Terminal Transport, Inc. v. Minnesota Insurance Guaranty Association

STATE OF MINNESOTA
IN COURT OF APPEALS
A14-1284
Terminal Transport, Inc.,
Appellant,
vs.
Minnesota Insurance Guaranty Association,
Respondent.
Filed April 20, 2015
Affirmed
Stauber, Judge
Hennepin County District Court
File No. 27-CV-11-24506
Thomas J. Flynn, Richard J. Reding, Larkin, Hoffman, Daly & Lindgren, Ltd.,
Minneapolis, Minnesota (for appellant)
Kirsten Schubert, Forrest K. Tahdooahnippah, Dorsey & Whitney, Minneapolis,
Minnesota (for respondent)
Considered and decided by Schellhas, Presiding Judge; Stauber, Judge; and
Hooten, Judge.
SYLLABUS
The Minnesota Insurance Guaranty Association (MIGA) is prohibited from
covering any claims made against an insolvent insurer’s policy that has a deductible in
excess of $300,000. Minn. Stat. § 60C.09, subd. 2(4) (2014).
OPINION
STAUBER, Judge
Appellant challenges the district court’s grant of summary judgment in favor of
MIGA, which denied its request for coverage of a workers’ compensation claim after the
insurance company that provided the insurance became insolvent, arguing that the district
court erred by concluding that claim was not a “covered claim.” We affirm.
FACTS
Appellant Terminal Transport, Inc., (Terminal) is an over-the-road trucking
company located in Roseville, Minnesota. Respondent MIGA is an organization created
by statute to provide payment of covered claims to claimants or policyholders when an
insurer is liquidated. Minn. Stat. §§ 60C.02, subd. 2; .04 (2014). All insurers providing
certain lines of insurance pay an assessment to MIGA as a condition of their licenses to
transact business in the state. Minn. Stat. § 60C.03, subd. 6 (2014).
Because Terminal was a fairly small business, it contracted with a professional
employer organization, Oxygen Unlimited, LLC, for human-resource services. Oxygen
handled payroll, withholding, garnishment, and state taxes, employed workers and leased
them to Terminal, and arranged for insurance coverage, including a workers’
compensation policy. Oxygen purchased the workers’ compensation policy from
Imperial Indemnity and Casualty Insurance Co., for the period of March 31, 2009,
through January 1, 2010. This policy included a deductible of $1,000,000, which reduced
the premium paid by Oxygen and the human-resource costs billed to Terminal.
2
An employee was injured while working for Terminal during the policy coverage
period and submitted a workers’ compensation claim. Although Oxygen assured
Terminal that it would handle the matter, it went out of business and Imperial was
declared insolvent by the State of Oklahoma before the claim was paid.
Terminal tendered the claim to MIGA, which denied it because the workers’
compensation policy had a deductible in excess of $300,000, making it ineligible for
coverage under the statute. Terminal challenged this decision, and MIGA affirmed the
denial of coverage. Terminal initiated this action by complaint in December 2011.
MIGA moved for summary judgment based on the statutory exclusion of coverage
for policies that have a deductible greater than $300,000. Terminal argued that Oxygen
was the insured and thus Terminal had no duty to pay a deductible to Imperial because
Oxygen provided first-dollar coverage of all claims to Terminal. The district court
granted summary judgment in favor of MIGA. This appeal followed.
ISSUES
I. Did the district court err in its construction of the insurance contract?
II. Did the district court err in its construction of Minn. Stat. § 60C.09 (2014)?
ANALYSIS
We review the district court’s grant of summary judgment de novo to determine
whether there are any genuine issues of material fact and whether the district court erred
in applying the law. Larson v. Nw. Mut. Life Ins. Co., 855 N.W.2d 293, 299 (Minn.
2014). We view the evidence in the light most favorable to the nonmoving party. Id.3
I.
This appeal involves both construction of a contract and a statute. An insurance
policy is a contract to which general principles of contract law apply. Remodeling
Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602, 611 (Minn. 2012). This
court reviews the district court’s interpretation of a contract as a question of law subject
to de novo review. Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 832
(Minn. 2012). A clear and unambiguous contract is enforced in accordance with the plain
language of the contract; a reviewing court considers parol evidence or matters outside of
the contract only when the contract terms are ambiguous. Id. Neither party here claims
that the contract was ambiguous.
Terminal argues that it is not the policyholder and it should not be constrained
from obtaining coverage from MIGA for the injured employee’s claim. The policy
identifies the insured as “Oxygen Unlimited, LLC [leasing company for] Terminal
Transport, Inc.” Terminal is identified as the employee location tied to the policy. The
policy defines “insured” as the party “named in item 1 of the Information Page”; Oxygen
is listed as leasing company for Terminal. The policy also has additional endorsements
to the standard policy language, including the “Minnesota Employee Leasing
Endorsement.” This endorsement applies to leased employees and defines the “Client
Company” as “the entity who obtains any or all of its employees from another entity
under an employee leasing agreement and which is identified . . . in Item 1 of the
Information Page.” The endorsement states that the workers’ compensation policy “will
apply as though the client company is the employer and is insured under this policy.” It
4
again identifies Oxygen, the employee leasing company, as the “policy holder under this
policy.”
