Do v. American Family Mutual Insurance Co.

779 N.W.2d 853, 2010 Minn. LEXIS 146, 2010 WL 1065325

• Court: Supreme Court of Minnesota
• Decided: March 25, 2010
• Docket: A07-1461
• Status: Published

Opinions

OPINION

DIETZEN, Justice.

Appellant Dean Do brought an action against his automobile insurer, respondent American Family Mutual Insurance Company (American Family), seeking no-fault medical expense benefits related to a motor vehicle accident. Following a jury verdict awarding Do damages from American Family, the district court reduced the award, concluding that a settlement payment Do received from the at-fault driver’s automobile insurer is a “collateral source” that should be deducted from the jury award under Minnesota’s collateral source statute, Minn.Stat. § 548.251 (2008).¹ The court of appeals affirmed the district court’s application of the collateral source statute. Because we conclude that a payment made by a tortfeasor’s automobile insurer is not a collateral source under the collateral source statute, we reverse the court of appeals and remand to the district court.

In 2002, Do was injured in an automobile accident in Apple Valley, Minnesota. Do was turning left onto County Road 23 when his vehicle was struck by a vehicle driven by Julie Wagner (the tortfeasor), the at-fault driver. Do suffered injuries as a result of the accident.

At the time of the accident, Do’s vehicle was covered by an automobile insurance policy from American Family. The policy included $80,000 in no-fault medical expense benefits. After the accident, Do incurred medical bills totaling $40,853.13. Do submitted the bills to American Family for payment, but American Family paid only $865.50. American Family refused to pay the other bills on the grounds that Do’s medical expenses were not reasonable, necessary, or related to the accident.

Do commenced a tort action against the tortfeasor and reached a settlement with her automobile insurer, which paid Do $28,000 of the tortfeasor’s $30,000 liability policy limit. The settlement payment was not allocated to any specific items of damage.

Do later commenced an action against American Family, seeking no-fault and un-derinsured motorist benefits. Do’s action proceeded to trial, and the jury returned a verdict against American Family, awarding Do damages of $49,416.13. The jury award included $39,416.13 for past medical expenses, $5,000 for past pain and disability, and $5,000 for future pain and disability-

American Family filed a post-trial motion for a collateral source offset and amended findings.² The district court found that the $28,000 payment from the tortfeasor’s automobile insurer is a collateral source under Minn.Stat. § 548.251. Therefore, the district court deducted the $28,000 settlement payment and the $865.50 in no-fault benefits previously paid by American Family from the jury verdict of $49,416.13, resulting in a net award of $20,550.63. The court reasoned that if there were no offset for the settlement payment, there would be a total recovery of $58,000,³ which would result in a “double recovery” contrary to the No-Fault Act. See Richards v. Milwaukee Ins. Co., 518 N.W.2d 26, 28 (Minn.1994).

The court of appeals affirmed, concluding that Do’s prior settlement with the tortfeasor’s automobile insurer is a collateral source under Minn.Stat. § 548.251 and, therefore, the district court did not err in deducting the $28,000 settlement payment from the ultimate jury award against American Family. Do v. Am. Family Mut. Ins. Co., 752 N.W.2d 109, 111 (Minn.App.2008). The court of appeals acknowledged that the procedural posture of this case was unusual because of the order of recovery, but stated that the procedural posture should not affect the outcome of the case. Id. at 116. Taking into account the deduction of the settlement payment and the previous no-fault payment, the court of appeals concluded that Do is entitled to $20,550.63 in no-fault benefits and “no more.” Id.

Do petitioned for review, asking us to decide whether the courts below correctly classified the $28,000 settlement payment from the tortfeasor’s automobile insurer as a collateral source under the collateral source statute. We granted the petition and granted leave for Minnesota Association for Justice (MAJ) to file an amicus brief.

I.

Do argues that the $28,000 payment from the tortfeasor’s automobile insurer is not a “collateral source” under the collateral source statute, Minn.Stat. § 548.251. When the underlying facts of a case are undisputed, an appellate court will review de novo the district court’s application of the law. Dean v. Am. Family Mut. Ins. Co., 535 N.W.2d 342, 343 (Minn.1995). Here, the underlying facts are not disputed. Thus, we must examine whether the district court erred in applying the collateral source statute. We review questions of statutory application under a de novo standard. S. Minn. Mun. Power Agency v. Boyne, 578 N.W.2d 362, 364 (Minn.1998).

The issue raised by Do requires us to determine the applicability of Minnesota’s collateral source statute. More particularly, we must answer the question of whether the statute requires the deduction of a settlement payment made by the tortfea-sor’s automobile insurer from the plaintiffs subsequent judgment against his own automobile insurer for no-fault benefits. To do so, we must review various provisions of the No-Fault Act, and the collateral source statute, and the applicability of these statutes to Do’s claim for no-fault benefits.

