Ronda J. Mill, Plaintiff, vs. Farm Bureau Mutual Insurance Company, Respondent, Steven M. Lawson, et al., Defendants, Independent School District No. 535, Appellant.

Ronda J. Mill, Plaintiff, vs. Farm Bureau Mutual Insurance Company, Respondent, Steven M. Lawson, et al., Defendants, Independent School District No. 535, Appellant. A05-302, Court of Appeals Unpublished, December 27, 2005.

This opinion will be unpublished and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

A05-302

 

 

Ronda J. Mill,

Plaintiff,

 

vs.

 

Farm Bureau Mutual Insurance Company,

Respondent,

 

Steven M. Lawson, et al.,

Defendants,

 

Independent School District No. 535,

Appellant.

 

 

Filed December 27, 2005

Reversed

Halbrooks, Judge

 

 

Olmsted County District Court

File No. C5-02-4009

 

 

Michael B. Goodman, Goodman & Guzinski, P.A., 300 First Avenue Northwest, #306, P.O. Box 277, Rochester, MN 55903-0277 (for respondent)

 

Mark R. Azman, Chad H. Gabert, Johnson & Condon, P.A., 7401 Metro Boulevard, Suite 600, Minneapolis, MN 55439 (for appellant)

 

            Considered and decided by Kalitowski, Presiding Judge; Toussaint, Chief Judge; and Halbrooks, Judge.

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            Appellant Independent School District No. 535 challenges the district court's order granting the insurer's motion for subrogation against the school district for the amount of no-fault benefits the insurer paid to its insured.  The school district and the plaintiff (insured) in the underlying action entered into a post-verdict settlement agreement that excluded the amount of no-fault benefits that the insured had received from the insurer.  Because the insured did not receive a double recovery and an insurer's right of subrogation is only valid against its insured, we reverse.

FACTS

            A motor vehicle accident involving Ronda Mill and Steven Lawson occurred on December 7, 2000, resulting in personal injury to Mill.  Prior to the accident, Lawson, a high school student who suffers from Down's Syndrome, had left school without permission.  He then stole a car from J. Kinsella Auto Sales, Inc. (Kinsella) and drove the wrong way on Highway 52, ultimately colliding with Mill.  Mill sued Lawson, Kinsella, and appellant Independent School District No. 535, alleging various theories of liability, and her insurer, respondent Farm Bureau Mutual Insurance Company, for uninsured motorist benefits.  Farm Bureau paid Mill no-fault benefits totaling $16,404.59.  Following trial, a jury returned a verdict of $60,000 in Mill's favor, allocating 25% negligence to Lawson and 75% to the school district.  The $60,000 damages award included the no-fault benefits that Mill had received.

            The school district and Lawson moved to offset Farm Bureau's no-fault payments from the verdict under Minn. Stat. § 65B.51, subd. 1 (2004), and Minn. Stat. § 548.36 (2004), the collateral source statute.  Farm Bureau moved for an order granting subrogation against the school district and Lawson for the no-fault benefits paid to Mill.  Before the posttrial motions were heard, Mill and the school district entered into a settlement agreement whereby the school district agreed to pay its portion of the damages as well as Lawson's.  Mill agreed to settle with the school district for $50,500the amount of the verdict plus interest and costs, but excluding the amount of no-fault benefits that she had received from Farm Bureau. 

            The district court denied the school district's motion for offset (albeit after Mill and the school district entered into the settlement agreement), but granted Farm Bureau's motion for subrogation against the school district.  The district court found that if it did not order reimbursement, the settlement agreement would "eviscerate[]" Farm Bureau's subrogation right.  Thus, the district court ordered the school district to reimburse Farm Bureau for the amount of the no-fault benefits that Mill and the school district had excluded from the settlement agreement.  This appeal follows.

D E C I S I O N

            This case involves the interpretation and application of various statutes.  Statutory construction is a question of law, which we review de novo.  Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 393 (Minn. 1998).  "When interpreting a statute, we first look to see whether the statute's language, on its face, is clear or ambiguous.  A statute is only ambiguous when the language therein is subject to more than one reasonable interpretation."  Am. Family Ins. Group v. Schroedl, 616 N.W.2d 273, 277 (Minn. 2000).

In Minnesota, no-fault automobile insurance is governed by Minn. Stat. §§ 65B.41-.71 (2004).  Minn. Stat. § 65B.53, subd. 3, which is at issue in this matter, states:

A reparation obligor paying or obligated to pay basic economic loss benefits is subrogated to a claim based on . . . negligence other than negligence in the maintenance, use, or operation of a motor vehicle.  This right of subrogation exists only to the extent that basic economic loss benefits are paid or payable and only to the extent that recovery on the claim absent subrogation would produce a duplication of benefits or reimbursement of the same loss.

 

Mill's claim against the school district was based on its alleged negligent supervision of Lawson.  Because Mill's claim was a claim of "negligence other than negligence in the maintenance, use, or operation of a motor vehicle," Minn. Stat. § 65B.53, subd. 3, is the appropriate statutory section to resolve this issue. 

            The district court, in granting Farm Bureau's motion, stated:

In this case the post-verdict settlement agreement between the District and Mill seeks to preclude Farm Bureau's subrogation right by setting up a payoff with a built-in collateral source deduction.  Notwithstanding the parties' authority to structure a post-verdict settlement agreement, Farm Bureau cannot now be bound to an outcome where its subrogation rights are eviscerated.  That is, Farm Bureau's otherwise valid, post-verdict right of subrogation cannot now be purged simply because the no-fault plaintiff settles with other defendants in the case. . . . Here with the application of § 65B.53, subd. 3, being requested by Farm Bureau, Mill's verdict devoid of offset will nevertheless evade the double recovery conundrum because a right of subrogation exists.

