Nodak Mut. Ins. Co. v. American Family Mut. Ins. Co.

• Citation: 590 N.W.2d 670
• Decision Date: 06 April 1999
• Docket Number: No. C3-98-1792,C3-98-1792
• Court: Court of Appeals of Minnesota
• Parties: NODAK MUTUAL INSURANCE COMPANY, Respondent, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Appellant.

Page 670

590 N.W.2d 670

NODAK MUTUAL INSURANCE COMPANY, Respondent, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Appellant.

No. C3-98-1792.

Court of Appeals of Minnesota.

April 6, 1999.

Syllabus by the Court

North Dakota law, not Minnesota law, governs a subrogation claim between two automobile insurers when the subrogation claim arises from an accident in North Dakota and all other factors are balanced between the two states.

William P. Harrie, Nilles, Hansen & Davies, Ltd., Fargo, for respondent.

Paul R. Aamodt, Fargo, for appellant.

Considered and decided by SCHUMACHER, Presiding Judge, DAVIES, Judge, and WILLIS, Judge.

O P I N I O N

DAVIES, Judge.

On appeal from summary judgment for Nodak Mutual Insurance Company (Nodak), American Family Insurance Company (American Family) challenges the district court's determination that Minnesota law governs a subrogation dispute arising from an accident in North Dakota. We reverse.

FACTS

In November 1993, the automobiles of David Blumer, a North Dakota resident, and Gracey Morey, a Minnesota resident, collided in North Dakota, near the Minnesota border. Blumer's car was registered and licensed in North Dakota and insured by Nodak under a policy issued in North Dakota, while Morey's car was registered and licensed in Minnesota and insured by American Family under a policy issued in Minnesota. Pursuant to that "Minnesota" automobile insurance policy (and Minnesota law), American Family paid $6,201.64 in no-fault benefits for injuries that Morey sustained in the accident.

American Family subsequently asserted a subrogation claim requesting reimbursement from Nodak for the no-fault benefits it had paid Morey. In response, Nodak brought this action seeking a declaration that Minnesota law governed American Family's claim for subrogation against Nodak, and that American Family was, under Minnesota law, precluded from recovering from Nodak. The district court granted Nodak's motion for summary judgment, concluding that Minnesota law applied and that American Family was, therefore, not entitled to assert a right of subrogation against Nodak. This appeal followed.

ISSUE

Did the district court err in determining that Minnesota law governs a no-fault insurer's subrogation claim against an automobile liability insurer when the collision occurred in North Dakota and all other facts are balanced equally between Minnesota and North Dakota?

ANALYSIS

On appeal from summary judgment, the reviewing court asks whether genuine issues of material fact exist and whether the trial court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2,4 (Minn.1990). A reviewing court is not bound by the district court's conclusions of law. Wille v. Farm Bureau Mut. Ins. Co., 432 N.W.2d 784, 785 (Minn.App.1988).

I. Is a Choice of Law Necessary?

Before applying a choice-of-law analysis, a court must first determine whether there is an actual conflict between the legal rules of the two states. Jepson v. General Cas. Co., 513 N.W.2d 467, 469 (Minn.1994). An actual conflict exists if choosing the rule of one state or the other is "outcome determinative." Myers v. Government Employees Ins. Co., 302 Minn. 359, 363, 225 N.W.2d 238, 241 (Minn.1974).

North Dakota law permits a no-fault insurer to assert a fault-based claim against an automobile liability insurer to recover benefits the no-fault insurer has paid its insured. ¹ Minnesota law also allows subrogation by a no-fault carrier, but "only to the extent that recovery on the claim absent subrogation would produce a duplication of benefits or reimbursement of the same loss." Minn.Stat. § 65B.53, subd. 2 (1998). Thus, under Minnesota law, if a tort settlement or judgment does not result in a duplicate recovery, no right of reimbursement arises. An insured may even structure a settlement so that it includes only losses for which no basic economic loss benefits have been paid, thus precluding subrogation. See Principal Fin. Group v. Allstate Ins. Co., 472 N.W.2d 338, 342 (Minn.App.1991) (allowing such a settlement structure). ²

It is undisputed that Minnesota subrogation rules preclude the claim by American Family against Nodak, while North Dakota law allows such a claim; the choice of law is, thus, "outcome determinative." Because an actual conflict exists, choice-of-law analysis is necessary to decide which state's rules on subrogation should govern.

