Court Opinion

ID: 9741416
Source: CourtListenerOpinion
Date Created: 2023-08-26 20:55:21.682497+00
Date Added: 2024-06-11T07:24:23.999239
License: Public Domain

STEINMETZ, J.
(concurring). I agree with the majority's conclusion that an underinsurer acquires subrogation rights against a tortfeasor when the un-derinsurer pays benefits to its insured. I disagree, however, with the majority's implicit conclusion that consent to settlement clauses in underinsurance policies are not enforceable. I would hold that such clauses are enforceable when the insured intends to seek underin-surance benefits from the underinsurer in addition to the tortfeasor's settlement. The underinsurer, however, must promptly process the underinsurance claim and invoke the contractual dispute resolution procedures, if necessary, as a condition of its refusal to consent to a proposed settlement. The court, therefore, should remand the matter to the circuit court with directions to the insured to decide whether to make a claim for underinsurance benefits. The underinsurer then can promptly process and resolve the claim, and thereby free the insured to settle with the tortfeasor.
Before discussing the merits of this case in more detail, I believe the procedure adopted by the majority needs to be clarified. It is unclear from the opinion what options an underinsurer may exercise to protect its subrogation rights. I fear that the opinion can be construed to require an underinsurer to always substi*28tute its funds for the offered settlement of a tortfeasor. I do not believe the majority intends this result. It certainly is not the only option identified in Schmidt v. Clothier, 338 N.W. 2d 256 (Minn. 1983), on which the majority relies.
The Schmidt decision clearly provides the un-derinsurer with the option to process and resolve the underinsurance claim prior to settlement with the tort-feasor.
"Once an insurer has paid the benefits it contractually owes to its insured and gives notice thereof to the tortfeasor, a subsequent release obtained by the tortfeasor will not defeat the subrogation right but rather will be viewed as a waiver of the rule against splitting the cause of action. Travelers Indemnity Co. v. Vaccari, 310 Minn. 97, 245 N.W. 2d 844 (1976). If the tortfeasor is released before payment by the insurer, however, no subrogation rights ever arise. Great Northern Oil Co. v. St. Paul Fire & Marine Insurance Co., 291 Minn. 97, 99-100, 189 N.W. 2d 404, 406-07 (1971). An underinsurer which promptly sends an underinsurance claim to arbitration and says its insured will be protected from the effects of a settlement and release of the tortfeasor." Id. at 262.
This procedure allows the underinsurer to determine and pay contractual benefits prior to settlement with the tortfeasor. The underinsurer's subrogation right is fully protected by this procedure without the need for the underinsurer to also match the tortfeasor's settlement offer. The underinsurance claim meaningfully can be processed before settlement with the tortfeasor because the limit of the underinsurer's liability is for the amount of damages suffered by the insured in ex*29cess of the liability limits of the tortfeasor. This measure of liability permits the underinsurance claim to be processed immediately, without regard to any eventual settlement, because the underinsurer's liability can be determined by applying the contract procedures, after determining the tortfeasor's liability insurance coverage.
The majority opinion fails to recognize that the Schmidt decision allowed an underinsurer two distinct options to protect its subrogation rights. The Minnesota Supreme Court clearly recognized that an un-derinsurer could: (1) process the underinsurance claim and pay benefits prior to settlement; or (2) match the tortfeasor's settlement offer and then process the un-derinsurance claim. The court specifically stated:
"If, on the other hand, damages were substantially more than the liability limits and the tortfea-sor had substantial assets, the underinsurer could substitute its payment to the insured in an amount equal to the tentative settlement. In this situation, the underinsurer's payment would protect its sub-rogation rights to the extent of the payment, and the insured would receive the amount of the settlement offer in cash. The underinsurer would then have to arbitrate the underinsured claim and could, thereafter, attempt to negotiate a better settlement or could proceed to trial in the insured's name. We note again that prompt assessment, arbitration, and payment of underinsurance claims will protect the underinsurer's subrogation rights, and the underin-surer will avoid having to choose later between either acquiescing in the settlement or substituting its check for the amount of the settlement offer." Id. at 263. (Emphasis added.)
*30Thus, the Schmidt decision established the following time frame for the underinsurer's actions to protect its subrogation rights:
(1) Tortfeasor offers to settle with insured.
(2) Insured notifies underinsurer of settlement offer and insured's intent to claim underin-surance benefits.
(3) Trial court establishes time within which the underinsurer must decide whether to protect subrogation rights.
(4) Underinsurer has option to process un-derinsurance claim and pay contract benefits prior to expiration of time for protecting subrogation rights. This frees insured to accept tortfeasor settlement without defeating underinsurer's subrogation rights.
