Wondra v. American Family Ins. Group, CX-88-928

• Decision Date: 06 December 1988
• Docket Number: No. CX-88-928,CX-88-928
• Parties: Joseph Rudolph WONDRA, Appellant, v. AMERICAN FAMILY INSURANCE GROUP, The Minnesota Insurance Guaranty Association, Respondents.
• Court: Minnesota Court of Appeals

Page 455

432 N.W.2d 455

Joseph Rudolph WONDRA, Appellant, v. AMERICAN FAMILY INSURANCE GROUP, The Minnesota Insurance

Guaranty Association, Respondents.

No. CX-88-928.

Court of Appeals of Minnesota.

Dec. 6, 1988.

Review Denied Jan. 25, 1989.

Syllabus by the Court

1. When the tortfeasor's insurer is insolvent and the claimant has paid premiums for separate uninsured and underinsured coverages, the claimant must be able to control his own lawsuit and choose the coverage under which he will pursue recovery.

2. An insurer cannot limit its policy definition of underinsured coverage so that coverage is narrower than the statutory definition of underinsured motorist coverage.

3. While Minn.Stat. § 60C.13 (1982) requires that uninsurance benefits be deducted from MIGA's liability obligation, underinsurance benefits are not to be so deducted.

4. In a declaratory judgment action brought by the insured to determine his insurance coverage, he may be entitled to attorney fees at both the trial and appellate court levels.

Theodore R. Melby, Timothy L. Warnemunde, Montgomery, for Joseph Rudolph Wondra.

Kenneth R. White, Farrish, Johnson & Maschka, Mankato, for American Family Insurance Group.

Dale M. Wagner, Louis J. Speltz, Moss & Barnett, Minneapolis, for The Minnesota Ins. Guar. Ass'n.

Sharon L. Van Dyck, Schwebel, Goetz & Sieben, Minneapolis, amicus curiae, for Minnesota Trial Lawyers Ass'n.

Heard, considered and decided by NORTON, P.J., and PARKER and NIERENGARTEN, JJ.

OPINION

PARKER, Judge.

Joseph Wondra appeals from a declaratory judgment in which the trial court interpreted provisions of the Minnesota Insurance Guaranty Association Act (Minn.Stat. §§ 60C.01-.20 (1982)) and found that Wondra must first pursue and exhaust his own uninsured motorist coverage before pursuing claims against the Minnesota Insurance Guaranty Association (MIGA), that any uninsured benefits must be offset against MIGA's obligation, and that Wondra cannot pursue underinsurance claims. Wondra also appeals from the trial court's denial of an award of attorney's fees. We reverse, and remand on the issue of attorney's fees.

FACTS

On May 29, 1984, Joseph Wondra and Alvin Williams were in an automobile accident. Williams' vehicle was covered by liability insurance issued by Iowa National Mutual Insurance Company in the amount of $100,000. On the date of the accident, Wondra had an insurance policy issued by respondent American Family Insurance Group; this policy provided separate underinsured motorist and uninsured motorist coverages, each in the amount of $50,000. Iowa National became an insolvent insurer within the meaning of the Minnesota Insurance Guaranty Association Act (the Act) approximately two years after the accident. The legislature created the Act in 1971 to provide a fund to be used when insurers become insolvent and are unable to pay their obligations under insurance contracts.

Wondra brought an action in district court seeking a judicial determination of the priority of insurance coverages between American Family and MIGA. Both American Family and MIGA in their answers claimed the other was the primary insurer.

ISSUES

1. Under the Act, is the insured permitted to pursue either underinsured or uninsured motorist coverage, and must any recovery be deducted from MIGA's obligation?

2. Was the insured entitled to an award of attorney's fees?

DISCUSSION

There are no disputed issues of fact in this matter. This court need not give deference to a trial court's decision on a legal issue. Frost-Benco Electric Association v. Minnesota Public Utilities Commission, 358 N.W.2d 639, 642 (Minn.1984).

I

The actual amount of damages Wondra has suffered has not yet been determined. We rule only on the threshold questions of whether Wondra can pursue either underinsured or uninsured motorist benefits and whether these must be deducted from any potential obligation of MIGA. Wondra has paid premiums for separate underinsured and uninsured motorist coverages.

The trial court has the duty of attempting to interpret and apply Minn.Stat. § 60C.13 (1982) of the Act in accordance with its purpose. The purpose, as stated in section 60C.02, is

to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the liquidation of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of the protection among insurers.

