The Thing That Kills a Minnesota UIM Claim Is Not the Settlement. It Is the Release You Signed Thirty Days Too Early.

The at-fault driver’s insurer offers policy limits. The offer is good, the file is old, and the client wants to be done. Signing the release ends the tort claim — and, if the notice was not sent first, it can end the underinsured-motorist claim too, which is usually the larger of the two.

The trap is not the settlement. 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 second-guess how good a deal you got. The trap is the release, and the thirty days that were supposed to come before it.

What did Schmidt v. Clothier actually decide?

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.

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. The court held those clauses void 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 in a very specific way. A UIM carrier’s subrogation right “comes into existence only after the insurer has paid benefits to its insured.” If the carrier pays first and notifies the tortfeasor, a later release does not defeat subrogation. 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 entire engine of the rule that follows.

Hence the notice, and the 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.

What is the carrier supposed to do with those thirty days?

Exactly one of two things, and Schmidt laid out the arithmetic behind each.

If the carrier concludes subrogation is not worth pursuing — the tortfeasor is judgment-proof, the limits are gone — “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 valuable, the carrier “could substitute its payment to the insured in an amount equal to the tentative settlement.” The insured gets the same money in hand, the tortfeasor is not released, 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.

Note what the carrier cannot do: nothing. Silence is itself a choice, and it carries consequences — the window closes, the release goes through, and the carrier’s subrogation rights against the tortfeasor go with it.

What happens if you release the tortfeasor without giving the notice?

Schmidt did not say. Seven years later, the Supreme Court did — and the answer is severe. In American Family Mutual Insurance Co. v. Baumann, 459 N.W.2d 923 (Minn. 1990), the court laid out both the required contents of the notice and the consequence of skipping 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.

So the notice has five required disclosures — insured, tortfeasor, tortfeasor’s insurer, the tortfeasor’s liability limits, and the agreed settlement amount — and it must describe a settlement that is contingent on the carrier’s decision. A letter announcing a done deal is not a Schmidt-Clothier notice.

Baumann itself found the insured’s letter adequate and reversed a forfeiture, adding a line worth remembering when a carrier plays possum: “The 30-day notice requirement set out in Schmidt was not intended as a technical snare for unwary insureds.” But the rule it announced going forward is the one that governs now, and it starts from a presumption against the insured. The Supreme Court had already warned, 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.”

Timing: the notice has to beat the release, not the settlement

This is where careful lawyers still lose claims. 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 sent a letter styled as a Schmidt notice on October 23 — eight days later, 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 when the notice went out.

The sequence 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 bad 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).

An assurance from counsel is not evidence. In Kluball, the insured’s only proof was her attorney’s affidavit stating 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 contrasted cases where insureds produced an actual asset report or adjuster testimony. 706 N.W.2d at 918–19.

But financial evidence is not the only route. 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.” There, the notice was defective but the carriers had attended the settlement negotiations and one of them did not respond until the thirty-fifth day after the notice — and then approved the settlement — facts from which a factfinder could conclude they would never have asserted subrogation anyway. Summary judgment was reversed. 754 N.W.2d at 586.

The lesson for anyone already past the release: build the record on what the carrier would actually have done, not only on what the tortfeasor was worth.

The requirement everyone repeats that does not exist

Read enough Minnesota UIM material and you will find the phrase “best settlement” treated as an obligation. It is not one.

The phrase comes from 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 convert it into an objective standard they could enforce, proposing a 90-percent-of-limits rule, a coverage-gap-versus-liability-gap test, and a rebuttable presumption against settlements below half of limits. In Dohney v. Allstate Insurance Co., 632 N.W.2d 598 (Minn. 2001), the Supreme Court rejected all 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 settled for forty percent of limits. What the insured still must prove is 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.

Van Kampen pushed it further: an insured who settled for nothing, while her family took the entire $1.5 million available, did not forfeit her UIM coverage — because Dohney forecloses second-guessing the structure of a settlement, and the terms of hers left the carriers free to assert subrogation if they had wanted to. 754 N.W.2d at 584–85.

So the defense is procedural, not substantive. The carrier’s leverage is the notice, and only 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. The claimant may either take the tort claim to judgment and then pursue UIM on the excess, or settle and give Schmidt-Clothier notice. Id. The Supreme Court reaffirmed this 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 absolute that is. The insured’s lawyer let the tort statute of limitations run, so the tort claim could never be resolved by judgment or settlement. The insured then tried a Schmidt-Clothier notice on a settlement of his malpractice claim. The court affirmed dismissal: with no recovery from the tortfeasor, there was no ripe UIM claim, and the prejudice question never arose. The remedy was the malpractice case, not the policy.

If you take the litigation road instead, the carrier still gets notice — just a different kind. Malmin v. Minnesota Mutual Fire & Casualty Co., 552 N.W.2d 723 (Minn. 1996), struck down “consent to sue” clauses as contrary to the No-Fault Act, holding the carrier bound by 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 notify the carrier that suit has been commenced, and the same presumption of prejudice and the same forfeiture follow.

One more distinction that trips people: none of this applies the same way 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 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.

Note what this means for the old Schmidt “gap.” Schmidt had held that an insured who settled below limits absorbed the difference herself; 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. The statutory measure is now what was actually recovered, not what the tortfeasor’s limits were.

The deadline is 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 does not define accrual. The Supreme Court held in Oanes v. Allstate Insurance Co., 617 N.W.2d 401 (Minn. 2000), that a UIM claim “will accrue when the condition precedent to raising the UIM claim … identified in Nordstrom has been satisfied, not before” — that is, on 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

Everything upstream of the UIM claim matters too — the no-fault benefits already paid, the statutory deduction that comes off the tort recovery, and any health-plan subrogation claim against 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 — building the record needed to rebut the presumption of prejudice. 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.