The question of whether attorney’s fees awarded under Minnesota’s insurance unreasonable denial statute could exceed the policy limits of the policy was recently addressed by the Minnesota Supreme Court in Wilbur v. State Farm Mutual Automobile Insurance Co., 892 NW2d 521 (2017). Under Minnesota statute, Minn. Stat. §604.18 (2016) courts were authorized to award “taxable costs” when an insurance company denies insurance benefits without a reasonable basis. The issue of whether the taxable cost award was kept by the insurance policy limit recently came before the Minnesota Supreme Court. The court in Wilbur concluded that §604.18 unambiguously capped “proceeds awarded” at the amount recoverable under the insurance policy and were therefore capped by the policy limit.
The issue turned on whether the phrase “proceeds awarded” referenced in §604.18 referred to an amount capped by the insurance policy limit or not. The insured claimant argued that no policy limit cap was contemplated by the statute. The court began its analysis of §604.18 by noting that the statute provided a remedy for an insured when an insurer denied a first party claim without a reasonable basis. Under the statute, courts in Minnesota were authorized to award taxable costs to an insured who could demonstrate that there was an absence of a reasonable basis for denying the benefits together with proof that the insured knew of the lack of a reasonable basis or active and reckless disregard. If the insured was able to establish that proof, the court was authorized to award under the statute as taxable costs an amount equal to one-half of the proceeds awarded on coverage that were in excess of the amount offered by the insurer at least ten days before the trial began or $250,000, whichever was less. For three reasons, the Minnesota Supreme Court held that §604.18 referred to an amount that was capped by the insurance policy limit.
First, the court noted that the statute’s use of the word “proceeds” to refer to insurance policies in two other subdivisions of the statute demonstrated that the phrase “proceeds awarded” was constrained by the defined limits of the insurance policy. Second, the court noted that subdivision 3(a)(1) of the statute contemplated a capped settlement offer, which indicated to the court that the phrase “proceeds awarded” was capped by the insurance policy limit. The connection between the phrase “proceeds awarded” and the “amount offered by an insurer” before trial was telling to the court. Insurance companies’ settlement offers before trial were almost always capped by the insurance policy’s limit according to the observation of the Minnesota Supreme Court.
Third, the court found that the timing of the §604.18 proceeding suggested to the court that the phrase “proceeds awarded” were capped by the insurance policy limit. Under the statute, subdivision 4(b) states “an award of taxable costs under this section shall be determined by the court in a proceeding subsequent to any determination by a factfinder of the amount an insured is entitled to under the insurance policy . . .” Minn. Stat. §604.18, subdivision 4(b). Thus, proceeds could be awarded under §604.18 only “subsequent to” a jury’s determination of the benefits to be paid “under the insurance policy.” The benefits paid under the insurance policy were capped by the insurance policy’s limits. This provided a link in establishing that “taxable costs” awarded under §604.18 could not exceed the policy’s limit.