This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).






Jaque Bethke, et al.,





Assurance Company of America,



Filed November 26, 2002


Kalitowski, Judge


Hennepin County District Court

File No. 012772


Clarance E. Hagglund, Britton D. Weimer, Hagglund, Weimer & Speidel, 4000 Water Park Place, 5101 Olson Memorial Highway, Minneapolis, MN 55422 (for appellants)


Peter G. Van Bergen, Andrea E. Reisbord, Cousineau, McGuire & Anderson, Chartered, 600 Travelers Express Tower, 1550 Utica Avenue South, Minneapolis, MN 55416-5318 (for respondent)


            Considered and decided by Toussaint, Chief Judge, Kalitowski, Judge, and Halbrooks, Judge.

U N P U B L I S H E D   O P I N I O N


            Appellants insureds challenge the district court’s grant of summary judgment in favor of respondent insurer Assurance Company of America.  Appellants contend that the district court:  (1) erred regarding the burden of proof concerning respondent’s duty to defend; and (2) wrongfully applied the insurance policy exclusion regarding loss of use of property arising out of failure to perform a contract.  We affirm.


            On review of a summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court correctly applied the law.  Burlington N. R.R. v. Comm’r of Revenue, 606 N.W.2d 54, 57 (Minn. 2000).  In making this determination, we view the evidence in the light most favorable to the party against whom summary judgment was granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). 


            Appellants claim that the district court committed fundamental error by holding that the insured has the burden of proving that an insurer has a duty to defend.  We disagree.

            The duty to defend is based on whether the allegations contained in the underlying complaint against the insured state a cause of action within coverage afforded by the policy.  Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 419 (Minn. 1997).  Extrinsic evidence may also be utilized to establish coverage under the policy.  Garvis v. Employers Mut. Cas. Co., 497 N.W.2d 254, 258 (Minn. 1993).  The burden of proof regarding the duty to defend is held by the insurer.  Atlantic Mut. Ins. Co. v. Judd Co., 380 N.W.2d 122, 126 (Minn. 1986).  But recently we examined the issue of what is required of insureds regarding the duty to defend in St. Paul Mercury Ins. Co., v. Dahlberg, Inc., 596 N.W.2d 674 (Minn. App. 1999). 

            In Dahlberg, we determined that the insured is required to meet a “minimum threshold” to establish a duty to defend.  Specifically we stated that

because an insurer’s duty to defend is contractual, insureds still must meet a minimum threshold for establishing coverage through their complaints or extrinsic evidence.


Id. at 677 (emphasis added).

            In this case, the district court determined that appellants did not meet the minimum threshold for establishing a duty to defend with the underlying complaint, as is required under Dahlberg.  Because the district court properly referred to, and discussed, the allegations of the underlying complaint, we conclude that the district court did not err regarding the burden of proof to establish a duty to defend.


            Under the policy, respondent agreed to pay for property damage caused by an “occurrence” and to defend appellants in any lawsuits seeking property damages. “Property damage” is defined in the policy as follows:

“Property damage” means:

a.  Physical injury to tangible property, including all resulting loss of use of that property.  * * * ; or


b.  Loss of use of tangible property, including all resulting loss of use of that property.  * * * .


An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

            Appellants allege that the underlying complaint contained claims for the loss of use of tangible personal property.  Respondent argues that the complaint at issue does not contain allegations of property damage caused by an occurrence.  But because we conclude that the impaired property exclusion (exclusion m) applies, it is unnecessary to address this issue; any allegations of property damage in the underlying complaint are excluded by exclusion m.  

            Exclusion m states that there is no coverage for loss of use of tangible property arising out of the insured’s failure to perform a contract or agreement according to its terms.  “‘[A]rising out of’ in an insurance policy * * * mean[s] ‘causally connected with’ and not ‘proximately caused by.’”  Meadowbrook, 559 N.W.2d at 419 (quoting Faber v. Roelofs, 311 Minn. 428, 437, 250 N.W.2d 817, 822 (1977)).  It has also been determined that “but for” causation is generally sufficient to satisfy the “arising out of” requirement.  Faber, 311 Minn. at 437-38, 250 N.W.2d at 822-23. 

            Here, all the claims in the underlying complaint are causally connected with appellants’ failure to fulfill the terms of the agreement.  But for the agreement that appellants build a house for the underlying complainant, and appellants’ failure to do so in a timely manner, appellants would not have been sued. 

            Appellants argue that exclusion m does not apply because the underlying complainant effectively rescinded his contract with appellants.  Because of the rescission, appellants allege that the agreement had no legal effect and thus, there were no viable contract claims in the underlying complaint and exclusion m is inapplicable.  We disagree. 

            First, we note that the underlying complainant alleges breach of contract in the underlying complaint in direct contradiction of appellants’ contention that the contract was rescinded.  More importantly, an insurer’s duty to defend is determined by comparing the allegations of the underlying complaint with the relevant policy language.  Dahlberg, 596 N.W.2d at 676.  And all the allegations in the complaint at issue are tied to the duties of appellants under the contract or the breach of those duties.  If the contract is treated as though it never existed, there would be no basis of the underlying litigation.  We conclude that the district court properly determined that under the plain language of the underlying complaint and exclusion m, respondent had no duty to defend appellants.