Court Opinion

ID: 9654729
Source: CourtListenerOpinion
Date Created: 2023-08-23 18:49:00.292173+00
Date Added: 2024-06-11T18:13:12.959773
License: Public Domain

OPINION
MINGE, Judge.
Appellant insurer challenges the district court summary judgment determination that reduced-liability (drop-down) limit provisions in automobile insurance coverage for resident family members is ambiguous, unenforceable, and inapplicable to respondent claimant. Although we agree with appellant that the drop-down limit for resident family members are enforceable, we conclude that the drop-down limit set forth in this policy does not apply to respondent. Accordingly, we affirm.
FACTS
On November 27, 2004, seventeen-year-old appellant Nathan Frey was involved in a one-vehicle accident while driving on Interstate 35 in Lakeville. The passengers in the car were Nathan’s father (Stephen Frey), Nathan’s mother (Patricia Frey), Nathan’s sister (Aven Frey), and Aven’s fiancé, Thomas Alexander. Aven’s fiancé and Stephen Frey were killed in the accident. Aven Frey, who was a college student in Iowa at the time of the accident, and her mother Patricia sustained injuries.
Stephen Frey owned the vehicle, which was covered under a Minnesota automobile insurance policy issued to Stephen and Patricia (the Freys) by appellant United Services Automobile Association (USAA). The policy contained bodily injury liability limits of $300,000 per person or $500,000 per accident. The exclusions section of the policy contained a drop-down limit for bodily-injury liability coverage to $30,000 per person or $60,000 per accident when a “covered person” was legally liable to pay “a member of that covered person’s family residing in that covered person’s household.” It is undisputed in this case that Nathan Frey was a covered person under the insurance policy. USAA denied coverage to Aven Frey for amounts above the policy's drop-down limits because USAA claimed Aven was residing with her brother Nathan.
Upon denial of coverage, respondents Aven Frey and Patricia Frey, individually and on behalf of the estate of Stephen Frey, filed suit against USAA and Nathan Frey seeking to have the drop-down limits on coverage for resident family members declared invalid under Minnesota law and to have Aven declared eligible to receive compensation within the remaining $500,000 policy limits. The parties moved for summary judgment. The district court granted respondents’ motion. This appeal follows. For convenience, the parties are referred to in the singular as USAA and Aven.
ISSUES
I. Is reduction of bodily-injury coverage for resident family members in an automobile insurance policy valid and enforceable?
II. On the undisputed facts in this case, was Aven a family member resid*341ing with Nathan and subject to the reduced limit under the policy?
ANALYSIS
I.
The first issue is whether an automobile insurance policy that provides for reduced-liability (drop-down) limits on bodily-injury coverage for resident family members is valid and enforceable. This is a matter of first impression in this court. Whether an insurance policy exclusion is valid and enforceable is a question of law that this court reviews de novo. Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn.1998). The district court found the drop-down limit unenforceable because it contravenes coverage required by law, is ambiguous, and violates reasonable expectations of the insured.
A. Compliance with the Law
Minnesota courts have a well-settled two-part test for determining the legal enforceability of insurance contract provisions. If the policy provisions (1) do not omit coverage required by law and (2) do not contravene applicable statutes, then the extent of the insurer’s liability is governed by the terms of the contract entered into by the parties. Am. Family Mut. Ins. Co. v. Ryan, 330 N.W.2d 113, 115 (Minn.1983).
As for the first prong, the USAA policy purchased by Stephen Frey does not omit coverage required by Minnesota’s automobile insurance laws. See Minn. Stat §§ 65B.001-84 (2006). The provision at issue is listed in the exclusion section of the liability portion of the policy and reads as follows:
C. There is no coverage for [bodily injury] for which a covered person becomes legally responsible to pay a member of that covered person’s family residing in that covered person’s household. This exclusion applies only to the extent that the limits of liability for this coverage exceed $30,000 for each person or $60,000 for each accident.
By statute, policies must include a minimum of $30,000 of bodily-injury coverage to one person in any one accident and a minimum of $60,000 of bodily-injury coverage to two or more persons in any one accident. Minn.Stat. § 65B.49, subd. 3(1) (2006). Because the drop-down exclusion provides the required minimum coverage, we conclude that USAA’s policy satisfies the first prong of the test for an enforceable insurance contract.
