On April 5, 2017, the Minnesota Supreme Court issued Wilbur v. State Farm Mut. Auto. Ins. Co., applying "proceeds awarded" for purposes of Minnesota's first-party bad faith statute to unambiguously mean the judgment amount entered by the district court on the claim for benefits, an amount which is capped by the insurance policy’s limit.
The Minnesota Supreme Court has answered a question that has been on the minds of insurance coverage attorneys since Minnesota first enacted Minn. Stat. § 604.18, Minnesota's first-party bad faith statute. The statute allows an insured to tax certain costs and fees against an insurer that unreasonably denies an insurance benefits claim knowing that it lacked a reasonable basis to deny benefits, or acting in reckless disregard of the lack of a reasonable basis to deny benefits. In particular, subdivision 3(a) provides that when an insurer is found to have unreasonably denied first-party benefits, the court may award as taxable costs:
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. . . .
Since enactment of the statute, coverage attorneys have queried whether "proceeds awarded" means the total damages determined by the jury (adjusted for collateral source payments), or the amount of the judgment entered by the district court on the claim for benefits (the jury verdict, adjusted for collateral source payments, and capped by the policy limits) – in other words, the amount for which the insurer ultimately is liable under its policy. The difference can be significant because the judgment entered by the district court on the claim for benefits is capped at the policy limits.
In the April 5, 2017, opinion of Wilbur v. State Farm Mut. Auto. Ins. Co., the Minnesota Supreme Court concluded that the phrase "proceeds awarded" as used in Minn. Stat. § 604.18, subd. 3(a), is unambiguously capped by the insurance policy’s limit.
In this case, Wilbur was injured in a car accident. He recovered $100,000 from the at-fault driver's insurance company, and then sought to recover the $100,000 limits of underinsured motorist ("UIM") benefits from his own insurer, State Farm. State Farm paid Wilbur $1,200 in UIM benefits, and offered to settle his claim for an additional $26,800. Wilbur rejected this offer. The UIM case was tried to a jury, and the jury determined Wilbur's personal injury damages to be $412,764.63.
The district court reduced the verdict by collateral sources of $156,808.05 (including the $100,000 payment from the at-fault driver's insurer), thus determining that Wilbur's underinsured loss was $255,956.59. But because Wilbur's policy with State Farm provided only $100,000 in UIM coverage, and State Farm had already paid $1,200 to Wilbur as UIM benefits, the district court ordered that judgment in the amount of $98,800 ($100,000 minus $1,200) be entered in Wilbur's favor.
Before judgment was entered, Wilbur amended his complaint to allege State Farm had unreasonably denied his claim for UIM benefits. Wilbur sought to tax costs under Minn. Stat. § 604.18, subd. (a), and argued the "proceeds awarded" were $255,956.59 – the $412,764.63 jury verdict reduced by the collateral source offsets of $156,808.04. Wilbur then reduced the $255,956.59 by $28,000 (the amounts offered by State Farm to settle at least 10 days before trial (the $1,200 in UIM benefits State Farm had paid, and the additional $26,800 State Farm had offered to pay)) for a total of $227,956.59. Wilbur sought to tax costs in the amount of $113,978.29 – which is one-half of $227,956.59.
The district court instead determined the "proceeds awarded" was the $98,800 judgment on the claim for benefits. To determine taxable costs under Minn. Stat. § 604.18, subd. (a), the court then reduced the $98,800 judgment by the $26,800 State Farm had offered to pay to settle Wilbur's claim, for a total of $72,000 ($98,800 - $26,800 = $72,000). The court then awarded Wilbur taxable costs of $36,000 – which is one-half of $72,000. The Minnesota Court of Appeals and Minnesota Supreme Court affirmed the taxable cost award of $36,000.
The members of Arthur Chapman’s Insurance Coverage Group and Automobile Law Group stand ready to answer your questions.