Insurance Law in Minnesota

MINNESOTA COVERAGE SURVEY

I. Coverage Determination

What is required when making a coverage determination? Is it only the factual allegations contained in the complaint, is it extrinsic evidence for the benefit of the insured, is it extrinsic evidence for the benefit of insured and insurer, or is it something all together different?

The complaint and extrinsic evidence (facts) for the benefit of insured and insurer. Once insured comes forward with facts showing arguable coverage, or insurer becomes independently aware of such facts, insurer must defend or further investigate potential claim. Garvis v. Employers Mutual Casualty Co., 497 N.W.2d 254 (Minn. 1993); St. Paul Mercury Ins. Co. v. Dahlberg, Inc., 596 N.W.2d 674 (Minn.Ct.App. 1999). Minnesota courts have applied exception to the general rule that extrinsic evidence cannot be used to avoid an otherwise existing duty to defend. Thus, in addition to looking at complaint, insurer may look to facts outside complaint to determine whether coverage exists. Lanoue v. Fireman's Fund American Ins. Cos, 278 N.W. 2d 49 (Minn. 1979), overruled on other grounds. Insurer may look beyond pleadings to define true scope of claim to argue insurers duty is narrower than underlying complaint. St. Paul Fire and Marine Ins. Co. v. Microsoft Corp., 102 F.Supp. 2d 1107 (D.Minn. 1999), aff'd, 220 F.3d 943 (8th Cir. 2000).

II. Standard of Coverage Review

When dealing with the standard for coverage there are many questions one needs to answer. If only dealing with the complaint, is the theory alleged in the complaint controlling or the facts alleged controlling? In the absence of extrinsic evidence, the complaint must present allegations (facts) arguably within coverage of policy. St. Paul Mercury Ins. Co. v. Dahlberg, 596 N.W.2d 674 (Minn.Ct.App. 1999).

The standard of coverage in Minnesota is arguably covered. Defenses must be given to claims that are arguably covered, not just potentially covered. Garvis v. Employers Mutual Casualty Co., 497 N.W.2d 254 (Minn. 1993); Prahm v. Rupp, 277 N.W.2d. 389 (Minn. 1979).

An insurer is required when reviewing extrinsic evidence to conduct a reasonable investigation. If pleadings do not raise claim arguably within scope of coverage, insurer has no duty to defend or investigate further to determine whether there are other facts present which trigger such duty; but if insurer is aware of facts indicating that there may be claims, either from what is said directly or inferentially in complaint, or if insured tells insurer of such facts, or insurer has some independent knowledge of such facts, insurer must either accept tender of defense or "further investigate" potential claim. Garvis v. Employers Mutual Casualty Co., 497 N.W.2d 254 (Minn. 1993).

If an insurer is required to review extrinsic evidence, they may use extrinsic evidence to deny coverage. The insurer may deny duty to defend based on extrinsic evidence. Lanoue v. Fireman's Fund American Ins. Co., 278 N.W.2d 49 (Minn.1979)overruled on other grounds.. Insurer has no duty to defend when "facts outside the complaint are such that any liability resulting from the cause of action would be excluded from coverage." Denike v. Western National Mutual Ins. Co., 473 N.W. 2d 370 (Minn.Ct.App. 1991); St. Paul Mercury v. Dahlberg, 596 N.W. 2d 674 (Minn.Ct.App. 1999).

II. Timing:

An insurer is required to determine coverage in a timely manner. Insurer seeking to disclaim liability must do so seasonably and may not delay its decision so long that insured's rights are prejudiced. Sorenson v. Kruse, 293 N.W.2d 56 (Minn. 1980).

Notably, insurer did not waive its coverage defenses by failing to respond for over three years to insured's tender of defense. Redeemer Covenant Church of Brooklyn Park v. Church Mutual Ins. Co., 567 N.W.2d 71 (Minn.Ct.App. 1997). The Redeemer Court distinguished the Minnesota Supreme Court's opinion in SCSC Corp v. Allied Mutual Corp. Ins. Co., 536 N.W.2d 305 (Minn. 1995) where insurer misrepresented its position so that insured erroneously believed that the insurer was actively investigating the claim.

Additionally, Minnesota statutory law provides guidelines regarding timeliness, including MINN.STAT. Ð'§72A.201 et. seq.

An insurer may be estopped to deny coverage if they do not respond in a timely manner. SCSC Corp. v. Allied Mutual Ins. Co., 536 N.W.2d 305 (Minn. 1995). If there is a breach of duty to defend, which is breach of contract, then insured may recover damages that either arise naturally or proximately from the breach. Olson v. Rugloski, 277 N.W.2d 385 (Minn. 1979). Also, insured may recover attorney fees and expenses for successfully bringing an action to enforce duty to defend. Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411 (Minn. 1997).

IV. Reservations of Rights (ROR):

When a ROR is issued the insurer does not waive (estop) those coverage defenses not raised in the ROR. A late reservation of rights before a trial did not prejudice the ability of counsel to control the defense or to negotiate a settlement. St. Paul School District No. 625 v. Columbia Transit Corp., 321 N.W. 2d 41 (Minn. 1982). However, insurer which undertook control of defense of suit against insured without giving notice of reservation of rights, was estopped from later denying coverage for liability under the policy. Prejudice to insured as a result of insurer's control of suit was conclusively presumed. Faber v. Roelofs, 250 N.W.2d 817 (Minn. 1977). If an insurer, with full knowledge of the facts of a claim, defends its insured without reserving its right to deny coverage, the insurer may be estopped to later to deny coverage. Mutual Service Casualty Ins. Co. v. Luetmer, 474 N.W.2d 365 (Minn.Ct.App. 1991).

The law in Minnesota does not permit an allocation of defense costs between the covered and non-covered claims. Mutual Serv. Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365 (Minn.Ct.app. 1991). The Supreme Court of Minnesota has noted that allocation or apportionment is not appropriate when it is unclear whether some of the claims will be outside of the policy coverage or outside the policy period. Jostens, Inc. v. CNA Insurance/Continental Casualty Co., 403 N.W.2d 625 (Minn.Ct.App.1987), overruled on other grounds, Northern States Power co. v. Fidelity and Cas. Co. of New York, 523 N.W.2d 546 (Minn. 1994).

When ROR is issued the insured does not have a right to choose counsel, unless reservation of rights creates a conflict of interest. An actual conflict of interest,