American Family Insurance Group v. Kiess

697 N.W.2d 617, 2005 Minn. LEXIS 338, 2005 WL 1404703

• Court: Supreme Court of Minnesota
• Decided: June 16, 2005
• Docket: A03-1764
• Status: Published

Opinions

OPINION

BLATZ, Chief Justice.

Appellant Mark Kiess appeals from a decision by the court of appeals holding that under Minn.Stat. § 65B.54, subd. 1 (2004), respondent American Family Insurance Group (American Family) was obligated to pay interest on a no-fault claim 30 days after American Family received actual notice of the claim, which occurred in this case when Kiess filed a petition for arbitration. Because American Family had notified him that it was discontinuing payment of future claims, Kiess argues that case law and public policy dictate that interest began to accrue 30 days after he received the medical care underlying the claim, approximately 52 months before he filed his arbitration petition. We affirm.

Kiess was injured in a two-vehicle automobile accident in February 1996. At the time of the accident, Kiess had no-fault automobile insurance coverage through American Family, which paid Kiess’s no-fault claims for several months following the accident. In August 1996, American Family notified Kiess it was discontinuing his no-fault benefits because, pursuant to an independent medical examination, American Family had determined that Kiess no longer required medical care for injuries related to the accident. In its letter discontinuing no-fault benefits, American Family stated:

Given the results of the Independent Medical Examination, we must respectfully deny any further claims or pay*ment for diagnostic testing, chiropractic and/or medical care. All no-fault benefits from your auto policy for this accident will be discontinued at this time. You may wish to forward any future medical billings to your health insurance carrier for consideration of payment.

In the same letter, American Family advised Kiess that he had the statutory “right to' demand arbitration of this claim if the amount claimed is $10,000.00 or less.”

Kiess continued to experience neck and back pain, and in June 1997 he underwent surgery to address these problems at a cost of $12,597.76. Kiess did not submit this additional no-fault claim to American Family or notify the insurer of his surgery at that time. Instead, Kiess submitted his medical bills to his health insurer, Blue Cross & Blue Shield of Minnesota (Blue Cross), which paid the bills in full.

In March 1999, Blue Cross notified Kiess that, under the subrogation-recovery provision of his health insurance policy, Blue Cross was entitled to recover the claims it had paid if Kiess collected benefits from a third party. Kiess, in fact, did file a claim against the other driver in the accident and received a settlement offer of $25,000.¹ Kiess’s attorney notified Blue Cross of this settlement offer by telephone and Blue Cross then sent a letter to Kiess’s attorney dated September 2001. The letter stated that Blue Cross was waiving its subrogation interest in the matter as a result of the telephone conversation with Kiess’s attorney, which caused Blue Cross to conclude that Kiess’s accident had “significant causation and liability issues.”

In November 2001 — two months after Blue Cross waived its subrogation rights— Kiess filed an arbitration petition against American Family, asserting that the insurer was liable for no-fault benefits covering the cost of the surgery paid for by Blue Cross. To bring the $12,597.76 claim within the $10,000 statutory limit for arbitration, Kiess waived $2,597.76 of his claim. See Minn.Stat. § 65B.525, subd. 1 (2004). In May 2002, Kiess amended his arbitration petition, claiming that American Family was liable for an additional $7,125 of interest. This amount represented interest for non-payment of the no-fault claim, calculated pursuant to Minn.Stat. § 65B.54, subds. 1 and 2 (2004). When calculating the interest due, Kiess included the 52 months that passed from 30 days after his surgery in June 1997 to the time he filed his petition for arbitration in November 2001. He then added the five months that had passed while arbitration was pending. In all, the interest Kiess demanded covered a total of 57 months.

The arbitrator awarded Kiess $17,125, the full amount of his claim. After the arbitrator denied American Family’s mo: tion to reduce the award, American Family moved to vacate the award in district court. The court denied the motion and issued an order confirming the award. American Family then appealed to the court of appeals.

American Family raised four issues at the court of appeals, including whether Kiess was entitled to interest under Minn. Stat. § 65B.54, subd. 1, from the time he incurred his losses or only from the time he provided American Family with actual notice of the losses.² In resolving this issue, the court of appeals reversed the district court and held that American Family’s interest liability did not begin when Kiess received the care underlying his no-fault claim. Am. Family Ins. Group v. Kiess, 680 N.W.2d 552, 558 (Minn.App.2004). Rather, the court of appeals concluded that American Family’s interest liability began 30 days after Kiess provided the insurer with actual notice of his losses, which in this case occurred when Kiess filed his arbitration petition. Id. Both Kiess and American Family sought review by this court. We granted Kiess’s petition, limiting our review to the court of appeals’ interpretation of Minn. Stat. § 65B.54, subd. 1.

