Navigating the Changes to the Rules Governing Miller-Shugart Settlement Agreements in Minnesota

OLWK Attorney Lance Meyer recently co-authored an article in the Minnesota Defense Lawyers Association’s quarterly publication Minnesota Defense regarding the Minnesota Supreme Court’s decision in King’s Cove Marina, LLC v. Lambert Com. Constr. LLC, 958 N.W.2d 310 (Minn. 2021) and its impact on the use and enforceability of Miller-Shugart settlements in Minnesota.  


When it comes to liability insurance, the insurer is generally in control of settlement decisions. Liability insurance policies typically grant the insurer the right to settle a claim or suit against its insured and contain cooperation and voluntary payment clauses that preclude an insured from making settlement decisions on their own. For 40 years, however, the Minnesota Supreme Court has recognized a narrow exception to this general rule. In Miller v. Shugart, the supreme court approved a settlement method that protects an insured defendant when an insurer disputes the existence of any insurance coverage for the claims or suit against its insured. 316 N.W.2d 729, 733-34 (Minn. 1982). In these cases, a claimant and an insured can stipulate to a judgment against the insured on the condition that the insured be released from any personal liability and the judgment be collected only from the insurer.


Since being approved in Minnesota, Miller-Shugart settlements have been scrutinized under a unique set of rules. In general, to be enforceable against an insurer, a Miller-Shugart settlement not only has be covered under the insurer’s policy, but it also has to be reasonable and not the product of fraud or collusion. In addition, it has long been understood that to be enforceable such settlements must allocate damages by defendant when multiple defendants are involved, see Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 331 (Minn. 1993), and allocate by damage item in cases of a single defendant when covered and uncovered damages are involved, see Corn Plus Co-op. v. Cont’l Cas. Co., 516 F.3d 674, 681 (8th Cir. 2008). With the Minnesota Supreme Court’s recent decision in King’s Cove, however, allocation between covered and uncovered claims when there is a single defendant is no longer required.


The recently-published article discusses the purpose and logistics of Miller-Shugart settlements, the facts that led to the Minnesota Supreme Court’s decision in King’s Cove, the supreme court’s new two-step inquiry for determining the reasonableness of an unallocated Miller-Shugart settlement, and what the change means for using these settlements going forward.


Read the full article here.