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Do v. American Family Mutual Insurance Company: AUTO | INSURANCE prior settlement with insurance company for unspecified damges offsets jury award regarding no fault damages

Dean Do,
American Family Mutual Insurance Company,
Filed July 8, 2008
Minge, Judge
Dakota County District Court
File No. C3-06-7521
D. Scott Dunham, D. Scott Dunham, P.A., 109 Myrtle Street East, Suite 100, Stillwater,
MN 55082 (for appellant)
Tammy M. Reno, Brown & Carlson, P.A., 5411 Circle Down Avenue, Suite 100,
Minneapolis, MN 55416 (for respondent)
Considered and decided by Ross, Presiding Judge; Minge, Judge; and Connolly,
Pursuant to the collateral-source rule of Minn. Stat. 548.36 (2006), an injured
partys prior settlement with a tortfeasors automobile-insurance carrier for unspecified
general damages offsets an ultimate jury award that encompasses no-fault damages.
MINGE, Judge
This appeal arises out of a claim by appellant injured party against his automobileinsurance
carrier for no-fault and underinsurance benefits. Appellant asserts that the
district court erred in relying on the collateral-source rule to offset the amount recovered
in his prior settlement with the tortfeasors liability insurer against a jury award of
damages. Because the prior settlement is a collateral source under Minn. Stat.
548.36 (2006) and was for general unspecified damages, the district court did not err in
deducting it from the ultimate jury award in appellants action, and we affirm.
On September 13, 2002, Julie Wagner and appellant Dean Do were involved in a
car accident in which Wagner was at fault and Do was injured. Do had no-fault and
underinsured motorist (UIM) coverage with respondent American Family Mutual
Insurance Co. (American Family). He sought no-fault benefits from American Family,
but it paid only 5.50 of his no-fault coverage. American Family claimed that the
other medical expenses Do submitted to them were not a direct result of the accident and
therefore did not represent reasonable and necessary compensation under his no-fault
policy. Do also made claims against Wagner, the tortfeasor, to satisfy his damages and
settled with Wagners insurer for ,000 of her ,000 automobile-liability-policy
coverage. There is no indication that the ,000 was allocated to any specific items of
damage. After that settlement, Do brought suit for additional compensation from his own
insurer, respondent American Family, for UIM and no-fault benefits. There was no claim
that American Family had acted in bad faith in failing to pay or settle its no-fault policy
At trial, American Family acknowledged coverage but challenged Dos damages.1
A jury determined that Do had sustained total damages arising out of the accident in the
amount of ,416.13. The award was broken down as ,159 for medical expenses for
diagnostic testing and scans, ,257.13 for medical expenses exclusive of testing and
scans, ,000 for past pain and disability associated with the accident, and ,000 for
future pain and disability. The verdict did not further identify or allocate the damages.
American Family moved for a collateral-source offset and a reduction of the jury
award. The district court determined that the ,000 settlement payment from Wagners
liability insurer constituted a collateral source and ordered it offset from the jury award.
Therefore, the district court subtracted the ,000 paid by Wagners insurer and 5.50
in no-fault benefits already paid by American Family from the ,416.13 jury verdict
and ordered American Family to pay the remaining ,550.63. This appeal follows.
Did the district court err by subtracting appellants settlement with the tortfeasor
from an ultimate jury award as a collateral source?
The issue is whether the district court properly applied the collateral-sources
statute, Minn. Stat. 548.36 (2006), by subtracting Dos prior settlement from the jury
1 Purely factual issues involving claims for no-fault benefits may also be submitted to
arbitration. Weaver v. State Farm Ins. Cos., 609 N.W.2d 878, 882 (Minn. 2000). The
parties did not engage in this option.
award. When there is no factual dispute, we review whether the district court has
properly applied the collateral-source rule de novo. Dean v. Am. Family Mut. Ins. Co.,
535 N.W.2d 342, 343 (Minn. 1995).
A. The No-Fault Setting
At the outset, it is essential to clarify the unique circumstances of this case. A
vehicle is underinsured for the purposes of UIM coverage if no-fault coverage and the
tortfeasors liability-insurance coverage on the vehicle are inadequate to satisfy the
injured partys damages. Richards v. Milwaukee Ins. Co., 518 N.W.2d 26, 28 (Minn.
1994) (determining that actual damages as used in the UIM statute refers to a
tortfeasors liability exclusive of those damages paid by no-fault coverage).
