Supreme Court Decision Caps "Proceeds Awarded" at Policy Limit

The Supreme Court of Minnesota issued a decision on April 5 clarifying whether the "proceeds awarded" to an insured are capped by the insurance policy limit.

The proceeds awarded are defined under Minn. Stat. § 604.18 (2016), which authorizes the award of "taxable costs" when an insurer denies benefits without a reasonable basis.

The court held that the "proceeds awarded" are capped at the policy limit.

Here's the background:

On January 10, 2009, the appellant, John Wilbur, was rear-ended by another driver, suffering permanent damage. The at-fault driver's liability insurance paid $100,000 to Wilbur, the full amount available under the policy. Wilbur's underinsured-motorist policy with the respondent, State Farm Mutual Automobile Insurance Company, also had a $100,000 coverage limit. State Farm made a settlement offer, but Wilbur declined it and served his complaint on State Farm. Wilbur alleged breach of contract and claimed that he was entitled to the full amount recoverable under his policy.

In 2011, a jury returned a verdict in Wilbur's favor in the amount of $412,764.63 as personal injury damages. State Farm moved to reduce the verdict for collateral source payments pursuant to Minn. Stat. § 548.251. After reducing the verdict, the district court determined Wilbur's underinsured loss was $255,956.59. Because his policy with State Farm provided only $100,000 of UIM coverage, and State Farm had previously paid $1,200 to Wilbur as UIM benefits, the district court ordered that judgment in the amount of $98,800 be entered in Wilbur's favor. He filed a motion to receive costs.

Prior to entry of judgment, Wilbur successfully moved to amend his complaint to add a claim against State Farm, pursuant to Minn. Stat. § 604.18, which provided that (1) after an insured receives an award for benefits under an insurance policy, a district court may also award the insured taxable costs; (2) if an insurer unreasonably denies benefits to an insured, the district court may award taxable costs of "an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less"; (3) the district court may award reasonable attorney fees up to $100,000 against an insurer who unreasonably denies benefits to an insured; and (4) the district court may award pre-judgment and post-judgment interest and costs and disbursements allowed under other law in connection with the unreasonable denial of an insurance benefits claim.

A bench trial was held on the Minn. Stat. § 604.18 claim. State Farm argued the statute was ambiguous and the phrase "proceeds awarded" should be construed to be capped by the policy limit. Wilbur, on the other hand, did not argue "proceeds awarded" was ambiguous, but construed it to mean the jury's verdict for personal injury damages, adjusted for collateral source payments.

If the proceeds awarded to Wilbur were capped by his policy limit, State Farm's liability would be $36,000: one-half of the difference between its last settlement offer of $26,800 and $98,800 (Wilbur's policy limit minus State Farm's initial payment of $1,200); but if the proceeds awarded were not capped by the policy limit, the amount would be $114,578.30: one-half of the difference between State Farm's last settlement offer of $26,800 and $255,956.59 (jury's award of $412,764.63 minus $156,808.04 in collateral-source payments). The district court found that (1) State Farm was liable for unreasonably denying Wilbur's UIM benefits; (2) Wilbur was entitled to recover $36,000, consistent with State Farm's interpretation of "proceeds awarded"; and (3) Wilbur could move to recover reasonable attorney fees under subdivision 3(a)(2) and costs and disbursements allowed under other law in connection with the unreasonable denial of an insurance benefits claim.

Wilbur filed a motion to enter judgment. In his memorandum, he argued the district court incorrectly construed the statute because the term "proceeds awarded" in Minn. Stat. § 604.18, subdivision 3(a)(1), referred to the net jury verdict of $255,959.59 and that he was entitled to taxable costs of $113,978.29, one-half of the net verdict in excess of State Farm's last offer.

The district court determined Wilbur's argument regarding the meaning of "proceeds awarded" constituted an improperly brought motion to reconsider. Because Wilbur failed to follow the proper procedure for bringing a motion to reconsider, the district court did not address his argument and entered judgment in his favor in the amount of $36,000 for taxable costs, $100,000 for attorney fees, and $35,832.90 for reasonable disbursements. Wilbur appealed the decision, arguing the district court erred as a matter of law in construing the term "proceeds awarded" and therefore erred in calculating the taxable costs awarded to him for State Farm's violation of subdivision 2(a). He stated the meaning of "proceeds awarded" was ambiguous because it had more than one reasonable interpretation and that legislative history supported his position.

The Court of Appeals of Minnesota affirmed the district court's ruling. Given the ambiguity of the term "proceeds awarded," the legislative history, and that statutory provisions for a penalty are construed narrowly against the penalty, the term "proceeds awarded" means the amount of the judgment entered by the district court after applying the UIM policy limit; thus, the district court properly calculated its discretionary award of taxable costs to Wilbur under Minn. Stat. § 604.18, subd. 3(a)(1).

Wilbur appealed the court of appeal's decision, arguing that restricting "proceeds awarded" to the insurance policy limit would sometimes produce inadequate remedies; however, after noting that its job was to interpret the plain language of Minn. Stat. § 604.18, the Supreme Court of Minnesota affirmed the court of appeal's ruling. "Proceeds awarded" to an insured were to be capped by the insurance policy's limit.

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