The Minnesota Court of Appeals ruled that an insurer may not subrogate against a man who rented a motor home from its insured. The case is Depositors Ins. Co. v. Dollansky, 905 N.W.2d 513 (Minn. Ct. App. 2017).
Mr. Dollansky rented a motor home from Karavan Trailers. Under the terms of the rental contract, Dollansky was "responsible for all damage to the [motor home] . . . regardless of whether or not Renter is at fault" (emphasis added). During the rental period, the motor home caught fire as Dollansky was driving it, causing nearly $205,000 in damages.
Karavan made a claim with American Family Insurance, who had issued Dollansky's auto policy, and American Family issued a partial payment but would not pay the full claim. Depositors Insurance Company, who covered Karavan, paid the full amount of the claim, then immediately sued Dollanksy for breach of contract via subrogation.
Both parties filed for summary judgment, which the trial court ultimately awarded to Dollansky because he "was an 'insured' under Depositors' policy and that Minnesota Statutes section 60A.41(a) therefore prohibits Depositors from proceeding in a subrogation action against him." Depositors appealed.
Under Minn. Stat. §60A.41(a), an insurer may not pursue subrogation against a person insured by that company if "the loss was caused by the nonintentional acts of the insured" (emphasis added). Depositors claimed "the insured" meant the named insured under Minn. Stat. §60A.41(b). That subsection stated that "[a]n insurance company providing insurance coverage…may not subrogate itself to the rights of its insured to proceed against another person if that other person is insured for the same loss, by the same company…only if the loss was caused by the nonintentional acts of the person against whom subrogation is sought" (emphasis added).
According to Depositors, it was a matter of "claims against the subrogating insurance company's own named insured and claims against another party who happened to be insured by the subrogating insurance company." The state legislature had said an insurer couldn't subrogate "another person," as opposed to an "insured," in order to draw a line between the named insured on a policy issued by one company, and any other person who could qualify as an insured under that policy.
The court disclaimed this argument as putting words in the mouth of the Minnesota Legislature. There was no reference to a "named insured" anywhere in Minn. Stat. §60A.41. Furthermore, the appellate court had already drawn the line between "insured" and "another person" for the purposes of Minn. Stat. §60A.41(b) in an earlier Minnesota case, Ill. Farmers Ins. Co. v. Schmuckler, 603 N.W.2d 138 (Minn. App. 1999), which had centered on the interaction of separate policies purchased by separate insureds but from the same carrier.
In Schmuckler, Illinois Farmers Insurance Company unsuccessfully tried to offset its payment to an insured, Schmuckler, under her renter's policy by the amount she had been awarded in a jury trial against another insured who had purchased auto coverage from Illinois Farmers. When Illinois Farmers sought recovery of its payment under Schmuckler's renter's policy, the trial court ruled in the carrier's favor based on equitable subrogation. The appellate court reversed, stating it was expressly forbidden for an insurer to pursue subrogation against its own insured when the subrogated party had coverage for the occurrence from the same insurer. Whether the opposing insureds sought coverage under the same or separate policies was irrelevant.
Applying the logic of Schmuckler to the present case, the appellate judges found Depositors's alleged distinction between an "insured" and "another person" in Minn. Stat. §60A.41(b) was inapplicable. Dollansky was an "insured" under the policy Depositors had issued to Karavan by virtue of his rental contract with Karavan. The policy stated that an "insured," for coverage purposes, included anyone who used a vehicle "own[ed], hire[d], or borrow[ed]" by Karavan with Karavan's express permission. Karavan had implicitly granted Dollansky permission to use the motor vehicle owned by Karavan when the company had willingly entered into the rental contract with Dollansky and given him the keys so he could drive the motor home.
Since Dollansky was an "insured" under Karavan's insurance policy with Depositors by virtue of the motor home rental contract, Depositors was prohibited from subrogating against Dollansky because he and Karavan were insured for the same loss by the same insurer.
The trial court verdict in favor of Dollansky was affirmed.
Editor's Note: Subrogation occurs when an insurer pays damages to an insured that should have been the responsibility of another party, then pursues recovery of those damages from that other party. However, it is generally frowned upon for an insurer to pursue recovery from one of its own insureds.
In this case, Depositors was seeking repayment of the damages it had paid to Karavan from Dollansky. However, the policy Depositors had provided to Karavan stated it would also cover anyone who used a vehicle "own[ed], hire[d], or borrow[ed]" by Karavan as an insured. Karavan owned the motor home it had rented to Dollansky and gave its implied permission for Dollansky to use the motor home when it handed over the keys so Dollansky could drive it. Since Dollansky was using the motor home with Karavan's express permission, he was considered an "insured" within the meaning of Karavan's policy with Depositors. Therefore, Depositors could not seek reimbursement from Dollansky.
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