Newsletters

March 2008

Arthur Chapman's

Automobile Law Update

Welcome to the first edition of Arthur Chapman's 2008 Automobile Law Update. We developed this newsletter in order to provide you with information that is most relevant to your handling of Minnesota automobile claims. If you have a suggestion for a newsletter topic or would like information regarding a specific area of Minnesota automobile law, please contact any member of our Automobile Law Practice Group.

Automobile Law Seminar | August 7, 2008 
What's in Your Policy?
Change in MN Rental Law
Duty to Defend
New Attorneys
Fraud Practice Group
Looking Ahead

Save the Date!

2008 Minnesota Automobile Law Seminar

Hilton
Northbrook, IL

Thursday, August 7, 2008

Seminar 8:30 a.m. - 1:00 p.m.
Registration 8:00 a.m.

Contact Marie Kopetski today to register!

What's in Your Policy?

"What's in Your Policy" will be a featured column in our 2008 Automobile Law Updates. Personal Minnesota automobile policies can include intricacies not commonly found in other states. "What's in Your Policy" will take a look at the nuances specific to Minnesota policies and provide information on how to most effectively treat these nuances when handling a claim in Minnesota.

Exposure to Diminution in Value Claims - What Does Your Policy Say?

By
Randy E. Gottschalk
Ryan C. Sorge

In Minnesota, paying an insured the full cost of repair to a covered vehicle involved in an accident may not be enough. The insurer may also be responsible for paying the insured the thousands of dollars associated with the vehicle's actual or perceived diminution in value. Your policy language will determine what you have to pay.

Diminution in value claims arise when, after an accident, an insured claims a loss in actual or perceived market value to their vehicle, despite the property being repaired to the highest standard. The argument is that although restored to the highest standard, the vehicle is now significantly less valuable than an identical vehicle that has never been in an accident. As these claims continue to become more commonly recognized, insurance companies doing business in Minnesota are looking at the potential for thousands of dollars being tacked on to every car accident property damage claim. This type of claim threatens to take away the insurer's first option--to repair the vehicle.

However, every insurer in Minnesota could be protected from diminution in value claims. In 1999, ISO filed an endorsement to the personal auto policy in nearly every jurisdiction excluding such claims. Minnesota has approved the exclusion in personal auto policies. Nonetheless, we have found that many insurance companies have yet to include it in their policy. Without the specific exclusion language, Minnesota courts are allowing diminution in value claims. So, what does your policy say?

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Change in Minnesota Rental Law as of August 1, 2007:
Defense of Claims has Changed

By
Paul J. Rocheford
Shayne M. Hamann

As of August 1, 2007, the rental vehicle accident defense and indemnity priority will shift from the rental vehicle owner being primary to the renter/driver policy being primary. Also, the Minnesota law, as written, purports to rewrite every auto policy issued in any state such that the out-of-state insurer must rewrite the out-of-state policy to provide all Minnesota coverages, including writing up the property damage liability coverage to pay for damages to the rental car itself.

What does this mean?

For Rental Vehicle Owners:

The renter/driver's personal insurance policy will provide the primary defense and indemnity for rental vehicle accident claims arising out of the driver's negligent operation of a rental vehicle. (Note that the claims for negligent entrustment and direct negligence by the rental vehicle owner, such as inadequate maintenance, involve direct claims against the rental vehicle owner and this statutory change will not affect those direct claims.)

If the renter/driver does not have any insurance, it is likely that the rental vehicle owner will continue to be required to provide minimum financial responsibility limits (30/60) to the driver and provide the primary defense.

Will this shift in priority go further so as to eliminate the rental vehicle owner's minimum limits obligation whenever the renter/driver has "Minnesota minimum" liability limits? That is an argument we can expect to see made. The statutory language and history of the bill is a bit vague. It will require a "rental friendly" reading of the law to reach that result. Unless that happens, the rental vehicle owner's minimum financial responsibility limits (30/60) will be required protection for the renter/driver after the renter/driver's limits are exhausted. This potential exposure for the rental vehicle owner is not a vicarious liability obligation, but rather, the minimum financial responsibility obligation.

What about sums above those limits? Under current federal law, the rental vehicle owner is also protected and immune from any vicarious liability claims based on the negligence of the renter/driver. (See Paul J. Rocheford article entitled, "Federal Law Eliminates Vicarious Liability for Rental Vehicle Companies," Automobile Law Update, March 2006.) Nothing in the new law "caps" the exposure of the renter/driver.

For Personal/Commercial Auto Insurers:

As of August 1, 2007, whenever an insured drives a rental vehicle - at least in Minnesota - your company will become primary, obligated to defend and indemnify. That much is clear and within the legislature's province to so declare for Minnesota insurance policies.

The law also appears to require that any out-of-state insurer must rewrite its policy to provide all coverage just as though the policy had been issued in Minnesota, including writing up the property damage liability coverage to pay for damage to the rental vehicle itself. This may mean that an out-of-state insurer, in theory, would be required to provide Minnesota PIP and other insurance benefits that are otherwise not specified in the policy. This legislative action, attempting to rewrite out-of-state policies, will no doubt be contested in the court system. Personal and commercial insurers may argue that the Minnesota legislature has no authority to rewrite an out-of-state policy, at least when the insured vehicle is not present in the state, and the courts will have to review the new statute and compare it to the policy language and the laws regarding compulsory insurance in Minnesota.

