author: CADY, Justice. CARTER, Justice

text:
    ALLIED MUTUAL INSURANCE COMPANY, Appellant, v. Richard HEIKEN and Kathleen Heiken, Appellees.
    No. 02-1996.
    Supreme Court of Iowa.
    Feb. 25, 2004.

      Zorica Ilic of Sporer & Ilic, P.C., Des Moines, for appellant.

      Roger T. Stetson, Edward M. Mansfield, and Margaret C. Callahan of Belin Lam-son McCormick Zumbach Flynn, P.C., Des Moines, for appellees.
   CADY, Justice.

This appeal requires us -to consider the breach of contract remedies available to a subrogated insurer after the indemnified insured enters into a settlement with and release of the responsible tortfeasor in an action by the insured against the tortfea-sor for damages. The district court granted summary judgment for the insured in the insurer’s action against the insured for breach of the subrogation provisions of the insurance contract and for breach of the assignment executed by the insured upon payment of the loss by the insurer. On appeal, we affirm the judgment of the district court.

I. Background Facts and Proceedings.

Richard and Kathleen Heiken (Heikens) contracted with Gary Carruthers (Carruth-ers) to construct a steel building on their farm near Norwalk. The building was erected in 1997, and the Heikens insured it with a policy of insurance through Allied Mutual Insurance Company (Allied). The property portion of the policy contained a subrogation clause that permitted Allied to receive an assignment of rights of recovery for a loss to the extent of the loss paid, and required the Heikens to “cooperate” with Allied.

In early January 1999, the metal canopy of the building collapsed in the face of strong winds and the accumulation of snow on the building. Allied paid the Heikens $50,540 for their loss on September 9, 1999, and the Heikens assigned. their rights arising from the loss to Allied. Pursuant to the written assignment, the Heik-ens authorized Allied to bring a lawsuit to recover the loss and agreed “to aid and assist” Allied in the collection of the loss.

In May 1999, Carruthers filed a petition against the Heikens to foreclose on a mechanic’s lien of approximately $22,000 filed in connection with the construction of the steel building. In response, the Heikens filed a counterclaim to recover damages resulting from the collapse of the canopy, including the loss assigned to Allied. The Heikens claimed the structure was improperly built, and asserted claims of breach of contract, fraud, negligence, breach of warranty, and conversion. Allied sought to intervene in the action to protect its subro-gation interests. The -district court denied intervention. •

On the day of trial, the Heikens and Carruthers entered into a settlement of their dispute. An attorney representing Allied participated in the negotiations and made Carruthers aware of its subrogation claim. Under the settlement, the Heikens and Carruthers agreed to dismiss their respective claims with prejudice. Allied refused to consent to the settlement or to give up its subrogation right despite negotiations between the parties.

Following the settlement, Allied demanded that it be reimbursed by the Heik-ens for the $50,540 it paid for the loss. Allied claimed the Heikens waived Allied’s subrogation rights against Carruthers and breached the contract of insurance when they dismissed the counterclaim against Carruthers with prejudice. After the Heikens refused the demand, Allied filed a breach of contract action against the Heik-ens.

Allied eventually moved for summary judgment. It claimed it was entitled to the $50,540 loss paid to the Heikens because the Heikens terminated its subroga- - tion rights by releasing Carruthers in violation of the ' insurance policy and the written assignment, which prevented Allied from asserting its subrogation rights against Carruthers. The Heikens also moved for summary judgment. They claimed Allied’s subrogation rights were not impaired because Carruthers accepted the dismissal of their counterclaim with knowledge of Allied’s subrogation interest.

The district court granted summary judgment for the Heikens. It found as a matter of law that the dismissal of the counterclaim by the Heikens did not impair Allied’s subrogation rights against Carruthers.

Allied appeals. It claims an insurer’s subrogation rights against a third-party tortfeasor are destroyed when an indemnified insured releases the tortfeasor from liability for loss caused by the tortfeasor, and it is the insured, not the tortfeasor, who is responsible to the insurer for the loss of its subrogation rights under the theory that an indemnified insured is the trustee of the subrogation claim.

II. Scope of Review.

Our review of a summary judgment ruling is for correction of errors at law. McComas-Lacina Constr. Co. v. Able Constructors, 641 N.W.2d 841, 843 (Iowa 2002). We must determine “whether a genuine issue of material fact exists and whether the district court correctly applied the law.” Id.

III. Subrogation.

We have previously discussed subrogation rights of an insurer in a variety of contexts, but have not fully considered the remedies available to the insurer when the indemnified insured releases the responsible tortfeasor from liability for the loss caused by the tortfeasor. A good starting point for our consideration of this issue in this case begins by looking back at the nature of subrogation rights in the insurance area.

Subrogation is a doctrine that originated in equity to give relief to a person or entity that pays a legal obligation that should have, in good conscience, been satisfied by another. See 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 222:8, at 222-30 (2000) [hereinafter Couch ]; see also State Dep’t of Human Servs, ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 154 (Iowa 2001) (discussing principles related to unjust enrichment). The doctrine has emerged to play a vital role in insurance law by permitting an insurer who has paid a loss to an insured to become “subrogated in a corresponding amount to the insured’s right of action against any other person responsible for the loss.” 6A John Alan Appleman & Jean Appleman, Insurance Law and Practice § 4051, at 103 (rev. ed.1972) [hereinafter Appleman]; see also Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 851 (Iowa 1988). The doctrine is needed in the insurance field “to preserve the principle of , indemnity.” 4 Rowland H. Long, The Law of Liability Insurance § 23.01, at 23-3 (1998) [hereinafter Long].

These principles reveal that the insurer’s claim for subrogation is against the tortfeasor responsible for the loss to the insured. The insurer has no right of subrogation against the insured. Aid Ins. Co. v. United Fire & Cas. Co. 445 N.W.2d 767, 771 (Iowa 1989). Nevertheless, the actions of an insured may affect the subro-gation rights of an insurer to recover from the responsible third-party tortfeasor for a loss paid to an insured because these rights are derivative of the rights held by the insured against the tortfeasor. See St Paul Ins. Cos. v. Horace Mann Ins. Co., 231 N.W.2d 619, 625 (Iowa 1975) (stating “ ‘rights ... acquired by an insurer against a wrongdoer rise no higher than those held by its insured against the offender’ ” (citation omitted)); Employers Mut. Cas. Co. v. Hanshaw, 176 N.W.2d 653, 655 (Iowa 1970) (same). The insurer’s subrogation rights rest on the “viability of the insured’s claim against the tortfeasor.” 4 Long § 23.03, at 23-13 to -14. Consequently, when an insurer asserts a subro-gation claim against a third-party tortfea-sor, the insurer’s rights are limited to the rights of recovery possessed by the insured. Employers Mut. Cas. Co., 176 N.W.2d at 655. At the time subrogation attaches, the insurer becomes subrogated to the insured’s rights of recovery against the responsible tortfeasor, “and the insurer succeeds to all the procedural rights and remedies possessed by the insured.” Gibbs v. Hawaiian Eugenia Corp., 966 F.2d 101, 106 (2d Cir.1992). Likewise, the insurer’s subrogation claim is also subject to all defenses the tortfeasor could assert against the insured. Connor v. Thompson Constr. & Dev. Co., 166 N.W.2d 109, 113 (Iowa 1969); Canard v. Moreland, 230 Iowa 520, 523-24, 298 N.W. 628, 629-30 (1941); 16 Couch § 222:5, at 222-21. One such defense, applicable to this case, is release from liability or waiver of the cause of action by the insured. State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Hawai'i 315, 978 P.2d 753, 767 (Haw.1999); see also 44 Am.Jur.2d Insurance § 1788 (2003). Thus, “ ‘[i]f the insured waives its right to bring an action against the tortfeasor, then the insurer is barred from bringing a subrogation action.’” State Farm Fire & Cas. Co., 978 P.2d at 767 (quoting 4 Long § 23.04, at 23-40).

From these background principles, a general rule has emerged that the insurer’s subrogation rights against a third-party tortfeasor may be lost when an indemnified insured settles with or releases the tortfeasor from liability for a loss caused by the tortfeasor. See Gibbs, 966 F.2d at 106. Thus, the question we face in this case is whether an insurer has a remedy against an insured when a release bars the subrogation rights of the insurer.

In Kapadia, we held that the breach of a consent-to-settlement clause of an insurance policy is an affirmative defense to a claim for underinsured coverage by an insured following the insured’s settlement and release of the responsible tortfeasor when the insurer establishes the breach prejudiced its right to enforce its subrogation interest under the policy by showing the claim could have succeeded and would have been collected from the tortfeasor. 418 N.W.2d at 852; accord Hale v. Classified Ins. Co., 535 N.W.2d 164, 168 (Iowa Ct.App.1995). Although Kapadia dealt with a defense to the payment of a claim for underinsured motorist benefits following the insured’s settlement with the tortfeasor, the approach followed in the case supports the broader concept that an insurer may use a subrogation clause of an insurance policy to protect its interests. Kapadia, 418 N.W.2d at 851. Thus, when a release given to a tortfeasor by an insured acts to bar the insurer’s right of subrogation, the release should not only bar the insured’s right of action on the policy for benefits not yet paid, but should also give the insurer a right to recover from the insured “if the insurer has already indemnified the insured.” 4 Long § 23.04, at 23-40; see Gibbs, 966 F.2d at 106 (“Where a release of liability given by the insured to a third party destroys the insurer’s right to subrogation, such a release bars the insured’s right of action on the policy.” Moreover, “if the insurer has already indemnified the insured, the insurer has a right to recover from the insured the amount paid on the policy.”); 6A Appleman § 4051, at 110-11.

This broader application of Ka-padia does not conflict with our existing principles that preclude the enforcement of subrogation rights against insureds, but merely recognizes that most insurance policies contain subrogation provisions that prevent an insured from taking action prejudicial to the insurer’s subrogation rights. See State Farm Fire & Cas. Co., 978 P.2d at 767; see also Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 428 A.2d 1254, 1260 (N.J.1981) (recognizing the tie between the traditional legal concept of subrogation and the language of insurance provisions providing for subrogation). A violation of such a provision in an insurance policy will normally “ ‘enable the insurer to deny the insured’s claim if it has not already paid it or to recover its money back from the insured if it has already paid.’ ” State Farm Fire & Cas. Co., 978 P.2d at 767 (quoting 4 Long § 23.04, at 23-40). Thus, an insurer who has lost subro-gation rights due to the release of the responsible tortfeasor by the insured has a means to seek reimbursement from the insured for its loss based on breach of contract, not on a claim for subrogation. This approach is consistent with Farm Bureau Mutual Insurance Co. v. Allied Mutual Insurance Co., where we recognized that an indemnified insured is a trustee for the benefit of the subrogated insurer of settlement proceeds paid to the insured by the responsible tortfeasor that exceed the insured’s loss. 580 N.W.2d 788, 790 (Iowa 1998) [hereinafter Farm Bureau ].

