Mr. Wilbur's underinsured-motorist policy with State Farm Mutual Automobile Insurance Company also had a $100,000 coverage limit. Mr. Wilbur made a settlement demand on State Farm for the full $100,000 available under the policy.

State Farm initially offered and paid $1,200.

After further correspondence, State Farm offered an additional $26,800 to settle the claim.

Mr. Wilbur declined the offer, served a complaint on State Farm alleging breach of contract, and claimed that he was entitled to the full amount recoverable under his policy with State Farm.

In 2011, a jury returned a verdict in Mr. Wilbur's favor in the amount of $412,764.63 as personal injury damages.

The trial court reduced the verdict to $255,956.59 to account for the at-fault driver's payment of $100,000 and other collateral-source payments.

Ultimately, the trial court entered judgment in the amount of $98,800, subtracting State Farm's initial $1,200 payment from Mr. Wilbur's policy limit of $100,000.

After the jury's verdict on the breach-of-contract claim, Mr. Wilbur amended his complaint to add a claim under Minn. Stat. § 604.18, which permits an insured to recover “taxable costs” if an insurer unreasonably denied insurance benefits.

After entering judgment on Mr. Wilbur's breach-of-contract claim, the trial court held a separate trial on his claim under Section 604.18 and concluded that State Farm had denied Mr. Wilbur insurance benefits without a reasonable basis.

The trial court then turned to the question of how much in “taxable costs” to award on Mr. Wilbur's Section 604.18 claim.

The amount of “taxable costs” available to Mr. Wilbur under Section 604.18 turned on whether the phrase “proceeds awarded” referred to an amount capped by the insurance policy limit.

If the proceeds awarded to Mr. Wilbur were capped by his policy limit, State Farm's liability under Section 604.18 would be $36,000: one-half of the difference between State Farm's last settlement offer of $26,800 and $98,800 (which was Mr. Wilbur's policy limit of $100,000 minus State Farm's initial payment of $1,200).

If the proceeds awarded, however, were not capped by the policy limit, the amount would be $114,578.30: one-half of the difference between State Farm's last settlement offer of $26,800 and $255,956.59 (which was the jury's award of $412,764.63 minus $156,808.04 in collateral-source payments).

The trial court determined that “proceeds awarded” were capped by the insurance policy limit. Accordingly, the trial court entered judgment in Mr. Wilbur's favor for $36,000. The trial court also awarded $35,832.90 in costs and disbursements that Mr. Wilbur had incurred while litigating this claim, the statutory cap of $100,000 in attorneys' fees, and $12,475.47 in prejudgment interest.

Mr. Wilbur appealed, arguing that “proceeds awarded” under Section 604.18 were not capped by the policy limit.

The court of appeals affirmed, holding that although the phrase “proceeds awarded” was ambiguous, several factors showed that it meant “the amount of the judgment entered by the district court as UIM benefits.”

The dispute reached the Minnesota Supreme Court.

Minnesota Law

Minnesota law provides:

Subd. 2.Liability. (a) The court may award as taxable costs to an insured against an insurer amounts as provided in subdivision 3 if the insured can show:

(1) the absence of a reasonable basis for denying the benefits of the insurance policy; and

(2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy.

(b) A violation of this section shall not be the basis for any claim or award under chapter 325D or 325F.

(c) An insurer does not violate this subdivision by conducting or cooperating with a timely investigation into arson or fraud.

Subd. 3.Damages and costs. (a) In addition to prejudgment and postjudgment interest and costs and disbursements allowed under law, the court may award an insured the following taxable costs for a violation of subdivision 2:

(1) an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less; and

(2) reasonable attorney fees actually incurred to establish the insurer's violation of this section.

Attorney fees may be awarded only if the fees sought are separately accounted for by the insured's attorney and are not duplicative of the fees for the insured's attorney otherwise expended in pursuit of proceeds for the insured under the insurance policy. Attorney fees must not exceed $100,000.

(b) An insured may not also recover punitive or exemplary damages or attorney fees under section 8.31 for a violation of this section.

Minn. Stat. § 604.18(2), (3).

The Minnesota Supreme Court's Decision

The court affirmed.

In its decision, the court explained that Section 604.18 provided a remedy for an insured when an insurer denied a first-party claim “without a reasonable basis.” Under the statute, it continued, a court could award certain taxable costs to an insured who showed that there was an “absence of a reasonable basis for denying the benefits of the insurance policy” and “that the insurer knew of the lack of a reasonable basis” or “acted in reckless disregard of the lack of a reasonable basis.” If an insured proved that the insurer denied benefits without a reasonable basis, the court could award “an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less.”

The court then decided that the term “proceeds awarded” in Section 604.18 “unambiguously” referred to an amount capped by the insurance policy limit.

The court reasoned, first, that the statute's use of the word “proceeds” to refer to insurance policies in two other subdivisions – Minn. Stat. § 604.18(1)(a) and (3)(a)(2) – showed that the phrase “proceeds awarded” was constrained by the defined limits of the insurance policy.

Next, the court said, subdivision 3(a)(1) contemplated a capped settlement offer, indicating that “proceeds awarded” were capped by the insurance policy limit. It observed that the trial court may award “an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less,” adding that the connection between “proceeds awarded” and the “amount offered by an insurer” before trial was “telling” because insurers' settlement offers before trial almost always were “capped by the insurance policy's limit.”

Finally, it said, the timing of the Section 604.18 proceeding suggested that “proceeds awarded” were capped by the insurance policy limit: Proceeds could be awarded under Section 604.18 only “subsequent to” a jury's determination of the benefits to be paid “under the insurance policy” (which, the court noted, were capped by the policy's limit). In the court's view, this link supported the interpretation that the “taxable costs” awarded under Section 604.18 could not exceed the policy's limit.

Accordingly, the court concluded, under “the plain language” of Minn. Stat. § 604.18, subd. 3, “proceeds awarded” to an insured were capped by the insurance policy's limit.

The case is Wilbur v. State Farm Mutual Automobile Ins. Co., No. A15-1438 (Minn. April 5, 2017). Attorneys involved include: Wilbur W. Fluegel, Fluegel Law Office, Minneapolis, Minnesota; and Charles D. Slane, TSR Injury Law, Bloomington, Minnesota, for appellant. William L. Moran, HKM, P.A., Saint Paul, Minnesota, for respondent. Michael L. Weiner, Yaeger & Weiner, PLC, Minneapolis, Minnesota, for amicus curiae Minnesota Association for Justice. Dale O. Thornsjo, Lance D. Meyer, O'Meara, Leer, Wagner & Kohl, P.A., Minneapolis, Minnesota, for amici curiae The Insurance Federation of Minnesota, Property Casualty Insurers Association of America, and National Association of Mutual Insurance Companies.