Court Opinion

ID: 9884973
Source: CourtListenerOpinion
Date Created: 2023-10-06 03:26:36.38606+00
Date Added: 2024-06-11T07:48:43.005705
License: Public Domain

OPINION
PAGE, Justice.
This appeal arises out of cross-motions for partial summary judgment regarding appellant Marcia Kelly’s ability to obtain underinsured motorist (UIM) benefits from respondent State Farm Mutual Automobile Insurance Company (State Farm). As the relevant facts are undisputed, the sole issue before us is whether the exclusion in State Farm’s policy, which would preclude Kelly’s claim for UIM benefits, contravenes Minnesota case law and the language of the Minnesota No-Fault Act, Minn.Stat. §§ 65B.41-.71 (2002).
On September 19, 1998, Kelly’s husband was driving his Dodge Intrepid and negligently caused an accident with an unoccupied motor vehicle injuring Kelly, who was a passenger in the Intrepid. At the time of the accident, Kelly’s husband was the sole owner of the Intrepid, which was insured by State Farm. In addition, both Kelly and her husband were listed as owners of a Pontiac Grand Am, which was also insured by State Farm, but under a separate policy. While Kelly and her husband had separate policies for the Intrepid and the Grand Am, they were both listed as named insureds on each policy.
As a result of the accident, Kelly brought a damage claim against her husband, which State Farm settled by paying Kelly $100,000, the liability limit on the Intrepid. Because her damages exceeded this amount, Kelly filed a claim with State Farm for UIM benefits under the Grand Am policy. State Farm denied her UIM claim contending that under the Grand Am policy the Intrepid was not an “underin-sured motor vehicle” and that allowing Kelly to recover UIM benefits under the Grand Am policy, which also provided liability coverage to her husband, the tortfea-sor, would result in coverage conversion because the UIM policy would be used to supplement her husband’s inadequate liability insurance. ■
Based on State Farm’s denial of her UIM claim, Kelly commenced the instant lawsuit. Ultimately, both parties filed cross-motions for partial summary judgment to resolve the UIM coverage dispute. The district court initially granted Kelly’s motion and denied State Farm’s based on its conclusion that Kelly was entitled to UIM coverage under the Grand Am policy because Kelly had ho ownership interest in the Intrepid and because it did not appear that Kelly was working with her husband to convert her UIM coverage to additional liability coverage for him.
Approximately one month after the district court ruled, the court of appeals decided Johnson v. St. Paul Guardian Insurance Co., 627 N.W.2d 731 (Minn.App.), rev. denied (Minn. Sept. 11, 2001). In Johnson, the court of appeals held that an injured individual, whose injuries exceeded the ' tortfeasor’s liability coverage, could not look to a separate policy providing UIM coverage for the tortfeasor because this would result in impermissibly converting that UIM coverage into more expensive liability coverage to make up for the tortfeasor’s inadequate liability coverage. Id. at 733-34. As a result of Johnson, *330State Farm moved the district court to reconsider the grant of partial summary judgment in favor of Kelly. On December 17, 2001, the district court reversed its earlier order -and entered judgment in favor of State Farm, finding that under Johnson Kelly was not entitled to UIM benefits because her husband was listed as an insured on the Grand Am policy. In an unpublished opinion, the court of appeals affirmed, concluding that an injured individual could not claim benefits under a tortfeasor’s liability policy as well as benefits under a separate UIM policy owned by the tortfeasor because it would result in an impermissible coverage conversion. Kelly v. State Farm Mut. Auto. Ins. Co., No. C0-02-217, 2002 WL 1837992, at *3 (Minn.App. Aug. 13, 2002). We granted Kelly’s petition for further review and now affirm.
On appeal from a grant of summary judgment when there are no disputed issues of material fact, we review de novo whether the lower court erred in its application of the law. Lynch v. Am. Family Mut. Ins. Co., 626 N.W.2d 182, 185 (Minn.2001); Am. Nat’l Prop. & Cas. Co. v. Loren, 597 N.W.2d 291, 292 (Minn.1999) (stating that interpretation of an insurance contract and the construction of the statutes that govern it are questions of law).
Under the Grand Am policy,1 State Farm agreed to pay all damages resulting from bodily injury to an insured that the insured is entitled to collect from the driver of an underinsured motor vehicle. The policy defines an “underinsured motor vehicle” as one whose liability limit is less than the amount needed to compensate the insured for his or her damages as long as the at-fault-vehicle is not “furnished for the regular use of you, your spouse or any relative.” Here, the at-fault vehicle, the Intrepid, was owned and regularly used by Kelly’s husband, a named insured on the Grand Am policy, and it is on that basis State Farm denied Kelly’s UIM claim.
Kelly argues that this court should conclude that she is entitled to coverage under the Grand Am policy because the policy exclusion contravenes the underlying purpose of the No-Fault Act and this court’s decision in American Motorist Ins. Co. v. Sarvela, 327 N.W.2d 77, 79 (Minn.1982) (invalidating a policy exclusion that precluded recovery of UIM benefits for which the insured paid a premium and concluding that policy exclusions attempting to prevent UIM coverage from following the person are inconsistent with the Minnesota No-Fault Act). She maintains that her UIM claim should not be denied merely because her husband was listed as an insured on the Grand Am policy and contends that the decision to place a family member’s name on the insurance policy or the title to the automobile is often made by the insurance agent or made for purposes other than insurance and therefore should not be the basis upon which a UIM claim may be denied.
