Legal Memorandum: Notice of Insured's Settlement in MN

Issue: Whether Plaintiffs Provided a Proper Schmidt v. Clothier Notice of Their Tentative Settlement the Tortfeasor’s Insurer under Minnesota law.

Area of Law: Insurance Law
Keywords: Schmidt v. Clothier notice; Tentative settlement; Tortfeasor's insurer
Jurisdiction: Minnesota
Cited Cases: 562 N.W.2d 801; 338 N.W.2d 256
Cited Statutes: None
Date: 08/01/2004

The Minnesota Supreme Court first announced the procedure for resolving a Unisured Motorist (UIM) claim in Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983).  In that case, the court explained that an underinsurer’s right to subrogation is a limited right that comes into existence only after the insurer pays benefits to the insured.  Id. at 261.  If the tortfeasor is released before payment by the insurer, no right to subrogation ever arises.  Id. at 262.  The Schmidt court explained that because it would be unfair to deny an insurer the right to pursue the tortfeasor for benefits paid to its insured,

an insurer’s potential right of subrogation against an underinsured motorist [is] . . . entitled to protection.  That protection [is] to be provided in the form of 30 days’ written notice of the insured’s “tentative settlement agreement” with the tortfeasor and the tortfeasor’s insurer, notice which would give the underinsurer an opportunity to protect its potential right of subrogation by paying underinsurance benefits before release of the tortfeasor.

Id. at 263.  In other words, with proper notice, the UIM carrier can substitute its payment for that of the tortfeasor’s insurer in order to preserve its subrogation rights, and the UIM carrier has thirty days after receiving notice from the insured in which to decide whether to make that substitution.  Id.  If the underinsurer declines to act within those thirty days, however, and the insured releases the tortfeasor, the insurer’s possibility of subrogation is lost.  Id.


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