II. Constitutional Limits

As part of our analysis, we must consider whether the rule of each state may be constitutionally applied. Jepson, 513 N.W.2d at 469.

[F]or a State's substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.

Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 101 S.Ct. 633, 640, 66 L.Ed.2d 521 (1981). In this case, Nodak Mutual is a North Dakota insurer, its insured (Blumer) is a North Dakota resident, Blumer's car was registered and licensed in North Dakota, the Nodak policy was issued in North Dakota, and the accident happened in North Dakota. American Family's insured (Morey) is a Minnesota resident, Morey's car was registered and licensed in Minnesota, the American Family policy was issued in Minnesota, and American Family paid Morey no-fault benefits under Minnesota law. Both states have significant contacts, making application of either state's law constitutional.

III. Choice-Influencing Factors

The next step in choice-of-law analysis is to consider certain choice-influencing factors. These factors help reveal the reasons for choosing one state's law over another. Jepson, 513 N.W.2d at 470. The factors are: (1) predictability of result; (2) maintenance of interstate and international order; (3) simplification of the judicial task; and (4) advancement of the forum's governmental interest. Id. (citing Milkovich v. Saari, 295 Minn. 155, 161, 203 N.W.2d 408, 412 (1973)). ³

A. Predictability of Results

The first factor, predictability of results, primarily embodies the ideal that litigation arising from a given set of facts should be decided the same regardless of where the litigation occurs, so that neither party will benefit from "forum shopping." Robert A. Leflar, Choice-Influencing Considerations in Conflicts Law, 41 N.Y.U.L.Rev. 267, 282-83 (1966).

In addition, predictability is valuable in analyzing contract cases because it preserves the parties' justified contractual expectations by enhancing certainty as to which state's law will govern a dispute arising out of the parties' agreement. Jepson, 513 N.W.2d at 470. But, although in this case the no-fault benefits were paid under contract, this is not an action on the insurance policy. Rather, this is a statutory action for subrogation between two insurers. The interests of neither insured is affected. Predictability, therefore, favors neither state's law in this case, except to the extent choice of law properly represents disciplined decision-making. Jepson, 513 N.W.2d at 470 (noting factors not intended to spawn mechanical rules but to prompt court to carefully and critically consider each new fact situation and forthrightly explain its choice of law).

B. Interstate Order

The primary consideration in maintenance of the interstate order is to assure the free and unpenalized interstate movement of people and goods necessary to the success of the federal system. Robert A. Leflar, American Conflicts Law § 104, at 208 (3rd ed.1977). This requires deference to a sister state's legal rules when that sister state has a substantial concern with the problem, even when the forum state also has an identifiable interest. Id. If a transaction's more significant contacts are with the sister state, yet the forum applies its own law, interstate friction will develop. Id.

Deference to the state that is primarily concerned involves examining the contacts between the transaction and the states. Id. In this case, although each state has significant contacts, the North Dakota Supreme Court has, in a case nearly the mirror image of this case, discussed the "singular concern" each state holds for motor vehicle accidents occurring within its borders. See American Family Mut. Ins. Co. v. Farmers Ins. Exch., 504 N.W.2d 307, 310 (N.D.1993) (stating that, in statutory no-fault schemes of North Dakota and Minnesota, each demonstrates "singular concern" with coverage for accidents occurring within its boundaries). Because we agree with this observation by the North Dakota Supreme Court, we find that, on these facts, this factor favors North Dakota law.

C. Simplification of the Judicial Task

Simplification of the judicial task is relevant mainly for procedural issues. If a procedural rule is implicated, it may be better to apply the forum rule. American Conflicts, supra, § 105, at 209. But here, the conflict is over substantive law and a Minnesota court is wholly capable of choosing and applying the relevant North Dakota rule of substantive law.

D. Interest of the Forum

The concept of states' "governmental interests" as a basis for choice of law was Professor Brainerd Currie's great contribution to modern conflicts analysis. American Conflicts, supra, § 1, at 2. Currie, who was dissatisfied with the traditional conflicts rules that inappropriately and randomly nullified states' interests, advocated the following approach to help courts reach a rational and just result in each case:

2. When it is suggested that the law of a foreign state, rather than the law of the forum, should furnish the rule of decision, the court should first of all determine the governmental policy--perhaps it is helpful to say the social, economic, or administrative policy--that is expressed by the law of the forum. The court should then inquire whether the relationship of the forum state to the case at bar--that is, to the parties, to the...