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STATE OF MINNESOTA
IN COURT OF APPEALS
C2-98-1251

Christy L. Moundson,
Respondent,

vs.

Lucille I. Bitzan, et al.,
Respondents,

Grinnell Mutual Reinsurance Company,
Appellant.

Filed January 12, 1999
Affirmed in part and reversed in part
Klaphake, Judge

Douglas County District Court
File No. CX-97-65

Frederick L. Grunke, Rajkowski Hansmeier, Ltd., 11 Seventh Ave. N., P.O. Box 1433, St. Cloud, MN 56302 (for respondent Moundson)
John C. Lervick, Swenson, Lervick, Syverson, Anderson, Trosvig & Jacobson, P.A., 710 Broadway, Box 787, Alexandria, MN 56308 (for respondents Bitzans)
Ken D. Schueler, Dunlap & Seeger, P.A., 206 S. Broadway, Ste. 505, P.O. Box 549, Rochester, MN 55903 (for appellant)
Considered and decided by Peterson, Presiding Judge, Klaphake, Judge, and Anderson, Judge.
S Y L L A B U S
1.
In a proceeding to recover underinsured motorist benefits, a prior jury verdict, as opposed to a judgment, does not conclusively establish damages and an insured may be required to relitigate damages.

2.
A tortfeasor's insurance company may not defeat the underinsured motorist carrier's right of subrogation by claiming a Schmidt notice was given to the carrier, when the proposed settlement contained a contingency and when the injured insured rejected and disavowed that settlement after the contingency was not met.

3.
Once a tort judgment establishes conclusively that an injured insured is legally entitled to recover damages exceeding the tortfeasor's liability limits, the underinsured motorist carrier becomes contractually liable to pay that excess to the extent of its coverage, and the carrier's right of subrogation accrues upon such payment.



O P I N I O N


KLAPHAKE, Judge
Respondent Christy L. Moundson, f/k/a Christy L. Schmitz (Moundson), brought this declaratory judgment action against respondents Lucille I. Bitzan and Patrick J. Bitzan (the Bitzans) and against appellant Grinnell Mutual Reinsurance Company (Grinnell), the Bitzans' underinsured motorist (UIM) carrier. Moundson's complaint requested a declaration extinguishing Grinnell's subrogation rights against her, obligating Grinnell to pay UIM benefits to the Bitzans, prohibiting Grinnell from requiring the Bitzans to relitigate issues determined in the underlying tort action, and directing the Bitzans to execute a full and final release in her favor.
On cross-motions for summary judgment, the district court granted Moundson's motion and ordered Grinnell to pay UIM benefits to the Bitzans. Grinnell appeals, arguing that the district court erred in concluding (1) a settlement had been reached between the Bitzans and Moundson, of which Grinnell received constructive notice under Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983); and (2) Grinnell's subrogation rights against Moundson were waived and extinguished by Grinnell's failure to preserve those rights in accordance with Schmidt. We affirm that part of the district court's decision ordering Grinnell to pay UIM benefits to the Bitzans, but reverse its determination that Grinnell has waived its subrogation rights.

FACTS
On August 14, 1992, Moundson was driving a motor vehicle insured by Allstate Insurance Company under a policy with liability limits of $100,000. She struck a vehicle driven by Lucille Bitzan, who had $100,000 in UIM coverage with Grinnell.
The Bitzans sued Moundson. On October 11, 1996, a jury returned a verdict in the Bitzans' favor for $140,365.68. On October 15, the Bitzans contacted Grinnell and notified it of their intent to claim UIM benefits.
After the verdict was returned, but before the trial court ruled on Moundson's new trial motion, Moundson offered to settle with the Bitzans. The parties agreed that the settlement

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Minnesota Law