Juanda R. White, individually and as trustee for the next-of-kin of Deallo D. Felder, deceased, Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-1149

Juanda R. White, individually and as trustee
for the next-of-kin of Deallo D. Felder, deceased,
Respondent,

vs.

American Family Insurance Company,
Appellant.

Filed March 27, 2017
Affirmed
Kirk, Judge

Hennepin County District Court
File No. 27-CV-15-7255

Richard P. Mahoney, Victor E. Lund, The Mahoney Law Firm, PLLC, Minneapolis,
Minnesota (for respondent)

Mark K. Hellie, Trial Staff Attorney, Eden Prairie, Minnesota (for appellant)

Considered and decided by Kirk, Presiding Judge; Reilly, Judge; and Bratvold,
Judge.
U N P U B L I S H E D O P I N I O N
KIRK, Judge
After a bench trial on stipulated facts in an underinsured motorist (UIM) benefits
action, appellant-insurer argues that the district court erred in determining that the insurer
lacked standing to make a priority-of-insurance claim when it failed to substitute its check

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in the underlying action and that UIM coverage was not triggered because an existing
umbrella policy provided coverage. We affirm.
FACTS
On April 15, 2009, Deallo Felder was killed in an automobile collision after the
Pontiac sedan in which he was a front-seat passenger collided with a truck that was driven
by K.T. and owned by a construction company. O.W. was the driver of the Pontiac. D.F.
owned the Pontiac, and he had a $500,000 primary auto-liability insurance policy through
Progressive Preferred Insurance Company. D.F. had purchased the Pontiac for his daughter
to drive, and she was an insured driver on the Progressive policy. D.F. also had a $2 million
umbrella policy through North Star Mutual Insurance Company. On the day of the
accident, D.F.’s daughter had loaned the Pontiac to O.W. O.W. accepted full responsibility
for the accident. At the time of his death, Felder was a resident relative of the household
of respondent Juanda R. White, and White had a family policy providing UIM coverage of
$100,000 through appellant American Family Insurance Company.
In 2011, acting as the trustee of Felder’s next of kin, White commenced a wrongful-
death action against the drivers and owners of the Pontiac and the truck . By letter, North
Star informed D.F. that his umbrella policy did not provide coverage for the Pontiac on the
date of loss and that North Star would not indemnify or defend the wrongful-death action.
On March 8, 2012, White’s attorney notified American Family in a letter that White
had filed a wrongful-death action in Kandiyohi County District Court and that White would
bring a UIM claim against American Family if recovery was in excess of available liability
insurance limits. On April 23, American Family acknowledged receipt of the letter.

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On May 23, 2013, in a separate action, North Star brought a declarator y-judgment
action against White and the drivers and owners of the vehicles, seeking a declaration that
North Star owed no duty of indemnity or defense to D.F. through the umbrella policy.
Before the declaratory -judgment action was resolved, the parties ag reed to media te the
wrongful-death action. On June 30, 2014, White’s attorney wrote to an attorney for
American Family and informed her that the parties had scheduled a mediation session in
the wrongful -death action. White’s attorney invited American Fam ily’s attorney to
participate in the mediation, informed her of the status of the nego tiations, and included a
copy of White’s settlement brochure and demand. The parties agreed that the damages in
the wrongful-death action were in excess of $650,000, but less than $2.3 million.
On July 7, White settled her wrongful-death claims in a combined Miller/Shugart-
Drake/Ryan release for $530,000. In a letter dated the same day, White’s attorney wrote
to American Family’s attorney advising her of the proposed global settlement. Under the
terms of the settlement, Progressive would pay White $450,000 in a combined single
liability payout , the truck’s owner and driver would pay $40,000, and North Star , the
umbrella policy insurer, would pay $40,000. The letter acted as a Schmidt-Clothier notice,
allowing American Family the opportunity to substitute its check for the proposed
settlement amount in order to protect its subrogation rights.
An adjuster for American Family sent White’s a ttorney two letters dated July 15
and August 19 informing White that American Family would not substitute its draft to
preserve its subrogation rights under Schmidt-Clothier. In December, the district court

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dismissed North Star’s declaratory-judgment action on its merits and with prejudice. White
accepted the $530,000 settlement.
In April 2015, White sued American F amily, alleging that O.W. was an
underinsured motorist and that she was entitled to UIM benefits under her American
Family policy to recover the gap between her settlement proceeds of $530,000 and her
claimed damages. On November 13, American Family responded by filing a declaratory -
judgment/summary-judgment motion, arguing that White coul d not establish that O.W.
was underinsured given the com bined Progressive and North Star policy limits of $2.5
million. American Family requested that the district court declare the scope of coverage
provided under North Star’s um brella policy and find that North Star was the priority
insurer. The district court denied American Family’s motion.
Following a bench trial on stipulated facts , the district court filed an order for
judgment in favor of White and directed American Family to pay her $100,000 plus costs
and disbursements. The district court concluded that American Family did not have
standing to litigate a coverage claim against North Star through a declaratory -judgment
action because it failed to substitute its check to preserve its subrogation rights.
American Family appeals.
D E C I S I O N
On appeal from a ruling based on stipulated facts , we review whether the district
court properly applied the law to the facts of the case. Miller v. Centennial State Bank, 472