The no-fault act is intended to (1) relieve uncompensated victims from the
economic stress caused by automobile accidents by providing for prompt payment for
economic losses to victims of automobile accidents without regard for who was at fault;
(2) prevent overcompensation of automobile-accident victims; (3) ensure, by the
guarantee of prompt payment, that victims seek and receive appropriate medical
treatment; (4) speed the administration of justice, ease the burden of litigation on state
courts, and create an efficient arbitration system; and (5) prevent automobile-accident
victims from receiving duplicate recovery. Minn. Stat. 65B.42 (2006); Scheibel v. Ill.
Farmers Ins. Co., 615 N.W.2d 34, 37 (Minn. 2000). Under the act, Minnesota insurance
policies must, at a minimum, provide coverage of ,000 for medical-expense loss and
,000 for income loss and other expenses. See Minn. Stat. 65B.44, subd. 1(a)(1), (2)
Ordinarily, an injured party is compensated through his or her no-fault benefits
coverage as the expenses and losses are incurred, and unless the tortfeasor is
underinsured, the tortfeasor and his or her liability insurer cover the remainder of the
damages. See Richards, 518 N.W.2d at 28; cf. Balderrama v. Milbank Mut. Ins. Co., 324
N.W.2d 355, 356 (Minn. 1982) (holding that a prior settlement for common-law liability
claims does not abrogate the statutory rule that every person suffering loss from injury as
a result of a motor-vehicle accident has a right to basic-economic-loss benefits); Minn.
Stat. 65B.46, subd.1 (2006).
Here, Do first sought no-fault benefits from his own insurer but, except for
5.50, the no-fault benefits for his medical expenses were denied. Next, Do settled
with the tortfeasors insurer for ,000. Finally, Do sued his own insurer under his
policy for no-fault and UIM coverage. In that suit, a jury determined that Dos total
damages were ,416.13. This included ,416.13 in medical-expense damages. Dos
policy with American Family allowed for ,000 medical expenses as a part of no-fault
coverage. Although the verdict allocated ,000 for pain and disability, that ,000
was not broken down between the two items. If Do had pursued his claims against his
own insurer first, American Family would have been liable for the first ,000 in
applicable expenditures as medical no-fault payments and up to ,000 for disability.
2 Dos policy with American Family provided for ,000 in no-fault medical coverage
and ,000 for disability/income-loss coverage.
The tortfeasors insurer would have been left to satisfy at most ,416.13 (the remaining
medical plus pain) and possibly as little as ,416.13 (medical). See Richards, 518
N.W.2d at 28 (holding that the tortfeasors liability is limited to damages that are not
compensated for by no-fault benefits); Balderrama, 324 N.W.2d at 356 (indicating that a
no-fault insurer has a statutory obligation to pay basic-economic-loss benefits).
Because Dos settlement with the tortfeasors insurer came before the jurys
determination of damages and recovery of no-fault benefits, the tortfeasors insurer paid
Do ,000. This payment of ,000 and the ,000 no-fault medical coverage fully
satisfy Dos damages as determined by the jury. As a result, Wagner is not
underinsured. Having established that we consider Dos claims against American
Family for compensation as no-fault benefits rather than UIM benefits, we proceed with
the analysis of the collateral-source rule.
B. The Collateral-Source Rule
In Minnesota, there are two formulations of the collateral-source rule: commonlaw
and statutory. The common-law collateral-source rule states that:
[I]f the plaintiffs special damages . . . such as hospital or
medical expenses or loss of wages, are paid for by some third
person, either as a gift or on the basis of some contractual
obligation, this circumstance does not bar the plaintiff from
recovering this item from the defendant, even though it may
in effect accord to the plaintiff a double benefit or a double
Smith v. Am. States Ins. Co., 586 N.W.2d 784, 786 (Minn. App. 1998) (quotation
omitted), review denied (Minn. Feb. 18, 1999). This acceptance of double recovery
recognizes that the injured party, not the tortfeasor, should benefit from gifts or
contractual rights. Id. This common-law rule applies in cases that are not covered by the
current collateral-source statute.
The collateral-source rule set forth in the statute is as follows:
In a civil action, . . . when damages include an award
to compensate the plaintiff for losses available to the date of
the verdict by collateral sources, a party may file a motion
within ten days of the date of entry of the verdict requesting
determination of collateral sources. If the motion is filed, . . .
the court shall determine:
(1) amounts of collateral sources that have been
paid for the benefit of the plaintiff or are otherwise available
to the plaintiff as a result of losses except those for which a
subrogation right has been asserted.