State Farm contends that exclusions such as the one contained in the Grand Am policy are appropriate and consistent with Minnesota law. State Farm argues that to allow Kelly to recover underinsured motorist benefits under the Grand Am policy would permit the conversion of less expensive underinsured motorist coverage (first-party insurance) into more expensive lia*331bility coverage (third-party insurance) in a situation in which the insured under the Grand Am policy had the ability to purchase liability coverage in a higher amount for the Intrepid. State Farm contends that to allow such a conversion would be inconsistent with this court’s decision in Petrich v. Hartford Fire Ins. Co., 427 N.W.2d 244 (Minn.1988) (noting that because first-party coverage and third-party coverage contemplate different risks they are assigned different prices).
In general, an insurer’s liability is determined by the insurance contract as long as that insurance policy does not omit coverage required by law and does not violate applicable statutes. Lynch, 626 N.W.2d at 185. In Lynch, we determined that “because the UIM coverage mandated by the [No-Fault] Act is not intended to serve as a supplement for the insured’s inadequate liability coverage, an insurer can write and enforce an exclusion that precludes, that coverage conversion.” Id. at 189. Coverage conversion occurs when UIM benefits are used as a substitute for the tortfeasor’s inadequate liability coverage. Id.; see, e.g., Myers v. State Farm Mut. Auto. Ins. Co., 336 N.W.2d 288, 291 (Minn.1983); Petrich, 427 N.W.2d at 245-46. The purpose of liability insurance is to protect “passengers in [the at-fault] vehicle from negligent driving of the owner or another driving the vehicle,” while,UIM coverage is designed to
protect against a different type of risk, the risk that a negligent driver of another vehicle will have failed to purchase adequate liability insurance; that is, it is intended “to protect the named insured and other additional insureds from suffering an inadequately compensated injury caused by an accident with an inadequately insured automobile.”
Meyer, 371 N.W.2d at 537 (quoting Myers, 336 N.W.2d at 291). When a liability claim is made on one policy and a UIM claim is made on a second policy, both of which list the tortfeasor as an insured, allowing the UIM claim would result in the payment of additional benefits for injuries caused by the negligence of the insured tortfeasor, which is, as we stated in Lynch, the “essence of liability coverage.” 626 N.W.2d at 188.
As noted above, Kelly’s dámages exceeded the liability coverage purchased by her husband on the Intrepid. As a result, he, as the tortfeasor, is hable for Kelly’s damages that exceeded the liability coverage on the Intrepid. To the extent that Kelly is able to obtain benefits under the Grand Am policy for damages exceeding the benefits from the Intrepid policy, her husband receives more liability protection than is provided for in the Intrepid policy. To allow Kelly’s husband to benefit from providing inadequate liability coverage on the Intrepid by supplementing that coverage with cheaper UIM coverage from a separate policy that also names him as an insured results in coverage conversion for which insurance companies may write and enforce policy exclusions. Because, as we said in Lynch, UIM benefits are “not intended to serve as a supplement for the insured’s inadequate liability coverage,” we conclude that under the facts of this case the Grand Am’s policy exclusion of the Intrepid from the definition of “un-derinsured motor vehicle” works to prevent coverage conversion and is therefore permitted and enforceable under the No-Fault Act. Id. at 189.
This conclusion does not, as Kelly contends, conflict with our holding in Sarvela. Sarvela involved a woman injured in a collision with an underinsured automobile while driving her motorcycle. Sarvela, 327 N.W.2d at 77-78. The woman collected the liability policy limits from the auto driver’s insurer and UIM coverage from *332her motorcycle insurance policy. Id. at 78. She then attempted to collect UIM benefits from a policy she had on another motor vehicle, an automobile that she owned. Id. Her insurer denied the claim, relying on a policy exclusion that precluded coverage if the insured was injured while occupying a motor vehicle that the insured owned. Id. The issue in Sarvela was whether an individual could obtain UIM coverage from two separate policies that she owned when she was injured in a two motor vehicle accident and had already obtained liability benefits from the other person’s motor vehicle insurance. Because the insurance policies from which Sarvela sought UIM coverage did not list the tort-feasor as an insured, the claim at issue in Sarvela was a straightforward first-party insurance claim. See Myers, 336 N.W.2d at 292. Because coverage conversion was not at issue in Sarvela, it provides no guidance here.
Therefore, today’s decision is consistent with Petrich, Myers, Meyer, and Lynch, which held that policy exclusions preventing an insured from using UIM coverage to supplement his or her otherwise inadequate liability insurance are permissible.2
Affirmed.
GILBERT, J., and HANSON, J., took no part in the consideration or decision of this case.

. Under the Intrepid policy, the Intrepid is excluded from the definition of an "underin-sured motor vehicle” for purposes of obtaining UIM benefits. We have upheld this exclusion as proper and consistent with the purposes of the No-Fault Act. See Meyer v. Ill. Farmers Ins. Group, 371 N.W.2d 535, 537 (Minn.1985) (holding that an injured individual cannot obtain both liability coverage and underinsured motorist coverage from the same policy). Kelly does not challenge that exclusion.

. State Farm also based its denial of Kelly’s claim on its interpretation of the statutory language in Minn.Stat. § 65B.49,'subd. 3a(5) (2002), which it contends limits Kelly's recovery solely to the at-fault vehicle. Because we conclude that the policy exclusion at issue here is enforceable, we need not and therefore do not address this contention.