MINNESOTA COURT OF APPEALS FINDS THAT INSUREDS ARE REQUIRED TO ALLOCATE SETTLEMENTS BETWEEN COVERED AND NONCOVERED CLAIMS

Recently, the Court of Appeals in King’s Cove Marina, LLC v. Lambert Commercial Constr. LLC, 937 N.W.2d 458 (Minn. Ct. App. 2019), review granted (Feb. 26, 2020) held that when an insured and a claimant enter into a Miller-Shugart agreement, the parties must allocate the agreed-upon damages between excluded damages and covered damages, the failure to make the allocation rendered the Miller-Shugart settlement unreasonable and, therefore, unenforceable as a matter of law. The Minnesota Supreme Court had previously ruled that where there were multiple defendants, the prudence or reasonableness of any Miller-Shugart settlement was to be judged from the vantage point of each defendant. As a result, without an allocation of damages among defendants, the Court could not determine the reasonableness of the settlement. See, Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 331 (Minn. 1993). In Kings Cove, the Minnesota Court of Appeals used similar reasoning and found that the Court could not determine the reasonableness of the Miller-Shugart settlement from the standpoint of the insurer unless the settlement allocated the proceeds between covered and non-covered claims and damages. The party seeking to enforce the Miller-Shugart agreement carried the burden of establishing the allocation. Failure to allocate damages rendered the Miller-Shugart agreement unenforceable and unreasonable as a matter of law.