Opinion ID: 1249235
Heading Depth: 3
Heading Rank: 3

Heading: Subrogation Rights Under Section 65B.53

Text: To illustrate the problems with Nelson's argument, we first compare her proposal to what would have occurred had American Family not disputed the amount of any income loss and promptly paid the benefits due under its policy. It is possible to make this comparison because the No-Fault Act explicitly addresses this situation. For purposes of this comparison, the following facts remain the same: (1) Nelson is a Minnesota resident; (2) the second accident occurred in South Dakota; (3) Nelson brought a tort action in South Dakota; (4) the South Dakota jury awarded $37,000 for past income loss; and (5) Nelson paid her attorney a one-third contingency fee. Accordingly, the only difference would be that instead of denying no-fault benefits, American Family would have paid them before the South Dakota tort action was resolved. If American Family, as Nelson's no-fault insurer, had paid no-fault benefits upon request up to the policy limits of $20,000, Nelson would have subsequently pursued the South Dakota tortfeasor on a negligence theory to recover any additional damages. With a jury award of $37,000 in past income loss, Nelson would have received a net recovery of $24,666.67 after having incurred $12,333.33 of attorney fees. But, under the Act, this recovery would be subject to American Family's subrogation interest. Minn.Stat. § 65B.53, subd. 2 (stating that the no-fault insurer is subrogated to the claim for the recovery of damages for economic loss that the [no-fault recipient] has against another person). As previously noted, Minn.Stat. § 65B.53, subds. 2 and 8, allow a subrogation interest in the amount of benefits actually paid by the no-fault insurer. But the statute limits the subrogation interest to the extent that the insured's recovery, absent the subrogation interest, would produce a duplication of benefits or reimbursement of the same lossi.e., a double recovery. Minn.Stat. § 65B.53, subd. 2. Accordingly, American Family would have a subrogation interest of $20,000. However, under the statute, American Family's $20,000 subrogation interest is subject to its obligation to pay a proportionate share of Nelson's attorney fees. Minn.Stat. § 65B.53, subd. 8. This proportionate share is calculated by using the ratio of the subrogation claim ($20,000) to the judgment ($37,000), or 54.054%. Id. American Family would then be obligated to compensate Nelson for 54.054% of her attorney fees of $12,333.33, which is $6,666.67. Therefore, because of its obligation to pay a proportionate share of Nelson's attorney fees, American Family's subrogation claim would be reduced from $20,000 to a net subrogation claim of $13,333.33. This would leave Nelson with a combined net recovery of $31,333.33. The results of the subrogation statutory scheme applied to this scenario are summarized as follows: No-Fault Benefits Paid Before Tort Action $20,000.00 Nelson's Tort Judgment For Past Income Loss $37,000.00 Less Nelson's Attorney Fees -$12,333.33 American Family's Subrogation Claim -$20,000.00 __________ Net amount after subrogation $ 4,666.67 American Family's Proportionate Share of Nelson's Attorney Fees +$ 6,666.67 __________ Nelson's Net Tort Recovery $11,333.34 $11,333.34 Nelson's Combined Net Recovery $31,333.34 American Family's Net Expenditure $ 6,666.67 American Family's Net Subrogation Recovery $13,333.33 When the foregoing analysis is done, it becomes obvious that there is an inconsistency between Nelson's argument that Ferguson mandates that she recover $37,000 and the $31,333.34 Nelson would have been entitled to had American Family paid no-fault benefits before the tort action was resolved. While it may appear that the statute and the holding in Ferguson are inconsistent when applied to the facts in this case, this is not necessarily so. The purposes behind both are the same and can be reconciled by examining them in the context of (1) the purpose of the no-fault insurer's obligation to pay a part of the attorney fees when an accident occurs in another state under Minn.Stat. § 65B.53, subd. 8, and (2) the specific facts in Ferguson. Both assure that the no-fault insurer pays its fair share of any costs incurred in receiving any benefit from the insured's tort judgment. In other words, both the no-fault insurer's obligation to pay a share of the attorney fees and the net recovery analysis under Ferguson demonstrate the price a no-fault insurer pays to offset the benefit it receives when the insured brings a successful tort action against a tortfeasor. See 2 Michael K. Steenson, Minnesota No-Fault Automobile Insurance 268 (2d ed.1989). In the out-of-state subrogation context, the no-fault insurer pays a share of the insured's attorney fees because the insured bore the costs of recovery for the entire judgment, including the part that ultimately belongs to the no-fault insurer through subrogation. If the no-fault insurer did not have to pay a share of the fees, it would essentially be receiving a windfall because it paid no part of the insured's cost to recover the no-fault insurer's subrogation interest. Although less obvious, the rationale behind the costs and attorney fee-sharing in the subrogation context was also behind our decision in Ferguson. In Ferguson, we held that the net tort recovery must first be exhausted before collecting further no-fault benefits for future medical expenses from the no-fault insurer. 348 N.W.2d at 733. Requiring the insured first to exhaust the net tort recovery is a benefit to the no-fault insurer because, rather than paying first-dollar coverage for future medical expenses, the no-fault insurer incurs no obligation unless and until those expenses exceed the net tort recovery. However, we were not specific in Ferguson when we discussed how the net recovery, and hence the no-fault insurer's benefit, would be calculated other than specifying that the costs of collection, including reasonable attorney fees, were to be deducted. Id. While we were not specific in calculating the net tort recovery, given the similarity in purpose between the subrogation fee-sharing provision and the benefit in Ferguson, it is logical to calculate the net recovery in a Ferguson scenario by using a similar calculation and including the no-fault insurer's share of the attorney fees. See Steenson at 268. In effect, the calculation in Ferguson takes into consideration the insurer's share of the insured's attorney fees. After having worked through the foregoing comparisons, we conclude that when analyzed in the proper context, Ferguson does not, as Nelson argues, stand for the proposition that an insured is uncompensated to the full extent of her attorney fees paid in achieving a tort recovery. Instead, Ferguson's use of the net tort recovery as a bank, which must be offset by the nofault insurer's share of the fees, has more to do with ensuring that the no-fault insurer does not receive an unintended benefit than in making a broad statement about how an uncompensated loss or a double recovery should be calculated. More importantly, application of Nelson's interpretation of Ferguson to either the facts of this case or to the analysis in the customary case scenario is problematic. Under Nelson's application of Ferguson to the facts of this case, she asserts that she is entitled to receive $12,333.33 from American Family. In essence, Nelson would have American Family assume responsibility for attorney fees for both (1) that part of her recovery that would have been paid as no-fault benefits, and (2) that part of her recovery that is in addition to what she would have received under the Act. As shown above, while the Act does make provision for some fee-sharing to ensure that the no-fault insurer does not receive a windfall, it does not contemplate reimbursing the insured for all of her attorney fees.