaintiff for $20,000 in exchange for full settlement of plaintiff's claim against him. ¹ Pursuant to the stipulation a judgment for $20,000 with interest was entered.

Plaintiff then commenced the instant action seeking a declaration that State Farm was required by the financial responsibility laws of North Dakota to provide uninsured motorist coverage of $10,000, the statutory minimum, for each of the two snowmobiles covered by the policy. The district court, the Honorable Paul Benson, ruled in favor of State Farm. The court concluded that: plaintiff had failed to prove that she was legally entitled to recover from Sander, (2) that in any event plaintiff could not recover pursuant to N.D.Cent.Code Section 26-02-44 without having the judgment amount offset by the amount she received from State Farm in partial satisfaction of the judgment against her husband, and (3) that in the event plaintiff could recover, only $10,000 was available in uninsured motorist coverage. Plaintiff appealed from the judgment so entered.

The issues presented on appeal are: (1) whether the district court erred in concluding that plaintiff had not established, as required by N.D.Cent.Code Section 26-02-42, that she was legally entitled to recover damages from Sander; (2) whether the district court erred in concluding that N.D.Cent.Code Section 26-02-44 required any recovery provided by uninsured motorist coverage to be offset by the proceeds of the judgment obtained against her husband; and (3) assuming the court erred on issues one and two, whether it erred in concluding that the maximum amount of uninsured motorist coverage to which plaintiff would be entitled would be $10,000.

I. Proof of Obligation of Uninsured Motorist.

North Dakota Cent. Code Section 26-02-42 reads:

No motor vehicle liability policy of insurance against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto . . . for the protection of persons insured thereunder who are Legally entitled to recover damages from owners or operators of uninsured motor vehicles and hit-and-run motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom. (Emphasis added.)

The parties agree that the phrase, "legally entitled to recover damages," requires a showing of liability on the part of the uninsured motorist as a prerequisite to recovery. They disagree over the effect of plaintiff's judgment against Sander.

State Farm's position, which essentially was adopted by the district court, is that the stipulation of facts upon which the case was tried did not contain any statements establishing Sander's liability for plaintiff's injuries and the judgment against Sander does not cure that defect. The district court relied on Midwest Mut. Ins. Co. v. Aetna Cas. & Sur. Co., 216 Va. 926, 223 S.E.2d 901 (1976). There both Midwest and Aetna provided uninsured motorist coverage for the same insured, who was injured in an accident with an uninsured motorist. Following the accident a dispute developed between Midwest and Aetna concerning the nature of the uninsured motorist coverage provided by their respective policies. After Midwest settled with the insured, it sued Aetna for contribution. At the time of settlement no action had been commenced against the uninsured motorist. The court held that without notice to the insurer and without entry of a judgment there existed no proof of the insurer's obligation unless the plaintiff assumed the burden of showing negligence on the part of the uninsured motorist. The case is clearly distinguishable. Here a valid judgment was entered against Sander. In addition State Farm was given notice of the pending suit before the judgment was entered. It is clear that under North Dakota law the insurer could have intervened in the action. ²

Plaintiff's position is that her judgment conclusively establishes Sander's liability and is not subject to collateral attack. We agree. A number of courts have held that judgments against uninsured motorists as to liability and damages are enforceable against the insurance company. See Christiansen v. Farmers Ins. Exch., 540 F.2d 472 (10th Cir. 1976); MFA Mut. Ins. Co. v. Lovins, 248 F.Supp. 108 (E.D.Ark.1965); Andeen v. County Mut. Ins. Co., 70 Ill.App.2d 357, 217 N.E.2d 814 (1966); Wells v. Hartford Accident & Indem. Co., 459 S.W.2d 253 (Mo.1970); Boughton v. Farmers Ins. Exch., 354 P.2d 1085 (Okl.1960); State Farm Mut. Auto. Ins. Co. v. Christensen, 88 Nev. 160, 494 P.2d 552 (1972); 19 G. Couch, Cyclopedia of Insurance Law § 82.1:4 (2d ed. 1968). A common thread in each of those decisions is the rationale that, once the insurer is given timely notice of the insured's suit and the opportunity to intervene and defend, the judgment obtained is a final determination of the issues it covers, notwithstanding the fact that the insurer was not a party to the suit by the insured against the uninsured motorist. See A. Widiss, A Guide to Uninsured Motorist Coverage § 7.14 (1968 & Supp. 1978). ³

In the absence of any controlling North Dakota law to the contrary, we find the overwhelming weight of authority would recognize the judgment entered against Sander as sufficient to establish his obligation under the statute.

II. Recoupment.

North Dakota Cent. Code Section 26-02-44 reads:

In the event of payment by an insurer to any person under the uninsured motorist coverage, the insurer making such payments shall, to the extent thereof, be entitled to the proceeds of any settlement of judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the damage for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer provided, however, this section shall not allow any insurer a cause of action against or recovery from the North Dakota state unsatisfied judgment fund.

Working from the premise that plaintiff's judgment against Donald Hughes established not only Hughes' liability but also the full extent of plaintiff's damages, the district court reasoned that Hughes was necessarily responsible for the damage for which any payment pursuant to Section 26-02-44 would be made. ⁴ Therefore, the district court reasoned under the statute that State Farm was entitled, to the extent of its payment, to the proceeds of any recovery by plaintiff from "Any person or organization legally responsible for the damage for which such payment is made . . . ." The court then concluded that State Farm would be entitled to recover the amount of any payment pursuant to Section 26-02-44 from the proceeds of plaintiff's judgment against Hughes. The district court reasoned that compulsory uninsured motorist coverage was not intended to provide an additional source of recovery, but rather to provide the only source of recovery where no other source exists. On appeal plaintiff challenges the district court's interpretation, contending that the proceeds referred to in the statute are those recovered by an insured from the owner or operator of an uninsured motor vehicle or from other persons or organizations who might be legally responsible for such owner or operator, not those recovered from the owner or operator of an insured vehicle. The payment contemplated by the...