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Minnesota Supreme Court Broadly Defines Insured to Bar Subrogation

November 27, 2018

by Beth Jenson Prouty

Minnesota Statute § 60A.41(a) prohibits an insurance company from “proceed[ing] against its insured in a subrogation action where the loss was caused by the nonintentional act of the insured.” (Emphasis added.)

The Minnesota Supreme Court recently concluded that Minn. Stat. § 60A.41(a) is not limited to named insureds. Rather, it precludes a subrogation action against any person or entity that falls within the definition of an insured under any provision in the insurance policy, including the “Who Is An Insured” provision. Depositors Insurance Company v. Dollansky (Minn. Nov. 14, 2018).

The Court’s decision means that in a claim where the at-fault party is not a named insured, but is an insured under any provision of the policy, then the insurer should think twice before it pays the claim. If the insurer pays the claim, it will not be able to pursue a subrogation action against the at-fault party.

The Court in Depositors directed that if an insurer believes that the at-fault party’s insurance policy should be considered the primary policy, the insurer should “bring a declaratory judgment action to determine priority and eventually seek payment from the other insurance company as appropriate.” The Named Insured could also bring suit against another insured as needed, particularly in cases of breach of contract.

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The facts of Depositors are that Karavan, the named insured under the Depositors Insurance Policy, rented an RV to Craig Dollansky. The rental agreement provided that Dollansky was responsible for all damage to the RV during the term of the agreement. Dollansky obtained an extension of his personal-vehicle insurance for the RV as required by the rental agreement.

While Dollansky was using the RV, it accidentally caught fire and sustained $204,895.05 of damage. Karavan submitted a claim for the full amount of damages to Dollansky’s insurer, American Family, but American Family denied the claim. Karavan then submitted a property-damage claim with its own insurer, Depositors. Depositors paid the claim, and filed a complaint against Dollansky, alleging Depositors was subrogated to the rights of Karavan.

The Minnesota Supreme Court concluded that Minn. Stat. § 60A.41(a) precluded Depositors from bringing a subrogation action against Dollansky. The “Who Is An Insured” provision in the Depositors Policy defined “insured” as “[a]nyone else while using with your permission a covered ‘auto’ you own, hire or borrow.” Therefore, Dollansky was an “insured” under the Depositors Policy because he was using the RV with Karavan’s permission.  

It did not matter to the Court that the “Who Is An Insured” provision applies to Section II, liability coverage, and Karavan’s claim fell under Section III, for collision coverage. The Court concluded that the statutory bar precludes a subrogation action against a person or entity that could fall within the definition of an insured anywhere in the policy.

The members of Arthur Chapman’s Insurance Coverage Group and Subrogation Group stand ready to answer your questions.