Court Opinion

ID: 9884941
Source: CourtListenerOpinion
Date Created: 2023-10-06 03:25:37.842273+00
Date Added: 2024-06-11T07:48:42.766096
License: Public Domain

WOZNIAK, Chief Judge
(concurring specially and dissenting).
I concur in part and dissent in part. I concur in that the reasonableness of a Miller-Shugart agreement should be decided as a matter of law by the trial court, but I dissent in that the insurer’s defenses here should not be allowed.
I.
An effective analysis of the issues in this case and numerous similar cases requires a proper understanding of the seminal case of Miller v. Shugart, 316 N.W.2d 729 (Minn.1982).
In Miller, Miller was injured in an accident while riding in a car driven by Shu-gart. Locoshonas owned this vehicle. Miller sought recovery from Locoshonas’ insurer, Milbank Mutual Insurance Company. Milbank denied coverage, contending that Shugart was not an agent of the owner. Milbank instituted a declaratory judgment action to determine the coverage question, and provided counsel for both Locoshonas and Shugart.
The trial court determined that both Shu-gart and Locoshonas were covered under Locoshonas’ policy. After this determination, Miller brought an action against both Shugart and Locoshonas. While Milbank’s appeal of the declaratory judgment was pending, counsel for Shugart and Locosho-nas twice informed Milbank that they were approaching settlement with Miller. Mil-bank refused to participate in these settlement negotiations because the coverage issue was unresolved. A settlement was reached, and Shugart and Locoshonas confessed judgment in an amount in excess of the Milbank policy. The trial court en*221forced this judgment in the amount of the insurance policy against Milbank. Miller had agreed, as a condition of settlement, to relieve the defendants of any personal liability and only seek payment of the judgment from insurance funds.
On appeal, the supreme court affirmed. The court said that a threshold issue existed as to whether the insureds breached their contractual duty to cooperate before the policy coverage had been decided. Id. at 733. The court noted that Milbank had not abandoned its insured, but had done exactly as the court had suggested by bringing the declaratory judgment action. Id. By bringing a declaratory judgment action, the insurer was neither abandoning the insured nor accepting liability for the insured’s exposure. Id. After emphasizing the above considerations, the court rephrased the issue as
how should the respective rights and duties of the parties to an insurance contract be enforced during the time period that application of the insurance contract itself is being questioned.
Id. Milbank was essentially arguing that it had a right to have the coverage issue decided prior to the disposition of the underlying personal injury action. Id. The court ruled that an insurer had no such right.
The court next addressed the question of whether the stipulated judgment had been obtained by fraud or collusion. The supreme court recognized the potential bind in which stipulated judgments place insurers, but decided that the insurers should bear the risk:
If the insurer ignores the “invitation” to participate in the settlement negotiations, it may run the risk of being required to pay * * * an inflated judgment. On the other hand, if the insurer decides to participate in the settlement discussions, ordinarily it can hardly do so meaningfully without abandoning its policy defense. Nevertheless, it seems to us, if a risk is to be borne, it is better to have the insurer who makes the decision to contest coverage bear the risk.
Id. at 734. The court then held as a matter of law that the stipulated judgment was not obtained by fraud or collusion. Id.
The final issue addressed by the court was whether the settlement was reasonable. To determine if a settlement is reasonable, one must look at
what a reasonably prudent person in the position of the defendant would have settled for on the merits of plaintiff’s claim. This involves a consideration of the facts bearing on the liability and damage aspects of plaintiff’s claim, as well as the risks of going to trial.
Id. at 735. Although in granting summary judgment the trial court had not addressed the reasonableness issue, the court examined the record to determine as a matter of law whether the settlement was reasonable and prudent. The court noted that not much evidence had been submitted to the trial court, but nevertheless concluded that the settlement was reasonable. Id. at 736. This conclusion was based on uncontested facts and on the insured’s attorney’s uncontested conclusion that “there was a substantial likelihood that ultimately judgment would be entered against his clients * * * for more than any possible insurance coverage * * Id.