 

            Appellant asserts that resolution of this issue is controlled by the Minnesota Supreme Court's decision in Milbrandt v. Am. Legion Post of Mora, 372 N.W.2d 702 (Minn. 1985).  We agree.  In Milbrandt, the plaintiff brought a dram-shop claim following her husband's death.  Prior to trial, the plaintiff settled with the defendants on a Pierringer basis.  Because the plaintiff had received basic-economic-loss benefits, her insurer moved to intervene in the suit and brought a separate action for subrogation against the tortfeasors.  The district court denied the motion to intervene and entered summary judgment against the insurer on the subrogation claim.  The court of appeals affirmed.  On review, the supreme court affirmed, stating in part:

Appellant asks the court to find a general policy in the No-Fault Act favoring subrogation claims against tortfeasors by reading the first sentence of subdivision 3 broadly, and then seeks a narrow interpretation of the explicit limitation on subrogation rights in the second sentence of subdivision 3.  The statute, however, means exactly what it says: a reparation obligor may assert a subrogation claim to recover basic economic loss benefits paid only when the insured has received a double recovery.  Because the insurer's right to recover benefits paid its insured exists only when the insured obtains double recovery, the right of recovery recognized in subdivision 3 may be asserted only against the insured.  When seeking to recover under subdivision 3, the burden is on the insurer to show that the insured has been overcompensated.

 

Milbrandt, 372 N.W.2d at 705 (footnote omitted). 

Because subrogation rights have a direct impact on the no-fault insurance system, the Minnesota legislature "accommodated the fault and no-fault systems by subordinating the no-fault insurer's subrogation right to its obligation to pay basic economic loss benefits."  Id. at 706.  It is well established that an insurer only has subrogation rights against the insured and only when the insured has received duplicate benefits.  See id.; State Farm Mut. Auto. Ins. Co. v. Galloway, 373 N.W.2d 301, 304 n.1 (Minn. 1985); Ketterling v. Am. States Ins. Co., 415 N.W.2d 106, 109 (Minn. App. 1987), review denied (Minn. Jan. 28, 1988).  Moreover, it is the insurer that has the burden of proving that the insured obtained double recovery or overcompensation.  Milbrandt, 372 N.W.2d at 705. 

This case is factually similar to Ketterling, in that Ketterling received uninsured-motorist benefits, then brought her personal-injury lawsuit, received damages, and entered into a posttrial settlement that reflected a compromise in the amount of damages.  415 N.W.2d at 107.  The settlement agreement explicitly stated that it was excluding the amount that Ketterling had received in basic-economic loss and uninsured-motorist benefits, thereby avoiding a double recovery and frustrating the insurer's subrogation claim.  Id. at 107-08.  This court held that the agreement was valid because Ketterling entered into the settlement at a time when the verdict could still be challenged on appeal and because "she realized less than full compensation."  Id. at 109.  This court stated that "[s]he realizes full recovery only because she also received basic economic loss and uninsured motorist benefits from her own insurer."  Id.  Therefore, the settlement agreement was valid despite the fact that the insurer had no right of subrogation because the agreement did not amount to double recovery.  Id.

            Here, Farm Bureau characterizes the settlement agreement as "collusive" and the district court stated that the agreement "eviscerate[s]" Farm Bureau's subrogation rights.  This court has recognized that an insured has a right to "structure the settlement to include only non-duplicative losses."  Mueller v. Theis, 512 N.W.2d 907, 911 (Minn. App. 1994) (citing Principal Fin. Group v. Allstate Ins. Co., 472 N.W.2d 338, 342 (Minn. App. 1991)), review denied (Minn. Apr. 28, 1994).  In fact,

[a]pplication of Milbrandt to all subrogation claims . . . means that the insured has full control over the litigation and settlement of the kinds of tort claims that are covered in those subdivisions.  No reimbursement right arises if the settlement or judgment does not result in duplicative recovery of losses for which basic economic loss benefits have been paid.

 

Principal, 472 N.W.2d at 342 (emphasis added) (citing 2 M. Steenson, Minnesota No-Fault Automobile Insurance 295-96 (2d ed. 1989)).  The reason the insured should have wide latitude in structuring settlements is because "the no-fault insurer assesses premiums to pay for injury to its insured regardless of fault, [so] the insurer is paying out only what its insured paid for, and thus would receive a windfall if allowed to recover from the tortfeasor basic economic loss benefits paid to the insured."  Id. at 341 (quotation omitted).  Because an insured already paid a premium for the benefits received from the no-fault carrier, an insured has the right to structure a settlement to include only non-duplicative losses.  In addition, "it is consistent with the general rationale of the act that economic loss should primarily be the burden of the no-fault carrier.  Haugen v. Town of Waltham, 292 N.W.2d 737, 740 (Minn. 1980).    

            Consequently, because Minn. Stat. § 65B.53, subd. 3, states that subrogation is available for an insurer only against its insured and only to prevent double recovery and because an insured has the right to structure settlement agreements to include only non-duplicative losses, the district court erred in ordering that the school district reimburse Farm Bureau for the no-fault benefits that Farm Bureau paid to its insured. 

            Reversed.