The second prong of the test for an enforceable insurance contract is that the policy provisions not otherwise contravene applicable statutes. Ryan, 330 N.W.2d at 115. The district court concluded that USAA’s policy was invalid and unenforceable because USAA’s reduction of coverage for family members (i.e., a status-based exclusion) is not one of the enumerated grounds for cancellation or reduction of liability coverage under Minnesota’s law. See Minn.Stat. § 65B.15 (2006). But section 65B.15 deals with cancellation or reduction in limits during the policy period. Id. The statute enumerates eight grounds whereby an insurer may cancel or reduce liability coverage “during the policy period of any policy.” Minn.Stat. § 65B.15, subd. 1 (2006) (emphasis added). Because the statute only governs changes in coverage during the policy’s term, it is not applicable to the drop-down provision at issue here. See Royal Ins. Co. v. W. Cas. Ins. Co., 444 N.W.2d 846, 848 (Minn.App.1989) (holding statutory requirements of Minn. Stat. § 65B.15, subd. 1 inapplicable because insurer did not cancel policy during the term of policy). Because Minn.Stat. § 65B.15 does not apply in this case, the district court erred in finding that the *342drop-down provision in USAA’s policy is invalid and unenforceable under that statute.
We also note that although there is no explicit statutory prohibition on drop-down coverage, the Minnesota Department of Commerce’s 2005 procedure manual had disapproved of drop-down limits on bodily-injury coverage of resident family members. Minn. Dep’t of Commerce, Private Passenger (Personal) Automobile Insurance, 7 (2005). That disapproval was withdrawn and there is no claim that this policy provision violates or violated a regulation of the Minnesota Department of Commerce or other state agency. We conclude that USAA’s policy does not contravene applicable Minnesota law.
B. Ambiguity
We next consider Aven’s claim that the phrase “resident of your household” in USAA’s insurance policy is ambiguous. Whether the language of an insurance policy is ambiguous is a question of law. St. Paul Fire & Marine Ins. Co. v. Nat’l Computer Sys., Inc., 490 N.W.2d 626, 631 (Minn.App.1992), review denied (Minn. Nov. 17, 1992). Interpretation of insurance policy language and application of the policy to the facts in a case are also questions of law that this court reviews de novo. Franklin v. W. Nat’l Mut. Ins. Co., 574 N.W.2d 405, 406 (Minn.1998). Any ambiguity is to be resolved against the insurer and in accordance with the reasonable expectations of the insured. St. Paul Fire & Marine Ins. Co., 490 N.W.2d at 631.
The Minnesota Supreme Court has previously adjudicated the ambiguity of phrases regarding household residents in insurance policies. In Lott v. State Farm Fire & Cas. Co., 541 N.W.2d 304, 307 (Minn.1995), the court held that the undefined phrase “resident of your household” in a homeowner’s insurance policy was unambiguous. The Lott court arrived at its decision simply by comparing the language in Lott to that considered in two prior decisions and concluding that the language at issue was very similar. Id. One of the prior decisions relied on by the Lott court was Firemen’s Ins. Co. v. Viktora, 318 N.W.2d 704, 706 (Minn.1982), where the court concluded that the phrase “residents of the Named Insured’s household” in a homeowner’s insurance policy was clear and unambiguous. The second was Tollefson v. Am. Family Ins. Co., 302 Minn. 1, 5, 226 N.W.2d 280, 283 (1974), where the court held that the phrase “residents of the same household” in an automobile insurance policy was unambiguous.
Because the Minnesota Supreme Court has previously held that the phrase “resident of your household” and similar phrases are unambiguous in insurance policies, we conclude that the language “resident of your household” in USAA’s policy is likewise unambiguous. Therefore, the policy language is sufficiently clear to be enforceable.
C. Reasonable-Expectations Doctrine
The third issue is whether the drop-down provision so violates the reasonable expectations of the insured as to render the provision unenforceable.
The doctrine of reasonable expectations protects the objectively reasonable expectations of the insured even if close study of the insurance policy would negate those expectations. Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 118 (Minn.App.1995), review denied (Minn. Apr. 27, 1995). The insurance policy need not be ambiguous for the doctrine to apply. Atwater Creamery Co. v. W. Nat’l Mut. Ins. Co., 366 N.W.2d 271, 278 (Minn.1985). In determining the reasonable expectations of the insured, a court considers (1) *343ambiguity in the language of the contract; (2) whether the insured was told of important, but obscure, conditions and exclusions or the placement of major exclusions is misleading; and (3) whether the particular provision is one known by the public generally. See id. The doctrine is generally applied when an insurance policy has been misrepresented or misunderstood, or when a legal technicality would defeat the insured’s objectively reasonable expectations. Reinsurance Ass’n of Minn. v. Johannessen, 516 N.W.2d 562, 565-66 (Minn.App.1994). The doctrine of reasonable expectations does not destroy the insured’s obligation to read the policy, but only holds an insured to a reasonable understanding of that policy. Hubred v. Control Data Corp., 442 N.W.2d 308, 311 (Minn.1989).