Minn. Stat. 548.36, subd. 2.
The statute prevents double recovery by requiring the deduction of certain
benefits received by a civil plaintiff and thus abrogates the common law right to be
overcompensated for injuries.3 Johnson v. Farmers Union Cent. Exch., Inc., 414
N.W.2d 425, 432 (Minn. App. 1987), review denied (Minn. Nov. 24, 1987); see also
Minn. Stat. 548.36, subd. 3. The purpose of the collateral-source statute is to prevent
windfalls by plaintiffs at the expense of defendants. Buck v. Schneider, 413 N.W.2d
569, 572 (Minn. App. 1987). Collateral sources to be deducted from jury awards are
payments related to the injury and paid to or on behalf of the plaintiff up to the date of the
verdict, including payments made pursuant to automobile-accident insurance. Minn. Stat.
548.36, subd. 1(2); see, e.g., Imlay v. City of Lake Crystal, 453 N.W.2d 326, 333-34
3 Typically, the statute is applied in actions against a tortfeasor, but nothing in its
language limits its application in this manner. It has been applied in actions against
insurers in the past. E.g., W. Natl Mut. Ins. Co. v. Casper, 549 N.W.2d 914, 916-17
(Minn. 1996).
(Minn. 1990) (considering UIM insurance payments to be a collateral source offset
against a tortfeasors liability insurance);4 Lee v. Hunt, 642 N.W.2d 57, 60 (Minn. App.
2002) (No-fault benefits fall within the category of automobile accident insurance, and,
therefore, by definition, the collateral source statute applies to the no-fault benefits.).
Here, Dos settlement with the tortfeasors insurer was a payment made to him
pursuant to automobile-accident insurance. Under the plain language of the statute, the
prior settlement with the tortfeasors insurer is a collateral source. The district court
simply followed the statute in deducting the amount of that settlement from the jury
C. The Dean Decision
Appellant relies on the Dean decision for the proposition that a payment pursuant
to a tortfeasors liability-insurance policy can never constitute a collateral source. 535
N.W.2d at 345. Essentially, Dean considered whether to make a deduction for a
claimants personal fault for an accident before or after an offset was made for insurance
proceeds already received from a tortfeasors insurance company.5 Id. at 343. The court
4 We note there has been judicial criticism of the statute. Minn. Stat. 548.36, subd.
1(2), is poorly written, ambiguous, and could conceivably be read as providing for one,
two, three or four different types of collateral source benefits. Imlay, 453 N.W.2d at
5 The determination is mathematically important in some cases. For example, if a
plaintiff had 0,000 in damages, was 10% at fault, and had been paid ,000 by a
tortfeasors liability insurance, the amount of his ultimate recovery varies based on how it
is calculated. If his 10% deduction for partial fault was offset against his damages before
the offset for the prior payment for the liability insurance, it would lead to a ,000
deduction (0,000 damages x 10% portion at fault). If the partial offset was made
[U]nder the facts of this case the collateral source rule is
clearly inapplicable because a tortfeasors liability insurance
cannot, by definition, constitute a collateral source.
. . . .
. . . [W]hile it might not be precisely clear exactly what the
legislature meant to include as a collateral source, it is
patently clear that a tortfeasors liability insurance can never
be within the definition of a collateral source. The Blacks
Law Dictionary definition of collateral source rule is
helpful: []Under this rule, if an injured person receives
compensation for his injuries from a source wholly
independent of the tort-feasor, the payment should not be
deducted from the damages which he would otherwise collect
from the tortfeasor. In other words, a defendant tortfeasor
may not benefit from the fact that the plaintiff has received
money from other sources as a result of the defendants tort,
e.g. sickness and health insurance.[]
Id. at 345.
Appellant urges us to adhere to the broad statement set forth above that a
tortfeasors liability insurance can never be a collateral source. Were we to do so, the
payment from a tortfeasors insurance would fall outside the scope of the collateralsource
statute, the common-law rule would apply, and double recoveries would be
permitted. See Smith, 586 N.W.2d at 786 (acknowledging that double recoveries are
allowed under the common-law rule). Our careful review of Dean and related
jurisprudence indicates that such a broad prohibition was not intended.
