The at-fault driver’s insurer offers policy limits. The offer is fair, the file is two years old, and my client wants to be finished with it. Signing that release ends the tort claim — and if the notice did not go out first, it can end the underinsured-motorist claim along with it. The UIM claim is usually the bigger of the two.
I want to be absolutely clear about where the danger sits. It is not in settling. Minnesota affirmatively protects your right to settle for less than the tortfeasor’s limits, and the Supreme Court has refused to let a UIM carrier grade your negotiating. The danger is the release, and the thirty days that were supposed to come before it.
What Schmidt v. Clothier actually decided
Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), consolidated two cases in which Safeco refused to consent to its insureds’ settlements with the tortfeasors, arguing that a release would destroy its subrogation rights. The court decided three things, and I read them as one connected mechanism rather than three rules.
Exhaustion clauses are void. Policies then required the insured to exhaust the tortfeasor’s liability limits “by payment of judgments or settlements” before UIM would pay. Those clauses fell as against the policies of the No-Fault Act, because they force litigation where a settlement would do: “The insured has the right to accept what he or she considers the best settlement available and to proceed to arbitrate the underinsurance claim for a determination of whether the damages do indeed exceed the tortfeasor’s liability limits.” 338 N.W.2d at 261.
Subrogation is fragile, and fragile in one very specific way. A UIM carrier’s subrogation right “comes into existence only after the insurer has paid benefits to its insured.” Pay first, notify the tortfeasor, and a later release changes nothing. But “[i]f the tortfeasor is released before payment by the insurer, however, no subrogation rights ever arise.” Id. at 262. That asymmetry is the engine of everything that follows.
Hence the notice, and hence thirty days. The carrier “is entitled to notice of the tentative settlement and an opportunity to protect those potential rights by paying underinsurance benefits before release.” The district courts below had allowed ten days; the Supreme Court held that “in the future 30 days from the written notice of the tentative settlement agreement is a more reasonable time period.” Id. at 263.
Those thirty days belong to the carrier, and Schmidt told it exactly what to do with them. There are two moves and no third.
If subrogation is not worth chasing — the tortfeasor is judgment-proof, the limits are already gone — the carrier can sit still. In the court’s words, “it could simply let the ‘grace period’ expire and permit the settlement and release. It must, of course, thereafter process the underinsurance claim but would not be able to recover those payments through subrogation.” Id.
If subrogation looks like real money, the carrier “could substitute its payment to the insured in an amount equal to the tentative settlement.” My client gets the identical sum in hand, the tortfeasor stays unreleased, and the carrier steps into the claim — it “would then have to arbitrate the underinsured claim and could, thereafter, attempt to negotiate a better settlement or could proceed to trial in the insured’s name.” Id.
Sitting still is not free. Silence is a choice with a price: the window shuts, the release goes through, and the carrier’s rights against the tortfeasor go with it.
Release without the notice and the presumption runs against you
Schmidt never said what happens to the insured who skips the notice. Seven years later the Supreme Court said, and the answer is severe. American Family Mutual Insurance Co. v. Baumann, 459 N.W.2d 923 (Minn. 1990), set out both the required contents of the notice and the consequence of omitting it:
Henceforth, the notice required of the insured shall be 30 days’ written notice of a settlement agreement which is contingent upon the decision of the injured complainants’ underinsurer whether to preserve its potential right of subrogation either by paying underinsured motorist benefits or by substituting its draft for that of the tortfeasor’s liability insurer. The notice shall identify the insured, the tortfeasor and the tortfeasor’s insurer and shall disclose the limits of the tortfeasor’s automobile liability insurance and the agreed upon amount of the settlement. Absent the required 30-day written notice, release of the tortfeasor shall be deemed prejudicial to the underinsurer. That presumption of prejudice shall be rebuttable, but the burden of demonstrating by a preponderance of the evidence the absence of prejudice shall be borne by the insured. An insured’s failure to sustain that burden of proving a lack of prejudice to the insurer shall result in forfeiture.
459 N.W.2d at 927.
Count the disclosures: insured, tortfeasor, tortfeasor’s insurer, the tortfeasor’s liability limits, the agreed settlement amount. Five, and every one of them has to be on the page. The letter must also describe a settlement that is contingent on the carrier’s decision. A letter announcing a done deal is not a Schmidt-Clothier notice, whatever its caption says.