Minnesota auto insurers should also consider the effect of this law when presented with first party claims by their insureds. At what dollar figure is a rental vehicle "underinsured," for example, may depend upon whether the out-of-state renter's policy limits are "written up" to Minnesota limits.

In summary, the order of the primary/secondary obligation for defense and indemnity has been reversed by the statutory change. The renter/driver's policy is primary and the rental vehicle owner's minimum financial responsibility protection, unless it is extinguished altogether, is secondary.

If you have any questions at all regarding the new law and its effect on your company or its customers, please feel free to call of the lawyers in the Arthur Chapman Automobile Law Practice Group.

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Duty to Defend Under Auto Liability Policies

By
Curtis D. Ruwe

Of the obligations contained in any liability policy, the most difficult obligation to escape is the duty to defend. However, as the duty does not exist with regard to every Complaint that is tendered to the automobile liability insurer, and undoubtedly, there are always those cases that do not quite fit the mold of the standard auto policy. To this extent, it is worthwhile to re-visit the general principles applied in Minnesota to an insurer's obligation to defend its insured. It is in these "oddball" situations that insurers are apt to question whether or not they should defend the insured or not. The following is a list of considerations to keep in mind when faced with a question of whether or not to defend the insured:

General Principles Regarding the Duty to Defend in Minnesota:

• The duty to defend is broader than the duty to indemnify.
• An insurer must defend the entire lawsuit if any claim presented is "arguably covered" under the policy.
• To determine whether there is a duty to defend it is necessary to compare the factual allegations and claims being made against the insured in the underlying Complaint with the relevant language in an insurance policy.
• The insurer must also consider facts outside the Complaint, of which it is aware at the time it makes the determination to defend or not.
• In order to escape the duty to defend, the insurer has the burden of proving that all parts of the cause of action either clearly fall outside the scope of coverage by the policy, or are clearly excluded by the policy.
• In denying a defense to its insured, an insurer may consider facts outside the Complaint which conclusively establish that the acts giving rise to the claim are not covered by the policy.
• Any doubts regarding the duty to defend should be resolved in favor of the insured.

Questions to Consider In Analyzing Whether a Duty To Defend Exists:

• Does the person requesting a defense qualify as an insured under the policy?
• Do any of the Plaintiff's claims arise out of the ownership, maintenance or use of an automobile?
• Do any policy exclusions apply? If so, can the application of the exclusion be conclusively established? Is the exclusion permissible under the no-fault act?
• Is the insured covered by another policy? Should that policy be defending and indemnifying the insured before your policy?

A thorough investigation of these issues on the front end can lead to significant savings for the insurer at the end of the day. Therefore, it is good practice to look at every angle in every case in analyzing coverage obligations, no matter how obvious the case may seem. It should also be noted that denying a defense to an insured can be risky business. If the insured proves that a defense was wrongfully withheld, it is likely that the Court will award attorneys fees both for defending itself in the liability action and for bringing the action to fight the insurer's denial. This can be an expensive proposition. For this purpose, an insurer should always act with caution when denying a defense obligation.

If you have questions regarding a specific duty to defend obligation, please do not hesitate to contact a member of our Automobile Law practice group.

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New Attorneys

Our Automobile Law Practice Group Recently Welcomed Three New Attorneys Who Bring with Them an Array of Experience and Enthusiasm:

Curt Ruwe focuses his practice in insurance coverage. He represents insurers and self-insured entities with first and third-party claims. He has handled claims ranging from the simple to the complex, including no-fault, personal auto, commercial auto, homeowners, commercial general liability, and umbrella policies. He has experience presenting coverage issues before Courts of Appeals in three states.

Kevin Kirchner practices in the areas of no-fault, construction defect, and general civil litigation. Kevin enjoys jumping headlong into a case and working with his clients to develop the most resourceful route to the desired result. Kevin has completed several jury trials, representing insurance companies and individuals, and brought numerous cases to a successful settlement.

Ryan Sorge concentrates his practice in the areas of automobile law and insurance coverage. His automobile law practice includes no-fault, liability, and uninsured/underinsured motorist claims. Ryan attended William Mitchell College of Law and was a member of the William Mitchell Law Review and a participant in Moot Court and Legal Practicum. While attending law school, Ryan clerked as a judicial intern with the Honorable Judge Mary Yunker in Sherburne County District Court, as well as with the Honorable Judge Philip D. Bush in Hennepin County District Court.

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Fraud Practice Group

Fraud has become a standard component of claims handling in the insurance industry. In many sectors, fraudulent claims continue to rise each year. This continuing and growing presence of fraudulent claims within the insurance industry, along with the experience our attorneys have gained in this area of law has culminated into the formation of a new practice group at Arthur Chapman that is solely devoted to handling fraudulent insurance claims.

We are proud to announce the creation of the Fraud Practice Group. The Fraud Practice Group will be co-chaired by Randy Gottschalk and Mark Brown, who have over 25 years of collective and expansive experience assisting insurers in handling suspicious insurance claims involving arson, theft, mysterious disappearance, phantom vehicles, no-fault matters, and first-party property coverage analysis and litigation.

If you would like more information about Arthur Chapman's new Fraud Practice Group, please contact Randy or Mark.

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Looking Ahead...

Throughout the 2008 Minnesota legislative session, we will closely monitor updates and changes to Minnesota automobile laws. Our June Update will provide you with the most up-to-date information regarding the changes that will have the greatest affect on your claims-handling processes.

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If you would like more information about our Automobile Law Practice Group or have any questions about the articles listed above, please feel free to contact any member of our group.