The first factor in the Atwater analysis looks at whether the provision in the insurance policy is ambiguous. We have already determined that the phrase “resident of your household” in USAA’s policy is not ambiguous. Consequently, we conclude that the first factor favors USAA.
The second Atwater factor concerns the obscurity of the provision at issue. The exclusion at issue in Atwater was located within one of the insurance policy definitions and the court refused to enforce it because it was hidden. Atwater, 366 N.W.2d at 276-79. Federal courts have also found exclusions based on policy definitions that were in supplementary documents not presented to the insured to be “hidden.” Wessman v. Mass. Mut. Life Ins. Co., 929 F.2d 402, 406 (8th Cir.1991). Where a policy exclusion lies in the “exclusion” section of a policy, Minnesota courts have held that it is not hidden and that the insured should therefore reasonably expect the clause to limit coverage. Bd. of Regents of Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d 888, 891 (Minn.1994); Merseth v. State Farm Fire & Cas. Co., 390 N.W.2d 16, 18 (Minn.App.1986), review denied (Minn. Aug. 13, 1986).
In this case, the drop-down limit of coverage for family members is contained in the exclusions section of USAA’s policy. In order to fully understand what the provision means, the reader of the policy must refer to policy definitions of “covered persons” and “family member.” However, the definition of the owner and drivers as “covered persons” is what one would expect, and the phrase “family member” is not technical. More important, the drop-down provision is in the section that is clearly labeled “exclusions;” it is not hidden. Also, as previously noted, the doctrine of reasonable expectations does not eliminate the insured’s obligation to read the policy. Because this was not a hidden exclusion, we conclude that the second factor favors USAA.
The remaining Atwater factor is whether there is general public awareness of drop-down provisions. We do not disagree with the district court that the drop-down in liability coverage may be a surprise to most policy holders. The insurance-buying public may assume that injured family members have the benefit of the full policy limits. However, this court has previously held that in the absence of an ambiguity, a hidden major exclusion, or other special circumstances, the doctrine of reasonable expectations is inapplicable. Levin v. Aetna Cas. and Sur. Co., 465 N.W.2d 99, 102 (Minn.App.1991), review denied (Minn. Mar. 27, 1991); Centennial Ins. Co. v. Zylberberg, 422 N.W.2d 18, 23 (Minn.App.1988); Merseth, 390 N.W.2d at 18. For the courts to assay public awareness of what is expected in an insurance policy is a speculative task that we decline to undertake based on this record. Accordingly, we conclude that the reasonable-expectations *344doctrine does not render the drop-down limit unenforceable.
D. Conclusion
Based on the foregoing, we conclude that drop-down limits on bodily-injury coverage for resident family members in the automobile insurance policy at issue in this case do not violate Minnesota automobile insurance coverage requirements, áre sufficiently clear to be enforceable, and do not violate the reasonable-expectations doctrine. As a result, we conclude that such a provision is valid and enforceable.
II.
The second issue is whether respondent Aven Frey was a family member residing with Stephen and Nathan Frey and thus subject to the drop-down coverage in the policy. It is undisputed here that Aven Frey is a “family member.” This case turns on whether Aven was residing in the Stephen and Nathan Frey household at the time of the accident.
Whether an individual is a resident relative of an insured is normally a factual question. Fruchtman v. State Farm Mut. Auto. Ins. Co., 274 Minn. 54, 55, 142 N.W.2d 299, 300 (1966); State Farm Fire & Cas. Co. v. Lawson, 406 N.W.2d 20, 22 (Minn.App.1987), review denied (Minn. June 30, 1987). However, when the significant, underlying facts are not in dispute, and when there is sufficient information in the record, whether an individual is a resident relative may be decided as a matter of law. Am. Family Mut. Ins. Co. v. Thiem, 503 N.W.2d 789, 790-91 (Minn.1993). Here, the parties filed cross-motions for summary judgment and in so doing represented that the material facts were not in dispute. See id. (stating by submitting cross-motions for summary judgment, parties “tacitly agreed that there exist no genuine issues of material fact”). Because the district court did not directly address or decide whether Aven resided in the Frey household and because in this appeal both parties have requested that this court make that determination on the basis of the undisputed facts in the record, we will do so.
