Progressive Cas. Ins. Co. v. Kraayenbrink, C5-84-746

• Decision Date: 02 July 1985
• Docket Number: No. C5-84-746,C5-84-746
• Parties: PROGRESSIVE CASUALTY INSURANCE COMPANY, Appellant, v. William KRAAYENBRINK, Jr., Respondent, Ronald C. Gathje, et al., Defendants, State Farm Insurance Company, Respondent.
• Court: Minnesota Court of Appeals

Page 455

370 N.W.2d 455

PROGRESSIVE CASUALTY INSURANCE COMPANY, Appellant, v. William KRAAYENBRINK, Jr., Respondent Ronald C. Gathje, et al., Defendants State Farm Insurance Company, Respondent.

No. C5-84-746.

Court of Appeals of Minnesota.

July 2, 1985.

Review Denied September 19, 1985.

Syllabus by the Court

1. The trial court did not err in finding that the general release executed by the insured as part of a settlement with tortfeasors and their insurance company, without prior notice to his own insurance company, did not preclude him from recovering underinsurance benefits because the insured's policy contained ambiguous clauses permitting a reasonable belief that prior notice was unnecessary.

2. The trial court did not err in finding that the insurance policy's definition of "underinsured motor vehicle" invalidly excluded the insured's injuries from coverage or in reforming the policy because the definition is contrary to the purpose of the No-Fault Act.

Daniel J. Heuel, Muir, Heuel & Carlson, P.A., Rochester, for Progressive Cas. Ins. Co.

Thomas Wolf, O'Brien, Ehrick, Wolf, Deaner & Downing, Rochester, for William Kraayenbrink.

Jeffrey Hanson, Dunlap, Keith, Finseth, Berndt & Sandberg, Rochester, for State Farm Ins. Co.

Considered and decided by POPOVICH, C.J., and PARKER and FOLEY, JJ., with oral argument waived.

OPINION

PARKER, Judge.

This appeal arises from a declaratory judgment action commenced by appellant Progressive Casualty Insurance Company, for a determination of the validity of its denial of underinsured motorist benefits to its insured, respondent William Kraayenbrink, Jr. Kraayenbrink counterclaimed for a declaration of coverage in his favor.

Kraayenbrink was injured when his motorcycle was struck by an automobile owned by Ronald Gathje and driven by Jeffrey Gathje. Kraayenbrink settled a personal injury claim against the Gathjes and their automobile liability insurer, State Farm Insurance Company, for the policy limits. The settlement included a general release. The next day Kraayenbrink applied for underinsured motorist benefits from his own insurer, Progressive. This was the first notice Progressive had of the accident and settlement.

Progressive denied Kraayenbrink's claim on grounds that (1) he had destroyed Progressive's right of subrogation by releasing the Gathjes before giving notice of the accident or proposed settlement to Progressive and thus violated the insurance contract; and (2) no underinsured motorist benefits were available to Kraayenbrink because the Gathje vehicle did not meet the policy definition of "underinsured."

Cross-motions for summary judgment were filed on stipulated facts, and the trial court granted judgment against Progressive. ¹ We affirm.

FACTS

On August 15, 1980, William Kraayenbrink incurred personal injuries and property damage when the motorcycle he was riding was struck by a car owned by Ronald Gathje and operated by his son, Jeffrey. The extent of the damage from personal injuries is in dispute; however, Kraayenbrink claims it exceeds $100,000. The Gathjes carried automobile liability insurance with respondent State Farm Insurance Company, with residual liability limits of $100,000 per person.

On February 1, 1983, State Farm, on behalf of the Gathjes, paid Kraayenbrink $100,000 in settlement of his personal injury claim and $3,000 in settlement of his property damage claim. In exchange Kraayenbrink gave the Gathjes and State Farm a general release. On February 2, 1983, Kraayenbrink made a claim for underinsured motorist benefits on his own policy with Progressive. This was the first notice Progressive had of the accident and of the negotiated settlement and release between Kraayenbrink and the Gathjes and State Farm.

Kraayenbrink's policy contained the following "notice" provision:

In the event of an accident or loss, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

The Progressive policy also contained an "exhaustion" clause:

The company shall not be obligated to make any payment because of bodily injury to which this insurance applies and which arises out of the ownership, maintenance or use of an underinsured motor vehicle until after the limits of liability under all bodily injury liability bonds or insurance policies applicable at the time of the accident have been exhausted by payment of judgments or settlements.