(5) Underinsurer also has option to substitute its funds for tortfeasor settlement offer, thereby preventing settlement, but giving insured the benefit of the settlement.
(6) If the underinsured opts to substitute its funds for the tortfeasor's settlement offer, the un-derinsurer then processes the underinsurance claim with the insured and resolves any disputes by arbitration procedure.
(7) If the underinsurer substituted its funds for the tortfeasor's settlement offer, the underin-surer is subrogated in the amount of the settlement offer it matched, plus any underinsurance benefits it paid to the insured. The underinsured can then attempt to recover the entire amount from the tortfeasor, who was not previously released because his original settlement offer was not accepted.
*31(8) Filially, the underinsurer also has the option to both refuse to pay contract benefits or to substitute its funds for tortfeasor's settlement offer within time provided by trial court. The insured is then free to accept settlement and the insurer acquires no subrogation rights.
Both procedures identified in Schmidt protect the underinsurer's subrogation rights because benefits are paid prior to settlement with the tortfeasor. The two options, however, are otherwise dissimilar in operation. If the underinsurer processes the underinsurance claim and pays benefits prior to settlement with the tortfeasor, any subsequent settlement by the insured has no effect on the insurer's subrogation rights. See Heifetz v. Johnson, 61 Wis. 2d 111, 124, 211 N.W.2d 834 (1973). Significantly, however, after the underinsurer has paid benefits, the insured is then free to accept the tortfeasor's settlement offer precisely because such a settlement does not affect the insurer's subrogation rights. The majority obfuscates this point by stating that the payment of underinsurance benefits constitutes a rejection of the settlement offer. Majority opinion at pages 25 and 26, n. 13 and 14. In fact, the payment of underinsurance benefits is simply the condition precedent to the insured's right to settle with the tort-feasor. After underinsurance benefits are paid, the insured is then free to settle with the tortfeasor. It would make no sense to hold that the payment of underinsurance benefits precludes settlement with the tortfeasor because the insured otherwise would not receive full insurance benefits.
The majority opinion is confusing about the effect that paying underinsurance benefits will have on the insured's right to settle. This confusion results from *32the majority’s incorrect conclusion that "the price of protecting its subrogation right is payment to its own insured in the sum offered by the tortfeasor's insurance company." At 21-22. The majority equates underinsurance benefits with the settlement amount. This equation is incorrect. In fact, underinsurance benefits constitute the insurance coverage for damages in excess of the tortfeasor's insurance coverage. Such benefits may be more or less than the tortfeasor's coverage, depending on the amount of damages and the amount of the tortfeasor's insurance coverage. Thus, the majority's conclusion that the underinsurance benefits must always match the settlement offer in order to preserve subrogation rights is not true.
The majority opinion also is confusing about the effect that the payment of underinsurance benefits has on the insurer's rights. The majority states that the payment of benefits "in effect is a rejection of the settlement, and it may thereafter, if it wishes, assert its right of subrogation acquired by payment, continue the action in its insured's name, or proceed to arbitration under the policy." At 26. This statement incorrectly assumes that the payment of policy benefits means that the underinsurer substitutes its funds for the tortfea-sor's settlement offer. This is inconsistent with the majority's own recognition that the insured evaluates and may arbitrate the underinsurance claim in order to satisfy the amount owed under the policy. At 23-24. Once the insured pays benefits, the claim between the underinsurer and the insured is settled and resort to further arbitration is foreclosed. Also, because the insurer's subrogation claim is unaffected by a subsequent settlement with the tortfeasor, the insurer cannot deny the right to such settlement.
*33To summarize, an underinsurer has two options under Schmidt when confronted with a proposed settlement between its insured and the tortfeasor. First, the insurer may process and settle any underinsurance claim, and thereby protect its subrogation right despite any subsequent settlement between the insured and the tortfeasor. Alternatively, the insurer can match the tortfeasor's settlement offer and thus prohibit the insured from settling with the tortfeasor. In the latter situation, the insurer resolves the underinsurance claim after matching the tortfeasor's settlement offer. These are the options recognized by Schmidt, and which the majority improperly collapses into a single option.
The second option, it should be noted, is only needed if the underinsurer and the insured do not settle the underinsurance claim in the time allowed by the circuit court. I do not believe this option is necessary because I would not authorize the circuit court to place an arbitrary limit on the time for resolving the underinsurance claim. I base this conclusion on the fact that the insurance policy in this case does not authorize judicial limitation on the time for settling the underinsurance claim.
