(Article from Insurance Law Alert, November 2018)
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The Minnesota Supreme Court ruled that a state statute that prohibits an insurer from filing a subrogation action against its insured applies to any party covered by the insurance policy. Depositors Ins. Co. v. Dollansky, No. A17-0631 (Minn. Nov. 14, 2018).
Dollansky rented a motor home from Karavan Trailers, Inc. The rental agreement provided that Dollanksy was responsible for all damage to the motor home and required him to obtain an extension of his personal automobile insurance for the motor home. When a fire caused damage to the motor home, Karavan submitted a claim for the full amount of damage to Dollanksy’s automobile insurer. The insurer paid the deductible but denied coverage for the remainder of the claim. Thereafter, Karavan submitted a claim to its own insurer, Depositors Insurance Company, which paid the full amount of damages. Depositors then sued Dollansky, alleging that it was subrogated to the rights of Karavan.
A Minnesota federal district court granted Dollansky’s summary judgment motion, citing Minnesota statutory law which prohibits an insurance company from “proceed[ing] against its insured in a subrogation action where the loss was caused by the nonintentional acts of the insured.” Minn. Stat. § 60A.41(a) (2016). An intermediate appellate court affirmed, rejecting Depositors’ assertion that Dollansky was not an insured within the meaning of the statute because he was not a named insured on Karavan’s policy. The Minnesota Supreme Court granted review and affirmed.
The Minnesota Supreme Court rejected Depositors’ contention that the statute applied only to named insureds, noting the absence of the term “named insured” in the applicable provision. However, the Minnesota Supreme Court found that the statute was ambiguous because “insured” could mean “any party covered by some part of the insurance policy,” or alternatively, could mean “any party who is covered by the specific section of the insurance policy that applies to the particular loss at issue.” Relying on legislative history and public policy considerations, the court concluded that the term “insured” in § 60A.41(a) is intended to “broadly protect the rights of insureds against subrogation” and thus includes any person who has coverage under the insurance policy. Applying this standard, the court concluded that Dollansky was an insured under Karavan’s policy because he had permission to use the motor home and the policy defined “insured” to include “[a]nyone else while using with your permission a covered ‘auto’ you own.”
The court acknowledged that its ruling conflicted with the rental agreement, which assigned responsibility for any damage to Dollansky, but reasoned that the statutory language warranted that result. Finally, the court noted that rather than seeking subrogation against Dollansky, Depositors could have brought an action against Dollanksy’s insurer seeking reimbursement or could have filed a declaratory judgment action seeking a ruling on the priority of the two policies.