This opinion will be unpublished and

may not be cited except as provided by

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






Azcon Corporation,

a division of Blue Tee Corp. d/b/a Azcon Corporation, et al.,





Odyssey Re (London) Limited,

f/k/a Sphere Drake Insurance PLC,



Michael Kane, et al.,



Filed December 7, 2004


Kalitowski, Judge


St. Louis County District Court

File No. C0-95-600062


David M. Johnson, Thibodeau, Johnson & Feriancek, PLLP, 800 Lonsdale Building, 302 West Superior Street, Duluth, MN 55802 (for respondents)


Gerald J. Brown, Brown, Andrew & Signorelli, P.A., 306 West Superior Street, Suite 300, Duluth, MN 55802; and


James T. Martin, Gislason, Martin, Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Edina, MN 55435 (for appellant)


            Considered and decided by Kalitowski, Presiding Judge; Klaphake, Judge; and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N


            Appellant Sphere Drake Insurance Limited contends that the district court erred in (1) enforcing a loan-receipt agreement between respondents Azcon Corporation and National Union Fire Insurance Company of Pittsburgh; (2) awarding respondents attorney fees incurred in the prosecution of respondents’ declaratory-judgment action; and (3) determining that appellant breached its duty to defend Azcon.  We affirm.



            In November 1993, Azcon agreed to buy scrap metal from an explosives plant in Aurora, Minnesota.  Azcon hired Holmes Enterprises to prepare and transport the scrap metal to Azcon’s facility in Duluth.  Azcon, already insured by National Union, required Holmes to obtain liability insurance of its own that designated Azcon as an additional insured.  Appellant provided Holmes with such a policy.  Three of Holmes’s employees were killed in an explosion while removing the scrap metal, and Azcon was named as a defendant in wrongful-death and property claims. 

            Azcon first tendered the defense of the claims to National Union, and National Union accepted.  Azcon next tendered the defense to appellant, and appellant initially declined to defend or indemnify Azcon.  In November 1994, Azcon, later joined by National Union, brought a declaratory-judgment action against appellant, seeking a determination that Azcon was entitled to a defense and indemnification from appellant. 

            In March 2003, after several years of litigation and less than a month before the declaratory-judgment trial was scheduled to begin, Azcon and National Union entered into a loan-receipt agreement.  The stated purpose of the agreement was to allow Azcon and National Union to “recover from [appellant] and/or others the defense fees and costs incurred and made by or on behalf of Azcon in the underlying cases.”  In their agreement, the parties identified National Union’s prior payments on behalf of Azcon as a loan.  The district court held that the loan-receipt agreement was valid and enforceable. 


            On appeal from a declaratory-judgment action, we apply a clearly erroneous standard to the district court’s factual findings but review its determination of questions of law de novo.  Rice Lake Contracting Corp. v. Rust Env’t & Infrastructure, Inc., 549 N.W.2d 96, 98-99 (Minn. App. 1996), review denied (Minn. Aug. 20, 1996). 

            Appellant does not dispute any of the facts material to the loan-receipt agreement, but does dispute its validity.  Appellant asserts that the sole purpose of the loan-receipt agreement was to avoid the Iowa National rule.  See Iowa Nat’l Ins. Co. v. Universal Underwriters Ins. Co., 276 Minn. 362, 365-68, 150 N.W.2d 233, 236-37 (1967) (holding that an insurer cannot recover from another insurer for the costs of defense of a mutual insured absent a contractual relationship between insurers).  Appellant concedes that a loan-receipt agreement can be used to circumvent the Iowa National rule, but only if there is an actual transfer of funds and an adversarial relationship between the parties to the agreement.  We disagree.

            Appellant relies on Jostens v. Mission Ins. Co. for the proposition that there must be an actual transfer of funds between parties to a loan-receipt agreement.  387 N.W.2d 161 (Minn. 1986).  Appellant cites the following language from Jostens to support its position:

Loan receipt agreements have long been recognized in this state and they are a useful device in disposing of insurance disputes.  There is nothing improper or invalid about such a loan and, “so long as there was an actual transfer, the motives of the transfer [will] not be gone into.” 


Id. at 164 (quoting Blair v. Espeland, 231 Minn. 444, 449, 43 N.W.2d 274, 277 (1950)). 

            In determining Jostens application here, we must examine the Jostens court’s reference to an “actual transfer” in the context of its original source.  In the above passage, the Jostens court was quoting Blair.  The Blair court, in turn, was paraphrasing the supreme court’s decision in Hayday v. Hammermill Paper Co., 176 Minn. 315, 319, 223 N.W. 614, 616 (1929).  Neither Blair nor Hayday referred to a transfer of funds.  Instead, Blair referred to a transfer of the right to recovery, and Hayday referred to the transfer of a cause of action.  Blair, 231 Minn. at 449, 43 N.W.2d at 277; Hayday, 176 Minn. at 319, 223 N.W. at 616. 

            Hayday addressed the validity of an assignment of a cause of action to a citizen of the state in which the defendant resided to prevent the defendant from removing the case to federal court.  176 Minn. at 318, 223 N.W. at 615.  Hayday stated that “[t]he cause of action in the sellers was freely assignable by sale or gift.”  Id. at 319, 223 N.W. at 616.  Hayday further explained “[t]hat the transfer was without consideration and its purpose to maneuver defendant out of the right of removal is of no legal consequence.  So long as there was an actual transfer its motives will not be gone into.”  Id.  Thus, taken in context, Hayday referred to the transfer of a cause of action rather than a transfer of funds.      