Miller involved a conflict between the competing public interests in settlement of disputes and in allowing the insurer to be heard on the issue of policy coverage. The court in Miller resolved this conflict by enforcing a judgment, even though the court recognized the insurer’s resulting difficult position. The court, however, did place some restrictions on the enforcement of these judgments. An insurer can protect itself by bringing a declaratory judgment action on the coverage issue, challenging the settlement as fraudulent or collusive, and challenging the settlement as unreasonable or imprudent. Given the frequent references in Miller to the fact that the insurer had not abandoned its insureds, it is clear that the court intended these protections to be available at least to an insurer which has not abandoned its insured.
*222II.
The precise issue presented here concerns what protections are allowed an insurer which abandons its insured. I believe that in this situation the insurer waives the right to have the court decide the issue of coverage. The insurer is then entitled only to those protections set forth in Miller.
A.
Under the reasoning in Miller and its progeny, an insurer should only be allowed to litigate the issue of coverage when the insurer has brought a declaratory judgment action. If an insurer is not required to bring a declaratory judgment action, the insurer may unfairly benefit. The insurer could deny coverage and force the insured to defend in the underlying litigation. If the insured prevails, the insurer has succeeded without risk. If the insured does not prevail, the insurer could relitigate the entire case. Insurers should be required to use the convenient declaratory judgment action so that insurers are not allowed two opportunities to have their defenses litigated. If the insurer chooses not to use a declaratory judgment action, I would hold that it is bound by its choice to abandon its insured, and therefore cannot raise defenses against it in the underlying litigation.
Moreover, requiring the insurer to pursue declaratory judgment actions promotes judicial economy because it avoids having two trials on the same issues. If we were to allow the insurer to litigate the underlying issues, as my colleagues believe we should do, we might have two trials on the same issues even though the claim has already been settled. Allowing such a result contradicts the underlying policy in Miller in favor of settlement and judicial economy.
Our cases applying Miller do not preclude requiring the insurer to use a declaratory judgment action. For instance, in Osgood v. Medical, Inc., 415 N.W.2d 896, 900 (Minn.Ct.App.1987), pet. for rev. denied (Minn. Feb. 12, 1988), the trial court, after a settlement had been reached, did address the question of indemnity. However, in Osgood, the insurer had not abandoned its insured, and therefore all interested parties were in the action at the time of trial. Id.
Also, in Traver v. Farm Bureau Mutual Insurance Co., 418 N.W.2d 727, 732 (Minn.Ct.App.1988), pet. for rev. denied (Minn. April 15, 1988), this court only allowed the insurer to contest the reasonableness of the settlement, not the underlying facts which led to the settlement. In addition, the court noted that the insurer in Traver was able to protect its interests because it was informed of the proposed settlement agreement and it was free to intervene. Id. at 731-32. Neither Osgood nor Traver, therefore, precludes requiring insurers to use declaratory judgment actions.
MSI in this case did not bring a declaratory judgment action. Instead, it abandoned its insured. In this situation, fairness and judicial economy require that MSI be precluded from raising its defenses. For the foregoing reasons, I respectfully dissent.
B.
MSI has waived its right to litigate the underlying liability action here because MSI failed to institute a declaratory judgment action. Nevertheless, MSI still is protected under Miller from fraudulent or collusive settlements as well as unreasonable settlements. MSI can still address these issues because they concern the process of settlement rather .than a determination of facts already admitted in the settlement. Since MSI does not argue that this settlement was fraudulent or collusive, I will not address that issue.
The disagreement on this court centers on whether the determination of reasonableness is to be made by the trial court as a matter of law or by the jury. Under Miller, the determination of reasonableness
involves a consideration of the facts bearing on the liability and damage aspects of the plaintiffs claim, as well as the risks of going to trial.
*223316 N.W.2d at 735. Thus, Miller does not require a trial on the facts bearing on plaintiff’s claim; it requires a consideration of the underlying process that led to the Miller settlement. The inquiry should focus on things such as factual allegations, problems of proof, and risks of going to trial, rather than the already determined liability and damages issues. Such an inquiry into reasonableness is best undertaken by a trial court rather than a jury.