A. Minnesota’s No-Fault Act

We begin our analysis with Minnesota’s No-Fault Act, Minn.Stat. §§ 65B.41-65B.71 (2008). Do’s claim against American Family was for no-fault benefits and underinsured motorist (UIM) benefits. Based on the jury’s verdict at trial, Do has conceded that the tortfeasor is not underinsured and that he does not have a UIM claim against American Family.⁴ Thus, Do’s claim here is limited to no-fault benefits — specifically, medical expense benefits.

When an insured person suffers injuries arising out of the maintenance or use of a motor vehicle, that person is entitled to basic economic loss benefits, also known as no-fault benefits, which include medical expense benefits and income loss benefits. Minn.Stat. § 65B.44. The No-Fault Act requires minimum coverage of $20,000 in medical expense benefits, id, subd. 1, but in this case Do’s policy with American Family provided $30,000 in coverage for medical expense benefits. Medical expense benefits reimburse a wide range of reasonable and necessary medical expenses, including medical, chiropractic, and rehabilitative services. See id., subd. 2.

One of the purposes of the No-Fault Act is to encourage prompt payment of medical expense benefits. MinmStat. § 65B.42. “Basic economic loss benefits are payable monthly as loss accrues.” MinmStat. § 65B.54, subd. 1. Loss accrues as medical expenses are incurred, and benefits generally are overdue if not paid within 30 days after the no-fault insurer “receives reasonable proof of the fact and amount of loss realized.” Id. The statute also provides that “[o]verdue payments shall bear simple interest at the rate of 15 percent” per year. Id, subd. 2. In this case, the parties disputed at trial whether Do’s claimed medical expenses were reasonable, necessary, and related to the accident.

A claim for no-fault benefits is separate and distinct from a tort claim against the tortfeasor and the tortfeasor’s insurer. See Minn.Stat. § 65B.49, subds. 2, 3 (governing basic economic loss benefits and residual liability insurance, respectively). Basic economic loss benefits “shall be primary with respect to” any other benefits available to an injured person. MinmStat. § 65B.61 (but providing exception for workers’ compensation benefits). An insurance company “has a duty to pay basic economic loss benefits to its insured without regard to fault.” Milbrandt v. Am. Legion Post of Mora, 372 N.W.2d 702, 705 (Minn.1985). Similarly, “a no-fault insurer has a duty to provide basic economic loss benefits to reimburse an injured person’s loss even when the injured person is entitled to compensation for the same loss from a different source.” Stout v. AMCO Ins. Co., 645 N.W.2d 108, 114 (Minn.2002) (holding that a no-fault insurer cannot reduce the amount of no-fault benefits payable to an injured person when the injured person’s health insurer pays the medical bills at a discounted rate).

But the No-Fault Act does provide statutory offsets to avoid duplicate recovery. See MinmStat. § 65B.42(5). When an injured person brings a negligence action, an offset provision requires the court to deduct from any tort recovery the value of no-fault benefits paid or payable by the no-fault insurer:

With respect to a cause of action in negligence ... the court shall deduct from any recovery the value of basic or optional economic loss benefits paid or payable, or which would be payable but for any applicable deductible.

MinmStat. § 65B.51, subd. 1. In addition, the No-Fault Act specifies that “[n]o recovery shall be permitted under the uninsured and underinsured motorist coverages of this section for basic economic loss benefits paid or payable, or which would be payable but for any applicable deductible.” MinmStat. § 65B.49, subd. 3a(4). Here, Do settled the tort claim with the tortfeasor’s insurer. The offset provisions in section 65B.51 therefore are not applicable.

B. The Collateral Source Statute

We turn next to the applicability of Minnesota’s collateral source statute, MinmStat. § 548.251, to a settlement payment made by the tortfeasor’s insurer. The Minnesota Legislature enacted the collateral source statute in 1986, partially abrogating the common-law collateral source rule for computing certain tort judgments. See Act of Mar. 25, 1986, ch. 455, § 80, 1986 Minn. Laws 840, 878-79. The common-law rule allows an injured person to recover damages from a tortfea-sor even when that award results in a double recovery. Hueper v. Goodrich, 314 N.W.2d 828, 830 (Minn.1982). In Hueper, we noted multiple rationales for the common-law rule. One rationale is that when a plaintiff has paid for a benefit, for example, by purchasing an insurance policy, he “should be reimbursed and the tortfeasor should not get a windfall.” Id. Other justifications for the common-law rule are that a tortfeasor “should be punished by being made to take full responsibility for his negligence and that [a] plaintiff will be more fully compensated if he is allowed to recover from the tortfeasor.” Id.