A. Factual Analysis
Determination of residence is an exacting task. To do so, Minnesota courts have examined the nature of the claimant’s relationship with the social unit that makes up the insured’s household and not simply at the claimant’s connection to the place where the insured lives. Lott, 541 N.W.2d at 307. In looking at the nature of that relationship, we consider three factors: (1) whether the claimant and the insured are living under the same roof; (2) whether the claimant and the insured are living in a close, intimate, and informal relationship; and (3) where the intended duration is likely to be substantial, whether it is consistent with the informality of the relationship and reasonable to conclude that the parties would consider the relationship in contracting about insurance. Viktora, 318 N.W.2d at 706 (quoting Pamperin v. Milwaukee Mut. Ins. Co., 55 Wis.2d 27, 197 N.W.2d 783, 788 (1972)); see also Lott, 541 N.W.2d at 307-08.
In this case, the Frey family’s move from New Mexico to Minnesota coincided with Aven’s move to Iowa to attend college. These moves occurred three years prior to the accident.1 Aven returned to her parents’ household for holidays and school breaks, including summer *345breaks following her first and third year of college. When looking at the very limited time that Aven stayed at the Frey house during the three years after she started college, we conclude that the weight of the evidence is that Aven did not “dwell together under the same roof,” as her brother or her father.
As for the second factor, we recognize that Aven undoubtedly had a close, intimate, and informal relationship with her family. Subject to the natural separation of an away-from-home college student from siblings and parents, this bond might well continue for a lifetime. However, there is a difference between being “close” and living together. Here, there is nothing to indicate that Aven was living in that close relationship at the time of the accident. She was engaged and was living with her fiancé. She and her fiancé had pets, certain household items, and access to each other’s bank accounts. They never intended to move back in with her parents. To the extent the emphasis is placed on the word “living,” Aven was living with her fiancé rather than her parents and brother. The second factor is not met.
The third factor is not clearly stated by the Viktora court. We understand it to ask the following: whether, based on the intended duration of Aven’s stay at the Frey household and the informality of the family relationship, Stephen Frey likely considered Aven as part of the family in contracting for car insurance. We note that if the Freys did consider Aven to be part of the household, they would be expected to list her on the Minnesota policy with the rest of family. Skarsten v. Dairyland Ins. Co., 381 N.W.2d 16, 19 (Minn.App.1986) (determining that inclusion of a college student daughter as an insured on the family car was strong evidence that both parents and daughter considered her to be a member of the household), review denied (Minn. Mar. 27, 1986). Although all of the other Freys are listed in the policy, Aven is not. Instead, Aven’s parents had contracted with USAA for a separate Iowa automobile insurance policy listing Aven as the sole operator on an Iowa vehicle. This suggests that Stephen Frey did not consider Aven part of the household for the purposes of insurance coverage. Based on the foregoing analysis, we conclude that under the Viktorar-Pamperin factors, Aven was not a resident of the Frey household.
In addition to the Pamperin formula, this court has used a five factor approach in determining residency: (1) age of the person; (2) whether a separate residence is established; (3) self-sufficiency of the person; (4) frequency and the duration of the stay in the family home; and (5) intent to return. Wood v. Mut. Serv. Cas. Ins. Co., 415 N.W.2d 748, 750 (Minn.App.1987), review denied (Minn. Feb. 12, 1988).
Here, at the time of the accident, Aven Frey was 21 years old and had been attending college in Iowa for more than three years. She was an adult for all legal purposes. The age factor weighs against Aven being a resident of the Frey household.
Next we consider the self-sufficiency factor. Aven’s parents paid for her college tuition, housing, health and car insurance and provided her with a car for her use. Although Aven did work during college, her earnings were not adequate to pay these expenses. Her financial dependence supports her being treated as a member of the Frey household.
The remaining factors are a mixture of presence, living arrangements, and apparent intent. Aven essentially lived at college. However, she still had a strong attachment to the Frey household. She did not stay in Iowa for college breaks or holidays. Aven spent most of her first *346summer break at her parents’ house in Minnesota. During her third summer break, Aven and her fiancé both stayed at her parents’ house for two months. During the school year, Aven and her fiancé visited her parents during school breaks and holidays. Because she was still living with her fiancé during these visits, and the visits were temporary, they provide little support for finding her to be a resident of the Frey household.
Other considerations point toward a separate residence. At the time of the accident, Aven was in the fall semester of her fourth year at college. She received virtually all of her mail at her college address, and was a registered voter in Iowa. Aven became engaged to be married during spring of her third year at college. At the time of the accident, Aven had been living on campus with her fiancé. She and her fiancé traveled together during college breaks; they bought and sold a car together and acquired two cats, furniture, and other household belongings. During their summer breaks, they stored their furnishings in a storage locker in Iowa. During her second summer break, Aven and her fiancé took classes at Colorado College and lived together there. Upon graduation from college, Aven and her fiancé planned to marry, stay in Iowa while studying for graduate school exams, and then move to either California or Germany. Aven only periodically stayed at the Frey house, and she did not intend to return to the Frey house. For most purposes, Aven had begun a new life with her fiancé. It was a closer, more intimate relationship than Aven’s relationship with her brother or her father.