First, the cases are different. The Dean case concerned comparative fault and
limits on recovery from the tortfeasor or the underinsured carrier. The Dean court
afterwards, it would result in a ,000 deduction (,000 damages remaining after
deduction of tortfeasors liability payment x 10% portion at fault). There is no claim that
Do was partially at fault.
acknowledges that it considers the limited issue of whether an automobile accident
liability insurance payment from an underinsured tortfeasor triggers the collateral source
rule in a claim for [UIM] benefits when the claimant is partially at fault. Id. at 343. The
Dean court determined that a plaintiffs percentage of relative fault should be deducted
before any deduction from a collateral source. Id. at 343-45, & nn. 1-2. In our case, we
have determined that the tortfeasors (Wagners) vehicle was not underinsured, and we
do not consider the application of underinsured-motorist benefits. Additionally, there are
no claims that Do was partially at fault, and the issue of the sequence to be followed in
making various deductions (which was the central issue in Dean) is not before us. The
Dean court did not address the exact question currently before this court.
Second, the statement in Dean that a payment made pursuant to a tortfeasors
liability insurance can never be a collateral source is dictum and may be in conflict with
the actual holding in the Dean case. Despite the Dean courts statement that the
collateral-source rule did not apply to a tortfeasors liability payment, it proceeded to
deduct the amount of a prior settlement from the tortfeasors liability insurance
(0,000) from the judgment for UIM benefits, without providing an alternate
explanation for doing so. Id. at 345.6 Whatever the rationale, the calculations employed
6 The Dean court specifies:
Aggregate Damages: 3,646.00
Less Deans Fault (10%): -,364.60
Net Damages: 8.281.40
Less Liability Insurance Payment: -0,000
Uncompensated Damages: 8,281.40
Dean, 535 N.W.2d at 343. The supreme court ordered the award of 8,281.40 in
uncompensated damages in accordance with the calculation above. Id. at 345. The
in the Dean opinion rejected double recovery and demand that a prior liability settlement
with a tortfeasors insurance offset an ultimate jury award.
Third, the Dean court emphasized the importance of preventing double recoveries.
Dean, 535 N.W.2d at 344 ([B]oth the collateral source rule and the UIM provisions
were meant to avoid double recovery.). This is at variance with the above-quoted Dean
observations that would, if applied here, result in a double recovery. In our case, a
formalistic application of the Dean dictum would allow Do to receive ,000 in no-fault
benefits from his insurer and ,000 from his prior settlement, a total of ,000, for
damages the jury determined to be ,416.13.
Moreover, on facts more closely aligned to those before us, the Minnesota
Supreme Court has determined that a prior settlement with a tortfeasors liability carrier
offsets an arbitration award for UIM benefits. Casper, 549 N.W.2d at 916 (We hold . . .
that [the UIM insurer] is entitled to reduce the arbitration award by offset of the ,000
[plaintiff] received pursuant to his settlement agreement with [defendant tortfeasor] and
[his] automobile insurer.). Casper was decided after Dean and makes no reference to
Dean as precluding the application of the collateral-source statute to a prior insurance
Do points out that his insurer would have been liable for at least no-fault benefits
in the amount of ,000 of his 39,416.13 in medical expenses, rather than the
,550.63 for which it was ultimately liable, if he had not first settled his claims with
8,281.40 represents the judgment minus damages that have already been recovered
through the tortfeasors liability insurance.
the tortfeasors liability carrier. He did not seek recovery in that sequence and that result
is not determinative. We recognize that in this case the order and manner in which
appellants damages were paid and the lack of any specific allocation for the settlement
with the tortfeasor benefitted his own carrier by reducing its ultimate no-fault liability.
However, the prospect of such reduced liability for the insurer does not entitle appellant
to double compensation. Because the statutory collateral-source rule is intended to limit
a plaintiffs access to double compensation (see Johnson, 414 N.W.2d at 432), we affirm
the district court.
Ultimately, our situation is relatively simple. A jury determined that as a result of
Dos injuries, he sustained damages in the amount of ,416.13. He has previously
been paid 5.50 by American Family and ,000 pursuant to a settlement with the
tortfeasors automobile-insurance carrier. The ,000 settlement is a collateral source
as defined in Minn. Stat. 548.36, subd. 1(2). Do has remaining damages of ,550.63,
which American Family, as his no-fault insurer, is obliged to pay in order to satisfy the
judgment. Do is owed no more.
Because appellants prior settlement with the tortfeasors liability insurance is a
collateral source under Minn. Stat. 548.36 (2006), the district court did not err in
deducting it from the ultimate jury award, and we affirm.


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