Scott O'Brien, Appellant, vs. State Farm Insurance Company, and State Farm Insurance Company, as Subrogee of Erma Walker, Respondents.

Scott O'Brien, Appellant, vs. State Farm Insurance Company, and State Farm Insurance Company, as Subrogee of Erma Walker, Respondents. A04-2462, Court of Appeals Unpublished, July 26, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-2462

 

Scott O'Brien,

Appellant,

 

vs.

 

State Farm Insurance Company,

and State Farm Insurance Company,

as Subrogee of Erma Walker,

Respondents.

 

Filed July 26, 2005

Affirmed; motions denied
Klaphake, Judge

 

Hennepin County District Court

File No. CT 04-003533

 

R. Stephen Tillitt, Anthony Gabor, Gislason & Hunter, L.L.P., 9900 Bren Road East, Suite 215E, P.O. Box 5297, Minnetonka, MN  55343-2297 (for appellant)

 

Karen R. Cote, Brett W. Olander, Brett W. Olander & Associates, 1000 Fifth Street Center, 55 East Fifth Street, St. Paul, MN  55101-2701 (for respondents)

 

            Considered and decided by Willis, Presiding Judge, Klaphake, Judge, and Shumaker, Judge.

U N P U B L I S H E D   O P I N I O N

KLAPHAKE, Judge

            Appellant Scott O'Brien brought this declaratory judgment action against respondents State Farm Insurance Company and State Farm Insurance Company, as subrogee for Erma Walker, seeking a determination that State Farm waived its subrogation rights against him when it failed to substitute its draft for his settlement check within 30 days after receiving a post-verdict, pre-judgment notice under Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983).  On cross motions for summary judgment, the district court determined that a Schmidt notice was "never consummated" because Walker did not fully release O'Brien and specifically preserved State Farm's subrogation rights against him.  The court further concluded that O'Brien cannot use a Schmidt notice as a way to avoid exposure to State Farm's subrogation rights and that the procedures set forth in Schmidt do not apply to this situation, when a verdict has been returned against the tortfeasor in an amount in excess of his liability limits and when judgment has not yet been entered.

            Because Schmidt cannot be used to defeat the UIM carrier's subrogation rights in this post-verdict situation involving partial release of the tortfeasor, we affirm the district court's grant of summary judgment to State Farm.

D E C I S I O N

I.

            State Farm moved to strike an exhibit contained in O'Brien's appendix and references to the exhibit in his brief.  By order dated March 18, 2005, State Farm's motion to strike was deferred to this panel.

            The disputed exhibit is a December 30, 2002 letter from O'Brien's counsel to Walker.  As O'Brien notes, however, this letter was filed with the district court as Exhibit D to his amended complaint.  Because the disputed exhibit was part of the record on appeal, we deny State Farm's motion to strike.  See Minn. R. Civ. App. P. 110.01 (stating that record on appeal consists of "papers filed in the trial court, the exhibits, and the transcript of the proceedings, if any").

            State Farm argues that if this letter is not stricken, then it should be allowed to supplement the record with letters dated January 24 and January 30, 2003, from Erma Walker's attorney to O'Brien and to State Farm.  State Farm admits that these letters are not part of the record.  In addition, State Farm does not claim that these letters were omitted from the record due to error or accident.  See Minn. R. Civ. App. P. 110.05 (allowing appellate court to supplement record if necessary to correct misstatement or material omitted due to error or accident).  We therefore deny State Farm's alternative motion to supplement the record.

II.

            Summary judgment is proper when there are no genuine issues of material fact and when either party is entitled to judgment as a matter of law.  Minn. R. Civ. P. 56.03.  On undisputed facts, an appellate court applies a de novo standard of review to determine whether the district court erred in its application of the law.  Washington v. Milbank Ins. Co., 562 N.W.2d 801, 804 (Minn. 1997).