Baumann found the insured’s own letter adequate and reversed a forfeiture, and it left a line I quote back to carriers that decide to play possum: “The 30-day notice requirement set out in Schmidt was not intended as a technical snare for unwary insureds.” Do not take too much comfort from it. The rule Baumann announced going forward is the one that governs now, and it starts from a presumption against my client. Two years earlier the court had already put insureds on notice in Broton v. Western National Mutual Insurance Co., 428 N.W.2d 85, 90 (Minn. 1988), that “an UIM insured who settles with and releases an underinsured tortfeasor without notifying the UIM insurer does so at his or her peril.”
The notice has to beat the release, not the settlement
This is where careful lawyers still lose claims, and it is worth slowing down on. In Kluball v. American Family Mutual Insurance Co., 706 N.W.2d 912 (Minn. Ct. App. 2005), the insured executed a full release and satisfaction on October 15 and mailed a letter styled as a Schmidt notice on October 23 — eight days late, generously offering the carrier thirty days to substitute its draft. The court of appeals affirmed summary judgment for the carrier. The right the notice exists to protect had already been extinguished by the time the envelope went out.
The order is not negotiable: notice → thirty days → release.
How do you rebut the presumption of prejudice?
By proving the carrier lost nothing, which in practice means proving the tortfeasor was a worthless subrogation target. Minnesota courts look at “the financial status of the tortfeasor,” including “the amount of assets held by the tortfeasor and the likelihood of recovery of those assets via subrogation.” Behrens v. American Family Mutual Insurance Co., 520 N.W.2d 763, 768 (Minn. Ct. App. 1994).
A lawyer’s assurance is not evidence, and I would not offer one. The insured in Kluball rested on her attorney’s affidavit that his investigation “fail[ed] to disclose the availability of any meaningful assets of the tortfeasor which would have been available to [the carrier] to seek subrogation against.” The court held that “general assertions” cannot create a fact issue, and pointed to cases where insureds came in with an actual asset report or adjuster testimony. 706 N.W.2d at 918–19. Build the record the way those insureds did.
Financial proof is not the only road. Van Kampen v. Waseca Mutual Insurance Co., 754 N.W.2d 578 (Minn. Ct. App. 2008), held that although evidence the tortfeasor could not pay above the limits “would be sufficient to rebut the presumption of prejudice, it is not necessary in every case.” The notice there was defective, but the carriers had sat in on the settlement negotiations, and one of them said nothing until the thirty-fifth day after the notice and then approved the settlement anyway. A factfinder could conclude those carriers were never going to assert subrogation. Summary judgment reversed. 754 N.W.2d at 586.
So when a client comes to me already past the release, I build two records at once: what the tortfeasor was worth, and what the carrier would actually have done. The second one has saved claims the first could not.
The requirement everyone repeats that does not exist
Read enough Minnesota UIM material and you will find “best settlement” treated as a duty owed to the carrier. There is no such duty.
The phrase comes out of Schmidt, where it described the insured’s own judgment — “what he or she considers the best settlement available.” 338 N.W.2d at 261. Carriers spent two decades trying to harden it into an objective standard they could enforce: a 90-percent-of-limits rule, a coverage-gap-versus-liability-gap test, a rebuttable presumption against any settlement below half of limits. In Dohney v. Allstate Insurance Co., 632 N.W.2d 598 (Minn. 2001), the Supreme Court rejected every one of them:
Instead, we maintain the status quo — a best settlement with a tortfeasor for purposes of a UIM claim is an insured’s best settlement. We conclude that an insurer may not deny a UIM claim based on the insured’s failure to reach the best settlement with the tortfeasor.
632 N.W.2d at 607. The insured in Dohney had taken forty percent of limits. What she still had to prove was that the tortfeasor was in fact underinsured — “damages greater than the tortfeasor’s policy limit in order to be eligible for UIM benefits.” Id. at 607 n.7. That burden never goes away.
Van Kampen carried the point about as far as it can go: an insured who settled for nothing, while her family took the entire $1.5 million available, kept her UIM coverage. Dohney forecloses second-guessing how a settlement is structured, and the terms of hers left the carriers free to assert subrogation had they cared to. 754 N.W.2d at 584–85.
The carrier’s defense here is procedural, not substantive. Its leverage is the notice, and nothing but the notice.
Settling is one road. Trying the case is the other, and it has its own notice rule.
