Taxable Cost Award Capped by Policy Limits According to Minnesota Supreme Court

Under Minn. Stat. §604.18, insureds are entitled to recover taxable costs when an insurance company unreasonably denies insurance benefits. The statute provides a remedy of one-half of the “proceeds awarded” that are in excess of an amount offered by the insurer or $250,000, whichever is less. The court in Wilbur v. State Farm Mutual Automobile Ins. Co., 892 N.W.2d 521 (Minn. S. Ct. 2017) held that the statutory taxable costs that were awardable for denying benefits were capped by the insurance policy’s limits based upon the plain language of the statute. In Wilbur, the insured presented to State Farm an underinsured motorist claim (UIM). The tortfeasor’s liability insurer paid its $100,000 policy limits to settle the liability claim. The insured then turned to State Farm and made a claim for the State Farm policy limit of $100,000. However, State Farm offered and then paid the sum of $1200 initially. Later, State Farm increased its settlement offer to $26,800. However, the insured declined State Farm’s offer and then sued State Farm for breach of contract, claiming the State Farm policy limits.

The breach of contract case was tried to a jury. The jury returned a verdict in favor of the insured in the amount of $412,764. Following the jury verdict award, the trial court reduced the award to $255,956 in order to account for the tortfeasor’s settlement, as well as other collateral source payments that had been received by the insured. Ultimately the trial court entered judgment in favor of the insured in the amount of $98,800 after subtracting State Farm’s initial $1200 payment from State Farm’s policy limits of $100,000.

Following the entry of judgment, the insured amended his claim to include a claim predicated upon Minnesota’s taxable cost statute asserting that the insured was entitled to recover taxable costs because State Farm had unreasonably denied UIM benefits to the insured. Regarding the taxable costs claim, the trial court found that State Farm had denied the UIM benefits to the insured without a reasonable basis and then determined that under the statute the “proceeds awarded” were capped by State Farm’s insurance policy limits. On the statutory taxable cost claim, the court entered judgment for $36,000 (one-half of the difference between State Farm’s offer of $26,800 and the $98,800 award).

The Minnesota Supreme Court affirmed, finding that the plain language of §604.18, “proceeds awarded” to an insured under the statute were capped by the insurance policy’s limits. According to the court, there were three aspects of the statute which demonstrated that the phrase “proceeds awarded” referred to the capped amount. First, within other sections of the statute, the phrase “proceeds” referred to insurance policies thereby indicating that the phrase “proceeds awarded” was constrained by the defined limits of the insurance policy. Second, because the phrase “proceeds awarded” was connected to the “amount offered by an insurer” before trial, the court found that the statute contemplated a capped settlement offer. As a matter of practice, insurance companies’ settlement offers made before trial were almost always capped by the insurance policy limits. Finally, the timing contemplated for a §604.18 proceeding indicated that the phrase “proceeds awarded” were capped. According to the statute, any taxable costs awarded under the statute were to be determined by the court in a subsequent proceeding to any other proceeding resulting in a determination by a fact finder regarding the amount an insured was entitled to under the insurance policy. Because proceeds could only be awarded after a jury’s determination of the benefits that were to be paid under the policy, a reasonable interpretation of the statute was that taxable costs could not exceed the policy’s limit.