            In Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), the supreme court was faced with the dilemma presented "where the best settlement available to an insured with the tortfeasor is less than the liability limits of the tortfeasor's policy but the insured's policy contains an ‘exhaustion clause,' whereby [UIM] coverage is only available after the limits of the tortfeasor's liability policy are exhausted."  Schwickert, Inc. v. Winnebago Seniors, Ltd., 680 N.W.2d 79, 83 (Minn. 2004).  The Schmidt court held that "exhaustion clauses are void as against the policies of the no-fault act" and the "insured may recover [UIM] benefits where the total damages sustained (as determined by either arbitration or judgment) exceed the limits of the tortfeasor's liability policy even where the insured settles with the tortfeasor for less than the liability limits."  Schmidt, 338 N.W.2d at 261.  The court further adopted a procedure to balance the right of the insurer to preserve its potential subrogation claims with the right of the insured to settle with a tortfeasor and obtain full compensation.  Id.  Giving more weight to the insured's right to full compensation, the court held that if an insured gives the insurer 30 days' notice of a tentative settlement agreement with the tortfeasor for an amount at or below the tortfeasor's liability limits, the insurer must either pay the insured an amount equal to the tentative settlement, and thus preserve its subrogation rights, or waive its subrogation rights.  Id. at 263.

            In cases following Schmidt, the supreme court has held that an injured claimant must do one of two things before initiating a UIM claim: 

The injured claimant can either, (1) pursue a tort claim to a conclusion in a district court action, and then, if the judgment exceeds the liability limits, pursue underinsurance benefits; or (2) settle the tort claim for "the best settlement," give a Schmidt-Clothier notice to the underinsurer, and then maintain a claim for underinsurance benefits.

 

Employers Mut. Cos. v. Nordstrom, 495 N.W.2d 855, 857 (Minn. 1993).  O'Brien insists that Walker chose the second option.

            Acceptance of O'Brien's position, however, requires us to find that the release executed by Walker fully released O'Brien and defeated any subrogation rights State Farm might have had against him.  But the release was only partial and specifically reserved State Farm's subrogation rights.  There is nothing in Schmidt or in cases decided after Schmidt that prohibit a UIM carrier from insisting that any post-verdict, pre-judgment settlement entered into by an insured may not fully release the tortfeasor and that such a release must specifically preserve any subrogation rights that the carrier might have.  Cf. Liberty Mut. Ins. Co. v. Am. Family Mut. Ins. Co., 463 N.W.2d 750, 753-54 (Minn. 1990) (recognizing that dynamics of settlement of claim that has been reduced to judgment differ significantly from settlement reached prior to trial, and that insurer is entitled to right of subrogation against tortfeasor in event of any settlement reached after trial).

            We fully agree with the district court's reasoning as follows:

Since there never was a settlement of all claims fully releasing O'Brien, a Schmidt v. Clothier settlement was never consummated.  O'Brien cannot use a Schmidt v. Clothier notice as a way to avoid exposure to State Farm's subrogation rights.  The specific procedures set forth in Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983) do not apply to this situation.

            . . . .  The procedure outlined in Schmidt was not intended to allow a tortfeasor to limit its liability by waiting until a verdict is rendered, offering to settle . . . and defeating the UIM carrier's subrogation rights when it fails to respond to notice of that settlement under Schmidt.  [Moundson v. Bitzan, 588 N.W.2d 169, 172 (Minn. App. 1999)].

            As in Moundson, State Farm was given a Schmidt v. Clothier notice after a jury verdict but before judgment was entered and did not substitute its draft while maintaining it was entitled to subrogation.  The Partial Release clearly notified all parties that State Farm intended to preserve any subrogation rights.  Walker did not sign a general release and the Partial Release cannot be viewed as a final and complete settlement which would prompt the requirements of Schmidt v. Clothier.  State Farm's subrogation rights were specifically reserved.

            State Farm paid the UIM policy limits to Walker.  Walker subsequently assigned her judgment against O'Brien to State Farm.  At no time did State Farm waive its subrogation rights and State Farm is entitled to summary judgment and recovery against O'Brien.

 

We therefore affirm the district court's grant of summary judgment to State Farm.

            Affirmed; motions denied.