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Nelson v. American Family Insurance Group

August 29, 2002



When a no-fault insurer denies no-fault benefits for an out-of-state accident and the insured subsequently recovers a tort judgment in the other state that includes damages covered by basic economic benefits under the No-Fault Act, the insured is entitled to recover from the no-fault insurer an amount equal to that portion of the insured's attorney fees incurred in obtaining the tort judgment that is proportional to the benefit to the no-fault insurer of having the basic economic benefits paid by the tort judgment.

Insured is not collaterally estopped from asserting her cause of action because the issues in the prior litigation were not the same as the issues presented in this case.

Insured is not barred by res judicata from asserting her cause of action because the cause of action in the prior litigation was not identical to the cause of action in this litigation.

Insured's cause of action is not barred by accord and satisfaction because the insurer is unable to prove the first or second element of the defense.

Reversed and remanded.

Heard, considered, and decided by the court en banc.

The opinion of the court was delivered by: Anderson, Paul H., Justice

Took no part, Meyer, J.


Appellant Sharon Nelson commenced this action in Murray County District Court to recover no-fault benefits from respondent American Family Insurance Group. Both parties brought motions for summary judgment. The court granted American Family's motion and dismissed Nelson's claim on the grounds that any recovery would be a double recovery and would frustrate the purpose of the No-Fault Act. The Minnesota Court of Appeals affirmed. We reverse.

Sharon Nelson was involved in an automobile accident in Minnesota on March 2, 1990. At the time of the accident, she was insured by American Family Insurance Group. Following this accident, Nelson received $20,000 in no-fault income loss benefits, the maximum payable under the limits of her American Family policy. Approximately 14 months later, on May 16, 1991, Nelson was involved in a second automobile accident, which occurred in South Dakota. American Family was still Nelson's insurer at the time of the second accident, but this time it denied her no-fault claims in part on the ground that she had not yet returned to work after the first accident.

After being denied no-fault benefits for the second accident, Nelson commenced a personal injury action in South Dakota against the tortfeasor to recover damages for this accident. Coincidentally, Nelson's no-fault insurer, American Family, was also the insurer for the South Dakota tortfeasor. Six years after the accident and three years after bringing her South Dakota action, Nelson prevailed in a jury trial. Nelson v. Erickson, No. 94-1604 (Second Judicial Circuit Court, Minnehaha County, S. D. Mar. 12, 1997) (jury verdict). Along with other damages, the jury awarded Nelson $37,000 for past income loss and American Family paid this amount in full in its capacity as the tortfeasor's insurer. Nelson's recovery for past income loss was subject to a one-third contingency fee arrangement with her attorney, resulting in Nelson receiving a net amount of $24,666.67.

Nelson then commenced this action in Minnesota against American Family to recover future medical expenses and past income loss caused by the second accident. American Family asserted the defenses of claim preclusion, issue preclusion, accord and satisfaction, and payment. The parties settled Nelson's no-fault claims for future medical expenses, but were unable to resolve her claim for past income loss. The parties subsequently brought cross motions for summary judgment on stipulated facts. The district court granted American Family's motion and dismissed Nelson's complaint. The court explained its reasoning in a memorandum, stating that (1) Nelson had a no-fault policy limit of $20,000 for loss of income; (2) Nelson had been awarded $37,000 for past income loss; and (3) any further award or recovery for loss of income would frustrate the purpose of the No-Fault Act by allowing a double recovery.

Nelson appealed, characterizing her action as a simple breach of contract case and asserting that the No-Fault Act does not prevent a double recovery in every case. Nelson specifically argued that even if no-fault benefits had been paid prior to the verdict, there would be no comparable set-off in South Dakota because South Dakota does not have offset and subrogation provisions comparable to those found in Minnesota's No-Fault Act. Nelson first asserted that she was entitled to receive the entire $20,000 no-fault benefit for past income loss because she had $37,000 of income loss at the time of the South Dakota trial. In the alternative, Nelson argued that she was partially uncompensated for her total $37,000 judgment for past income loss because after subtracting attorney fees, she was left with only $24,666.67 as a net recovery. Nelson argued that she was uncompensated for $12,333.33, but acknowledged that she was entitled to recover only $10,483.33 because under the No-Fault Act, an injured party is entitled to income loss benefits at 85% of the actual loss. Minn. Stat. § 65B.44, subd. 3 (2000). Nelson arrived at $10,483.33 by applying this 85% limitation to the amount of $12,333.33. Finally, Nelson argued that her claim was not barred by accord and satisfaction, claim preclusion, or issue preclusion.

The court of appeals affirmed, agreeing with the district court that Nelson was seeking a double recovery. Nelson v. Am. Family Ins. Group, 632 N.W.2d 264, 268 (Minn. App. 2001). First, the court of appeals concluded that the No-Fault Act precluded double recoveries, regardless of their label. Next, the court concluded that the South Dakota judgment was a foreign judgment that did not alter the result. The court went on to dismiss Nelson's argument that, because of the one-third contingency fee arrangement, the South Dakota judgment did not fully compensate her. Finally, the court did not address the applicability of claim preclusion, issue preclusion, or accord and satisfaction. On appeal to this court, Nelson raises the single issue of whether she is entitled to no-fault benefits for that part of her past income loss that she argues remains uncompensated because of the one-third contingency fee paid to her attorney.


The issue presented in this case involves interpretation of the No-Fault Act and examination of a district court's grant of summary judgment on undisputed facts. Statutory interpretation is a question of law, which this court reviews de novo. See Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 393 (Minn. 1998). Similarly, when a district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion that is reviewed de novo. Lefto v. Hoggsbreath Enters., Inc., 581 N.W.2d 855, 856 (Minn. 1998).

Relevant Provisions of Minnesota's No-Fault Act

Minnesota's No-Fault Act, Minn. Stat. §§ 65B.41-.71 (2000), contains a statement of purpose, which provides in pertinent part that the Act's purposes are:

(1) To relieve the severe economic distress of uncompensated victims of automobile accidents * * *;

(2) To prevent the overcompensation of those automobile accident victims suffering minor injuries by restricting the right to recover general damages to cases of serious injury;

(3) To encourage appropriate medical and rehabilitation treatment of the automobile accident victim by assuring prompt payment for such treatment;

(4) To speed the administration of justice, to ease the burden of litigation on the courts of this state * * *;

(5) To * * * provide offsets to avoid duplicate recovery * * *. Minn. Stat. § 65B.42 (emphasis added).

We heed these stated purposes when we construe the No-Fault Act. See Minn. Stat. § 645.16 (2000) (requiring courts to interpret statutes according to the legislative intent); see also Scheibel v. Illinois Farmers Ins. Co., 615 N.W.2d 34, 38 (Minn. 2000) (interpreting the No-Fault Act according to its stated purposes).

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," which include medical expense benefits and income loss benefits. Minn. Stat. § 65B.44, subd. 1. The Act requires minimum insurance coverage of $20,000 in medical expense benefits and $20,000 in income loss benefits. Id. Income loss benefits are to be paid at "85 percent of the injured person's loss of present and future gross income * * * to a maximum of $250 per week." Minn. Stat. § 65B.44, subd. 3. The statute also provides that "[o]verdue payments shall bear simple interest at the rate of 15 percent" per year. Minn. Stat. §á65B.54, subd. 2.

When an insured receives benefits under the No-Fault Act, the insured's ability to recover similar benefits in tort is subject to an offset provision as follows:

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 ...

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