The collateral source statute changed the common-law rule by allowing a party found liable for tort damages to reduce any award against that party by payments made to the plaintiff by certain enumerated collateral sources. Minn.Stat. § 548.251, subds. 2, 3. The primary purpose of the statute is to prevent double recoveries. Imlay v. City of Lake Crystal, 453 N.W.2d 326, 335 (Minn.1990). We have said that applying the statute when the injured plaintiff has been undercom-pensated “is not justified.” Id.

The collateral source statute sets forth a procedure in which a party in a civil action may request the court to determine and deduct collateral sources from the jury verdict. See MinmStat. § 548.251, subd. 2. The statute defines “collateral sources” in relevant part as “payments related to the injury or disability in question made to the plaintiff, or on the plaintiffs behalf up to the date of the verdict,” including payments pursuant to “health, accident and sickness, or automobile accident insurance or liability insurance that provides health benefits or income disability coverage.” MinmStat. § 548.251, subd. 1(2).

Our primary goal in statutory interpretation is to give effect to the intent of the legislature. Auto Owners Ins. Co. v. Perry, 749 N.W.2d 324, 326 (Minn.2008). “Generally, statutes in derogation of the common law are to be strictly construed.” Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 327 (Minn.2004); accord 73 Am. Jur. 2d Statutes § 191 (2001) (stating that courts do not presume that “the legislature intended to abrogate or modify a rule of the common law on the subject any further than that which is expressly declared or clearly indicated”).

American Family argues for a broad interpretation of “collateral sources” that would include a liability payment from a tortfeasor’s automobile insurer. Do argues for a narrow interpretation that would exclude a tort settlement, relying on our previous decision in Dean v. American Family Mutual Insurance Co., where we stated that “a tortfeasor’s liability insurance cannot, by definition, constitute a collateral source.” 535 N.W.2d at 345.

In Dean, the plaintiff settled with the tortfeasor’s liability insurer for $100,000 before suing his own insurer for UIM benefits. Id. at 343. The issue we addressed in Dean was whether, in a claim for UIM benefits, a settlement payment from the tortfeasor’s automobile liability insurer triggers the collateral source statute when the plaintiff is partially at fault. Id. Essentially, we were deciding whether the district court should have made a deduction for the UIM claimant’s personal fault before or after deducting the proceeds already received from the tortfeasor’s automobile insurer. Id.; see Minn.Stat. § 65B.49, subd. 4a (2008) (stating that the maximum liability of a UIM insurer is “the amount of damages sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle”).

In Dean, we concluded that the district court erred by deeming the $100,000 liability payment from the tortfeasor’s automobile insurer a collateral source. 535 N.W.2d at 345. We reached this conclusion based in part on the definition of “collateral source rule” in Black’s Law Dictionary, which reads as follows:

Under this rule, if an injured person receives compensation for his injuries from a source wholly independent of the tort-feasor, the payment should not be deducted from the damages which he would otherwise collect from the tort-feasor. In other words, a defendant tort-feasor may not benefit from the fact that the plaintiff has received money from other sources as a result of the defendant’s tort, e.g. sickness and health insurance.

Id. (quoting Black’s Law Dictionary 262 (6th ed. 1990) (emphasis added) (citations omitted)). We also noted our previous statement that “one distinguishing element of a collateral source is that the money or services in reparation of plaintiff’s injury is from a source other than the tortfeasor.” Id. (emphasis added) (citing Hueper, 314 N.W.2d at 830). Relying on the language of the collateral source statute and the underlying justifications for the statute, we held that “a tortfeasor’s liability insurance payment does not trigger” the collateral source statute. Id. We noted our previous concerns about the statutory definition of collateral source and stated that “while it might not be precisely clear exactly what the legislature meant to include as a collateral source, it is patently clear that a tortfeasor’s liability insurance can never be within the definition of collateral source.” Id. Thus, our interpretation of the collateral source statute here is consistent with the language of the statute and our prior case law.

Consistent with Dean, we conclude that a payment made by a tortfeasor to an injured party is a direct source rather than a collateral source. Under the common law, we have understood a collateral source to mean a source unrelated to and unconnected with the tortfeasor. Hueper, 314 N.W.2d at 830. In the absence of clear statutory language, we will not expand the definition of “collateral source” to include a source related to a tortfeasor. See Ly v. Nystrom, 615 N.W.2d 302, 314 (Minn.2000) (stating that “if a statute abrogates the common law, the abrogation must be by express wording or necessary implication”).

