Court Opinion

ID: 9572042
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:37:51.350189+00
Date Added: 2024-06-11T12:31:25.812729
License: Public Domain

SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE
¶ 51. (concurring). I agree with both the legal analysis and remedy of the majority opinion. I write separately because I also agree with Justice Sykes's concern that the circuit court has not been provided with sufficient guidance for conducting the limited hearing on remand.
¶ 52. In the insurance context, many states require that a settlement between an insured and an injured party, after the insurer has wrongfully refused to defend, be reasonable and entered into in good faith *623in order to bind the insurer.1 Guidance can be taken from these cases in setting the parameters for the remand in the case at hand.
¶ 53. The burden of proving reasonableness typically falls on the insured or the injured party, whoever seeks payment from the insurer. In determining whether a settlement was reasonable, the court should consider a variety of factors, including but not limited to the damage sustained, the likelihood that the injured party would have succeeded in establishing the defendant's liability at trial,2 and whether the amount settled for exceeds the policy limits.3 Thus the strength of the injured party's case is a fact that is considered in determining reasonableness.
¶ 54. Minnesota courts have adopted an objective standard for measuring the reasonableness of a settlement: whether a reasonably prudent person in the insured's position would have settled for the amount in question after considering "the merits of the [injured party's] claim, the evidence bearing on liability and *624damages, and the risks of going to trial."4 Importantly, however, the reasonableness of the settlement agreement "is not determined by conducting the very trial obviated by the settlement."5
¶ 55. The burden of proving fraud or collusion, in contrast, typically falls on the insurer. While some courts maintain that collusion should be proven by clear and convincing evidence, the same burden placed on a plaintiff to prevail in a civil trial on a claim of fraud,6 others have determined that settlements of this sort deserve heightened scrutiny and thus the burden on the insurer should be lowered.7
¶ 56. The reason for a lesser burden on the insurer is especially present where the settlement is a "covenant" agreement in which the settlement includes an assignment of the insured's rights to collect on his policy to the claimant in exchange for a covenant not to execute the judgment against the policyholder.8 " 'With no personal exposure the insured has no incentive to contest liability or damages' and 'the insured's best *625interests are served by agreeing to damages in any amount as long as the agreement requires the insured will not be personally responsible for those damages.1 "9 Under these circumstances, the traditional collusion inquiry is inappropriate; courts should instead assess the settlement for indications that "the purpose [of the settlement] is to injure the interests , of an absent or nonparticipating party."10
¶ 57. While I recognize that covenant agreements such as the one at issue in this case are inherently suspicious, I conclude that there is no reason to lessen the burden on Image to prove fraud or collusion. On remand, there are two issues that must be addressed: (1) whether the settlement is reasonable; and (2) whether the settlement is the result of fraud or collusion. Therefore, the burden on Image to prove fraud or collusion will only be necessary if it has already been determined that the settlement is reasonable. Where a settlement is reasonable, it is unlikely to be the subject of either fraud or collusion. Moreover, if it is reasonable, it is certainly unlikely to have been done for the purpose of injuring the indemnitor's interests. Thus, in the face of a reasonable settlement, Image should be held to a high standard of proving fraud or collusion.
¶ 58. For the foregoing reason, I concur.

 Black v. Goodwin, Loomis & Britton, Inc., 681 A.2d 293 (Conn. 1996). Proof of actual liability, of course, is not required. The claimant need only prove potential liability. Id. at 302; see also Barrons v. J.H. Findorff & Sons, Inc., 89 Wis. 2d 444, 456, 278 N.W.2d 827 (1979). The point here is that where the claim of liability is tenuous, a settlement for damages at the high end of the spectrum may be unreasonable, whereas in a case in which liability appears clear, that same amount may be reasonable.

 Russ & Segalla, supra note 1.

 Brownsdale Coop. Assoc. v. Home Ins. Co., 473 N.W.2d 339, 342 (Minn. Ct. App. 1991).

 Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn. 1990).

 Lundin v. Shimanski, 124 Wis. 2d 175, 184, 368 N.W.2d 676 (1985) ("[T]he party alleging fraud has the burden of proving the elements by clear and convincing evidence.").

 Cont'l Cas. v. Hempel, 4 Fed. Appx. 703, 716 (10th Cir. 2001) (citing Stephen R. Schmidt, The Bad Faith Setup, 29 Tort & Ins. L.J. 705 (1994)). While unpublished, this case is cited as persuasive authority pursuant to U.S. Ct. of App. 10th Cir. Rule 36.3.

 Hempel, 4 Fed. Appx. at 716. For discussion of covenant agreements generally, see Russ & Segalla, supra note 1; Stephen R. Schmidt, The Bad Faith Setup, 29 Tort & Ins. L.J. 705 (1994).

 Hempel, 4 Fed. Appx. at 716 (quoting Pruyn v. Agric. Ins. Co., 42 Cal. Rptr. 2d 295, 305 (Ct. App. 1995)).

 Id. (citing Schmidt, The Bad Faith Setup, 29 Tort & Ins. L.J. 705, 727-28 (1994)). Some of the indicators include "unreasonableness, misrepresentation, concealment, secretiveness, lack of serious negotiations on damages, attempts to affect the insurance coverage, profit to the insured, and attempts to harm the interest of the insurer."