The policy defines "underinsured motor vehicle" as:

[A] motor vehicle with respect to the ownership, maintenance or use of which the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of accident is less than the applicable limits of liability under this insurance.

The applicable limits of liability under the Progressive policy are $25,000/$50,000, while the limits on the Gathje vehicle are $100,000.

The Progressive policy also included the following "exclusion" clause:

The policy does not apply under Part IV [protection against uninsured and underinsured motorists]:

* * *

* * *

(b) to bodily injury to an insured while occupying a motor vehicle (other than an insured automobile) owned by a named insured or any resident in the same household, or through being struck by such a motor vehicle.

Progressive denied Kraayenbrink's claim on grounds that (1) he had no right of action against Progressive because he destroyed its subrogation rights by releasing the Gathjes before giving notice of the accident or proposed settlement and thus violated the insurance contract; and (2) underinsured motorist benefits are not available to Kraayenbrink because the Gathje vehicle did not meet the policy definition of "underinsured."

The parties stipulated that Ronald Gathje was employed at IBM and owned personal, non-exempt assets which would have been available for Progressive's subrogation claim had Gathje not been released by Kraayenbrink.

Progressive brought this action requesting a declaratory judgment that there is no coverage available to Kraayenbrink under his underinsured motorist policy with Progressive. Kraayenbrink counterclaimed for the insurance benefits. The parties filed cross-motions for summary judgment and submitted the case to the trial court on stipulated facts. The trial court granted judgment against Progressive.

ISSUES

1. Did the trial court err in granting summary judgment based on disputed issues of material fact?

2. Did the trial court err in finding that the general release executed by Kraayenbrink as part of the settlement with the Gathjes and State Farm, without prior notice to Progressive, did not preclude Kraayenbrink from recovering underinsured motorist benefits?

3. Did the trial court err in finding that the policy definition of "underinsured motor vehicle" invalidly excluded Kraayenbrink's injuries from coverage and in reforming the policy?

DISCUSSION

I

Progressive argues that the trial court's summary judgment was improper because it is based on findings regarding Kraayenbrink's state of mind, a disputed fact. Summary judgment may be granted if "there is no genuine issue as to any material fact." Minn.R.Civ.P. 56.03. The nonmoving party has the benefit of that view of the evidence which is most favorable to him and is entitled to have all doubts and factual inferences resolved against the moving party. Nord v. Herreid, 305 N.W.2d 337, 339 (Minn.1981).

The matter was submitted by the parties based on stipulated facts, Progressive's insurance policy, and the release. Kraayenbrink's reasoning in not notifying Progressive of his accident or proposed settlement was not a part of that record. However, in his reply memorandum Kraayenbrink argued that the exhaustion and exclusion clauses in Progressive's insurance policy contained language which reasonably caused him to believe he was permitted to settle with the tortfeasor before giving notice to Progressive. On this issue the trial court found:

16. The language of the Exhaustion Clause led Kraayenbrink to reasonably believe that he was required, or at least allowed, to settle with the Gathjes and State Farm before he would be able to collect from Progressive. This would justify his failure to give Progressive notice of claim prior to the execution of the release.

17. The language of the Exclusion Clause led Kraayenbrink to reasonably believe that he had no coverage under the Progressive policy for the motorcycle accident. This would justify his failure to notify Progressive of his claim prior to the release.

Despite the trial court's use of language which appears to make a factual finding, Kraayenbrink argues that the court actually made a legal interpretation of language in the insurance policy based on the "reasonable person" standard. As Kraayenbrink points out, this is entirely proper. "The terms of an insurance policy should be construed according to what a reasonable person in the position of the insured would have understood the words to mean rather than what the insured intended the language to mean." Canadian Universal Insurance Co., Ltd. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn.1977).

We agree with Kraayenbrink. The trial court arrived at a legal conclusion as to the impact that the exhaustion and exclusion clauses could reasonably have had on an insured such as Kraayenbrink. Kraayenbrink's actual state of mind was irrelevant to this question and its resolution. Although the trial court's finding is worded in such a way that it appears to be a determination of fact, it is actually a legal conclusion. Thus, the trial court did not grant summary judgment based on a disputed material fact but, rather, construed the contract terms and came to the legal...