Although this discussion reveals we agree with Allied that a subrogated insurer may have a claim against the indemnified insured related to a loss of its subrogation rights, such a claim does not exist in every case where an insured releases the tortfeasor from liability. In Ka-padia, we indicated that the. breach of contract defense required the insurer to establish prejudice by showing its subrogation rights were lost and that it could have otherwise recovered from the tortfeasor. 418 N.W.2d at 852. Yet, we were not presented with the occasion in that case- to examine these elements, particularly the requirement that the release actually prevented the insurer from asserting its sub-rogation rights against the tortfeasor. See id. Instead, this appeared to be an accepted proposition in the case. See id.

While it is generally true that an insurer’s subrogation rights are lost when an indemnified insured releases the responsible tortfeasor, and this could then give rise to a breach of contract claim against the insured, there is an important well-recognized exception to this rule that impacts this case. This exception provides:

Where a third party tortfeasor obtains a release from an insured with knowledge that the latter has already been indemnified by the insurer or with information that, reasonably pursued, should give him knowledge of the existence of the insurer’s subrogation rights, such release does not bar the insurer’s right of subrogation.

Allstate Ins. Co. v. Mazzola, 175 F.3d 255, 260 (2d Cir.1999); see also 6A Appleman § 4092, at 246; 16 Couch § 224:113, at 224-138 to -141; State Farm Fire & Cas. Co., 978 P.2d at 767-68 (collecting cases and other authorities).

We have not previously considered how knowledge by the tortfeasor, at the time the release is given by the insured, may act to preserve the subrogation rights of the insurer. In Kapadia, there was no claim asserted that the release did not bar the insurer from pursuing its subrogation rights against the tortfeasor. Thus, our failure to recognize an exception to the rule in that case that a release by the insured bars subrogation rights of the insurer cannot be idewed as a rejection of the exception.

Notwithstanding, Allied claims our decision in Farm Bureau rejected the notion that an insurer could bring a subrogation claim against a tortfeasor after the insured settled with the tortfeasor. We disagree. In Farm Bureau, we held that a tortfea-sor’s insurer was not liable to a subrogated insurer for paying settlement proceeds to the indemnified insured because the tort-feasor’s insurer had no duty to protect the subrogation interests of the subrogated insurer. 580 N.W.2d at 790. Our discussion concerning the imposition of a trust on the insured in cases involving a partially sub-rogated insurer helped explain that the subrogated insurer’s remedy under such circumstances was against the insured, not the tortfeasor or the tortfeasor’s insured. Although we also discussed the inability of a partially subrogated insurer to pursue a direct action against the tortfeasor as a way to distinguish cases from other jurisdictions that permit insurers to assert sub-rogation claims against the tortfeasor after the insured has settled with the tortfeasor, we did not imply that an insurer could never proceed against the tortfeasor. Id. at 789. Instead, we specifically recognized this to be a separate issue from the claim against the tortfeasor’s insurer. See id. at 789-90. Thus, we have not rejected the concept that no exceptions exist that would permit a subrogation claim against a tort-feasor after the insured settles with and releases the tortfeasor. In fact, the legal principles responsible for the imposition of the trustee concept discussed in Farm Bureau are compatible with such an exception.

The legal principle responsible for placing an indemnified insured into the position of a trustee of settlement proceeds for the benefit of the subrogated insurer is that a partially subrogated insurer is normally unable to bring a claim against a tortfeasor to obtain reimbursement directly against the tortfeasor. See Krapf'l, 548 N.W.2d at 879-80. Consequently, a partially subrogated insurer must ordinarily look to the insured to collect reimbursement when the insured sues the wrongdoer for damages. See Farm Bureau, 580 N.W.2d at 790. The reason a partially subrogated insurer is generally unable to assert a subrogation claim directly against the tortfeasor is that the rule against splitting causes of action prohibits the insurer from bringing such an action. See 16 Couch § 224:172, at 224-199 (generally, a single act of negligence causing harm to another “can be the basis of only one cause of action on his or her behalf, and cannot be divided or split into ... separate suits, so that a recovery for part of the loss will bar a subsequent suit to recover the other elements of damage.”). As between the injured insured and a partially subrogated insurer, the insured is given the right of action against the responsible tortfeasor. Farm Bureau, 580 N.W.2d at 789-90. Thus, if a partially subrogated insurer would attempt to assert a subrogation claim directly against the tortfeasor, the tortfeasor could normally assert the rule against splitting causes of action as a defense. This result relates back to the basic principle that the subrogation rights are derivative of the rights of the insured against the responsible tortfeasor, and are subject to all defenses by the tortfeasor. Farm Bureau accepts these principles, and utilizes a trust concept to capture those settlement proceeds that include losses previously paid by the insurer. The trust is imposed to prevent the injustice that would otherwise result by the inability of the insurer to independently pursue its claim. Clearly, the basis for the trust is found in principles of equity. See Leader Nat’l Ins. Co. v. Torres, 113 Wash.2d 366, 779 P.2d 722, 723 (Wash.1989) (resolution of subrogation issues is guided by the equitable principle that the injured party is entitled to be made whole but not allowed a double recovery); 16 Couch § 222:8, at 222-30 (doctrine of subrogation is based on principles of equity).

Similarly, the rationale for the exception to the rule that a release bars an insurer’s subrogation claim is that the release would otherwise “operate as a fraud upon the insurer” and result in prejudice. Allstate Ins. Co., 175 F.3d at 261; 6A Appleman § 4092, at 246-49 (settlement constitutes fraud on the insurer); see 16 Couch § 224:13, at 224-138 to -141. Thus, the exception recognizes that the entire concept of subrogation is driven by principles of equity, and that a settlement between an insured and tortfeasor with knowledge of the subrogation rights of an insurer who does not consent to the settlement is inequitable. See Leader Nat’l Ins. Co., 779 P.2d at 724-25 (discussing the equities of placing the loss of subrogation rights on the tortfeasor or insured). This inequitable behavior means that the tort-feasor

either waives his or her right to invoke or is estopped to rely upon the rule against splitting a cause of action as a defense to an action by the nonconsent-ing insurer as subrogee. Under such circumstances, the settlement is regarded as having been made subject to and with a reservation of the rights of the insurer, and the tortfeasor is deemed to have consented to a separation -of the rights of the insured and the insurer.

16 Couch § 224:179, at 224-203 to -204 (footnote omitted); see Gibbs, 966 F.2d at 107. We observe this exception is generally accepted by other jurisdictions and is consistent with the equitable nature of subrogation. See Leader Nat’l Ins. Co., 779 P.2d at 724 (recognizing that an “overwhelming majority of states” allows a sub-rogation action if the tortfeasor knew of the insurer’s subrogation interest prior to the release). We think it is properly applied to our cases. “Where the insurer’s subrogation right clashes with the tortfea-sor’s contractual release right, the insurer’s subrogation right will prevail if the tortfeasor acted inequitably.” State Farm Fire & Cas. Co., 978 P.2d at 771.

The impact of the general rule and exception means that an insured does not necessarily breach the “no prejudice” terms of a subrogation clause of an insurance policy by settling with and releasing the responsible tortfeasor. If the exception applies, the tortfeasor is liable for subrogation. The release executed by the insured under such circumstances does not prejudice the subrogation rights of the insurer and there can be no breach of the subrogation clause of the policy. Thus, where the exception applies, the insurer is not prejudiced. As a result, the subrogat-ed insurer must seek reimbursement from the responsible tortfeasor, not the indemnified insured. If the exception does not apply, the insurer has a remedy against the insured under a breach of contract theory.

As with breach of the consent-to-sue clause used as a defense against a claim by an insured under the policy, we believe a claim by the insurer against an indemnified insured for breach of the policy based on the loss of its subrogation interest requires the insurer to show its subrogation rights were lost and prejudice resulted’ from the loss. See Kapadia, 418 N.W.2d at 852; Gibbs, 966 F.2d at 106 (“if the insurer has not been prejudiced” by the release, “it may not deny recovery” by the insured or “recover any amount paid on the policy” from the insured). Normally, the loss of subrogation rights can be established by evidence that the insured litigated a claim with a third-party tortfea-sor that gave rise to the insurer’s subrogation interest, resulting in a settlement with and release of the tortfeasor from liability. Once the subrogation rights are shown to be lost, the insurer would need to establish it was actually prejudiced by the loss. See Grinnell Mut. Reins. Co. v. Recker, 561 N.W.2d 63, 68 (Iowa 1997) (insurer must show breach of policy prejudiced insurer’s rights to subrogation against tortfeasor). However, if the insured can show that the exception to the general rule applies based on knowledge by the tortfeasor of the insurer’s subrogation right at the time of the release and settlement, then the subroga-tion rights of the insurer are not lost and the release does not operate as a breach of the insurance policy. See Gibbs, 966 F.2d at 106-07.

These legal principles reveal.that an insurer has two avenues to pursue when the insured and tortfeasor enter into a settlement and release after the insurer has made a payment on the claim to the insured pursuant to the policy. See State Farm Fire & Cas. Co., 978 P.2d at 767-69. An insurer may have a claim against the insured based on breach of the policy. It may also have a subrogation claim against the tortfeasor, despite the settlement and release, based on principles of equity that preclude the tortfeasor from using the settlement and release as a defense when the tortfeasor had knowledge of the subrogation rights. In this case, the insurer chose to pursue its action against the insured. Thus, we turn to the undisputed facts to determine if they support the decision by the district court to dismiss Allied’s claim.

IV. Application of Subrogation Law to the Case.

The undisputed facts in the case reveal Carruthers had knowledge of Allied’s subrogation interest at the time of the settlement. This was established by two circumstances. First, Allied sought to intervene in the action between Carruthers and the Heikens. The petition for intervention alleged the existence of the subro-gation right. Second, Allied monitored the case between Carruthers and the Heikens, and actually participated in the settlement negotiations in an effort to protect its sub-rogation claim. Thus, in the context of this case, it is undisputed that Carruthers knew of Allied’s subrogation claim at the time he obtained a release from the Heik-ens. Therefore, Carruthers remains liable on Allied’s subrogation claim. Consequently, Allied is unable to establish in this action that the settlement and release impaired its subrogation claim against Car-ruthers. As a matter of law, Allied cannot recover from the Heikens for breach of the subrogation terms of the insurance policy or the written assignment.