The Minnesota No-Fault Automobile Insurance Act (Act) is set forth in Minn.Stat. §§ 65B.41-.71 (2004). The section at issue here states in relevant part:

Basic economic loss benefits are payable monthly as loss accrues. Loss accrues not when injury occurs, but as * * * expense is incurred. Benefits are overdue if not paid within 30 days after the reparation obligor receives reasonable proof of the fact and amount of loss realized * * *.

Minn.Stat. § 65B.54, subd. 1. Once overdue, payments bear simple interest at the rate of 15% per year. Id., subd. 2. The issue presented is whether, under section 65B.54, subd. 1, an insured is obligated to provide a no-fault carrier with actual notice of a loss incurred in order to be eligible for mandatory interest when the insurer had previously discontinued the insured’s no-fault benefits pursuant to an independent medical examination.

We review questions of statutory construction de novo. Am. Family Ins. Group v. Schroedl, 616 N.W.2d 273, 277 (Minn.2000). “The object of all interpretation and construction of laws is to ascertain and effectuate the intention of the legislature.” Minn.Stat. § 645.16 (2004). “When the language of a statute is plain and unambiguous, that plain language must be followed.” Vlahos v. R & I Constr. of Bloomington, Inc., 676 N.W.2d 672, 679 (Minn.2004). We construe words and phrases “according to rules of grammar and according to their most natural and obvious usage unless it would be inconsistent with the manifest intent of the legislature.” Id.

Kiess asserts that by discontinuing his no-fault benefits, American Family constructively denied all of Kiess’s future claims and thereby waived its right to receive notice under section 65B.54, subd. 1. According to Kiess, it would have been “futile” for him to continue to submit bills to American Family after his benefits had been discontinued. Thus, even though American Family had paid all submitted claims prior to the discontinuation of Kiess’s no-fault benefits and had received no notice that Kiess had incurred subsequent losses related to injuries sustained in the car accident, Kiess contends he is entitled to interest from 30 days after his back surgery in June 1997. Notwithstanding the plain language of the statute requiring reasonable proof of the fact and amount of loss realized, Kiess appeals to “principles of fundaméntal fairness” and argues that “imposing constructive notice on [American Family] is not inequitable.” American Family responds that the discontinuation letter sent to Kiess did not constitute a waiver of its statutory right to receive notice of ongoing medical claims, and that the plain language of the statute dictates that Kiess’s benefits should not be considered “overdue” until 30 days after American Family received actual notice of Kiess’s additional losses.

We have previously interpreted Minn. Stat. § 65B.54, subd. 1, in other contexts. See, e.g., Pederson v. All Nation Ins. Co., 294 N.W.2d 693, 696 (Minn.1980); Haagenson v. Nat’l Farmers Union Prop. & Cas. Co., 277 N.W.2d 648, 653 (Minn.1979). The precise facts of this case present a question of first impression for this court, however. The statute in question expressly provides that benefits are overdue 30 days after an insurer has received “reasonable proof of the fact and amount of loss realized.” Minn.Stat. § 65B.54, subd. 1. We conclude that when these words are interpreted according to their most natural and obvious usage, the statute requires insureds to provide insurers with actual notice of additional losses. Concluding otherwise would require us to read the words “proof’ and “fact” out of the statute entirely. The parties do not dispute the fact that Kiess did not provide American Family with any notice of the losses he incurred after the discontinuation of his benefits until he filed his arbitration petition. Therefore, Kiess’s no-fault benefits were not “overdue” until 30 days after he filed the arbitration petition.

. In arguing that we should interpret section 65B.54, subd. 1, to provide for constructive notice, Kiess relies heavily on Perry v. State Farm Mutual Automobile Insurance Co., 506 F.Supp. 130 (D.Minn.1980). In that case, the federal district court held that an insured’s widow was entitled to- interest under section 65B.54, subd. 1, from the time her claim was constructively denied. 506 F.Supp. at 134. However, unlike the case at hand, Perry involved a contract dispute and focused on the resolution of liability issues. Moreover, the court in Perry neither cited nor discussed the requirement in section 65B.54 that interest be calculated from the time an insurer receives “reasonable proof of the fact and amount of loss realized.” Because Perry did not acknowledge the statute’s notice requirement or discuss how that requirement could be reconciled with a theory of constructive notice, the case provides no guidance in resolving the question at hand.