Employers Mutual Cos. v. Nordstrom, 495 N.W.2d 855 (Minn. 1993), holds that “a recovery from the tortfeasor’s liability insurance is a nonarbitrable condition precedent to bringing an underinsured claim. Until there has been a recovery from the tortfeasor’s insurer, the claimant’s underinsured claim simply has not matured.” Id. at 857. Two roads, then: take the tort claim to judgment and pursue UIM on the excess, or settle and serve the Schmidt-Clothier notice. Id. The Supreme Court said it again in Washington v. Milbank Insurance Co., 562 N.W.2d 801, 806 (Minn. 1997), and again in George v. Evenson, 754 N.W.2d 335, 340 (Minn. 2008).
Ronning v. State Farm Mutual Automobile Insurance Co., 887 N.W.2d 35 (Minn. Ct. App. 2016), shows how unforgiving that condition is. The insured’s lawyer let the tort statute of limitations expire, so the tort claim could never be resolved by judgment or settlement at all. The insured then tried serving a Schmidt-Clothier notice on the settlement of his malpractice claim. Dismissal affirmed: no recovery from the tortfeasor, no ripe UIM claim, and the prejudice question never came up. His remedy was the malpractice case, not the policy.
Take the litigation road and the carrier still gets notice, just a different kind. Malmin v. Minnesota Mutual Fire & Casualty Co., 552 N.W.2d 723 (Minn. 1996), struck “consent to sue” clauses as contrary to the No-Fault Act and bound the carrier to a judgment it never consented to. Id. at 728. But Malmin expressly preserved plain notice-of-suit provisions, and Kluball applied Baumann’s burden-shifting to them. Fail to tell the carrier suit has been commenced and you get the same presumption of prejudice and the same forfeiture.
One distinction trips people constantly: none of this transfers to uninsured motorist claims. A UM claimant “does not have to recover first from the uninsured tortfeasor; rather, the claimant merely must show that the tortfeasor was uninsured.” Oganov v. American Family Insurance Group, 767 N.W.2d 21, 26 (Minn. 2009).
What the carrier owes, and how long you have to ask
The measure is statutory and it is short:
With respect to underinsured motorist coverage, the maximum liability of an insurer is the amount of damages sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle. If a person is injured by two or more vehicles, underinsured motorist coverage is payable whenever any one of those vehicles meets the definition of underinsured motor vehicle in section 65B.43, subdivision 17. However, in no event shall the underinsured motorist carrier have to pay more than the amount of its underinsured motorist limits.
Minn. Stat. § 65B.49, subd. 4a. “Underinsured motor vehicle” in turn means a vehicle whose bodily-injury liability limit “is less than the amount needed to compensate the insured for actual damages.” § 65B.43, subd. 17.
That statute buried the old Schmidt “gap.” Schmidt had made an insured who settled below limits absorb the difference out of her own pocket; the Legislature reversed that by amendment, and the Supreme Court has since confirmed that “since Broton has modified Schmidt, claimant is not required to absorb the gap if she settles in good faith for less than the liability policy limits.” Nordstrom, 495 N.W.2d at 858. What counts today is what was actually recovered, not what the tortfeasor’s declarations page said.
The deadline lives in the same section: “The time limitation for commencing a cause of action relating to underinsured motorist coverage under subdivision 3a is four years from the date of accrual.” Minn. Stat. § 65B.49, subd. 10(b). The statute never defines accrual, which sent the question to the Supreme Court. Oanes v. Allstate Insurance Co., 617 N.W.2d 401 (Minn. 2000), held that a UIM claim “will accrue when the condition precedent to raising the UIM claim … identified in Nordstrom has been satisfied, not before” — the date of settlement with, or judgment against, the tortfeasor. Id. at 407. The clock does not start at the crash.
The sequence, in order
| Step | Who acts | What goes wrong if skipped |
|---|---|---|
| Reach a tentative settlement, contingent on the UIM carrier’s decision | Insured | A completed settlement is not a Schmidt notice subject |
| Send written notice with all five Baumann disclosures | Insured | Presumption of prejudice attaches on release |
| Wait 30 days | Insured | Kluball — a post-release notice is worthless |
| Substitute a draft, or let the period lapse | UIM carrier | Lapse forfeits subrogation, not the claim |
| Sign the release | Insured | Signing early is the forfeiting act |
| Prove damages exceed the tortfeasor’s limits | Insured | No underinsured vehicle, no UIM claim |
| Commence the UIM action within four years of accrual | Insured | § 65B.49, subd. 10(b) |
Everything upstream of the UIM claim shapes it too — the no-fault benefits already paid, the statutory deduction that comes off the tort recovery, and any health-plan subrogation claim aimed at the same money. For the coverage itself and its limits, see uninsured and underinsured motorist coverage in Minnesota.