V. Conclusion.

We conclude the district court properly granted summary judgment for the Heik-ens.

AFFIRMED.

All justices concur except CARTER, J., who dissents.

CARTER, Justice

(dissenting).

I dissent.

Although Farm Bureau Mutual Insurance Co. v. Allied Mutual Insurance Co., 580 N.W.2d 788 (Iowa 1998), is not strictly in conflict with the majority’s holding because the right of the subrogated insurer to sue the tortfeasor was not an issue in that case, the conclusions upon which that decision was based and the conclusions in Kmpf'l v. Farm Bureau Mutual Insurance Co., 548 N.W.2d 877 (Iowa 1996), and United Security Insurance Co. v. Johnson, 278 N.W.2d 29 (Iowa 1979), leave no doubt that under Iowa law a partially indemnified insured is empowered to control the litigation. A subrogated insurer’s only interest is to share in any recovery that may be had.

In Farm Bureau we relied on Kmpfl and Johnson to observe:

Pursuant to the principles recognized in the Kmpfl and United Security cases, it is the subrogor that is the trustee of the settlement proceeds and not the tortfea-sor or the tortfeasor’s liability insurer.

Farm Bureau, 580 N.W.2d at 790. We had previously stated in the opinion that:

Under Iowa law, however, a partially subrogated insurer may not pursue its subrogation claim directly against the tortfeasor at any time absent some inability or unwillingness of the subrogor to pursue the entire claim..

Id. at 789 (citing Kmpf'l, 548 N.W.2d at 880) (emphasis added).

In Kmpfl we stated:

Although there is language in the Johnson case indicating that a subrogee may join with the subrogor in an action against a tortfeasor, we have recognized that such joinder requires the consent of the subrogor. Caligiuri v. Des Moines Ry., 227 Iowa 466, 468-69, 288 N.W. 702, 702-03 (1939). Absent such consent a subrogated party that is paid only a portion of the entire loss has no right to claim directly against the tortfeasor in competition with a subrogor who is actively pursuing the entire claim.

548 N.W.2d at 879. Some of the language in the Johnson case, which was referred to in Kmpfl involved the following quotation from Firemen’s Insurance Co. v. Bremner, 25 F.2d 75, 76 (8th Cir.1928):

[A]m insurer who is paid a loss is thereby subrogated (to the extent of the payment) to the rights of the insured; that, where the insurance payment covers the entire loss,, the insurer becomes the party in interest and may bring an action; that, where the insurance covers only a portion of the loss, the right of action remains in the insured for the entire loss, the insured becoming a trustee for the insurer (to the extent of the loss paid by the insurer) in the recovery secured by it; that the right of action for the entire loss is single and cannot be split and separately maintained by the owner and the various insurers who have paid parts of the loss.

Kmpf'l, 548 N.W.2d at 879 (quoting Bremner, 25 F.2d at 76) (emphasis added).

I submit that if the insured is empowered to bring the entire claim it is completely illogical to conclude that the insured may not settle the case against the tortfeasor with finality. It is unrealistic to expect a party sued by the insured to protect the insurer who has no legal right to bring the claim. To suggest that a failure to dp so amounts to fraud against the insurer, and to fabricate an exception to the rule against the, splitting of causes of action based on that fiction is complétely untenable.

Another reason that the majority is mistaken is that, even if we were to accept the premise that the subrogated insurer may sue the tortfeasor notwithstanding the release, that should provide no basis for relieving the insured from liability. Orn-eases make clear that, if the insured re-cfeives proceeds as part of a settlement, it holds them as trustee for the subrogated insurer. Consequently, even if a settlement does not cut off the subrogated insurer’s right to sue the tortfeasor, it should still be allowed to sue its insured to collect the proceeds that under Iowa law are held by the insured as a trustee. Contrary to the majority’s conclusion, the claim against the insured in the present case is broad enough to include this theory of recovery. The summary-judgment proceedings had not sufficiently narrowed the issues to eliminate such a claim.

I am not at all convinced that the fact that there were no cash proceeds paid to the insured in the present case precludes the insurer from suing its insured to recover the cash value of the setoff that was negotiated against the mechanics-lien claim. Obviously, that value is not apparent in the record, but it could become the subject of proof at trial.

I would reverse the district court.

      . Subrogation refers to both a legal right and a legal action. 4 Rowland H. Long, The Law of Liability Insurance § 23.01, at 23-2 (1998). The term comes from the Latin '‘subrogare,” which means to substitute or put in place of another. Id.

      . The existence of a contract of insurance between the insurer and the insured does not necessarily mean subrogation in the insurance field is contractual. There are two basic kinds of subrogation: equitable and contractual. Equitable subrogation, sometimes called "legal subrogation,” arises as a matter of law from a relationship that may or may not be contractual. State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Hawaii 315, 978 P.2d 753, 766 (Haw.1999); see also Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 851 (Iowa 1988) ("Our jurisprudence has long imposed such rights of subrogation as a matter of law.”). Contractual subrogation, sometimes called "conventional subrogation,” arises from the contractual relationship between the parties. State Farm Fire & Cas. Co., 978 P.2d at 766; see also Kapadia, 418 N.W.2d at 851; 3 Alan I. Widiss, Uninsured and Underinsured Motorist Insurance § 44.4, at 537 (rev.2d ed.2001). Thus, an insurer who pays a loss suffered by an insured caused by a third-party wrongdoer "is entitled to be subrogated to the insured's rights against such third party ... even though the policy contains no stipulations to that effect.” 8B John Alan Appleman & Jean Appleman, Insurance Law & Practice § 4944, at 31-35 (rev. ed. 1981) [hereinafter Appleman], The insurer’s right to subrogation attaches by operation of law upon payment of the loss based on principles of equity. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 222:5, at 222-22 to -27 (2000); see also 6A Apple-man § 4051, at 112-13; Gerlach v. Grain Shippers’ Mut. Fire Ins. Ass’n, 156 Iowa 333, 338, 136 N.W. 691, 693 (1912) (right of sub-rogation does not depend on a stipulation in the policy). However, such subrogation rights would be subject to any subrogation terms found in the contract of insurance.

      . Allied made no claim in this case that the Heikens received any settlement proceeds, either directly or indirectly, that would give rise to a claim against the Heikens as trustees or that the Heikens' settlement with Carruthers provided the Heikens value that was recoverable under a trust theory.

      . We reject the claim by Allied that the "trustee” concept discussed in Farm Bureau applied to this case to make the Heikens the trustee of its subrogation claim. Farm Bureau Mut. Ins. Co. v. Allied Mut. Ins. Co., 580 N.W.2d 788, 790 (Iowa 1998). Farm Bureau recognizes the subrogee insured may become a trustee of those settlement proceeds received from the responsible tortfeasor considered to be losses previously paid by the insurer. See id. at 790; see Krapf'l v. Farm Bureau Mut. Ins. Co., 548 N.W.2d 877, 879-80 (Iowa 1996); United Sec. Ins. Co. v. Johnson, 278 N.W.2d 29, 30-31 (Iowa 1979). However, the insured is not the trustee of the claim.

      . Although the exception makes the tortfeasor liable for subrogation by the insurer after the tortfeasor has settled with — and even paid settlement proceeds to — the insured, this does not mean the tortfeasor must pay twice. Sub-rogation law is controlled by principles of equity and its goal is to ultimately hold the wrongdoer responsible for the damage caused to the insured. See State, Dep't of Human Servs. ex ret Palmer v. Unisys Corp., 637 N.W.2d 142, 149-50 (Iowa 2001). The purpose is not to allow a party to escape responsibility, recover extra proceeds, or pay twice. ses id. Thus, any settlement proceeds paid by the tortfeasor to the insured that represent losses previously paid by the insurer would be a credit against the insurer's subrogation claim, and would generally be recoverable by the insurer against the insured on a trustee theory. Additionally, except for the defense of the rule against splitting actions and release and settlement, the tortfeasor could normally assert most any other defense against a ’claim by the insurer it could have asserted against the insured.

      . We recognize this area of the law can be complex and we limit our holding to the facts of this case. We make no attempt to define the full rights and remedies of the parties under all circumstances, and recognize .that Allied's sole reason for claiming it is unable to pursue its subrogation claim against Carruth-ers is predicated on the rule against splitting causes of action and the effect of the release. We limit our resolution of the issues in this case to the claims raised by the parties. Nevertheless, the principles we apply to resolve this case reveal that the best practice would be to bring all the parties together to the same table during the course of the action between the insured and the tortfeasor to resolve all issues and avoid a piecemeal resolution of the matter.

      . If a settlement between the insured and tortfeasor provides proceeds to the insured, the insurer could also have a claim against the insured based upon.a trustee theory to the extent the proceeds represent the loss paid by the insurer.


source: Caselaw Access Project

author: STREIT, Justice.

license: Public Domain

text:
    Dennis E. DELANEY, Steven J. Roddick, Richard Bartels and Dennis C. Wolter, Appellants, v. INTERNATIONAL UNION UAW LOCAL NO. 94 OF JOHN DEERE MANUFACTURING COMPANY and Daniel White, Appellees.
    No. 02-1733.
    Supreme Court of Iowa.
    Feb. 25, 2004.

      Charles C. Brown, Jr. of the Law Office of Charles C. Brown, Jr., Ryan, for appellants.
    Michael J. Coyle of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., Du-buque, for appellees.
   STREIT, Justice.

Labor disputes are not for the faint of heart. In a tough campaign at a John Deere plant, four nonunion workers were repeatedly derided as “scabs” and “freeloaders” in the local union’s newsletter. They sued the union and its president for defamation, intentional infliction of emotional distress, extortion, and “interference with [their] employment and economic relationship.” The four nonunion employees also alleged the defendants violated Iowa’s right-to-work law.

The defendants moved for summary judgment. The district court granted the motion and dismissed the entire lawsuit, because, it reasoned, the content of the union’s newsletter was constitutionally protected free speech. The plaintiffs appeal. We find federal labor law preempts the plaintiffs’ claims and affirm.

I. Scope of Review

Our scope of review on appeal from an entry of summary judgment is well-settled:

We, like the district court, are obliged to view the factual record in the light most favorable to the resisting party, affording that party all reasonable inferences that the record will bear. Summary judgment is proper only if the record made shows that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. If the conflict in the record concerns only the legal consequences flowing from undisputed facts, entry of summary judgment is proper.... Our review, therefore, is for the correction of errors at law.

