Warrick v. Graffiti, Inc.

• Decision Date: 25 June 1996
• Docket Number: No. C3-96-220,C3-96-220
• Citation: 550 N.W.2d 303
• Court: Minnesota Court of Appeals
• Parties: James WARRICK, et al., Appellants, v. GRAFFITI, INC., d/b/a Howie's Sports Bar, Park Glen National Insurance Company, Kenneth Finken, d/b/a Sportsmans, Inc. a/k/a Sportsmans Bar & Grill, a/k/a McSports, Inc., Empire Fire and Marine Insurance Company, Respondents.

Page 303

550 N.W.2d 303

James WARRICK, et al., Appellants, v. GRAFFITI, INC., d/b/a Howie's Sports Bar, Park Glen National Insurance Company, Kenneth Finken, d/b/a Sportsmans, Inc. a/k/a Sportsmans Bar & Grill, a/k/a McSports, Inc., Empire Fire and Marine Insurance Company, Respondents.

No. C3-96-220.

Court of Appeals of Minnesota.

June 25, 1996.

Review Denied Sept. 20, 1996.

Syllabus by the Court

1. When an insurer does not notify the insured of adverse changes in a renewal policy until after the policy has become effective, those changes can have no detrimental effect if the insured has not consented to them.

2. When language in a renewal insurance policy has been changed, but notification of the changes is not received until after the policy has been renewed, the language of the former, more favorable policy will control.

3. Notice of adverse changes in policy language coming after an insurance policy has already been renewed may be effective only with respect to subsequently issued policies.

William J. Cashman, Rajkowski & Hansmeier, Ltd., St. Cloud, for Appellants.

Harry E. Burns II, Burns Law Offices, P.A., St. Cloud, for Respondent Graffiti, Inc.

Jeremiah P. Gallivan, Scott H. Rauser, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, for Respondent Part Glen National Insurance Company.

G. Barry Anderson, Arnold & McDowell, Minneapolis, for Respondent Kenneth Finken.

Richard J. Chadwick, Richard A. Koehler, Chadwick & Associates, Chanhassen, for Respondent Empire Fire and Marine Insurance Company.

Considered and decided by PARKER, P.J., and RANDALL and SCHUMACHER, JJ.

OPINION

PARKER, Judge.

The district court concluded that because respondent Park Glen National Insurance Company (Park Glen) had complied with Minnesota case law regarding notification requirements, the new language in its renewal policy issued to Graffiti, Inc., d/b/a Howie's Sports Bar (Howie's), was effective and applied to appellants' claims for damages. The district court also granted appellants' request for prejudgment interest under the new policy language. Appellants challenge the district court's decision, arguing that an insurer may not unilaterally change the terms of an effective insurance policy merely by providing notice to the insured. Park Glen cross-appeals, arguing that even under the new policy language, appellants are not entitled to prejudgment interest. We reverse and remand.

FACTS

In November 1991, James Warrick was struck by the automobile of an intoxicated driver as Warrick was crossing a street in St. Cloud, Minnesota. Warrick suffered the amputation of his right leg below the knee, the loss of the use of his right arm, and a cervical injury that has rendered him a paraplegic. Warrick and his spouse, Wanda Warrick, brought a civil action against four bars where the intoxicated driver had been drinking prior to the accident: The Blue Heron Americana Inn, BookEms Bar, Graffiti, Inc., d/b/a Howie's Sports Bar, and Sportsmans Bar & Grill.

The Warricks settled their claims against all defendants. The terms of the settlement required Howie's to enter a Miller-Shugart agreement with the Warricks. The agreement provided that Howie's liquor liability carrier, Park Glen, would pay the $50,000 bodily injury limits to James Warrick and the $50,000 loss of means of support limits to Wanda Warrick. The parties also agreed that Wanda Warrick's claim for pecuniary losses exceeded $200,000. The Warricks then commenced this action, seeking a declaratory judgment that Howie's Park Glen insurance policy provides coverage for Wanda Warrick's pecuniary loss damages up to the aggregate policy limits of $300,000.

In May 1991, Park Glen issued a liquor liability policy to Howie's Sports Bar. The declaration page of the policy stated that it was a renewal of Howie's current liquor liability policy. The declaration did not, however, inform Howie's that certain changes had been made to the policy language. Although the policy went into effect July 1, 1991, Park Glen maintains that the precise terms of the contract were not finalized until September 4, 1991, when the Insurance Commissioner approved the changes in the policy. In support of this contention, Park Glen relies on an affidavit by its underwriting and claims manager, Joan Erdman:

In May 1991 Park Glen agreed in principle to provide Graffiti, Inc. [Howie's] with liquor liability insurance for the time period from July 1, 1991 to July 1, 1992. The precise terms of the contract with Graffiti, Inc. were not finalized until Park Glen's Liquor Liability Insurance contract was approved by the Minnesota Insurance Commissioner in September 1991.