We disagree with the court of appeals’ suggestion that we have retreated from our statements in Dean that a tortfeasor’s liability insurance does not fall within the definition of a collateral source. Do, 752 N.W.2d at 116. The court of appeals cited our decision in Western National Mutual Insurance Co. v. Casper, 549 N.W.2d 914, 916 (Minn.1996), and stated that the facts of Casper are “more closely aligned” to this ease than the facts of Dean. Do, 752 N.W.2d at 116. In Casper, the order of events was the same as in Dean: the plaintiff settled with the tortfeasor’s automobile liability insurer for $50,000, then sought UIM benefits from his employer’s insurer. Casper, 549 N.W.2d at 915. The plaintiff and the insurer submitted to an arbitration panel the amount of benefits due, and the panel awarded the plaintiff $120,000. Id. We held that the tortfea-sor’s $50,000 settlement payment should be deducted as an offset from the arbitration award. Id. at 915-16. We did not specify the type of offset applied in Cas-per, and our analysis did not mention the collateral source statute, nor did it discuss Dean or any other case law.⁵ Id. Nothing in Casper negates the analysis that we set forth in Dean regarding the proper interpretation of the collateral source statute.

We acknowledge our observation in Im-lay that subdivision 1(2) of the collateral source statute is poorly written and susceptible of different meanings. 453 N.W.2d at 334. But Imlay did not consider whether subdivision 1(2) applies to liability payments from the tortfeasor’s insurer. Rather, Imlay considered whether uninsured motorist benefits constitute a collateral source. 453 N.W.2d at 333. Im-lay did not address the issue before us, and therefore is not applicable.

We recognize that based upon our interpretation of the statute, it is possible that a plaintiff who chooses to pursue his claim serially first against the tortfeasor and then against his own no-fault insurer may receive a windfall. But the plaintiff also takes a risk in pursuing his claims piecemeal that he will receive less than full compensation. Further, the No-Fault Act specifically provides that the value of no-fault benefits “paid or payable” shall be deducted from any recovery in a negligence action arising out of a motor vehicle accident. MinmStat. § 65B.51, subd. 1. Ultimately, the question of a potential windfall to the plaintiff in this circumstance is one for the legislature and not this court. In any event, the no-fault insurer paid exactly what it was required to pay: basic economic loss benefits “without regai-d to fault.” Milbrandt, 372 N.W.2d at 705.

In summary, liability payments made by a tortfeasor’s automobile insurer are not a collateral source for purposes of the collateral source statute. A no-fault insurer’s obligation to pay no-fault benefits is primary and is not subject to an offset under the collateral source statute. No-fault benefits must be paid regardless of the outcome of the tort case, and those payments are not reduced by any tort recovery. Consequently, because the jury found that Do reasonably incurred medical expenses that exceeded the $30,000 medical expense limits of his American Family policy, Do is entitled to receive from American Family the policy limits of $30,000 minus the $865.50 previously paid.

Accordingly, we reverse the court of appeals and remand the case to the district court for recalculation of Do’s net judgment against American Family in a manner consistent with this opinion.

Reversed and remanded.

MAGNUSON, C.J., took no part in the consideration or decision of this case.

1 . The collateral source statute was numbered as Minn.Stat. § 548.36 from its inception in 1986 until 2008. The statute was renumbered as section 548.251 in 2008 without any changes in its language.

2 . American Family did not argue either prior to or during trial in the district court that the $28,000 settlement payment should be deducted under the collateral source statute. Rather, American Family asked the court to offset the $28,000 settlement payment against the jury award under the terms of the contract of insurance between Do and American Family. American Family did argue that the $865.50 in no-fault medical expense benefits previously paid was a collateral source.

3 .It appears that the district court arrived at the $58,000 figure by adding Do’s $30,000 policy limit to the $28,000 payment from the tortfeasor's insurer, without accounting for American Family's earlier no-fault payment of $865.50.

4 . Whether a tortfeasor is underinsured is determined by comparing the net amount of the jury verdict minus the no-fault benefits paid or payable by the plaintiff's no-fault insurer and the “best settlement,” which is the amount obtained from the tortfeasor's insurer to settle the liability claim. See Dohney v. Allstate Ins. Co., 632 N.W.2d 598, 607 (Minn.2001). Here, the net amount of the jury ver-diet minus the no-fault benefits is $19,416.13 ($49,416.13-$30,000), and the "best settlement” is $28,000. Because the settlement of $28,000 exceeds the amount of the net liability award ($19,416.13), the tortfeasor is not underinsured. See Minn.Stat. § 65B.43, subd. 17 (defining "underinsured motor vehicle”).

5 . Our only discussion in Casper of the collateral source statute concerned the insurer’s separate argument that it was entitled to an offset based on the amount of workers' compensation benefits paid to the plaintiff or the value of future workers' compensation benefits paid. 549 N.W.2d at 916-18. We concluded that the insurer was not entitled to such an offset. Id. at 918.