Garofalo v. Lambda Chi Alpha Fraternity, 616 N.W.2d 647, 649-50 (Iowa 2000) (citations omitted).

II. Facts and Prior Proceedings

Dennis Delaney, Steven Roddick, Richard Bartels, and Dennis Wolter, the plaintiffs, were hired by John Deere Du-buque Works in 1972, and shortly thereafter joined Local Number 94 of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America. Daniel White, a defendant, is president of the local, which represents all but nine of the nine hundred workers at the plant.

The union was last on strike at John Deere Dubuque Works in 1987. Since then, the union and Deere have entered into several collective bargaining agreements. The plaintiffs maintained nearly continuous, dues-paying membership in the union from hire until after the last relevant agreement. All- four plaintiffs also walked the picket line in support of the union. ■

For various and somewhat vague reasons, the plaintiffs quit the union in 1998 and 1999. Once the plaintiffs left, their names began to appear in the local union newsletter, which contained a “scab list.” The scab list named and derided all nonunion workers at the plant. The list was usually accompanied by drawings, commonly known as “clip-art,” which were bought as part of a commonly sold computer software package.

The record before us contains fifteen editions of the newsletter, which, when read as a whole, demonstrate a concerted effort to persuade the plaintiffs to join the union. This campaign ramped up around “union-won” holidays.

The newsletter’s April 1, 1999 edition, for example, referred to the plaintiffs as “freeloaders” who “will also be enjoying the UNION NEGOTIATED 3 day [Easter] weekend.” Union members were encouraged to “[r]emember these SCABS for what they are and treat them accordingly.” A drawing of a man with a clothespin on his nose, talking on a telephone, and holding a dead rat, accompanied the plaintiffs’ names.

Figure 1

On July 1,1999, the newsletter listed the plaintiffs’ names next to a drawing of a lighted bomb (see Figure 1 above). The newsletter stated:

The SCABS will also be enjoying our UNION WON 4TH OF JULY HOLIDAY BENEFIT. They haven’t contributed anything or walked the picket line to get this or any other benefit that we have worked for. Remember this when you see them in the plant or on the street! If they would like to be treated any other way we invite them to sign a check-off card!

The title to this paragraph contained a second lighted bomb. It stated: “We’d like to [picture of bomb] our SCABS.”

On September 2, 1999, the newsletter reminded union members

Our SCABS will also be getting our three day UNION WON weekend. They pay no union dues, but they have no problem accepting our benefits. Think of that when you see them at work or on the street.

Next to the plaintiffs’ names appeared a drawing containing the following slogan: “and remember SCABS SUCK!”

On November 11, 1999, a drawing of a large rat was placed next to the plaintiffs’ names. The newsletter exclaimed

Did you receive your Performance Bonus Payout check recently? This is a UNION WON benefit. Unfortunately, our SCABS also received this payout and DID NOT pay the 1.15% union dues that everyone else did.... Treat them as they should be treated ... with disgust!

On November 23, 1999, the newsletter listed the plaintiffs’ names under a drawing of a hatchet-wielding turkey chasing seven rats (there were seven nonunion workers listed below a heading entitled “S-C-A-B-S”) (see Figure 2 below). The newsletter pointed out Thanksgiving was a union-won holiday, which the plaintiffs would be enjoying. The newsletter encouraged union members to post the article around the plant and urged nonmembers “to consider joining or reinstating themselves to our ranks.”

Two years later, the same drawing of a hatchet-wielding turkey accompanied the plaintiffs’ names, along with this paragraph:

It’s so easy to forget about our freeloading little rodents when there is so much going on in our world. Just remember ... they are cashing their Performance Bonus checks and enjoying our UNION won holiday without supporting the very group that got it for them. We were taught to turn the other cheek, but in this case they can kiss mine.

Figure 2

On January 13, 2000, the newsletter referred to the upcoming Martin Luther King, Jr. holiday as “another UNION WON BENEFIT we have because of the work and sacrifice of DUES PAYING MEMBERS !” The newsletter again encouraged union members to post the article around the plant and join the union.

On September 14, 2000, the newsletter contained the plaintiffs’ names under the title “S-C-A-B-S,” accompanied by a drawing of a rat being kicked out of the “main gate.” The drawing, entitled “A FREE RIDE EVERY SCAB SHOULD GET,” appeared with the following passage:

Our SCABS also receive this UNION WON benefit [i.e. a cost of living raise]. They sponge off what every one of us have helped bargain for. PLEASE REMEMBER THIS WHEN YOU SEE THEM IN THE PLANT OR ON THE STREET. Treat them like the leaches they are.
Whatever their excuse is for getting out of the Union, they must feel pretty darn sheepish for taking all our UNION WON benefits (cost-of-living, vacation, holidays, overtime pay, bereavement pay, health insurance, and the list goes on and on). Or maybe not, since they obviously haven’t refused these benefits.

On February 8, 2001, under the title “The Whinin’ Nine” and amongst two drawings of baseball players, the plaintiffs’ names were listed with five other nonunion members and the following paragraph:

Did you hear about the new team in town? This team is made up of nine former members of Local 94. They would like to get some new uniforms and equipment, but they don’t want to spend any of their own money on it. They thought that maybe the members of Local 94 would like to pay their way. They’re used to operating this way. If they can get something for nothing, they’re all for it. The Whinin’ Nine, as they are known around the plant.... If you’re tired of carrying these guys, tell them so. I’m sure none of us were taught how to freeload when we were growing up. Maybe all they need is a reminder that we don’t appreciate what they’re doing.

The plaintiffs filed a lawsuit in the district court against the union and its president in July 2001, claiming defamation, intentional infliction of emotional distress, extortion, “interference with employment and economic relationship,” and violation of Iowa’s right-to-work law. See Iowa Code § 731.4 (2001) (union membership may not be required as a condition of employment). The defendants moved for summary judgment, which the district court granted. Relying, in part, upon Old Dominion Branch No. 496, National Association of Letter Carriers, AFL-CIO v. Austin, 418 U.S. 264, 94 S.Ct. 2770, 41 L.Ed.2d 745 (1974) (“Letter Carriers”), the district court ruled the content of the newsletters was protected free speech. The plaintiffs appeal, alleging the district court erred in dismissing its claims.

III. The Merits

A. Defamation

Defamation, the sullying of ones good name, “is made up of the twin torts of libel and slander....” Johnson v. Nickerson, 542 N.W.2d 506, 510 (Iowa 1996). Whereas libel is written defamation, slander is oral defamation. Id. At issue in this case is libel. We have defined libel as “the ‘malicious publication, expressed either in printing or in writing, or by signs or pictures, tending to injure the reputation of another person or to expose [that person] to public hatred, contempt, or ridicule or to injure [the person] in the maintenance of [a] business.’ ” Id. (quoting Plendl v. Beuttler, 253 Iowa 259, 262, 111 N.W.2d 669, 670-71 (1961)).

1. Letter Carriers

In Letter Carriers, the United States Supreme Court addressed whether federal law preempts a nonunion employee’s state libel action against a union. In an effort to increase its membership, a local union published a “List of Scabs” in its newsletter. 418 U.S. at 267, 94 S.Ct. at 2773, 41 L.Ed.2d at 752. The scab list contained the names of all letter carriers who refused to join the union. Id. On one occasion, the union also reprinted the following “well-known piece of trade union literature, generally attributed to author Jack London”:

The Scab
After God had finished the rattlesnake, the toad, and the vampire, He had some awful substance left with which He made a scab.
A scab is a two-legged animal with a corkscrew soul, a water brain, a combination backbone of jelly and . glue. Where others have hearts, he carries a tumor of rotten principles.
When a scab comes down the street, men turn their backs and Angels weep in Heaven, and the Devil shuts the gates of hell to keep him out.
No man (or woman) has a right to scab so long as there is a pool of water to drown his carcass in, or a rope long enough to hang his body with. Judas was a gentleman compared with a scab. For betraying his Master, he had character enough to hang himself. A scab has not.
Esau sold his birthright for a mess of pottage. Judas sold his Savior for thirty pieces of silver. Benedict Arnold sold his country for a promise of a commission in the British Army. The scab sells his birthright, country, his wife, his children and his fellowmen for an unfulfilled promise from his employer.
Esau was a traitor to himself; Judas was a traitor to his God; Benedict Arnold was a traitor to his country; a SCAB is a traitor to his God, his country, his family, and his class.

Id. at 268, 94 S.Ct. at 2773, 41 L.Ed.2d at 752-53 (emphasis added). The nonunion letter carriers successfully sued for libel in state court, and the Virginia Supreme Court affirmed on appeal. Id. at 269-70, 94 S.Ct. at 2774, 41 L.Ed.2d at 753.

The United States Supreme Court reversed on preemption grounds. Id. at 286-87, 94 S.Ct. at 2782, 41 L.Ed.2d at 763. As a threshold matter, the Court held the framework of Linn v. United Plant Guard Workers of America, Local 114, 383 U.S. 53, 86 S.Ct. 657, 15 L.Ed.2d 582 (1966), governed disputes between nonunion workers and unions over scab lists. Id. In Linn, a manager at a detective agency alleged a union defamed him; the union had distributed leaflets which, in an attempt to organize the agency’s employees, alleged he “robbed” and lied to his employees. 383 U.S. at 56, 86 S.Ct. at 659-60, 15 L.Ed.2d at 586. Balancing the State’s interest in providing its citizens with redress for tortious conduct against Congress’ statutorily expressed desire to foster a robust labor debate, the Linn Court held federal labor law

did not completely pre-empt the application of state laws to libels published during labor disputes ... as long as appropriate substantive limitations were imposed to insure that the freedom of speech guaranteed by federal law was .protected.

Letter Carriers, 418 U.S. at 271, 94 S.Ct. at 2775, 41 L.Ed.2d at 754 (emphasis added). As a “substantive limitation,” the Court in Linn “adopt[ed] by analogy” — as opposed to “constitutional compulsion”— the New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), “actual malice” standard for defamation: “libel actions under state law were pre-empted by the federal labor laws to the extent that the State sought to make actionable defamatory statements in labor disputes which were published without knowledge of then- falsity or reckless disregard for the truth.” Id. at 272-73, 94 S.Ct. at 2775, 41 L.Ed.2d at 755.