A second endorsement creates a deductible of $1,000,000; this endorsement is
between Imperial, the insurer, and Oxygen, the named insured. The endorsement states
that “[i]t does not affect, change or alter the rights of others under the Policy.” It also
provides that “[t]he first Named Insured shown in the Information Page agrees and is
authorized to pay all Deductible Amounts on behalf of all Named Insureds,” but “[e]ach
Named Insured is jointly and severally liable for all deductible amounts under this
Policy.”
The plain language of the policy suggests that Terminal is not the named insured.
But Minn. Stat. § 60C.09, subd. 1(c)(i) (2014), which defines the claims covered by
MIGA, includes those made by an “insured beneficiary under a policy,” and Terminal
clearly considers itself to be an insured beneficiary or it would have no right to argue that
it should be covered under either the policy terms or by MIGA’s statutory duty.
Even if Terminal is not an insured beneficiary, it is a third-party beneficiary under
the policy. A stranger to a policy has no right to enforce contract terms, but “a third party
may enforce a promise made for his benefit even though he is a stranger both to the
contract and the consideration.” Caldas, 820 N.W.2d at 832 (quotation omitted). An
intended third-party beneficiary may enforce a contractual promise if the parties to the
contract manifest an intent to benefit the third party and performance of the contract
promise will satisfy a party’s obligation to pay money to or perform an action for the
benefit of the third party. Id. If Terminal is arguably not a named insured to this
5
contract, it is certainly a third-party beneficiary: both Imperial and Oxygen recognize an
obligation to provide workers’ compensation coverage to Terminal, which is consistent
with coverage requirements under Minnesota law. As a third-party beneficiary, Terminal
would have the right to enforce the contract according to its terms, which include a
$1,000,000 deductible. See In re Hennepin Cnty. 1986 Recycling Bond Litig., 540
N.W.2d 494, 499 (Minn. 1995) (stating that the rights of third-party beneficiaries are
measured by the contract terms). Under either analysis, Terminal is an insured
beneficiary under the contract and thus is subject to the terms of Minn. Stat. § 60C.09.
II.
The district court determined that the policy contained a $1,000,000 deductible
clause and that MIGA was therefore statutorily precluded from covering Terminal’s
claim. We review the application of a statute to the undisputed facts of a case as a
question of law, which is subject to de novo review. Davies v. W. Publ’g Co., 622
N.W.2d 836, 841 (Minn. App. 2001), review denied (Minn. May 29, 2001).
MIGA was created by statute “to provide a mechanism for the payment of covered
claims under certain insurance policies” and “to provide an association to assess the cost
of the protection [of claimants and policyholders] among insurers.” Minn. Stat.
§ 60C.02, subd. 2. Entities created by statute have only the powers conferred on them by
statute. In re Excelsior Energy, Inc., 782 N.W.2d 282, 289 (Minn. App. 2010).
The legislature states what [an] agency is to do and how it is
to do it. While express statutory authority need not be given a
cramped reading, any enlargement of express powers by
implication must be fairly drawn and fairly evident from the
6
agency objectives and powers expressly given by the
legislature.
Peoples Natural Gas. Co. v. Minn. Pub. Utils. Comm’n, 369 N.W.2d 530, 534 (Minn.
1985). Thus, although the chapter regulating MIGA states that it is to “be liberally
construed to effect [its] purposes,” Minn. Stat. § 60C.02, subd. 3 (2014), MIGA is
nevertheless limited by its statutory authority.
MIGA is deemed to be “the insurer to the extent of its obligation on covered
claims.” Minn. Stat. § 60C.05, subd. 1(a) (2014). “Covered claims” are unpaid claims
arising out of an insurance policy issued by an insurer that has become insolvent, if the
claim is made by either a policyholder or an insured beneficiary under the policy. Minn.
Stat. § 60C.09, subd. 1(a), (c)(i) (2014). Under this definition, Terminal has a covered
claim; if it is not a policyholder, it is an insured beneficiary, because the policy was
intended to provide Terminal with the workers’ compensation coverage it is legally
obliged to maintain.
But the definition of “covered claim” is further limited to exclude “any claims
under a policy written by an insolvent insurer with a deductible . . . of $300,000 or more,
nor that portion of a claim that is within an insured’s deductible.” Minn. Stat. § 60C.09,
subd. 2(4). Terminal’s claim for coverage is based on a policy that has a $1,000,000
deductible. The statute excludes “any claims” under such a policy, not just claims by a
policyholder; claims by an insured beneficiary under the policy also are limited by this
language. See id. (emphasis added). There is no ambiguity in the statutory language.
7
We are further persuaded by Goodyear Tire & Rubber Co. v. Dynamic Air, Inc.,
702 N.W.2d 237, 243 (Minn. 2005), in which the supreme court noted that MIGA’s
obligations are subject to “substantial limitations and exclusions,” citing the exclusion of
any claim made under a policy with a deductible of more than $300,000 as one example
of a substantial limitation or exclusion. Id. The supreme court further commented that
MIGA “does not provide the same level of protection to insureds that the policy issued by
the insolvent insurer would afford had the insurer remained solvent.” Id.Under the plain language of the statute, any claim made against a policy that has a
deductible in excess of $300,000 is not covered by MIGA. The district court did not err
by concluding that Terminal’s claim is not covered under the terms of Minn. Stat.
§ 60C.09, subd. 2(4). We therefore affirm.
DECISION
MIGA is prohibited by statute from covering claims made on a policy with a
deductible in excess of $300,000, including claims made by an insured beneficiary who is
not the policyholder.
Affirmed.
8