Under Minnesota's mandatory no-fault automobile insurance scheme, an insured's request that the insurer not defend or indemnify cannot be used to avoid intercompany arbitration under an arbitration agreement that expressly excludes non-cooperation as a defense to coverage.
The opinion of the court was delivered by: Hanson, Justice
Heard, considered, and decided by the court en banc.
Appellant State Farm Mutual Automobile Insurance Company (State Farm) paid for property damage to the vehicle of its insured, Michelle Miller, resulting from a collision with a vehicle driven by Glen Meyer, the insured of Respondent Cincinnati Insurance Company (Cincinnati). State Farm served on Cincinnati a Petition for Arbitration through Arbitration Forum, Inc., pursuant to an intercompany Automobile Subrogation Arbitration Agreement to which both State Farm and Cincinnati are signatories. When Cincinnati refused to arbitrate, contending that it provided no coverage because Meyer had instructed Cincinnati to not defend or indemnify, State Farm filed a motion in district court under Minn. Stat. § 572.09(a) (2002) for an order compelling arbitration. The district court denied the motion, holding that Meyer's refusal to tender the defense to Cincinnati precluded arbitration, and the court of appeals affirmed. We reverse.
On February 24, 2001, Meyer was involved in a car accident with Miller. The damage to Miller's vehicle amounted to $2,044.33, which was paid by State Farm to the extent it exceeded Miller's $500 deductible. Meyer refused to reveal the identity of his insurance provider. According to an affidavit executed by Meyer, Cincinnati informed him that any insurance payment on his behalf would result in non-renewal of his insurance coverage.
Meyer had informed Cincinnati that he would decline coverage, negotiate with State Farm independently, and pay any damages out of pocket. State Farm requested that Meyer pay for the damage incurred to Miller's vehicle. Meyer offered to pay half of the total damages to Miller's vehicle, believing that Miller was partially responsible for the accident.
State Farm brought suit against Meyer to recover for the damage resulting from the accident. State Farm subsequently confirmed its belief that Cincinnati provided Meyer's insurance. State Farm and Cincinnati are both parties to an arbitration agreement, which would normally require arbitration of claims, such as this, that involve a minor accident with no personal injury. State Farm made a motion in district court under Minn. Stat. § 572.09(a) to compel Cincinnati to resolve the dispute through arbitration, pursuant to the arbitration agreement. The court denied the motion. The court of appeals affirmed the district court, concluding that an insured must tender a defense of a claim as a condition precedent to compelling arbitration under an intercompany arbitration agreement. State Farm Mut. Auto. Ins. Co. v. Cincinnati Ins. Co., 651 N.W.2d 542, 545 (Minn. App. 2002).
We review de novo a district court's determination concerning the scope of an arbitration agreement. Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790, 795 (Minn. 1995). State Farm and Cincinnati agree that they are parties to an agreement to arbitrate claims arising from accidents with minor damages of the type incurred here. The parties dispute whether the arbitration agreement mandates that Cincinnati submit the claim to arbitration despite Meyer's request that Cincinnati not defend or indemnify the claim.
State Farm argues that the arbitration agreement applies because Cincinnati's only defense to coverage, that Meyer has requested that Cincinnati not defend or indemnify him, amounts to "non-cooperation," and that the arbitration agreement excludes a defense to coverage based on non-cooperation. The arbitration agreement includes the following provision:
Signatory companies are bound to forego litigation and in place thereof submit to arbitration any questions or disputes which may arise from any automobile physical damage subrogation or property damage claim not in excess of $100,000.
This Article shall not apply to:
(b) any claim as to which a company asserts a defense of lack of coverage ...