Letter Carriers applied the Linn analysis even though Letter Carriers did not involve the traditional labor dispute between union and management, but instead a nonunion member’s action against a union. The Court reasoned:

Basic to the right guaranteed to employees in § 7 to form, join or assist labor organizations, is the right to engage in - concerted activities to persuade other employees to join for their mutual aid and protection ... [including a right] to use all lawful propaganda to enlarge their membership.... [0]ne of the primary reasons for the law’s protection of union speech is to insure that union organizers are free to try peacefully to persuade other employees to join the union without inhibition or restraint. Accordingly, we think that any publication made during the course of union organizing efforts, which is arguably relevant to that organizational activity, is entitled to the protection of Linn .... Unions have a legitimate and substantial interest in continuing organizational efforts after recognition. Whether the goal is merely to strengthen or preserve the union’s majority, or is to achieve 100% employee membership ... these organizing efforts are equally entitled to the protection of § 7 and § 1 [of the National Labor Relations Act (NLRA), which is codified at 29 U.S.C. section 151 et seq.].

Id. at 277, 279, 94 S.Ct. at 2778-79, 41 L.Ed.2d at 758, 759 (citations omitted). “[FJederal policies favor[ ] uninhibited, robust, and wide-open debate in labor disputes. ...” Id. at 273, 94 S.Ct. at 2776, 41 L.Ed.2d at 755.

The Court made clear its decision was based upon federal labor law and the supremacy clause, not the First Amendment :

[Although our duty] to insure that the speech involved is not protected under federal law ... has been most often recognized in the context of claims that the expression involved was entitled to First Amendment protection, the same obligation exists in cases involving speech claimed to be protected under the federal labor laws. This obligation, derived from the supremacy of federal labor law over inconsistent state regulation, requires us to determine whether any state libel award arising out the publication of the union newsletter involved here would be inconsistent with the protection for freedom of speech in labor disputes recognized in Linn.

Id. at 282, 94 S.Ct. at 2780, 41 L.Ed.2d at 760-61 (citations omitted, emphasis added); see John P. Ludington, Defamation: Designation as Scab, 65 A.L.R.4th 1000, 1002 (1988) (Letter Carriers held “the Federal Constitution, under the . supremacy clause, precludes a state defamation suit for the use of the word ‘scab’ if the use of the word was in the course of activity protected by the federal labor laws and if the word was not used with knowledge of its falsity or with reckless disregard for whether it was false or not — the familiar New York Times test.”)

Analyzing the plaintiffs’ claims, the Letter Carriers Court held federal labor law and the supremacy clause protected the union’s use of the word “scab,” as well as the London reprint. 418 U.S. at 282-87, 94 S.Ct. at 2780-82, 41 L.Ed.2d at 761-63. The Court first pointed out that a “scab” is commonly defined as “one who refuses to join a union,” and because this statement was factually true, it could not serve as the basis of a libel judgment. Id. at 282-83, 94 S.Ct. at 2780, 41 L.Ed.2d at 761. Nor did it matter that “scab” is a pejorative term, because

Vigorous exercise of this right “to persuade other employees to join” must not be stifled by the threat of liability for the overenthusiastic use of rhetoric or the innocent mistake of fact ... epithets such as “scab,” “unfair,” and “liar” are commonplace in these struggles and not so indefensible as to remove them from the protection of § 7, even though the statements are erroneous and defame one of the parties to the dispute.... [Pjederal law gives a union license to use intemperate, abusive, or insulting language' without fear of restraint or penalty if it believes such rhetoric to be an effective means to make its point.

Id. at 277-78, 283, 94 S.Ct. at 2778, 2781, 41 L.Ed.2d at 758, 761 (citations omitted). In holding the reprint of London’s definition of a scab, which referred to the plaintiffs as characterless “traitors” with “rotten principles,” was protected speech, the court concluded these characterizations were clearly not “factual statements” but instead

in a loose, figurative sense [demonstrated] the union’s strong disagreement with the views of those workers who oppose unionization. Expression of such opinion, even in the most pejorative terms, is protected under federal labor law.... “However pernicious an opinion may seem, we depend for its correction not on the conscience of judges and juries but on the competition of other ideas.”
... Permitting state libel judgments based on publication of this piece - of literature would be plainly inconsistent with the union’s justifiable reliance on the protection of federal law.

Id. at 284, 286, 94 S.Ct. at 2781, 2782, 41 L.Ed.2d at 762-63 (quoting Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-40, 94 S.Ct. 2997, 3007, 41 L.Ed.2d 789, 805 (1974)).

The Court, however, warned “use of this writing or other similar rhetoric in a labor dispute could be actionable, particularly if some of its words were taken out of context in such a way as to convey a false representation of fact.” Id. at 286, 94 S.Ct. at 2782, 41 L.Ed.2d at 763. That is, a state law defamation claim is not preempted if the plaintiffs show the defendant made a false statement of fact with “actual malice,” i.e. with a knowing or reckless disregard of the truth. “[I]t must be emphasized that malicious libel enjoys no constitutional protection in any context. ... The malicious utterance of defamatory statements in any form cannot be condoned...." Linn, 383 U.S. at 63, 86 S.Ct. at 663, 15 L.Ed.2d at 590. Lower courts have thus permitted state tort actions where there is a false representation of fact and “actual malice” is shown. See, e.g., Kirk v. Transp. Workers Union of Am., AFL-CIO, 934 F.Supp. 775, 790 (S.D.Tex.1995) (denying defendants’ motion for summary judgment on plaintiffs’ defamation claim where plaintiffs generated a genuine issue of material fact as to whether the defendants had falsely accused plaintiffs of appropriating union funds for personal use).

2. Application

The parties agree the defendants’ use of “scab,” standing alone, cannot support the plaintiffs’ defamation claim in light of Letter Carriers. The plaintiffs are nonunion workers and are therefore “scabs,” as that derogatory term is generally understood. See Letter Carriers, 418 U.S. at 283, 94 S.Ct. at 2780, 41 L.Ed.2d at 761 (“One of the generally accepted definitions of ‘scab’ is ‘one who refuses to join a union.’ ”) (citation omitted); Dunn v. Air Line Pilots Ass’n., 193 F.3d 1185, 1193, n. 7 (11th Cir.1999) (same); Webster’s Third New International Dictionary 2022 (2002) (same). Federal labor law preempts the plaintiffs’ defamation claim, insofar as the latter is based upon factually true assertions that the plaintiffs are “scabs.” Letter Carriers, 418 U.S. at 283, 94 S.Ct. at 2780, 41 L.Ed.2d at 761; see also Dunn, 193 F.3d at 1194-95 (summary judgment properly granted for airline pilots who crossed picket lines because scab list is, in itself, factually true and preempted by federal law); Cline v. McLeod, 180 Ga.App. 286, 349 S.E.2d 232, 234-35 (1986) (local union’s scab letter protected by NLRA and state defamation claim preempted). Indeed, if nothing more were alleged, the plaintiffs’ defamation claim would, at any rate, fail purely on state law grounds. Truth is a complete defense to defamation. Huegerich v. IBP, Inc., 547 N.W.2d 216, 221 (Iowa 1996).

Nor are the newsletter’s references to the plaintiffs as “freeloaders” actionable. A “freeloader” is defined as one who “impose[s] upon another’s generosity ... without sharing in the cost or responsibility involved.... ” Webster’s Third New International Dictionary 906 (2002). Again, this is a crude but true statement about the plaintiffs.

The plaintiffs strenuously point out, however, that the newsletter once employed the past tense when it characterized the plaintiffs as freeloaders. Namely, the July 1, 1999 edition of the newsletter stated the plaintiffs “haven’t contributed anything or walked the picket line to get this or any other benefit that we have worked for,” when the plaintiffs had in the past paid dues and gone on strike.

This statement, however, cannot be viewed in isolation with a grammar book at one’s side. When viewed in context of the newsletter’s campaign against the plaintiffs, this statement plainly indicates the plaintiffs, as nonunion workers, are not presently supporting the union. On two other occasions, the newsletter made clear the plaintiffs used to be members of the union, had quit, and were, therefore, presently “freeloaders,” i.e. enjoying union benefits without paying union dues. On September 14, 2000, for example, the newsletter stated

Whatever their excuse is for getting out of the Union, they must feel pretty darn sheepish for taking all our UNION WON benefits....

(Emphasis added.) On February 8, 2001, the following appeared:

Did you hear about the new team in town? This team is made up of nine former members of Local 94.... If you’re tired of carrying these guys, tell them so. I’m sure none of us were taught how to freeload when we were growing up.

(Emphasis added.) To hold otherwise would ignore the heated nature of labor disputes:

cases involving speech are to be considered “against the background of a profound ... commitment to the principle that debate ... should be uninhibited, robust, and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks.” ... [T]he most repulsive speech enjoys immunity provided it falls short of a deliberate or reckless untruth.

Linn, 383 U.S. at 62-63, 86 S.Ct. at 663, 15 L.Ed.2d at 590 (quoting New York Times, 376 U.S. at 270, 84 S.Ct. at 721, 11 L.Ed.2d at 701) (emphasis added). The distinction between the past and present tenses is subtle and easily lost on the reader. The only possible inference which may be deduced here is that the plaintiffs enjoy union benefits even though they do not presently pay dues or otherwise contribute to the union’s efforts to maintain union benefits. Benefits won in the past, of course, are only important to today’s union members insofar as those benefits are vigilantly maintained. As a matter of law, therefore, we conclude there is no genuine issue of material fact as to whether the defendants made a false statement of fact, with knowing or reckless disregard for the truth in making such statements. Courts ought not become the grammar police and thereby chill free speech in this context. See Linn, 383 U.S. at 64, 86 S.Ct. at 664, 15 L.Ed.2d at 591 (refusing to let defamation claims “dampen the ardor of labor debate and truncate the free discussion envisioned by the [NLRA] ” or permit lawsuits to “be used as weapons of economic coercion”).

