Court Issues Split Decision on Short Pay Suit; Insurance Assignment Clause

Overruled
Last Thursday's glassBYTEs.com coverage of the Glass Network & Auto Glass Express v. Austin Mutual Insurance Co. lawsuit offered one look at the application of Minnesota law with regard to insurance companies, auto glass companies and the assignment of proceeds. (See Judge Vacates Glass Shop's Arbitration Award; Rules Austin Mutual's Anti-Assignment Provision Binding.) It is not the only case of its kind in the system, however. U.S. District Court Judge Patrick Schiltz upheld an earlier ruling by Magistrate Judge Franklin Noel in the case Alpine Glass Inc. v Illinois Farmers Insurance Co. and Mid-Century Insurance Co., granting six of seven counts noted in Alpine's motion to Farmers' counterclaim in the case.

As with the Glass Network & Auto Glass v. Austin Mutual case, at issue is the anti-assignment clause in the insurance policy. In the analysis section of his order, Judge Schiltz wrote that "[t]he law of Minnesota (and other states) has long distinguished between the assignment by an insured of its right to coverage under an insurance policy and the assignment by an insured (after a loss) of its right to proceeds under an insurance policy" (original emphasis).

Further, the judge wrote that the language of Farmer's contract is not a "'specific and unmistakable' expression of an intent to bar insured from assigning not only their right to coverage under the policy, but also their right to proceeds in connection with a loss that has already occurred … the scope of this clause is not clear, and, under Minnesota law, an ambiguity in an insurance policy is construed against the insurer." Specifically, the judge wrote, "the anti-assignment clause in the Farmers policy does not clearly prohibit the assignment of proceeds, as opposed to coverage."

Farmers also argued a breach of anti-incentive statute in its counterclaim, reasoning that Alpine's business practice of not charging a customer for the difference between what it bills Farmers and what Farmers pays amounts to a rebate or credit. Judge Schiltz ruled against this argument, too, noting that the anti-incentive law was created to prevent shops from offering gifts above and beyond the services they offer (such as free steaks or gift cards) at the expense of the insurance companies.

"[T]he Legislature was concerned that the majority of insureds whose windshields were not cracked were being forced to buy steak dinners for the minority of insureds whose windshields were cracked … When an insured suffers a cracked windshield, she is entitled to have her windshield replaced. She is not entitled to a box of steaks with her new windshield … If a shop gave a customer a 'rebate' in the form of a cash payment that the customer could then use to buy, say, clothing at a nearby mall, the shop would surely violate the statute." he wrote, adding that Alpine "is essentially charging the customer a contingent price" and that the price could not be construed as a rebate or credit.

"[T]he insurer pays for a new windshield-nothing less, nothing more" Judge Schiltz continued.

On the alternative counts of breach of contract levied against the glass shop by the insurance company, the judge issued a split decision, upholding the original decision in favor of the glass shop on one count but allowing the second count of the counterclaim by the insurer.

Stating that with the glass shop operating as a stand-in for the insured customers, it couldn't have breached a contract.
"Recall that this lawsuit was filed by Alpine in its capacity as assignee of Farmers's insureds. Analytically, then, it is not Alpine that is making claims against Farmers, but hundreds of Farmers's insureds … If [an insured] had been charged $300 for a new windshield, submitted the bill to Farmers, had Farmers decline to pay more than $250, and sought to challenge Farmers's decision, there is no question that [the insured's] claim would have to be arbitrated under Minnesota's No-Fault Act. [The] assignment of claim to Alpine does not change that fact," Judge Schiltz wrote in his opinion.

Due to this, the ruling that "Count VI gives no hint as to how Alpine could have 'received a lawful assignment' if the insureds 'violated the cooperation [and] anti-assignment' clauses," and Judge Schiltz's opinion that "it is unclear whether Count VI intends to complain of anything else," Count VI was dismissed. The judge ruled similarly on Count VII, but "Count IV presents a different question," he wrote.

The basis for the argument in Count IV is Farmers's assertion that it provided a written pricing list to Alpine prior to the glass company's provision of services to the insured and that Alpine's agreement to do the work on the car of a Farmers' insured, it was agreeing to the pricing contract.

"In other words, Farmers is asserting in Count IV that if it owes 'Alpine-as-Assignee-of-Insured' $300 under the insurance contract, then 'Alpine-as-Vendor' owes Farmers $50 under the pricing contract. The breach-of-contract claim in Count IV is thus not covered by the mandatory arbitration provisions of the No-Fault Act … The Court therefore respectfully disagrees with Judge Noel's conclusion that the No-Fault Act deprives the Court of jurisdiction over Count IV. That said, the Court is skeptical about the merits of the breach-of-contract claim asserted in Count IV. If Famers is alleging that it somehow made a contract offer to Alpine simply by sending Alpine a list of 'the prices that [Farmers] would pay,' Counterclaim 35, and that alpine somehow accepted that offer and thereby created a 'pricing contract[]' simply by doing work on the cars of Farmers's insureds, id. 37, then Farmers may have a difficult time surviving a motion for summary judgment. That question, however, must wait for another day," Judge Schiltz wrote in his opinion. He denied Alpine's motion to dismiss Count IV of Farmers' counterclaim.

The ultimate rulings aside, Judge Schiltz, as others before him had, made clear his understanding of the case before him.

"The Court also recognizes that Alpine's practice is merely the latest volley in the longstanding conflict between insurers and auto-glass repair shops over auto-glass replacement prices. What is important for present purposes, though, is that Alpine's practice contradicts neither the language nor purpose of the anti-incentive statute," he wrote.