Miller v. Shugart, 81-533.
| Decision Date | 12 March 1982 |
| Docket Number | No. 81-533.,81-533. |
| Citation | 316 NW 2d 729 |
| Parties | Lynette Fitzgerald MILLER, Respondent, v. Mark SHUGART, et al., Respondents, and Milbank Mutual Insurance Company, Appellant. |
| Court | Minnesota Supreme Court |
Wm. J. Nierengarten, Austin, for appellant.
Peterson & Thompson, Winona, for Miller.
Hoversten, Strom, Johnson & Rysavy, Austin, for Shugart, et al.
Considered and decided by the court en banc without oral argument.
While Milbank Mutual Insurance Company was litigating whether it had coverage for both the insured car owner and the driver, the insured owner and the driver settled with the injured plaintiff and confessed judgment for a stipulated sum. After the coverage question was decided adversely to Milbank, plaintiff commenced a garnishment action against Milbank to collect on the judgment. Milbank appeals from an order in the garnishment proceeding granting plaintiff summary judgment to collect from Milbank on defendants' confessed judgment to the extent of the policy limits plus interest. Finding that Milbank must indemnify, we affirm plaintiff's recovery of the policy limits but reverse the ruling on interest.
Plaintiff Lynette Miller was injured in an automobile accident on June 19, 1976, when a car owned by defendant Barbara Locoshonas and driven by defendant Mark Shugart, in which Lynette was a passenger, struck a tree. Locoshonas had an auto liability policy with Milbank. Milbank, however, contended Shugart, the driver of the car, was not an agent of the owner and thus not covered under the policy. To determine this coverage question, Milbank, shortly after the accident, commenced a declaratory judgment action. Milbank provided separate counsel at its expense to represent the insured and the driver.
On January 8, 1979, judgment was entered in the declaratory judgment action adjudging that Milbank's policy afforded coverage to both Locoshonas and Shugart. On January 31, 1979, plaintiff Lynette Miller commenced her personal injury action against Locoshonas and Shugart. In April 1979 Milbank appealed the declaratory judgment decision to this court, and in April 1980 we summarily affirmed.
Twice while the appeal was pending, counsel for Locoshonas and Shugart advised Milbank they were negotiating a settlement with plaintiff's attorney and invited Milbank to participate in the negotiations. Milbank refused, pointing out it could not do so while the coverage question was unresolved.
In September 1979, plaintiff and the two defendants signed a stipulation for settlement of plaintiff's claims in which defendants confessed judgment in the amount of $100,000, which was twice the limit of Milbank's policy. The stipulated judgment further provided that it could be collected only from proceeds of any applicable insurance with no personal liability to defendants. Milbank was advised of the stipulation. Judgment on the stipulation was entered on November 15, 1979.
In May 1980, following this court's summary affirmance on the coverage issue, plaintiff Miller served a garnishment summons on Milbank. Milbank interposed an answer to the supplemental complaint setting out the history of the litigation and alleging that the confession of judgment was in violation of its policy and that Milbank was thus not bound by the judgment. Plaintiff then moved for summary judgment in her favor for $50,000, the policy limits, plus interest and costs. Milbank countered with its own motion for summary judgment, claiming defendants had breached the cooperation clause of the policy, that garnishment did not lie, and that the confessed judgment was invalid. The trial court granted plaintiff's motion, adjudging plaintiff was entitled to recover the $50,000 limits plus interest on $100,000.
Three main issues present themselves: (1) Does garnishment lie, (2) may Milbank avoid responsibility for the confessed judgment, and (3) if Milbank is bound by the judgment, must it also pay interest on the entire $100,000?
Milbank says there has never been a trial on the merits, that the purported judgment, insofar as it is concerned, is still an "unliquidated tort claim," and that, consequently, the sum due plaintiff is not "due absolutely," and so garnishment does not lie. Minn.Stat. § 571.43 (1980). Milbank overlooks, however, that as between plaintiff and the defendants the tort claim has been liquidated and reduced to a judgment. So long as this has occurred, the basis for garnishment exists. Northwestern National Bank of Bloomington-Richfield v. Hilton & Associates, 271 Minn. 564, 136 N.W.2d 646 (1965).
What Milbank is really saying is that the judgment does not liquidate the claim because it obligates the defendants to pay nothing. While it is true that defendants need not pay anything, it is also true that the judgment effectively liquidates defendants' personal liability. We hold, therefore, that plaintiff may seek to collect on that judgment in a garnishment proceeding against the insurer.