In a final allegation, the plaintiffs contend the drawings which accompanied the scab lists — unlike the “significantly more peaceful” speech in Letter Carriers— “called for physical harm unto others” and therefore escape federal preemption. We disagree. Although the union’s statement that “we’d like to [bomb] our scabs” and its depiction of the plaintiffs as rats deserving of the sharp end of a turkey’s hatchet are certainly not nice, such hyperbole cannot be used to support the plaintiffs’ defamation claim, because this form of speech is merely “loose language” designed to encourage union membership. See Letter Carriers, 418 U.S. at 284, 94 S.Ct. at 2781, 41 L.Ed.2d at 762. The drawings of lighted bombs, rats, and hatchet-wielding turkeys resemble cartoons and cannot reasonably be taken at face value. See Dunn, 193 F.3d at 1193—94; Keller v. Miami Herald Pub. Co., 778 F.2d 711, 716 (11th Cir.1985) (plaintiffs’ “strictly literal interpretation ignores the nature of a cartoon and how cartoons are traditionally understood by those who view them: ‘Such an interpretation does not construe the cartoon as the common mind would understand it but is tortured and extreme.’ ” (quoting Valentine v. C.B.S., Inc., 698 F.2d 430, 432 (11th Cir.1983) (per curiam))). The drawings are surely no worse than London’s definition of a scab, obliquely referring to hanging and drowning nonunion workers, which the Supreme Court upheld in Letter Carriers. Labor disputes are heated affairs, and unfortunately the content of the newsletter is, colloquially speaking, par for the course. See Linn, 383 U.S. at 58, 86 S.Ct. at 660-61, 15 L.Ed.2d at 587. No reasonable reader would think otherwise. See Greenbelt Coop. Publ’g Ass’n v. Bresler, 398 U.S. 6, 14, 90 S.Ct. 1537, 1542, 26 L.Ed.2d 6, 15 (1970) (countenancing reasonable reader approach); Dunn, 193 F.3d at 1193 (citing Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 515, 517, 111 S.Ct. 2419, 115 L.Ed.2d 447 (1991)) (adopting same). Because cartoons use “hyperbole, exaggeration and caricature to communicate their messages to the reader ... [, o]ne cannot reasonably interpret a cartoon as literally depicting an actual event or situation.” Keller, 778 F.2d at 716.

We conclude the district court correctly applied Letter Carriers to the plaintiffs’ defamation claim. With respect to the plaintiffs’ defamation claim, the defendants’ motion for summary judgment was properly granted. We affirm.

B. Other State Law Claims

Although Linn and Letter Carriers only involved preemption of state defamation claims, the district court granted the defendants’ motion for summary judgment on all the plaintiffs’ state law claims. The court reasoned that since the only complained of behavior was protected free speech, none of these claims could proceed to trial.

On appeal, the plaintiffs do not urge a different analysis. Instead, the plaintiffs’ arguments only attempt to show the content of the newsletters is not protected under the Letter Carriers analysis. Because we find the content of the newsletters is protected, we affirm the district court’s grant of summary judgment against all the plaintiffs’ state law claims.

As one of our sister state supreme courts has pointed out, the United States Supreme Court

has “frequently applied traditional preemption principles to find state law barred on the basis of an actual conflict with § 7 [of the NLRA], If employee conduct is protected under § 7, then state law which interferes with the exercise of these federally protected rights creates an actual conflict and is preempted by direct operation of the Supremacy Clause”.... [I]n each case where it has recognized an exception ..., the conduct underlying the action pending in state court was not protected by the [NLRA].... [The Court has permitted state tort actions such as trespass to proceed, but p]rior to granting any relief for the trespass, however, the [C]ourt noted the state court would have to decide that the trespass was not actually protected by federal law....

J.A. Croson Co. v. J.A. Guy, Inc., 81 Ohio St.3d 346, 691 N.E.2d 655, 662, 663 (Ohio 1998) (quoting Brown v. Hotel & Rest. Employees & Bartenders Int’l Union Local 51, 468 U.S. 491, 501, 104 S.Ct. 3179, 3185, 82 L.Ed.2d 373, 383 (1984)) (emphasis in original). In examining the plaintiffs’ defamation claim, we have determined, in Part III.A of this opinion, that section 7 of the NLRA protects the content of the newsletters. See 29 U.S.C.A. § 157 (codifying the right of employees to form, join, and assist labor organizations). Moreover, all of the plaintiffs’ claims are predicated solely upon this protected conduct. “If the state law regulates conduct that is actually protected by federal law ... pre-emption follows ... as a matter of substantive right.” Croson, 691 N.E.2d at 664 (citations omitted). It appears, then, the district court rightly granted the defendants’ motion for summary judgment on all the plaintiffs’ state law claims. Accord Farmer v. United Bhd. of Carpenters & Joiners of Am., Local 25, 430 U.S. 290, 305-06, 97 S.Ct. 1056, 1066, 51 L.Ed.2d 338, 353 (1977) (in discussing a state claim for intentional infliction of emotional distress, which it ultimately concluded was not preempted, the Supreme Court stated “The potential for undue interference with federal regulation would be intolerable if state tort recoveries could be based on the type of robust language and clash of strong personalities that may be commonplace in various labor contexts.”).

Looking at the matter somewhat differently, one lower federal court reasoned

preemption analysis requires examining the “substance” of the state law claims rather than their “form.” In the first instance, courts consider the defendants’ behavior itself and whether this behavior is regulated by federal law, rather than the state cause of action assigned to the behavior.

Dunn v. Air Line Pilots Ass’n, 836 F.Supp. 1574, 1579 (S.D.Fla.1993) (citing Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 211, 105 S.Ct. 1904, 1911, 85 L.Ed.2d 206, 215 (1985)). On this understanding of preemption analysis, although the form of the plaintiffs’ petition alleges intentional infliction of emotional distress, extortion, interference with contract, and a violation of Iowa’s right-to-work law, all four claims are, in substance, rooted in a complaint about the defendant’s speech, as expressed through the union newsletter. No other allegations are made; simply put, the only complaint regards the defendants’ protected speech. See id.; cf. Capital Fund Ltd. P’ship v. Priority Sys., L.L.C., 670 N.W.2d 154, 160 (Iowa 2003) (refusing to apply “summary remedy” of forcible entry and detainer statute to what was, in truth, a contract dispute).

This is not to say such claims could not go forward in all cases. Rather, it is only to say that on these facts the plaintiffs’ state law claims cannot stand. To do otherwise would send the plaintiffs’ four non-defamation claims back to the district court for a determination as to whether the plaintiffs had a cause of action; assuming, arguendo, the plaintiffs could withstand summary judgment in this respect, the court would once again be faced with the issue of whether these state law claims are preempted by federal law — in spite of the fact the plaintiffs allege no other tor-tious conduct than the speech deemed protected under Letter Carriers defamation analysis. Although the plaintiffs’ petition may allege the defendants’ newsletters amount to intentional infliction of emotional distress, extortion, etc., in truth the only complaint concerns the defendants’ protected speech in the newsletters. Once we peer through the plaintiffs’ legal characterizations of the wrongs the defendants have allegedly done them, such causes of action clearly cannot stand in light of federal law. The district court’s grant of the defendants’ motion for summary judgment on the plaintiffs’ other state law claims was proper.

IV. Conclusion

The district court correctly granted summary judgment on the plaintiffs’ defamation claim, insofar as it was predicated upon the use of the derogatory terms “scab” and “freeloader,” as well as drawings which obliquely refer to violence. The content of the union newsletter is protected speech, and federal law preempts the plaintiffs’ state defamation claim. Because we find the content of the newsletters is protected, we also affirm the district court’s grant of summary judgment against all the plaintiffs’ other state law claims.

AFFIRMED.

      . Delaney held a managerial position at John Deere in the 1970s. He rejoined the union upon leaving management in 1979.

        . Section 7, which is important to Part III.B of this opinion, reads as follows:
      Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in section 158(a)(3) of this title.
      29 U.S.C.A. § 157(1998).

      . In a concurring opinion, Justice Douglas disagreed with the majority’s analysis, and concluded the First Amendment, even in the absence of the NLRA or any other manifestation of Congressional intent, would bar the plaintiffs’ state tort law claims. See Letter Carriers, 418 U.S. at 287, 94 S.Ct. at 2783, 41 L.Ed.2d at 763 (Douglas, J., concurring) (“I do not view the task of reconciling the competing state and federal interests in this area as a difficult one, nor do I view the federal interest as merely a matter of federal labor policy. I think that such expression is constitutionally protected....").


author: CRIPPEN, Judge.

text:
    STATE of Minnesota, Appellant, v. Randy Scott BENDZULA, Respondent.
    No. A03-656.
    Court of Appeals of Minnesota.
    March 16, 2004.
    Mike Hatch, Attorney General, St. Paul, MN; and Pat Ciliberto, Scott County Attorney, Kevin J. Golden, Assistant County Attorney, Scott County Attorney Office, Shakopee, MN, for appellant.
    John M. Stuart, State Public Defender, Theodora K. Gaitas, Assistant State Public Defender, Minneapolis, MN, for respondent.
    Considered and decided by KLAPHAKE, Presiding Judge, RANDALL, Judge, and CRIPPEN, Judge.
   OPINION

CRIPPEN, Judge.

Appellant State of Minnesota disputes the trial court’s downward durational departure from state sentencing guidelines, contending that the court acted beyond its authority under the sentencing guidelines. Giving deference required for the trial court’s exercise of discretion in assessing the particular circumstances, of this case, we affirm.

FACTS

In 1999, Hennepin County authorities arrested an immigrant friend of respondent Randy Bendzula for selling cocaine. The seller was told that he could avoid deportation by cooperating with the police and implicating those who had supplied drugs to him. He implicated respondent by asking his help to get drugs on five occasions during the first half of 2000. The first and last purchases occurred in Hennepin County; the second, third, and fourth occurred in Scott County. Respondent was similarly asked to assist police but declined to act as an informant.

A Scott County jury found respondent guilty on two charges of first-degree sale of cocaine. The presentence investigation indicated that respondent’s sentence on the first count, with four criminal history points, would be imprisonment for 134 months under sentencing guidelines and that the sentence on the second count would be 158 months; the report recommended that the sentences be served concurrently. At the sentencing hearing, respondent moved for a downward departure to 58 months imprisonment. The trial court sentenced respondent to 84 months.

ISSUE

Did the sentencing judge exceed his authority in determining cause for. a downward durational departure when sentencing respondent?

ANALYSIS

I. Standard of Review

The decision to depart from sentencing guidelines rests within the trial court’s discretion .and will not be reversed absent a clear abuse of that discretion. State v. Givens, 544 N.W.2d 774, 776 (Minn.1996). .Fundamentally, respondent reminds this court, the supreme court recognizes the superior sentencing capacity of the trial court, observing that the sentencing judge “sits with a unique perspective on all stages of a case, including sentencing, and the trial judge is in the best position to evaluate the offender’s conduct and weigh sentencing options.” State v. Sanders, 598 N.W.2d 650, 656 (Minn.1999).