Minn.Stat. § 60C.02, subd. 2 (1982) (emphasis added). Minn.Stat. § 60C.02, subd. 3 (1982), provides that the Act is to be liberally construed to effect the stated purposes.

Minn.Stat. § 60C.05, subd. 1 (1982), deals with the duties of the association and provides:

The association shall:

(a) Be deemed the insurer to the extent of its obligation on the covered claims. The claims found by the board of directors to be covered shall be paid out of available funds after they have been approved or settled under sections 60B.45, subdivision 2, and 60B.58, subdivision 2, or the corresponding laws of another jurisdiction, subject to the board's power to reduce the amount of or reject the award under section 60C.10.

(Emphasis added).

Section 60C.13 deals with nonduplication of recovery and contains exhaustion requirements:

Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insurer in liquidation which is also a covered claim, is required to exhaust first his right under the other policy. Any amount payable on a covered claim under Laws 1971, Chapter 145 shall be reduced by the amount of any recovery under such insurance policy.

Minn.Stat. § 60C.13, subd. 1 (1982).

The trial court applied these apparently conflicting provisions and reached a result requiring Wondra to seek recovery first under his uninsured motorist coverage. By the trial court's interpretation, uninsurance benefits received by Wondra would be deducted from MIGA's obligation. The trial court also concluded that Wondra could not pursue his underinsurance benefits because of his uninsurance claim. To reach this result, the trial court looked to the terms of Wondra's insurance policy with American Family. The policy specifically defined "uninsured" to include situations where the tortfeasor's insurer becomes insolvent, and defined "underinsured" to exclude such situations.

Minn.Stat. § 645.16 (1986) provides that the object of all interpretation and construction of laws is to ascertain and effectuate the intention of the legislature; every law shall be construed, if possible, to give effect to all of its provisions. The Minnesota Supreme Court has stated that the objectively reasonable expectations of policy holders regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions might have negated those expectations. Atwater Creamery Co. v. Western National Mutual Insurance Co., 366 N.W.2d 271, 277 (Minn.1985) (citing Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L.Rev. 961, 967 (1970)).

The trial court's order did not harmonize these statutory provisions. Through its interpretation, the trial court disregarded the purpose of the Act and deprived Wondra of insurance coverage for which he had paid and which he had a right to receive. See Safeco Insurance Companies v. Diaz, 385 N.W.2d 845, 849 (Minn.Ct.App.1986), pet. for rev. denied (Minn. June 30, 1986) (this court stated the long-held rule in insurance law that an insured is entitled to coverage for which he has paid a premium).

Wondra asserts, and we shall assume for purposes of this analysis, that his damages resulting from the accident exceeded $100,000 and amount to approximately $150,000. He had an insurance policy with American Family under which he paid premiums for both uninsurance and underinsurance coverages, each of which provides a maximum coverage of $50,000. The tortfeasor had liability coverage with its insolvent insurer in the amount of $100,000, a liability maximum which MIGA would then assume. Under the trial court's interpretation of the American Family policy and application of the nonduplication provision of section 60C.13, Wondra would collect his $50,000 in uninsurance coverage and this would be deducted from MIGA's potential $100,000 liability obligation. As one cannot collect underinsurance benefits once uninsurance benefits have been received, see Murphy v. Milbank Mutual Insurance Co., 388 N.W.2d 732, 737 (Minn.1986), Wondra can collect only a total of $100,000, even though, absent insolvency of the tortfeasor's insurer, he has an available insurance pool of $150,000 which would cover all of his damages (the tortfeasor's $100,000 liability insurance and his $50,000 in underinsurance coverage). ¹ This conclusion of the trial court cannot be harmonized with the purpose of the Act and the duties of the association. It imposes a severe financial loss on the claimant and relieves the association of its duty to assume the obligations of the insolvent liability carrier to the extent of the carrier's obligation on covered claims.

Wondra asserted that he had both uninsurance and underinsurance coverage and that he should be allowed to choose the coverage under which to pursue recovery. The trial court disagreed and found that he must seek recovery under his uninsurance coverage because his policy defined uninsurance coverage to include insolvency of the tortfeasor's insurer. However, in Schmidt v. Clothier, 338 N.W.2d 256 (Minn.1983), the Minnesota Supreme Court held that the insured has the right of full control over his lawsuit against the tortfeasor. Id. at 261. The supreme court has also held that both uninsurance and underinsurance coverage may be applicable and that the insured can recover under either, but not both, coverage. Murphy v. Milbank, 388 N.W.2d at 737.

We conclude that Wondra has two claims--one for underinsurance and one for...