            Although Hayday did not involve a loan-receipt agreement, the supreme court referred to Hayday when examining the validity of the loan-receipt agreement in BlairBlair, 231 Minn. at 447-49, 43 N.W.2d at 276-77.  Blair stated that the parties to the loan-receipt agreement agreed to allow the insured to bring an action in its own name and permit the insurer, who would benefit from a recovery, to remain hidden from view.  Id. at 449, 43 N.W.2d at 277.  Referring to its decision in Hayday, the Blair court stated:  “We there said that, so long as there was an actual transfer, the motives of the transfer would not be gone into.”  Id.  Taken in context, Blair referred to the transfer of a right of recovery rather than a transfer of funds. 

            When considered in light of both Hayday and Blair, we cannot agree with appellant’s claim that Jostens requires a transfer of funds for a valid loan-receipt agreement.  Although the loan-receipt agreement in Jostens did involve an actual transfer of funds from insurer to insured, the Jostens language refers to the transfer of the insured’s right of recovery, not a transfer of funds.  Jostens, 387 N.W.2d at 163-64.

            Appellant also relies on Jostens for the proposition that a valid loan-receipt agreement requires adversity between the parties to the agreement.  But we find no such requirement in Jostens.  Appellant points to the Jostens court’s statement that loan receipt agreements are a “useful device in disposing of insurance disputes.”  Jostens, 387 N.W.2d at 164, and contends that resolving a dispute between the parties to the agreement was a necessary element.  But the Jostens court did not explicitly set forth such a requirement.  Further, as noted above, the Jostens court stated that as long as a loan-receipt agreement involved an “actual transfer [of a right of recovery], the motives of the transfer [will] not be gone into.”  387 N.W.2d at 164 (quoting Blair, 231 Minn. at 449, 43 N.W.2d at 277) (emphasis added).  

            Appellant also draws support for its arguments concerning the requirements of a valid loan-receipt agreement from Home Ins. Co. v. Nat’l Union Fire Ins., 658 N.W.2d 522 (Minn. 2003).  But as in Jostens, the Home Insurance court did not state that either a transfer of funds or an adversarial relationship was a requirement for a valid loan-receipt agreement.  See id.


            A reviewing court will not reverse a district court’s award or denial of attorney fees absent an abuse of discretion.  Becker v. Alloy Hardfacing & Eng’g Co., 401 N.W.2d 655, 661 (Minn. 1987).  The district court awarded respondents attorney fees and expenses for the prosecution of the declaratory-judgment action.  In support of its award of attorney fees, the district court stated that it had reviewed the record and found the fees and expenses incurred by respondents to be reasonable and necessary to the case.  Based on the record before the district court, we cannot say the district court abused its discretion in awarding respondents attorney fees. 

            The record includes:  (1) an indemnity agreement between respondents; (2) an allocated expense sheet showing that Azcon paid a percentage of the costs and fees of the underlying claims; (3) the testimony of a claims director from the company that managed claims for National Union, stating that all legal fees for the underlying claims against Azcon and the declaratory-judgment action were handled in the same fashion; and (4) a second loan-receipt agreement from May 2003 stating that respondents had “been sharing the costs of pursuing claims against [appellant]” and that they entered into the agreement “so that [respondents] may recover from [appellant] the costs and fees incurred in pursuing the claims.”

            Each party claims that because the other party failed to properly raise certain issues on attorney fees and present adequate evidence of attorney fees to the district court the issue is not properly preserved for appeal.  But based on our review of this record, we conclude that both parties adequately submitted the disputed issues to the district court.  Appellant submitted to the district court proposed findings and conclusions and posttrial motions with regard to the award of attorney fees.  In a memorandum supporting its proposed order, appellant specifically argued that the district court should disregard the 1990 indemnity agreement and subsequently submitted a letter urging the district court to disregard the second loan-receipt agreement.    

            Respondents also submitted proposed findings of fact, conclusions of law, and a proposed order wherein respondents specifically referred to the second loan-receipt agreement.  Respondents also submitted a letter to the district court, in reply to appellant’s letter mentioned above, stating that the second loan-receipt agreement and the 1990 indemnity agreement were submitted as evidence with posttrial filings pursuant to the parties’ agreed upon procedure. 

            While the district court did not make express findings with respect to the 1990 indemnity agreement or the second loan-receipt agreement, we conclude that both items were part of the record subject to review by the district court.  And because we are affirming the validity of both loan-receipt agreements, we cannot say the district court abused its discretion in awarding respondents attorney fees for the prosecution of their declaratory-judgment action.


            An insured may recover from its insurer attorney fees it has incurred in a declaratory-judgment action only if there was a breach of a contractual duty or statutory authority exists to support such recovery.  SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 319 (Minn. 1995) (citing Morrison v. Swenson, 274 Minn. 127, 137-38, 142 N.W.2d 640, 647 (1966)).  In the insurance context, attorney fees are recoverable when an insurer breaches its duty to defend.  In Re Silicone Implant Ins. Coverage Litigation, 667 N.W.2d 405, 422 (Minn. 2003). 

            Appellant argues that by offering to share the defense costs with National Union subject to rights resolved in the declaratory-judgment action, it did not breach its duty to defend.  But the district court found that appellant breached its duty to defend stating, that because appellant “has not paid its share of the defense costs, a breach of its duty to defend has been shown.  Therefore, [respondents] are entitled to sue for the attorney fees incurred necessary to enforce that obligation.”  

            We conclude that the district court did not abuse its discretion in finding that appellant breached its duty to defend Azcon.  The record shows that (1) appellant initially committed a total breach of its duty to defend, as shown by appellant’s denial of any such duty in its answer to the declaratory-judgment action; (2) appellant made only conditional offers to participate in Azcon’s defense; and (3) appellant ultimately withdrew any offers to participate in Azcon’s defense. 

            Thus, on this record, we conclude that it was within the district court’s discretion to award attorney fees based on its finding that appellant breached its duty to defend.