This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. ß 480A.08, subd. 3 (2000).
STATE OF MINNESOTA
IN COURT OF APPEALS
Britamco Underwriters, Inc.,
A & A Liquors of St. Cloud, Inc., d/b/a Tomís 9th Avenue Bar
†and A & A Liquor, Inc., d/b/a Tomís Bar,
Thomas Eul, intervenor,
Filed April 17, 2001
Stearns County District Court
Steven D. Pattee, Waldeck & Lind, P.A., 730 TCF Tower, 121 South Eighth Street, Minneapolis, MN 55402 (for Britamco Underwriters, Inc.)
Amy J. Doll, Fleugel, Helseth, McLaughlin, Anderson & Brutlag, Chartered, 215 Atlantic Plaza, P.O. Box 527, Morris, MN 56267-0527 (for Thomas Eul)
Thomas P. Melloy, Hall & Byers, P.A., 1010 West St. Germain, Suite 600, St. Cloud, MN 56301 (for A & A Liquors of St. Cloud, Inc. and A & A Liquor, Inc.)
††††††††††† Considered and decided by Amundson, Presiding Judge, Willis, Judge, and Poritsky, Judge*.
An injured party brought a dram shop action, and a default judgment was entered against the bar when it failed to respond.† Shortly thereafter, the bar notified its insurer of the claim.† The insurer sought a judgment declaring that it was not responsible for the claim, and the district court agreed.† We reverse.
In June 1998, Thomas Eul sued Tom's 9th Avenue Bar (Tomís Bar), Centennial Liquor Shoppe (Centennial), Eugene Myers, David Williams, and Allen Smith, alleging assault and battery by Myers, Williams, and Smith and dram shop liability on Tomís Bar and Centennial.† At the time of the incident, Britamco Underwriters, Inc. (Britamco) insured Tomís Bar for claims arising under the Minnesota Civil Damages Act, pursuant to a liquor liability policy.† After attempting service by publication and receiving no response from Tomís Bar, Eul obtained a default judgment on November 12, 1998 against Tomís Bar for $227,839.56.
Tomís Bar learned of the default judgment and, on November 20, 1998, notified the claims department for Britamco, which then retained attorneys to defend the action.††† Britamco filed an answer and crossclaim on December 7, 1998.
Tomís Bar moved the court to vacate the default judgment, but on March 16, 1999, the district court denied that motion, finding that Tomís Bar was given notice of the claim on September 10, 1997.
On July 22, 1999, Britamco sought a judgment declaring that it was not responsible for defending or indemnifying the underlying claim.† Eul intervened to defend against this action.† The district court granted summary judgment in favor of Britamco, finding that Britamco had sustained actual prejudice due to the failure of Tomís Bar to notify it of the claim in a timely manner.† Following the summary judgment order, Britamco moved for supplemental relief in the form of attorney fees for both this action and the underlying action.† The district court denied this motion.† Eul and Tomís Bar appeal the summary judgment order, and Britamco filed a notice of review of the denial of its motion for attorney fees.
Duty to Defend and Indemnify
The district courtís award of summary judgment was premised on its conclusion that Britamco was prejudiced as a matter of law by the default judgment in the underlying case.† ďOn appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law.Ē† State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).
Eul and Tomís Bar argue that Britamco is estopped from denying coverage because it defended the case upon notification.† ďIf an insurer, with full knowledge of the facts of a claim, defends its insured without reserving its rights to deny coverage, the insurer may be estopped later to deny coverage.Ē† Mutual Service Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365, 368 (Minn. App. 1991).† Britamco argues that it implicitly reserved its rights by filing this declaratory judgment action on July 22, 1999, and did so explicitly in a letter dated September 30, 1999.† But this reservation of rights occurred almost eight months after it filed its answer and crossclaim in the underlying matter.† A reservation of rights must be made in a timely fashion ďon peril of estoppel.Ē† See Meirthew v. Last, 135 N.W.2d 353, 355 (Mich. 1965) (holding that insurance companyís reservation of rights letter sent several years after action was commenced came too late to avoid presumptive prejudice of both the insuredís and, consequently, the plaintiffís rights especially considering the lack of loyalty suggested by such delay).† The delay in the instant case was both without justification and prejudicial.
Here, Tomís Bar had no reason to believe that Britamco would challenge its duty to defend until Britamco filed its declaratory judgment complaint eight months later.† This delay is simply too long.† In the interim, Britamcoís unqualified offer of defense has undoubtedly affected Tomís Barís settlement posture.† See, e.g., Oehme v. Johnson, 181 Minn. 138, 151, 231 N.W. 817, 822 (1930) (stating that courts hold with practical unanimity that an insurer cannot undertake a defense, thereby affecting the decision to settle, and then later deny coverage).† If, at the time of tendering a defense, Britamco had reserved its rights, it could be said that Tomís Bar, in accepting the offer of defense, acquiesced to the defenseís provisional nature.† See, e.g., Knapp v. Commonwealth Land Title Ins. Co., 932 F. Supp. 1169, 1172 (D. Minn. 1996) (insurer permitted to recover costs associated with defense later judged to be unnecessary when insurer adequately reserved its rights and defendant acquiesced to the provisional defense).† But Tomís Bar was not given that opportunity to decide whether to accept such an offer until eight months into the litigation.† Because Britamco did not reserve its rights in a timely manner, it is now estopped from denying coverage.
Because we conclude that Britamco is estopped from denying coverage, we decline to address the theoretical question of whether Britamcoís duty to defend and indemnify was obviated by the default judgment.
The district court declined to award fees and costs to Britamco for the underlying action and did not address attorney fees on the declaratory action.† Although Britamco argues it is entitled to such fees, the decision to award or deny attorney fees is discretionary.† Katz v. Katz, 408 N.W.2d 835, 840 (Minn. 1987).† The district court pointed to Britamcoís failure to provide a timely reservation of rights in support of its decision to not award attorney fees.† This conclusion is substantiated by the record and is not an abuse of the district courtís discretion.
Britamco argues that attorney fees are recoverable under Minn. Stat. ß 555.08 (2000), which provides for supplemental relief, ďwhenever necessary or proper.Ē† But, in this case, this statute cannot be extended to provide for attorney fees absent a breach of a contractual duty.† Garrick v. Northland Ins. Co., 469 N.W.2d 709, 714 (Minn. 1991).† Britamco argues that Tomís Bar breached a contractual duty by failing to notify Britamco of the claim asserted by Eul.† But the duty to notify the insurance company is not a contractual obligation per se.† Rather, it is a condition precedent to the insurance companyís obligation to defend and indemnify, and is specifically labeled as such in the insurance policy.† Furthermore, even if the duty to notify were a contractual obligation, the power to grant attorney fees in breach of contract situations is discretionary, and we find no abuse of that discretion.