The language of the contract is significant because this case involves the construction of an insurance policy. Thus, it is a simple contract action. The time limit for resolving the underinsurance claim, therefore, must be ascertained by applying basic rules of contract construction. Where a time limit is not specified in the policy, I believe the basic rules of contract would impose a "reasonable" time limit. This rule is appropriate because it permits settlement with the underinsurer and the tortfeasor without the need for litigation. *34Under the majority's analysis, which requires a circuit court to set a time limit for settling the underinsurance claim, an injured party must file a lawsuit against the tortfeasor in order to get before a circuit court. I know of no contract rule which authorizes this court to impose such a requirement, which incidentally may delay settlements because of the time needed for filing a complaint and answer, securing a hearing date, and reaching a judicial determination.
I believe that á better solution to the problem in this case is to permit the underinsurer a reasonable time to resolve the underinsurance claim, without placing an arbitrary time limit on this issue. Permitting the underinsurer a reasonable time to secure a complete resolution of the underinsurance claim obviates the need for the underinsurer to either surrender its prospective subrogation right or to match the tort-feasor's settlement offer without knowing how the un-derinsurance claim will be resolved.
The underinsurer has a contractual right to have a claim arbitrated. I believe that this right is only meaningful if it can be exercised prior to deciding whether to make payment under the contract. Because the circuit court may not allow sufficient time to arbitrate a disputed claim, I believe the majority opinion improperly limits the underinsurer's contractual rights. Underinsurance is purely a contractual right, rather than a statutory right, and the court should not limit the contract terms, including the underinsurer's right to refuse to consent to settlement until arbitration is completed. Although the insured therefore must delay settlement with the tortfeasor, the insured freely agreed to this possible delay when it contracted for un-*35derinsurance benefits. It is a condition the insured bears for protection against underinsured tortfeasors.
My approach to the issue in this case does not disadvantage the insured. I would require the insured to inform the underinsurer, at the time he seeks consent to settle with the tortfeasor, whether he also is claiming underinsurance benefits. The underinsurer cannot otherwise determine whether to consent to the proposed settlement. Moreover, it is not an onerous burden to require the insured to make an underinsurance claim at that time. The insured obviously must evaluate his case in order to settle with the tortfeasor. Thus, he should be able to make his underinsurance claim, if he, in fact, intends to make a claim.
Assuming the insured makes an underinsurance claim, the underinsurer can deny its consent to settle in order to protect its possible subrogation right. The underinsurer, however, must immediately begin to process the claim as a condition of exercising the contractual right to deny settlement. The consent to settlement clause serves the sole function of protecting the underinsurer's subrogation interest. The underin-surer, therefore, cannot deny consent to settle without also immediately undertaking to resolve the underin-surance claim. Also, the underinsurer waives the consent to settle provision if it denies coverage, without invoking the arbitration procedure.
This procedure essentially requires the insured to resolve his claim with the underinsurer before settling with the tortfeasor. I do not believe this is unreasonable. If the insured expects to recover part of his damages from a source other than the tortfeasor, equity requires that he follow a procedure which protects the collateral source's subrogation right. Also, resolving *36the underinsurance claim prior to settlement with the tortfeasor will not substantially delay the insured's ultimate recovery. The underinsurance policy provides for arbitration of disputed claims. The policy, therefore, expresses a clear preference for settlement or arbitration of underinsurance claims, rather than litigation. See Worthington v. Farmers Ins. Exchange, 77 Wis. 2d 508, 519, 253 N.W. 2d 76 (1977). The policy procedure, when promptly invoked, allows for expeditious resolution of the underinsurance claim. In many instances, the claim will be settled within the time allowed by a circuit court. Disputed claims that go to arbitration may not be resolved that quickly, but the delay usually will be only a matter of months. Thus, the procedure I recommend has the advantage Of expeditiously resolving the insured's entire claim, including the underinsurance portion.
In summary, my disagreement with the majority opinion concerns a narrow issue. I agree that the un-derinsurer acquires a subrogation right for benefits it pays. I also would require the underinsured to immediately begin to process and resolve the underinsurance claim as a condition of withholding consent to a settlement with the tortfeasor. However, I would not grant to the circuit court the authority to establish an arbitrary time in which to process and arbitrate the un-derinsurance claim. I would permit an unspecified, but reasonable, amount of time to resolve the claim. A reasonable amount of time depends on the facts of each case, limited by the underinsurer's good faith duty to act promptly and diligently.
I am authorized to state that Mr. JUSTICE WILLIAM G. CALLOW joins this concurring opinion.