Illinois Farmers Ins. Co. v. Schmuckler
| Decision Date | 14 December 1999 |
| Docket Number | No. C5-99-993.,C5-99-993. |
| Parties | ILLINOIS FARMERS INSURANCE COMPANY, Respondent, v. Marilyn SCHMUCKLER, Appellant. |
| Court | Minnesota Court of Appeals |
Eric J. Magnuson, Deborah C. Eckland, Gregory P. Wilken, Rider, Bennett, Egan & Arundel, LLP, Minneapolis, for respondent.
Norman Perl, Norman Perl & Associates, Minneapolis, for appellant.
Considered and decided by RANDALL, Presiding Judge, KLAPHAKE, Judge, and PETERSON, Judge.
Respondent Illinois Farmers Insurance Company (Illinois Farmers) brought this declaratory judgment action against its insured, appellant Marilyn Schmuckler, to recover amounts it previously paid to her under a renter's insurance policy. In an underlying tort action against Linda Creurer, who was also insured by Illinois Farmers under an automobile liability policy, the jury awarded Schmuckler property damages allegedly for the same losses. Schmuckler v. Creurer, 585 N.W.2d 425 (Minn.App.1998), review denied (Minn. Dec. 22, 1998).
On cross-motions for summary judgment, the district court rejected Schmuckler's argument that this declaratory judgment action was precluded by Minn.Stat. § 60A.41 (1998), which prohibits subrogation actions against insureds. The court further concluded that Illinois Farmers was entitled to reimbursement under the doctrine of equitable subrogation and that Schmuckler was required to reimburse Illinois Farmers from her tort recovery for the amounts it had paid under her renter's insurance policy. Schmuckler appeals.
Because the district court erred in allowing Illinois Farmers to recover under the principles of equitable subrogation, we reverse.
On April 16, 1995, Linda Creurer negligently backed her car into a townhouse rented and occupied by Schmuckler. The accident caused significant damage to Schmuckler's personal property, including a number of family heirlooms and antiques. Schmuckler had a renter's insurance policy with Illinois Farmers and claimed damages of approximately $75,000. Illinois Farmers paid its policy limit of $30,000, minus a $500 deductible, plus additional amounts to cover losses for food damage, expenses for lodging while her townhouse was under repair, and other miscellaneous expenses. In total, Illinois Farmers paid Schmuckler $31,889.99.
Schmuckler thereafter sued Creurer for negligence, seeking damages for emotional distress, property damage, and medical expenses. Creurer was covered under an automobile liability insurance policy that was also issued by Illinois Farmers. By special verdict, the jury awarded Schmuckler $32,455 "for the reasonable value of personal property damaged or destroyed, plus expenses reasonably incidental to the accident."
Post-trial, the court ruled that payment made by Illinois Farmers under the renter's insurance policy could not be offset from the jury's verdict because the collateral source statute, Minn.Stat. § 548.36 (1998), does not enumerate property damage payments as constituting a collateral source. On appeal, this court affirmed and held that Illinois Farmers' property damage payment under the renter's policy did not constitute a collateral source that could be deducted from the jury's award. Schmuckler v. Creurer, 585 N.W.2d 425 (Minn.App.1998), review denied (Minn. Dec. 22, 1998). In dicta, this court further stated:
While not a basis for our decision, we note that the collateral source statute also expressly excludes those payments for which a subrogation right has been asserted. Minn.Stat. § 548.36, subd. 2(1). Illinois Farmers asserted such a subrogation right in this case. Although Creurer's attorney later submitted an affidavit in which he claimed that Illinois Farmers was willing to waive that right, the trial court properly rejected this affidavit and determined that only Illinois Farmers could waive its subrogation right.
Id. at 428 (footnote omitted).
Illinois Farmers commenced this declaratory judgment action against Schmuckler while the appeal in Schmuckler v. Creurer was pending. The parties brought cross-motions for summary judgment. Following our decision in Schmuckler v. Creurer, the district court granted Illinois Farmers' motion and rejected Schmuckler's argument that this action was precluded by Minn.Stat. § 60A.41 (1998), which prohibits subrogation actions against insureds. The court further concluded that Illinois Farmers was entitled to reimbursement of the amount it had paid to Schmuckler under the doctrine of equitable subrogation. Schmuckler appeals.
Did the district court err in concluding that the doctrine of equitable subrogation requires Schmuckler to reimburse Illinois Farmers from her tort recovery for the $31,889.99 that Illinois Farmers paid to her under her renter's insurance policy?
Summary judgment is appropriate when there are no genuine issues of material fact and when either party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03. This case involves interpretation of a statute and application of equitable subrogation, which are generally issues of law subject to de novo review. See, e.g., Hibbing Educ. Ass'n v. Public Employment Relations Bd., 369 N.W.2d 527, 529 (Minn.1985)
(interpretation of statute); Fire Ins. Exch. v. Adamson Motors, 514 N.W.2d 807, 809 (Minn.App.1994) (right of subrogation).
The district court rejected Schmuckler's argument that Minn.Stat. § 60A.41 (1998) prohibits Illinois Farmers from recovering by subrogation sums that she received in tort from Creurer. That statute, entitled "Subrogation Against Insureds Prohibited," provides:
(d) Nothing in this section prevents an insurer from allocating the loss internally to the at-fault insured for purposes of underwriting, agency, and claims information.1
It is undisputed that subsection (a) does not apply because Schmuckler did not cause the losses at issue. With respect to subsection (b), the parties agree that it prohibited Illinois Farmers from subrogating to Schmuckler's rights against Creurer and from proceeding in Schmuckler's name against Creurer in the underlying tort action, Schmuckler v. Creurer.
These conclusions do not answer the question of whether Illinois Farmers can require Schmuckler to hold her proceeds in trust to reimburse Illinois Farmers for the amounts it paid under her renter's insurance policy, however. The principles of subrogation allow an insurer, once it has indemnified its insured for a first-party loss, to recover payments made to the insured by a third party responsible for that loss. 46A C.J.S. § 1470, at 366 (1993). Thus, once an insurer pays benefits to its insured, it becomes a subrogated and may bring an action against the insured to hold any proceeds the insured receives from a tortfeasor in a constructive trust for the insurer's benefit. Robert E. Keeton & Alan I. Widiss, Insurance Law § 13.10(4)(iii), at 245-46 (1988). Essentially, this was the type of relief granted the insurer in Hayward v. State Farm Mut. Auto. Ins. Co., 212 Minn. 500, 4 N.W.2d 316 (1942). The insured and the tortfeasor in Hayward, however, were insured by different insurance companies. Id. at 501, 4 N.W.2d at 317.
Minn.Stat. § 60A.41(b), which was enacted in 1989, specifically prohibits an insurance company from subrogating "itself to the rights of its insured to proceed against another person if that other person is insured for the same loss, by the same company." The statute does not require the insured and the other person to be insured by the same policy or to seek coverage under the same policy. Thus, when Illinois Farmers paid Schmuckler for her property damage under her renter's insurance policy, it acquired no subrogation rights against Creurer, who was insured under a different policy "for the same loss, by the same company." Id. Because Illinois Farmers...
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