We are also not persuaded by Kiess’s argument that interpreting the statute to allow for constructive notice serves the purposes of the No-Fault Act. See Minn. Stat. § 65B.42(l)-(5) (2004). The Act expressly seeks to relieve the “severe economic distress” of automobile accident victims and to assure that accident victims receive “prompt payment” for necessary treatment. Minn.Stat. § 65B.42(1), (3). Interpreting the interest statute to require actual notice promotes prompt payment in two ways. First, because no-fault insurers can only pay claims they know about, the interest statute’s notice requirement gives insureds an incentive to submit their claims promptly. Second, insurers are motivated to promptly pay upon notice in order to avoid a 15% interest surcharge. The notice requirement also promotes the relief of the economic distress of accident victims by assuring that once insureds provide insurers with actual notice of any loss, the victims will be compensated for the use of their money if the insurer fails to pay within 30 days. See Burniece v. Ill. Farmers Ins. Co., 398 N.W.2d 542, 544 (Minn.1987) (stating that the interest statute is intended to compensate insureds for the use of their funds and encourage prompt payment of benefits).

Here, Kiess delayed notifying American Family of his losses for over four years.³ We do not believe that such a delay is encouraged or supported by the Act’s express policy objectives. See Minn.Stat. § 65B.42(1)-(5). While Kiess urges the court to recognize his theory of constructive notice and hold that such notice furthers the policies undergirding the Act, we leave it to the legislature to weigh the implications of amending the statute to allow for constructive notice. In doing so, we acknowledge that the responsibility of evaluating the direct or collateral benefits and consequences of such proposed statutory changes are best addressed by the legislature.

On a final note, we disagree with the concurrence’s focus on the possible collateral consequences of interpreting the statute in accordance with its plain language and our need to prevent those consequences by applying principles of equitable estoppel.⁴ Specifically, the concurrence addresses the hardships imposed on insureds who have no health insurance when no-fault benefits are discontinued. Although we acknowledge the hardship faced by all such situated individuals, the fact that some insureds do not have health insurance does not dictate a different conclusion in this case. The issue is “What does an insured have to do to obtain additional no-fault coverage when the insured disagrees with the insurer’s decision that no further testing or care is needed?” Whether an individual has health insur-anee does not change the requirement that the insured must bring an arbitration petition in order to determine if additional no-fault coverage is warranted. In recognition of this, the statute is written to encourage prompt resolution of such disputes by requiring both notice to the insurer of an insured’s additional claims and payment of interest by the insurer if meritorious claims are not paid within 30 days.

Accordingly, we affirm the court of appeals’ decision and hold that Kiess is entitled to collect interest beginning 30 days after he filed his arbitration petition in November 2001. We remand to the district court for proceedings in accordance with this opinion.

Affirmed.

MEYER, J., files concurring opinion joined by PAGE, J.

1 . The record does not indicate whether Kiess initiated his suit against the other driver's liability carrier before or after Blue Cross notified Kiess of its subrogation rights.

2 . The other three issues raised by American Family were 1) whether the arbitrator had proper jurisdiction; 2) whether Kiess had standing; and 3) whether American Family was entitled to a collateral-source deduction equal to the amount Blue Cross paid for Kiess’s medical claims. The court of appeals affirmed the district court on each of these three issues. Kiess, 680 N.W.2d at 555, 560.

3 . This delay, in whole or part, may have been due to the fact that Blue Cross provided coverage for his medical treatment and Kiess did not have to expend his own funds. Thus one of the purposes of the interest penalty — to compensate for the use of an insured’s funds — is not at issue here. See Burniece, 398 N.W.2d at 544.

4 . The concurrence relies on cases interpreting our Workers’ Compensation Act in support of es argument that equitable estoppel should be applied to the No-Fault Act. The parties do not cite, nor have we found, any precedent in which we have previously applied equitable estoppel to the No-Fault Act. It is not clear whether the cases cited by the concurrence support such a conclusion. Because this issue does not require resolution in this case, we do not address it.