Terminal Transport, Inc. v. Minnesota Insurance Guaranty Association

STATE OF MINNESOTA
IN COURT OF APPEALS
A14-1284

Terminal Transport, Inc.,
Appellant,

vs.

Minnesota Insurance Guaranty Association,
Respondent.

Filed April 20, 2015
Affirmed
Stauber, Judge

Hennepin County District Court
File No. 27-CV-11-24506

Thomas J. Flynn, Richard J. Reding, Larkin, Hoffman, Daly & Lindgren, Ltd.,
Minneapolis, Minnesota (for appellant)

Kirsten Schubert, Forrest K. Tahdooahnippah, Dorsey & Whitney, Minneapolis,
Minnesota (for respondent)

Considered and decided by Schellhas, Presiding Judge; Stauber, Judge; and

Hooten, Judge.

SYLLABUS

The Minnesota Insurance Guaranty Association (MIGA) is prohibited from

covering any claims made against an insolvent insurer’s policy that has a deductible in

excess of $300,000. Minn. Stat. § 60C.09, subd. 2(4) (2014).
 OPINION

STAUBER, Judge

Appellant challenges the district court’s grant of summary judgment in favor of

MIGA, which denied its request for coverage of a workers’ compensation claim after the

insurance company that provided the insurance became insolvent, arguing that the district

court erred by concluding that claim was not a “covered claim.” We affirm.

FACTS

Appellant Terminal Transport, Inc., (Terminal) is an over-the-road trucking

company located in Roseville, Minnesota. Respondent MIGA is an organization created

by statute to provide payment of covered claims to claimants or policyholders when an

insurer is liquidated. Minn. Stat. §§ 60C.02, subd. 2; .04 (2014). All insurers providing

certain lines of insurance pay an assessment to MIGA as a condition of their licenses to

transact business in the state. Minn. Stat. § 60C.03, subd. 6 (2014).

Because Terminal was a fairly small business, it contracted with a professional

employer organization, Oxygen Unlimited, LLC, for human-resource services. Oxygen

handled payroll, withholding, garnishment, and state taxes, employed workers and leased

them to Terminal, and arranged for insurance coverage, including a workers’

compensation policy. Oxygen purchased the workers’ compensation policy from

Imperial Indemnity and Casualty Insurance Co., for the period of March 31, 2009,

through January 1, 2010. This policy included a deductible of $1,000,000, which reduced

the premium paid by Oxygen and the human-resource costs billed to Terminal.

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 An employee was injured while working for Terminal during the policy coverage

period and submitted a workers’ compensation claim. Although Oxygen assured

Terminal that it would handle the matter, it went out of business and Imperial was

declared insolvent by the State of Oklahoma before the claim was paid.

Terminal tendered the claim to MIGA, which denied it because the workers’

compensation policy had a deductible in excess of $300,000, making it ineligible for

coverage under the statute. Terminal challenged this decision, and MIGA affirmed the

denial of coverage. Terminal initiated this action by complaint in December 2011.

MIGA moved for summary judgment based on the statutory exclusion of coverage

for policies that have a deductible greater than $300,000. Terminal argued that Oxygen

was the insured and thus Terminal had no duty to pay a deductible to Imperial because

Oxygen provided first-dollar coverage of all claims to Terminal. The district court

granted summary judgment in favor of MIGA. This appeal followed.

ISSUES

I. Did the district court err in its construction of the insurance contract?

II. Did the district court err in its construction of Minn. Stat. § 60C.09 (2014)?

ANALYSIS

We review the district court’s grant of summary judgment de novo to determine

whether there are any genuine issues of material fact and whether the district court erred

in applying the law. Larson v. Nw. Mut. Life Ins. Co., 855 N.W.2d 293, 299 (Minn.

2014). We view the evidence in the light most favorable to the nonmoving party. Id.

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 I.

This appeal involves both construction of a contract and a statute. An insurance

policy is a contract to which general principles of contract law apply. Remodeling

Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602, 611 (Minn. 2012). This

court reviews the district court’s interpretation of a contract as a question of law subject

to de novo review. Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 832

(Minn. 2012). A clear and unambiguous contract is enforced in accordance with the plain

language of the contract; a reviewing court considers parol evidence or matters outside of

the contract only when the contract terms are ambiguous. Id. Neither party here claims

that the contract was ambiguous.

Terminal argues that it is not the policyholder and it should not be constrained

from obtaining coverage from MIGA for the injured employee’s claim. The policy

identifies the insured as “Oxygen Unlimited, LLC [leasing company for] Terminal

Transport, Inc.” Terminal is identified as the employee location tied to the policy. The

policy defines “insured” as the party “named in item 1 of the Information Page”; Oxygen

is listed as leasing company for Terminal. The policy also has additional endorsements

to the standard policy language, including the “Minnesota Employee Leasing

Endorsement.” This endorsement applies to leased employees and defines the “Client

Company” as “the entity who obtains any or all of its employees from another entity

under an employee leasing agreement and which is identified . . . in Item 1 of the

Information Page.” The endorsement states that the workers’ compensation policy “will

apply as though the client company is the employer and is insured under this policy.” It

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again identifies Oxygen, the employee leasing company, as the “policy holder under this

policy.”