It follows that this court is “loath to interfere” with the trial court’s sentencing decision. State v. Case, 350 N.W.2d 473, 476 (Minn.App.1984). Correction of the trial court is acceptable only on this court’s “strong feeling” that a sentence is inappropriate, State v. Malinski, 353 N.W.2d 207, 209 (Minn.App.1984), review denied (Minn. Oct. 16, 1984), and its “collective, collegial experience” that a sanction is disproportionate to the severity of the offense, State v. Norton, 328 N.W.2d 142, 146 (Minn.1982); State v. Behl, 573 N.W.2d 711, 714 (Minn.App.1998), review denied (Minn. Mar. 19, 1998).

Appellant maintains that this is the unique case calling for an appellate determination, based on its assessment of departure considerations, that there is no room for any exercise of trial court discretion. See State v. Spain, 590 N.W.2d 85, 88 (Minn.1999) (reciting need for aggravating circumstances; reducing to a double departure, 96 months, the trial court’s 144-month triple departure). We reject these assertions based on a review of explicit guidelines provisions upholding trial court discretion and our examination of the court’s application of the law to the particular circumstances of this case.

II. Trial Court Discretion and the Sentencing Guidelines

The Minnesota Sentencing Guidelines eliminate neither trial court sentencing options nor the court’s obligation to evaluate an offender’s conduct in choosing among those options. Under the guidelines, should departure be considered, it is the sentencing judge’s task to determine what conduct is atypical to the statutory offense, on the basis of attention to the unique “circumstances” Of the “individual case.” Minn. Sent. Guidelines II.D. To assess the weight of atypical, individual circumstances, the guidelines establish a judicial task to determine which are “substantial” and “compelling.” Id.

The guidelines decline the attempt to enunciate all of the circumstances that the trial court might determine to be atypical, dissimilar, or different, and which may be, depending on the facts of the case, both substantial and compelling. Explicitly recognized atypical factors have been addressed by the parties and will be reviewed in this opinion, but the guidelines declare the list of these factors is “nonexclusive.” Minn. Sent. Guidelines II.D.2 (emphasis in original).

If the trial court’s sentence is a departure from the guidelines, the court is to provide written reasons demonstrating why the departure is “more appropriate, reasonable, or equitable than the presumptive sentence.” Minn. Sent. Guidelines II.D. This judicial determination will “avoid sentencing that is either mechanical or callous.” State v. Curtiss, 353 N.W.2d 262, 264 (Minn.App.1984).

A. Additional Departure Considerations

When departing from the sentence calculated under the guidelines, the sentencing judge “should pronounce a sentence which is proportional to the- severity of the offense of conviction and the extent of the offender’s prior criminal history.” Minn. Sent. Guidelines II.D. Thus, the court must consider the offender’s conduct and the impact of the offender’s record.

Additional trial court considerations arise because, according to this guidelines provision, the court “should take into substantial consideration” the purposes of the guidelines. Id. Under the purpose clause of the guidelines, which calls for consistency and repeats the standards for departure, the guidelines are declared “advisory to the sentencing judge.” Minn. Sent. Guidelines I.

The purpose clause explicitly calls for the sentencing judge’s consideration of departure. Although the judge must look to the equity of similar sanctions for similar offenders, equity “requires,” the guidelines declare, that the court “ought to” depart for a felon “substantially different from a typical case.” Id. The court is not to take lightly the burden to consider departures.

B. Downward Departures

Interjecting the purpose clause into departure determinations establishes an additional consideration that particularly bears on the issue of downward departures. The guidelines eliminate the need for courts to take judicial notice of correctional costs that bedevil state lawmakers. When the trial court finds circumstances for a downward departure, the court is required to be mindful that the “capacities of state and local correctional facilities are finite.” Id. To “ensure” carefully determined use of those facilities, the court is to determine sanctions that are the “least restrictive necessary” to achieve the purposes of the sentence. Id.

Finally, downward departures are the topic of an expressly stated factor the trial court is to employ in determining atypical circumstances of a case. After stating more particular factors, the guidelines declare that a downward departure may be based on “[ojther substantial grounds,” although not amounting to a defense, that “tend to excuse or mitigate the offender’s culpability.” Minn. Sent. Guidelines II. D.2.a(5). Without further express guidance, the sentencing judge is cast upon the waters of judicial discretion to examine the culpability of the offender in the individual circumstances of the case.

In sum, although the guidelines, as intended, produce consistency, they also preserve traditional trial court discretion to employ broadly stated standards, both in determining cause to depart and in determining an apt departure. And the guidelines expressly enlarge the trial court’s discretion when assessing reduced culpability and determining a downward departure.

III. Trial Court’s Exercise of Discretion

Because the trial court in this case dealt with the departure issue both deli-beratively and thoroughly, and because the court adequately identified considerations favoring its downward departure that were both atypical and substantial, we must defer to its judgment. The court fulfilled its mandate to explain why its departure was “more appropriate, reasonable, or equitable than the presumptive sentence.” Minn. Sent. Guidelines II.D. There is no merit in appellant’s assertion that this is a case where the guidelines have obliterated the occasion for the trial court’s exercise of discretion.

In its sentencing order, the trial court stated considerations to support its conclusion that the case did not involve “the typical controlled substance crime.” The court concluded on the record that these factors tended to “mitigate [respondent’s] culpability.”

The typical drug seller, the trial court observed in its order, is suspected, investigated, arrested, and prosecuted. Respondent, in contrast, was “prompted” to sell drugs by the efforts of the police in enlisting one whom respondent considered a friend as an informant because the police hoped respondent would, in turn, become an informant and identify his source of supply. Respondent later declined to act as an informant. These facts do not rise to the level of an entrapment defense, but this does not preclude their consideration as a mitigating factor. See Minn. Sent. Guidelines II.D.2.a(5) (mitigating factors may include grounds that tend to excuse culpability, although not amounting to a defense).

This assessment of appellant’s culpability was corroborated by other facts recited by the sentencing judge, “[o]ther substantial grounds ... which tend to excuse or mitigate [respondent’s] culpability.” Id. First, respondent, last convicted in 1992, was released without bail and without incident for the three years elapsing between his arrest and this sentencing. Second, when he first acted with the police informant to get cocaine from the suspected supplier, respondent was not,arrested and charged as an offender, but prompted instead to arrange four additional transactions that occurred over the span of five months; the trial court observed that this fact diminished the suggestion that respondent’s conduct constituted a serious threat to public safety. Third, the evidence shows that respondent purchased drugs for himself and for his friend, the police informant, but does not show respondent otherwise distributed cocaine to persons in the community.

Appellant argues that the trial court both misstated the facts and erred in applying the law. But appellant presents no facts to refute the court’s finding that the police considered respondent a means to an end: they hoped he would lead police to his supplier. Nor does appellant identify any clear, reversible errors in the trial court’s recitation of the facts. The evidence in the trial and sentencing records sustains the court’s findings.

Appellant’s three allegations of erroneous application of the law are similarly unfounded. . First, appellant opposes the sentencing judge’s references to the favorable police treatment of the informant who bought cocaine from respondent, arguing that favorable treatment of one offender does not minimize the culpability of another. But equity in sentencing is a purpose of the sentencing guidelines. Minn. Sent. Guidelines I; see Minn. Sent. Guidelines II.D. (requiring that the sentencing judge, when prompted by the facts ‘to consider departure, give substantial' consideration to purpose clause). The trial court did not abuse its discretion in considering an apparent inequity in the punishment meted out to similar offenders. See State v. Back, 341 N.W.2d 273, 277 (Minn.1983); State v. Vazquez, 330 N.W.2d 110, 112 (Minn.1983) (permitting consideration of sentences of co-defendants and other offenders).

Second, appellant contends that the trial court erred in considering the scarcity of correction facility resources when it sentenced respondent because that scarcity does not affect respondent’s culpability. But the guidelines foster consideration of the point: use of the “finite resources” of correctional facilities is among the four principles of the sentencing guidelines. Minn. Sent. Guidelines I. The trial court did not abuse its discretion in considering a principle of the guidelines.

Third, appellant asserts that the sentencing judge erred in mentioning, on the record, a reduced sentence offered to respondent during negotiations two years earlier. But the judge clearly and repeatedly said, “I am not considering that.” Any error, if it occurred, was harmless.

Finally, appellant alleges procedural error in the trial court’s failure to give notice that it was considering a downward departure. See Minn. R.Crim. P. 27.03, subd. 1(A)(4) (judge shall advise counsel if facts ascertained during trial cause consideration of departure from sentencing guidelines to be appropriate). Respondent concedes that the trial court did commit this procedural error but contends that no relief is appropriate because the state demonstrates no prejudice. See State v. Bock, 490 N.W.2d 116, 122 (Minn.App.1992) (no relief for procedural error required absent demonstration of prejudice), review denied (Minn. Aug. 27, 1992). Appellant did not allege any prejudice in its original brief and did not file a reply brief. Moreover, because respondent moved for a downward durational departure, appellant had notice that the issue would be raised even without notification from the trial .court. See id. (no prejudice where no objection to lack of notice at sentencing; motion was made for departure, and request for departure was repeated at sentencing hearing).

DECISION

The trial court’s sentencing decision falls within the parameters of discretion traditionally guaranteed to that court and confirmed by the Minnesota Sentencing Guidelines.

Affirmed.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

      .In the state’s view, we should declare this to be a case where the sentencing guidelines confine the trial court's function to acknowl-edgement of the guidelines sentence, to a recognition of culpability solely by considering the conviction that was successfully pursued by police and prosecutors. The state asserts that the court’s decision falls within a'category of sentencing whereby the aims of the state's sentencing guidelines are “eviscerated” by departures "on the.-basis of personal beliefs, bias, whim, or caprice.” Because identification of cases of such a kind strictly limits the trial court's function in exercising discretion, we are mindful as well that it implicates the independence of the judiciary under the rule of law.

      . Guideline comments enunciate the trial court role with further substance and no less generality. The drafters call for use of presumptive sentences with a “high degree of regularity,” departing in only a "small number of cases.” But the comments ungrudg-ingly add that the "judge may depart” when that is "deemed to be more appropriate, reasonable, or equitable than the presumptive sentence.” Minn. Sent. Guidelines cmt. II. D.01, .03, .201.

      . The listed atypical factors are "illustrative and are not intended to be [either] an exclusive or exhaustive list of factors” that may be used as reasons for departure. Minn. Sent. Guidelines cmt. _II.D.201.

