Policy exclusions that prevent an injured individual from obtaining UIM benefits from one policy and liability benefits from a separate policy, when both policies name the tortfeasor as an insured, work to prevent the use of UIM coverage as a substitute for liability coverage and are therefore enforceable.
The opinion of the court was delivered by: Page, Justice
Heard, considered, and decided by the court en banc.
This appeal arises out of cross-motions for partial summary judgment regarding appellant Marcia Kelly's ability to obtain underinsured motorist (UIM) benefits from respondent State Farm Mutual Automobile Insurance Company (State Farm). As the relevant facts are undisputed, the sole issue before us is whether the exclusion in State Farm's policy, which would preclude Kelly's claim for UIM benefits, contravenes Minnesota case law and the language of the Minnesota No-Fault Act, Minn. Stat. §§á65B.41-.71 (2002).
On September 19, 1998, Kelly's husband was driving his Dodge Intrepid and negligently caused an accident with an unoccupied motor vehicle injuring Kelly, who was a passenger in the Intrepid. At the time of the accident, Kelly's husband was the sole owner of the Intrepid, which was insured by State Farm. In addition, both Kelly and her husband were listed as owners of a Pontiac Grand Am, which was also insured by State Farm, but under a separate policy. While Kelly and her husband had separate policies for the Intrepid and the Grand Am, they were both listed as named insureds on each policy.
As a result of the accident, Kelly brought a damage claim against her husband, which State Farm settled by paying Kelly $100,000, the liability limit on the Intrepid. Because her damages exceeded this amount, Kelly filed a claim with State Farm for UIM benefits under the Grand Am policy. State Farm denied her UIM claim contending that under the Grand Am policy the Intrepid was not an "underinsured motor vehicle" and that allowing Kelly to recover UIM benefits under the Grand Am policy, which also provided liability coverage to her husband, the tortfeasor, would result in coverage conversion because the UIM policy would be used to supplement her husband's inadequate liability insurance.
Based on State Farm's denial of her UIM claim, Kelly commenced the instant lawsuit. Ultimately, both parties filed cross-motions for partial summary judgment to resolve the UIM coverage dispute. The district court initially granted Kelly's motion and denied State Farm's based on its conclusion that Kelly was entitled to UIM coverage under the Grand Am policy because Kelly had no ownership interest in the Intrepid and because it did not appear that Kelly was working with her husband to convert her UIM coverage to additional liability coverage for him.
Approximately one month after the district court ruled, the court of appeals decided Johnson v. St. Paul Guardian Insurance Co., 627 N.W.2d 731 (Minn. App.), rev. denied (Minn. Sept. 11, 2001). In Johnson, the court of appeals held that an injured individual, whose injuries exceeded the tortfeasor's liability coverage, could not look to a separate policy providing UIM coverage for the tortfeasor because this would result in impermissibly converting that UIM coverage into more expensive liability coverage to make up for the tortfeasor's inadequate liability coverage. Id. at 733-34. As a result of Johnson, State Farm moved the district court to reconsider the grant of partial summary judgment in favor of Kelly. On December 17, 2001, the district court reversed its earlier order and entered judgment in favor of State Farm, finding that under Johnson Kelly was not entitled to UIM benefits because her husband was listed as an insured on the Grand Am policy. In an unpublished opinion, the court of appeals affirmed, concluding that an injured individual could not claim benefits under a tortfeasor's liability policy as well as benefits under a separate UIM policy owned by the tortfeasor because it would result in an impermissible coverage conversion. Kelly v. State Farm Mut. Auto. Ins. Co., No. 10-02-217, 2002 WL 1837992, at *3 (Minn. App. Aug. 13, 2002). We granted Kelly's petition for further review and now affirm.
On appeal from a grant of summary judgment when there are no disputed issues of material fact, we review de novo whether the lower court erred in its application of the law. Lynch v. Am. Family Mut. Ins. Co., 626 N.W.2d 182, 185 (Minn. 2001); Am. Nat'l Prop. & Cas. Co. v. Loren, 597 N.W.2d 291, 292 (Minn. 1999) (stating that interpretation of an insurance contract and the construction of the statutes that govern it are questions of law).
Under the Grand Am policy,*fn1 State Farm agreed to pay all damages resulting from bodily injury to an insured that the insured is entitled to collect from the driver of an underinsured motor vehicle. The policy defines an "underinsured motor vehicle" as one whose liability limit is less than the amount needed to compensate the insured for his or her damages as long as the at-fault vehicle is not "furnished for the regular use of you, your spouse or any relative." Here, the at-fault vehicle, the Intrepid, was owned and regularly used by Kelly's husband, a named insured on the Grand Am policy, and it is on that basis State Farm denied Kelly's UIM claim.
Kelly argues that this court should conclude that she is entitled to coverage under the Grand Am policy because the policy exclusion contravenes the underlying purpose of the No-Fault Act and this court's decision in American Motorist Insurance Company v. Sarvela, 327 N.W.2d 77, 79 (Minn. 1982) (invalidating a policy exclusion that precluded recovery of UIM benefits for which the insured paid a premium and concluding that policy exclusions attempting to prevent UIM coverage from following the person are inconsistent with the Minnesota No-Fault Act). She maintains that her UIM claim should not be denied merely because her husband was listed as an insured on the Grand Am policy and contends that the decision to place a family member's name on the insurance policy or the title to the automobile is often made by the insurance agent or made for purposes other than insurance and therefore should not be the basis upon which a UIM claim may be denied.
State Farm contends that exclusions such as the one contained in the Grand Am policy are appropriate and consistent with Minnesota law. State Farm argues that to allow Kelly to recover underinsured motorist benefits under the Grand Am policy would permit the conversion of less expensive underinsured motorist coverage (first-party insurance) into more expensive liability coverage (third-party insurance) in a situation in which the insured under the Grand Am policy had the ability to purchase liability coverage in a higher amount for the Intrepid. State Farm contends that to allow such a conversion would be inconsistent with this court's decision in Petrich v. Hartford Fire ...