A second endorsement creates a deductible of $1,000,000; this endorsement is

between Imperial, the insurer, and Oxygen, the named insured. The endorsement states

that “[i]t does not affect, change or alter the rights of others under the Policy.” It also

provides that “[t]he first Named Insured shown in the Information Page agrees and is

authorized to pay all Deductible Amounts on behalf of all Named Insureds,” but “[e]ach

Named Insured is jointly and severally liable for all deductible amounts under this

Policy.”

The plain language of the policy suggests that Terminal is not the named insured.

But Minn. Stat. § 60C.09, subd. 1(c)(i) (2014), which defines the claims covered by

MIGA, includes those made by an “insured beneficiary under a policy,” and Terminal

clearly considers itself to be an insured beneficiary or it would have no right to argue that

it should be covered under either the policy terms or by MIGA’s statutory duty.

Even if Terminal is not an insured beneficiary, it is a third-party beneficiary under

the policy. A stranger to a policy has no right to enforce contract terms, but “a third party

may enforce a promise made for his benefit even though he is a stranger both to the

contract and the consideration.” Caldas, 820 N.W.2d at 832 (quotation omitted). An

intended third-party beneficiary may enforce a contractual promise if the parties to the

contract manifest an intent to benefit the third party and performance of the contract

promise will satisfy a party’s obligation to pay money to or perform an action for the

benefit of the third party. Id. If Terminal is arguably not a named insured to this

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contract, it is certainly a third-party beneficiary: both Imperial and Oxygen recognize an

obligation to provide workers’ compensation coverage to Terminal, which is consistent

with coverage requirements under Minnesota law. As a third-party beneficiary, Terminal

would have the right to enforce the contract according to its terms, which include a

$1,000,000 deductible. See In re Hennepin Cnty. 1986 Recycling Bond Litig., 540

N.W.2d 494, 499 (Minn. 1995) (stating that the rights of third-party beneficiaries are

measured by the contract terms). Under either analysis, Terminal is an insured

beneficiary under the contract and thus is subject to the terms of Minn. Stat. § 60C.09.

II.

The district court determined that the policy contained a $1,000,000 deductible

clause and that MIGA was therefore statutorily precluded from covering Terminal’s

claim. We review the application of a statute to the undisputed facts of a case as a

question of law, which is subject to de novo review. Davies v. W. Publ’g Co., 622

N.W.2d 836, 841 (Minn. App. 2001), review denied (Minn. May 29, 2001).

MIGA was created by statute “to provide a mechanism for the payment of covered

claims under certain insurance policies” and “to provide an association to assess the cost

of the protection [of claimants and policyholders] among insurers.” Minn. Stat.

§ 60C.02, subd. 2. Entities created by statute have only the powers conferred on them by

statute. In re Excelsior Energy, Inc., 782 N.W.2d 282, 289 (Minn. App. 2010).

The legislature states what [an] agency is to do and how it is
to do it. While express statutory authority need not be given a
cramped reading, any enlargement of express powers by
implication must be fairly drawn and fairly evident from the

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 agency objectives and powers expressly given by the
legislature.

Peoples Natural Gas. Co. v. Minn. Pub. Utils. Comm’n, 369 N.W.2d 530, 534 (Minn.

1985). Thus, although the chapter regulating MIGA states that it is to “be liberally

construed to effect [its] purposes,” Minn. Stat. § 60C.02, subd. 3 (2014), MIGA is

nevertheless limited by its statutory authority.

MIGA is deemed to be “the insurer to the extent of its obligation on covered

claims.” Minn. Stat. § 60C.05, subd. 1(a) (2014). “Covered claims” are unpaid claims

arising out of an insurance policy issued by an insurer that has become insolvent, if the

claim is made by either a policyholder or an insured beneficiary under the policy. Minn.

Stat. § 60C.09, subd. 1(a), (c)(i) (2014). Under this definition, Terminal has a covered

claim; if it is not a policyholder, it is an insured beneficiary, because the policy was

intended to provide Terminal with the workers’ compensation coverage it is legally

obliged to maintain.

But the definition of “covered claim” is further limited to exclude “any claims

under a policy written by an insolvent insurer with a deductible . . . of $300,000 or more,

nor that portion of a claim that is within an insured’s deductible.” Minn. Stat. § 60C.09,

subd. 2(4). Terminal’s claim for coverage is based on a policy that has a $1,000,000

deductible. The statute excludes “any claims” under such a policy, not just claims by a

policyholder; claims by an insured beneficiary under the policy also are limited by this

language. See id. (emphasis added). There is no ambiguity in the statutory language.

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 We are further persuaded by Goodyear Tire & Rubber Co. v. Dynamic Air, Inc.,

702 N.W.2d 237, 243 (Minn. 2005), in which the supreme court noted that MIGA’s

obligations are subject to “substantial limitations and exclusions,” citing the exclusion of

any claim made under a policy with a deductible of more than $300,000 as one example

of a substantial limitation or exclusion. Id. The supreme court further commented that

MIGA “does not provide the same level of protection to insureds that the policy issued by

the insolvent insurer would afford had the insurer remained solvent.” Id.

Under the plain language of the statute, any claim made against a policy that has a

deductible in excess of $300,000 is not covered by MIGA. The district court did not err

by concluding that Terminal’s claim is not covered under the terms of Minn. Stat.

§ 60C.09, subd. 2(4). We therefore affirm.

DECISION

MIGA is prohibited by statute from covering claims made on a policy with a

deductible in excess of $300,000, including claims made by an insured beneficiary who is

not the policyholder.

Affirmed.

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