On balance, the Wood factors indicate that Aven was not residing with her parents and brother at the time of the accident. Coupled with the foregoing Vikto-ra-Pamperin analyses, we conclude that Aven Frey was not a member of the Frey household under USAA’s policy and that coverage for her injuries is not restricted by the drop-down provision.
B. Rule of Construction
The conclusion that Aven was not residing in her parents’ household is reinforced by the principle that this court reads exclusions in insurance contracts narrowly against the insurer. Hubred, 442 N.W.2d at 310. An insurance contract should be read as a whole. Mitsch v. Am. Nat’l Prop. & Cas. Co., 736 N.W.2d 355, 358 (Minn.App.2007). When unambiguous, courts should not torture insurance terms to find an ambiguity. See Roloff v. Taste of Minn., 488 N.W.2d 325, 326 (Minn.App.1992), review denied (Minn. Oct. 20, 1992). But when a provision of an insurance contract is capable of different interpretations, it is applied in favor of the claimant. Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn.2006).2
The determination of residence is difficult and susceptible to varying interpretations. See In Re Seidel, 204 Minn. 357, 361, 283 N.W. 742, 743 (1939) (“The word ‘reside’ is often used to express a different meaning according to the subject-matter.”). This is especially true with college students, who are in a transition period in their lives. Insurers often argue that college students are not members of their *347parents’ household where, in contrast to this case, non-residence limits or defeats a claim. E.g., Schoer v. West Bend Mut. Ins. Co., 473 N.W.2d 73, 74 (Minn.App.1991) (insurer arguing that first-year technical college student who “lives out of a suitcase” when away from home not a member of his mother’s household); Morgan v. Ill. Farmers Ins. Co., 392 N.W.2d 37, 38-39 (Minn.App.1986) (insurer arguing 21-year-old college student not member of household), review denied (Minn. Oct. 22, 1986). As these cases demonstrate, the issue of residence is not an uncommon subject of conflict and inconsistency.
Although uncertainty cannot be eliminated, the policy could define the term “resident” to reduce the uncertainty of its application. For example, one insurer’s policy stated that the term “resident of your household” included “your unmarried and unemancipated child away at school.” Crump v. State Farm Mut. Auto. Ins. Co., 961 F.2d 725, 726 (8th Cir.1992). Insurers can also require insureds to specify the members of their household that the insured expects to be covered by the policy, similar to how the insured lists all of the drivers of an automobile insurance policy. Aetna Cas. & Sur. Co. v. DeBruicker, 838 F.Supp. 215, 222 (E.D.Pa.1993).
Because of the inherent uncertainty in the application of a residency exclusion to college students and others and because the insurers are in a position to take reasonable steps to minimize the uncertainty, exclusions from coverage should be read narrowly.3 This applies to the policy provision at issue in this case and reinforces the finding of coverage.4
DECISION
USAA’s automobile insurance policy drop-down limit on bodily-injury coverage for resident family members is valid and enforceable under Minnesota law. Based on the facts in this record, we conclude that Aven Frey was not residing with a covered party under the policy. As a result, the reduced policy limits do not apply to her claim.
Affirmed.

. Although the move from New Mexico to Minnesota is an unusual feature of this case, Aven's physical separation from the Frey household would be the same if the family had been in Minnesota all along.

. We note that drafting insurance policy exclusions has been the subject of critical judicial comment. See Hayes v. Home Life Ins. Co., 168 F.2d 152, 154-55 (D.C.Cir.1948) (“If the [insurance] companies were permitted to write clear clauses of liability at one point and obscure negations of liability at another, and to maintain successfully the prevalence of the latter over the former, the temptation to sell one clause and defend on the other would be dangerous.”).

. We do not address the question of whether Aven Frey would be a resident under the Minnesota No-Fault Act. But we do notice that the statutory language suggests a more inclusive definition, and that in the context of uncertainty, coverage is preferred by law. See Minn.Stat. § 65B.43, subd. 5 (2006).

. This court declines an invitation to adopt a rule that we will always find against the insurer. See Crossett v. St. Louis Fire and Marine Ins. Co., 289 Ala. 598, 269 So.2d 869, 874 (1972) (holding that insurance policies will be read against the drafter when excluding or extending coverage based on household residency).