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Gerdesmeier v. Sutherland

December 16, 2004

RONALD RALPH GERDESMEIER, ET AL., APPELLANTS,
v.
JEFFRY MARC SUTHERLAND, DEFENDANT, ILLINOIS FARMERS INSURANCE COMPANY, APPLICANT FOR INTERVENTION, RESPONDENT, AND RONALD RALPH GERDESMEIER, ET AL., APPELLANTS,
v.
ILLINOIS FARMERS INSURANCE COMPANY, RESPONDENT.



SYLLABUS BY THE COURT

An arbitration clause will not be enforced to enable an uninsured motorist insurer to avoid paying damages established by a valid judgment for the insured against the uninsured motorist where the insurer received notice of and had an opportunity to intervene in the suit against the uninsured motorist.

Reversed.

The opinion of the court was delivered by: Hanson, Justice.

Took no part, Anderson, G. Barry, J.

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

OPINION

Appellant Ronald Gerdesmeier was injured by an uninsured motorist. After submitting an uninsured motorist (UM) claim with his insurer, Respondent Illinois Farmers Insurance Company (Farmers), Gerdesmeier and his wife, Mary, brought a tort action against the uninsured motorist. When default judgment was entered in favor of the Gerdesmeiers in the tort action, they presented the judgment to Farmers and demanded payment. Farmers declined and, for the first time, demanded arbitration of the UM claim. The Gerdesmeiers brought suit on the policy and the district court granted judgment on the pleadings for the Gerdesmeiers, holding that Farmers had notice of and an opportunity to intervene in the tort action and that its failure to do so prevented it from compelling arbitration. The court of appeals reversed, holding that the arbitration clause required the parties to arbitrate the UM claim despite the default judgment in the tort action. Gerdesmeier v. Sutherland, No. A03-7, 2003 WL 22999402 at *1-*3 (Minn. App. Dec. 23, 2003). We reverse the decision of the court of appeals and reinstate the judgment in favor of the Gerdesmeiers.

On December 6, 2000, Ronald Gerdesmeier was injured when an automobile driven by Jeffry Marc Sutherland struck the automobile in which Gerdesmeier and his wife, Mary, were riding. The Gerdesmeiers' automobile insurance with Farmers included $100,000 of UM coverage. Counsel to Sutherland's mother informed Gerdesmeiers' counsel that Sutherland was uninsured. In the months following the accident, the Gerdesmeiers sent several letters to Farmers, informing it of Sutherland's uninsured status and their intention to assert a UM claim. Farmers sent a letter to the Gerdesmeiers requesting that all further correspondence be sent to a named claims adjuster. The Gerdesmeiers sent the claims adjuster all requested documents, including medical and accident reports.

On December 3, 2001, approximately 1 year after the accident, the Gerdesmeiers sued Sutherland. The Gerdesmeiers immediately informed Farmers of this suit and of Sutherland's status as an uninsured motorist. On July 9, 2002, after Sutherland had defaulted, the Gerdesmeiers also notified Farmers that they would move for default judgment against Sutherland.*fn1 Farmers did not intervene in the action against Sutherland, did not oppose the motion for default judgment against Sutherland, and did not demand arbitration. On September 11, 2002, the district court granted default judgment in favor of the Gerdesmeiers and against Sutherland for $118,934.24.

The Gerdesmeiers sent Farmers a copy of the default judgment against Sutherland and requested payment up to the UM policy limit of $100,000. Farmers refused, asserting that it was not bound by the default judgment because the Gerdesmeiers did not submit the claim to mandatory arbitration. The Gerdesmeiers sued Farmers and then moved for judgment on the pleadings. Farmers defended that it was not bound by the default judgment and demanded arbitration. Farmers also moved to intervene in the Sutherland action and to set aside the default judgment against Sutherland. The district court denied both of Farmers' motions and granted judgment on the pleadings to the Gerdesmeiers for $100,000.

The court of appeals affirmed the denial of Farmers' motions to intervene and to vacate the default judgment. Gerdesmeier, 2003 WL 22999402 at *4-*5. But the court reversed the judgment in favor of the Gerdesmeiers, holding that the Gerdesmeiers were bound by the arbitration clause in the insurance policy and should have demanded arbitration to determine the UM claim. Id. at *3. The Gerdesmeiers sought further review to consider (1) whether Farmers is entitled to enforce the UM arbitration clause after the insured already has obtained judgment against the uninsured motorist or (2) whether Farmers waived its right to compel arbitration under the UM policy by not demanding arbitration until after default judgment was obtained against the uninsured motorist.

The court of appeals rested its decision on this court's holding in Dunshee v. State Farm Mutual Automobile Insurance Co., 303 Minn. 473, 228 N.W.2d 567 (1975), and the Uniform Arbitration Act, Minn. Stat. § 572.08 (2002). In Dunshee, the issue was whether the scope of the arbitration of a UM claim should be decided by the arbitrator or the court. 303 Minn. at 477, 228 N.W.2d at 570. We held that the Uniform Arbitration Act applies to disputes involving arbitration provisions in UM policies. Dunshee, 303 Minn. at 483, 228 N.W.2d at 573. We concluded that the legislative intent, as reflected in the Uniform Arbitration Act, was to "discourage litigation and to foster speedy, informal, and relatively inexpensive procedures for the voluntary resolution of dispute[s]," without the interference of the court. Dunshee, 303 Minn. at 481-82, 228 N.W.2d at 572-73. We concluded that questions about the scope of arbitration of a UM claim were to be decided by the arbitrator. Id. at 482, 228 N.W.2d at 572.

Implicit in our Dunshee decision was the conclusion that arbitration clauses in UM policies are valid and enforceable. Thus, the court of appeals relied on Dunshee to conclude that Farmers' arbitration clause was valid and enforceable. Gerdesmeier, 2003 WL 22999402 at *2-3. But the court of appeals went beyond Dunshee when it held the arbitration provision enforceable even after the insured had obtained judgment against the uninsured motorist. It stated that

[a]llowing the insured to obtain and then enforce a default judgment against insurers when the policy provides for arbitration would allow insureds to ...


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