The next question is whether the judgment stipulated to by the plaintiff and the defendant insureds is the kind of liability the insurer has agreed under its policy to pay. This involves an inquiry into whether the judgment is the product of fraud or collusion perpetrated on the insurer and whether the judgment reflects a reasonable and prudent settlement.
A. We first must deal with a threshold issue. Milbank argues the indemnity agreement of its policy has been voided because the insureds breached their duty under the policy to cooperate.1 We disagree.
Under the auto liability policy, Milbank has a duty to defend and indemnify its insureds, and the insureds have a reciprocal duty to cooperate with their insurer in the management of the claim. Plaintiff contends that defendants were relieved from their duty to cooperate because Milbank breached its duty to defend. We would put the issue differently. Milbank has never abandoned its insureds nor, by seeking a determination of its coverage, has it repudiated its policy obligations.2 Milbank had a right to determine if its policy afforded coverage for the accident claim, and here Milbank did exactly as we suggested in Prahm v. Rupp Construction Co., 277 N.W.2d 389, 391 (1979), where we said a conflict of interest might be avoided by bringing a declaratory judgment action on the coverage issue prior to trial. This is the route Milbank followed, appropriately providing another set of attorneys to defend the insureds in the declaratory judgment action.3
On the other hand, while Milbank did not abandon its insureds neither did it accept responsibility for the insureds' liability exposure. What we have, then, is a question of how should the respective rights and duties of the parties to an insurance contract be enforced during the time period that application of the insurance contract itself is being questioned. Viewed in this context, Milbank's position, really, is that it has a superior right to have the coverage question resolved before the plaintiff's personal injury action is disposed of either by trial or settlement. It is unlikely plaintiff could have forced defendants to trial before the coverage issue was decided. Put this way, the question becomes: Did the insureds breach their duty to cooperate by not waiting to settle until after the policy coverage had been decided? In our view, the insureds did not have to wait and, therefore, did not breach their duty to cooperate.
While the defendant insureds have a duty to cooperate with the insurer, they also have a right to protect themselves against plaintiff's claim. The attorneys hired by Milbank to represent them owe their allegiance to their clients, the insureds, to best represent their interests.4 If, as here, the insureds are offered a settlement that effectively relieves them of any personal liability, at a time when their insurance coverage is in doubt, surely it cannot be said that it is not in their best interest to accept the offer. Nor, do we think, can the insurer who is disputing coverage compel the insureds to forego a settlement which is in their best interests.
On the facts of this case we hold, therefore, that the insureds did not breach their duty to cooperate with the insurer, which was then contesting coverage, by settling directly with the plaintiff.
B. The next issue is whether Milbank may avoid the stipulated judgment on the grounds of fraud or collusion. We hold as a matter of law that the judgment was not obtained by fraud or collusion.
We start with the general proposition that a money judgment confessed to by an insured is not binding on the insurer if obtained through fraud or collusion. Coblentz v. American Security Co. of New York, 416 F.2d 1059 (5th Cir. 1969); cf. Spencer v. Hawkeye Security Ins. Co., 216 N.W.2d 406 (Iowa 1974). In this case, however, Milbank has not made any showing of fraud or collusion. In its answer to the supplemental complaint, Milbank has neither pleaded fraud or collusion nor pleaded facts for such a defense. See Rules of Civil Procedure, Rule 9.02 () Neither, in opposing plaintiff's motion for summary judgment, has Milbank submitted affidavits or other evidence to make out any fact issue of fraud or collusion. Rules of Civil Procedure, Rule 56.05.
As we understand Milbank's argument, it is that the fraud and collusion consist of the defendant insureds settling the claims over Milbank's objections and contrary to the insurer's best interests, and in confessing judgment for a sum twice the amount of the policy limits. This conduct, however, need be neither fraudulent nor collusive. As we have just held, the defendant insureds had a right to make a settlement relieving them of liability. They also advised Milbank of what they were doing. Moreover, they waited to settle until after the district court had found coverage to exist....
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...and, if the jury finds that this is so, then the stipulated judgment will not be binding against Mid-Century. See Miller v. Shugart, 316 N.W.2d 729, 734 (Minn.1982) (stating that "a money judgment confessed to by an insured is not binding on the insurer if obtained though fraud or collusion......