Sometime after the Commissioner approved the changes, and four months after the renewal but before the accident that is the subject of this litigation, Park Glen mailed Howie's a written notice of the changed policy language.

Warrick was injured during the effective period of the renewal policy. Park Glen relies on the new language in the policy to deny Mrs. Warrick's claims for pecuniary loss damages because under the terms of the new policy, "loss of means of support" explicitly includes "pecuniary losses," and the policy limit for loss of means of support has already been exhausted. The district court concluded that because the new language has, "at the least, the effect of definitively limiting pecuniary loss damages to the loss of support damages limit," the change is substantial, thus requiring notification to the insured. Below, Park Glen argued that there had been no reduction in coverage due to the new language, but only a clarification.

The district court held that because Howie's had been properly notified of the policy changes under Canadian Universal Ins. Co., Ltd. v. Fire Watch, 258 N.W.2d 570, 575 (Minn.1977), the changes were effective and thus precluded Mrs. Warrick from recovering pecuniary loss damages from Park Glen because the policy limit for loss of means of support had already been exhausted. The district court also granted the Warricks' request for prejudgment interest under new language in the renewal policy.

The Warricks maintain that the district court erred because an insurance company may not unilaterally change the terms of an effective insurance policy merely by giving notice to the insured. Park Glen cross-appeals, arguing that even under the new policy language, the Warricks are not entitled to prejudgment interest.

ISSUES

I. Is the new language in the renewal policy effective?

II. Are the Warricks entitled to prejudgment interest?

DISCUSSION

I.

Appellant Warrick argues that the unilateral changes in policy language, which he asserts reduce coverage, cannot be given effect because Howie's was not notified of the changes at the time of renewal, did not consent to the changes, and was given no consideration for them. Respondent Park Glen argues that the insurance policy can be substantially modified so long as the insurer notifies its insured of the changes in the policy. Park Glen relies on the following language from a Minnesota Supreme Court case:

[W]e adopt as the rule in Minnesota that, when an insurer by renewal of a policy or by an endorsement to an existing policy substantially reduces the prior insurance coverage provided the insured, the insurer has an affirmative duty to notify the insured in writing of the change in coverage. Failure to do so shall render the purported reduction in coverage void.

Canadian Universal, 258 N.W.2d at 575. That language, however, which imposes an affirmative duty of notice on insurers, does not relieve insurers of other duties owed to their insureds. Furthermore, it does not purport to change the general principles of contract law as they pertain to insurance policies. See 2 Lee R. Russ & Thomas F. Segella, Couch on Insurance 3d § 25:1 (1995) ("Above all, it must be recognized that modification of insurance policies is governed by the general rules applicable to contracts."). The insured in Canadian Universal consented to ¹ and signed the endorsement that was sent to him after he received the original policy: "[I]t is obvious that although he [the insured] accepted the endorsement he still was uncertain about the coverage * * *." Canadian Universal, 258 N.W.2d at 573.

Park Glen also cites Midway Nat. Bank of St. Paul v. Bollmeier, 474 N.W.2d 335, 340 (Minn.1991). Midway involved a personal liability policy originally purchased in 1976. Id. at 339. The policy was changed into a "personal umbrella policy" in 1983. Id. The new policy reduced coverage, but State Farm did not provide notification of the change in coverage when the contract was modified. Id. The court held, therefore, that the modification did not apply to a claim arising in 1986. Id. at 340. Thus, although Midway reaffirms the Canadian Universal rule, it does not suggest that notice is the only requirement that must be met. Nor does that case suggest that an insurer may unilaterally change the terms and conditions of a policy that has already taken effect.

We note that if an insurer gives adequate notice of policy changes at the time of renewal, consent will ordinarily not be an issue because it may be implied by the insured's act of renewing the policy. Thus, the cases cited by Park Glen generally do not discuss the issue of consent ² but, rather, focus on whether there was adequate notice. In this case, because notice was not given until after the policy became effective, consent may not be implied by renewal of the policy.

Park Glen also cites a Minnesota case for the proposition that when an insured receives and retains an insurance contract without objection, the insured accepts the terms and conditions of the contract. Adams v. Eidam, 42 Minn. 53, 54, 43 N.W. 690 (1889). We observe, however, that in the past 100 years, Minnesota's law on insurance has changed, particularly with respect to renewal policies. See Canadian Universal, 258 N.W.2d at 570.

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