      . It is not incidental that supreme court language limiting trial court sentencing discretion has been found in cases correcting excessive upward departures. See, e.g., Spain, 590 N.W.2d at 89 (reducing a triple upward departure to the double upward departure that "[a]s a general rule, [is] the maximum upward departure in sentence length''); cf, State v. Martinson, 671 N.W.2d 887, 891 (Minn.App.2003) (affirming downward dura-tional departure, 75 of 150 months (citing State v. Kindem, 313 N.W.2d 6, 7 (Minn. 1981)), to determine that “this court generally will not interfere with the exercise of [district court] discretion”).

      . Respondent contends that the trial court's analysis of his culpability comes within the mitigating factor that is expressed in the guidelines for an offender who plays a minor or passive role in the crime. Minn. Sent. Guidelines II.D.2.a(2). The state correctly observes that respondent was the sole actor in getting a quantity of drugs and selling them.


author: WRIGHT, Judge.

text:
    Karyn ENTZION, Appellant, v. ILLINOIS FARMERS INSURANCE COMPANY, an Illinois corporation, Respondent.
    No. A03-742.
    Court of Appeals of Minnesota.
    March 23, 2004.

      Randall J. Fuller, Gary T. LaFleur, Babcock, Neilson, Mannella, LaFleur & Flint, Anoka, MN, for appellant.
    Terrance W. Votel, Michael B. Padden, Votel, Anderson & McEachron, St. Paul, MN, for respondent.
    Considered and decided by SCHUMACHER, Presiding Judge; WILLIS, Judge; and WRIGHT, Judge.
   OPINION

WRIGHT, Judge.

Appellant brought an action against respondent insurance company, seeking recovery of no-fault benefits under her automobile insurance policy. The district court granted summary judgment in favor of respondent, concluding that the action was barred by the six-year statute of limitations applicable to contract actions, which began to run when appellant’s no-fault benefits were discontinued. Appellant challenges the entry of summary judgment. We affirm.

FACTS

Appellant Karyn Entzion was injured in an automobile accident in January 1992. Entzion filed a claim with respondent Farmers Insurance Company (Farmers Insurance) to receive no-fault benefits for her medical expenses; she did not claim wage-loss benefits. Farmers Insurance paid no-fault benefits totaling $18,836.83 for Entzion’s medical expenses. In December 1994, based on the report of an independent medical examiner who opined that Entzion would no longer benefit from additional medical treatment and was capable of returning to work without restriction, Farmers Insurance notified Entzion that her no-fault benefits were discontinued. Entzion had incurred an undisclosed amount of unclaimed medical expenses and roughly $23,000 in unclaimed wage loss when her benefits were discontinued.

In May 2002, Entzion filed a claim for the remaining no-fault benefits. Under her policy limits, she had $1,063.17 in unpaid medical-expense benefits and $20,000 in unpaid wage-loss benefits. In July 2002, Farmers Insurance reiterated that Entzion’s no-fault benefits were discontinued in December 1994 and denied Ent-zion’s claim.

Entzion brought a lawsuit to compel Farmers Insurance to pay the remaining no-fault benefits. Farmers Insurance moved for summary judgment, arguing that the six-year statute of limitations began running in 1994 and barred Entzion’s claim. The district court agreed and granted summary judgment. This appeal followed.

ISSUES

I. Does the six-year contract statute of limitations apply to Entzion’s action to recover no-fault benefits from Farmers Insurance?

II. Does the six-year contract statute of limitations bar Entzion’s action to recover no-fault benefits from Farmers Insurance?

ANALYSIS

On appeal from summary judgment, we determine whether there were any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). When the district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion, which we review de novo. Lefto v. Hoggsbreath Enters. Inc., 581 N.W.2d 855, 856 (Minn.1998). In doing so, we view the evidence in the light most favorable to the party against whom judgment was entered. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993).

I.

Under Minnesota law, an action shall be commenced within six years “upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed.” Minn.Stat. § 541.05, subd. 1(1) (2002). Entzion argues that the six-year statute of limitations for contract actions does not apply here because the Minnesota No-Fault Automobile Insurance Act (No-Fault Act) contains other limitations provisions that preclude inexhaustible recovery of no-fault benefits.

Indeed, the No-Fault Act limits the amount of no-fault benefits recoverable under a policy, Minn.Stat. § 65B.44, subds. 1, 3 (2002), and permits an insurer to require notice of an accident within six months after the accident or limit the insured’s recovery of no-fault benefits for accidents reported after six months, Minn. Stat. § 65B.55, subd. 1 (2002). The No-Fault Act also permits an insurer to limit or discontinue recovery of no-fault benefits if a lapse in disability and medical treatment has occurred. Minn.Stat. § 65B.55, subd. 2 (2002). But these limitations on recovering no-fault benefits, which do not fulfill the goals of a statute of limitations, do not serve as a substitute for one.

The purpose of a statute of limitations is to prescribe a period within which a right may be enforced and after which a remedy is unavailable for reasons of private justice and public policy. Bachertz v. Hayes-Lucas Lumber Co., 201 Minn. 171, 176, 275 N.W. 694, 697 (1937). A statute of limitations discourages fraud and endless litigation. It “prevents a party from delaying an action until papers are lost, facts are forgotten, or witnesses are dead.” Karels v. Am. Family Mut. Ins. Co., 371 N.W.2d 617, 619 (Minn.App.1985), aff'd mem., 381 N.W.2d 441 (Minn.1986). “A statute of limitations is based on the proposition that it is inequitable for a plaintiff to assert a claim after a reasonable lapse of time during which the defendant believes no claim exists.” Id. The limitations provisions of the No-Fault Act are distinguishable in purpose and effect from a statute of limitations. Thus, we are not persuaded that the limitations established in the No-Fault Act 'obviate a statute of limitations.

In reaching our conclusion, we note that other jurisdictions with limiting provisions similar to those in the Minnesota No-Fault Act also apply a statute of limitations. See, e.g., Shave v. Allstate Ins. Co., 549 F.Supp. 1006, 1009 n. 1 (S.D.Ga.1982) (applying the six-year contract statute of limitations to no-fault statute that limits the maximum no-fault benefits recoverable under a policy); Mantor v. Gen. Accident Ins. Co., 129 A.D.2d 998, 999, 514 N.Y.S.2d 839 (1987 (applying a six-year contract statute of limitations to no-fault statute with a 90-day deadline for notice to the insurer of an accident and a limit on the maximum no-fault benefits recoverable under policy); see also Haw.Rev.Stat. § 431:100-315 (2002) (providing a two-year statute of limitations in action for initial payment of benefits and where benefits have lapsed); Kan. Stat. Ann. § 40-3110 (2002) (applying a two-year limitations period in addition to permitting insurer to specify a time period for an insured to provide notice of an accident); Ky.Rev.Stat. Ann. § 304.39-230 (Michie 2002) (providing that action for initial payment of no-fault benefits must be brought within two years after loss and knowledge that loss was caused by accident, but in no event more than four years after accident and two-year limitations period in action where benefits have lapsed); Mich. Comp. Laws Ann. § 500.3145 (West 2002) (providing a one-year limitations period in action for initial payment of benefits and where benefits have lapsed); N.J. Stat. Ann. § 39:6A-13.1 (providing that action for initial payment of no-fault benefits must be brought within two years after loss and knowledge that loss_ was caused by accident, but in no event more than four years after accident and two-year limitations period in action where benefits have lapsed); 75 Pa. Cons.Stat. § 1721 (2002) (providing a four-year limitations period in action for initial payment of benefits and where benefits have lapsed).

Here, Entzion’s action for recovery of no-fault benefits denied by Farmers Insurance is based on an alleged breach of the insurance contract. Neither the No-Fault Act nor Entzion’s insurance policy expressly prescribes a period of limitations for bringing such action. We, therefore, conclude that the six-year contract statute of limitations is applicable to Entzion’s action.

II.

Entzion argues, in the alternative, that her cause of action did not accrue until Farmers Insurance denied her claim for the remaining no-fault benefits in July 2002. The district court concluded that Entzion’s cause of action accrued when Farmers Insurance discontinued her no-fault benefits in December 1994. We agree. Generally, the six-year statute of limitations for a breach-of-contract action applies to actions brought for underin-sured- and uninsured-motorist benefits under the No-Fault Act and begins to run when the cause of action accrues. Oanes v. Allstate Ins. Co., 617 N.W.2d 401, 406-407 (Minn.2000) (underinsured motorist); Hughes v. Lund, 603 N.W.2d 674, 677-78 (Minn.App.1999) (uninsured motorist).

A cause of action accrues and the statute of limitations begins to run when the action can withstand a motion to dismiss for failure to state a claim on which relief can be granted. Noske v. Friedberg, 670 N.W.2d 740, 742 (Minn.2003). We conclude that an action for no-fault benefits based on a breach-of-contract theory can withstand a motion to dismiss for failure to state a claim once the insurer has denied benefits. Our conclusion is consistent with the laws of other jurisdictions that have determined that the cause of action accrues and the statute of limitations for recovery of no-fault benefits begins to run when the insurer denies payment of benefits. See, e.g., Lewis v. Detroit Auto. Inter Ins. Exch., 426 Mich. 93, 393 N.W.2d 167, 172 (1986) (holding that the statute of limitations is tolled until the insurer denies the insured’s claim); Bridges v. Allstate Ins. Co., 158 Mich.App. 276, 404 N.W.2d 240, 242 (1987) (acknowledging that the statute of limitations is tolled until the insurer denies the insured’s claim); Micha v. Merchants Mut. Ins. Co., 94 A.D.2d 835, 463 N.Y.S.2d 110, 112 (N.Y.App.Div.1983) (holding that a cause of action accrues on an action to claim unpaid no-fault benefits when the insurer fails to make payments).

Entzion had incurred more than $20,000 in unclaimed wage loss and more than $1,000 in unclaimed medical expenses when Farmers Insurance discontinued her no-fault benefits in December 1994. Ent-zion’s cause of action accrued and the statute of limitations began to run on that date. Because Entzion did not commence this action until nearly eight years after Farmers Insurance denied payment of no-fault benefits, her claim is barred by the statute of limitations.

DECISION

Because the six-year contract statute of limitations applies to Entzion’s action to recover uncompensated medical expenses and wage loss, which had accrued when Farmers Insurance discontinued her no-fault benefits, the district court did not err in granting summary judgment in favor of Farmers Insurance on a claim brought nearly eight years after the denial of benefits.

Affirmed.

      . Because Entzion was unable to return to work as a personal trainer and aerobics instructor after the accident, she claimed entitlement to $7,752 per year in wage-loss benefits for 1992, 1993, and 1994.