Madgett Law, LLC
Madgett Law, LLC handles Minnesota motor-vehicle injury claims, including the coordination between a liability settlement and a first-party UIM claim: drafting the contingent settlement agreement, serving a Schmidt-Clothier notice that contains what Baumann requires, running the thirty days, and — where a release has already gone out the door — building the record needed to rebut the presumption of prejudice. In my experience the order of operations decides these cases far more often than the medicine does. Call 612-470-6529 or Send us a message.
Sources: Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983) — at 261 (exhaustion clauses void; the insured’s “best settlement available”); at 261–62 (subrogation arises only on payment); at 262 (release before payment means no subrogation ever arises); at 263 (30 days’ written notice of the tentative settlement agreement; the carrier’s choice to substitute payment or let the grace period lapse). American Family Mutual Insurance Co. v. Baumann, 459 N.W.2d 923, 925, 927 (Minn. 1990) (required contents of the notice; rebuttable presumption of prejudice on release without notice; burden on the insured; forfeiture on failure to rebut). Broton v. Western National Mutual Insurance Co., 428 N.W.2d 85, 90 (Minn. 1988) (settling and releasing without notice is done “at his or her peril”). Kluball v. American Family Mutual Insurance Co., 706 N.W.2d 912, 918–19 (Minn. Ct. App. 2005) (notice sent after the release is ineffective; an attorney’s general affidavit does not rebut the presumption). Behrens v. American Family Mutual Insurance Co., 520 N.W.2d 763, 768 (Minn. Ct. App. 1994) (financial status of the tortfeasor is the rebuttal inquiry). Van Kampen v. Waseca Mutual Insurance Co., 754 N.W.2d 578, 586 (Minn. Ct. App. 2008) (tortfeasor-insolvency evidence is sufficient but not necessary; carrier conduct can rebut; zero-payment settlement did not forfeit coverage). Dohney v. Allstate Insurance Co., 632 N.W.2d 598, 607 & n.7 (Minn. 2001) (an insurer may not deny a UIM claim for failure to reach the “best settlement”; the insured must still prove damages above the tortfeasor’s limit). Employers Mutual Cos. v. Nordstrom, 495 N.W.2d 855, 857–58 (Minn. 1993) (recovery from the tortfeasor is a nonarbitrable condition precedent; the two roads; the gap is no longer absorbed by the claimant). Washington v. Milbank Insurance Co., 562 N.W.2d 801, 806 (Minn. 1997); George v. Evenson, 754 N.W.2d 335, 340 (Minn. 2008) (reaffirming the condition precedent). Ronning v. State Farm Mutual Automobile Insurance Co., 887 N.W.2d 35 (Minn. Ct. App. 2016) (no ripe UIM claim where the tort claim can never be resolved; prejudice question not reached). Malmin v. Minnesota Mutual Fire & Casualty Co., 552 N.W.2d 723, 728 (Minn. 1996) (consent-to-sue clauses void under the No-Fault Act; notice-of-suit provisions preserved). Oganov v. American Family Insurance Group, 767 N.W.2d 21, 26 (Minn. 2009) (uninsured-motorist claims have no recover-first condition). Oanes v. Allstate Insurance Co., 617 N.W.2d 401, 407 (Minn. 2000) (UIM claims accrue on settlement with or judgment against the tortfeasor). Minn. Stat. § 65B.49, subd. 3a (mandatory UM/UIM coverage); subd. 4a (maximum liability of the UIM insurer); subd. 10(b) (four-year limitation from accrual); § 65B.43, subd. 17 (definition of “underinsured motor vehicle”). Case text verified against the Caselaw Access Project archive at static.case.law; statutory text verified against revisor.mn.gov.
This article is general information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and it does not promise or imply any particular outcome. Notice requirements and deadlines turn on your own policy language and the specific dates in your case; consult a lawyer about your situation before you sign anything.