5
N.W.2d 349, 351 (Minn. App. 1991). “No deference is given to a lower court on questions
of law.” Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003).
American Family argues that the district court erred in concluding that it did not
have standing to raise a priority-of-insurance claim on whether the Pontiac was
underinsured because it failed to protect its subrogation rights in the wrongful-death action
under Schmidt v. Clothier , 338 N.W.2d 256 (Minn. 1983), superseded in part by statute ,
1989 Minn. Laws ch. 213, § 2 at 648 (codified at Minn. Stat. § 65B.49, subd. 4a).
Here, American Family misconstrues the district court’s order as dismissing its
claim entirely on the basis of standing. If the district court had concluded that American
Family lacked standing to bring its claim, it would not have analyzed the u nderlying
substantive issues raised in the case. Here, t he district court concluded that American
Family lost on the merits in the UIM action because it waived it s right to challenge the
scope of coverage of North Star’s umbrella policy in the wrongful-death action.
This conclusion is supported by caselaw. The Minnesota Supreme Court has
addressed the rights of an insured to pursue a settlement with the tortfeasor and also pursue
underinsurance benefits in Schmidt. The supreme court held that an insured who wants to
pursue a UIM claim has two options: one option is to pursue a tort action to conclusion in
the district court, and if the judgment exceeds liability limits, pursue a claim for
underinsured motorist bene fits. Washington v. Milbank Ins. Co. , 562 N.W.2d 801, 805
(Minn. 1997) (citing Emp’rs Mut. Cos. v. Nordstrom, 495 N.W.2d 855, 857 (Minn. 1993)).
The second option is for the insured to settle the tort claim for the “best settlement,” give
a Schmidt-Clothier notice to the underinsurer, and maintain a claim for UIM benefits. Id.

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Here, American Family’s priority-of-insurance argument is essentially a challenge
to the settlement terms agreed to by White in the wrongful -death action. White, as the
insured, “has a right to full control over the lawsuit against the tortfeasor, a control which
would include the right to make the best settlement possible.” Schmidt, 338 N.W.2d at
260. Further, the settlement need not reach the policy limits to get UIM coverage. “Where
the best settlement available is less than the defendant’s liability limits, the insured should
not be forced to forego settlement and go to trial in order to determine the issue of
damages.” Id. at 260-61. Accordingly, “[t]he insured may recover underinsurance benefits
where the total damages sustained (as determined by either arbitration or judgment) exceed
the limits of the tor tfeasor’s liability policy even where the insured settles with the
tortfeasor for less than the liability limits.” Id. at 261. American Family does not explain
in its brief how the existence of an umbrella policy materially changes this analysis under
Schmidt.
In Dohney v. Allstate Ins. Co. , the Minnesota Supreme Court addressed whether a
plaintiff’s insurer can deny a UIM claim based on the plaintiff’s failure to reach the “best
settlement” with the tortfeasor, and instead accept a settlement with a tortfeasor for 40%
of the tortfeasor’s liability limits. 632 N.W.2d 598, 599 (Minn. 2001) . The court
concluded that a UIM insurer cannot challenge “an insured’s below -limit settlement with
the tortfeasor as not the best settlement.” Id. at 603. The court recognized that the best-
settlement language in Schmidt “was the insured’s best settlement, not a UIM insurer’s best
settlement or even a court-determined best settlement.” Id. at 604.

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American Family argues that it is not required under Schmidt to substitute its check
in the initial settlement of a wrongful-death action when it only seeks to challenge White’s
ensuing UIM claim. We disagree. A UIM claim does not accrue until there has been a
settlement or adjudication of the claim against the tortfeasor. Oanes v. Allstate Ins. Co. ,
617 N.W.2d 401, 407 (Minn. 2000). But when a UIM insurer fails to substitute its dr aft
after the plaintiff provides Schmidt-Clothier notice and settles, the tortfeasors are released
from any further liability. See Schmidt, 338 N.W.2d at 263-64 (holding that after plaintiff
settled with tortfeasors and UIM insurer failed to substitute d raft, the UIM insurer must
proceed to arbitration of the UIM claim and is liable for the UIM amount because the
tortfeasors had already been released). Here, North Star tendered a settlement offer to
White, which she accepted , and North Star was released from any liability. Only by
substituting its draft does the UIM insurer “retain[] a subrogation right against the
tortfeasor’s insurance company.” Washington, 562 N.W.2d at 806 n.3. We conclude that
the district court did not err in ordering American Fa mily to pay UIM benefits to White.
Accordingly, we do not need to reach American Family’s claim that UIM coverage was
not triggered because the North Star umbrella policy provided additional coverage.
Affirmed.