This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
IN COURT OF APPEALS
Seren Innovations, Inc.,
Transcontinental Insurance Company, et al.,
Western National Mutual Insurance Company,
Stearns County District Court
File No. C4-04-1900
Douglas L. Skor, Louise Dovre Bjorkman, John M. Bjorkman, Larson King, L.L.P., 2800 Wells Fargo Place, 30 East Seventh Street, St. Paul, MN 55101-4922 (for appellant)
William M. Hart, Stacy A. Broman, Damon L. Highly, Meagher & Geer, P.L.L.P., 33 South Sixth Street, Suite 4200, Minneapolis, MN 55402 (for respondents Transcontinental Insurance Company, Continental Casualty Company)
James T. Martin, Gislason, Martin & Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Minneapolis, MN 55435-5130 (for respondent Western National Mutual Insurance Company)
Considered and decided by Dietzen, Presiding Judge; Wright, Judge; and Worke, Judge.
In this appeal from summary judgment, appellant argues that respondents (a) breached their duty to defend appellant in the underlying lawsuits; (b) breached their duty to indemnify appellant for the settlement of those lawsuits; and (c) refused to pay appellant’s defense costs. By notice of review, respondents argue that there are additional bases for summary judgment because (a) a settlement of compensatory-damages claims limited the scope of their duty to defend, and (b) appellant failed to sign a loan-receipt agreement. We affirm.
Appellant Seren Innovations, Inc. (Seren) was the contractor on a fiber optic cable installation project in St. Cloud. Seren hired Cable Constructors, Inc. (CCI) to perform the construction and installation of the cable. Although Seren had a primary insurance carrier, respondent Western National Mutual Insurance Company (Western National), the construction contract between Seren and CCI required CCI to purchase additional insurance to indemnify Seren. In satisfaction of this requirement, CCI purchased policies from respondents Transcontinental Insurance Co. (Transcontinental) and Continental Casualty Co. (Continental) (collectively CNA). CCI purchased from Transcontinental a commercial general-liability policy with coverage of $1 million. CCI purchased from Continental a commercial umbrella policy with coverage of $25 million.
On December 11, 1998, CCI construction workers accidentally struck a natural gas line, resulting in an explosion that killed four people, injured several others, and damaged nearby property. Claims for injury and wrongful death arose from the St. Cloud explosion. One group of plaintiffs was collectively known as the “Robins plaintiffs” because of their representation by the law firm of Robins, Kaplan, Miller & Ciresi, L.L.P. Thomas Sandquist (Sandquist), trustee for the heirs of Carolyn Sandquist, whose claim underlies the instant case, was one of the Robins plaintiffs.
CNA retained separate counsel to represent CCI and accepted the terms of Seren’s tendered defense of claims arising from the St. Cloud explosion, including the designation of the law firm of Maslon Edelman Borman & Brand, L.L.P. (Maslon) as defense counsel for Seren.
May 2001, CNA engaged in settlement negotiations with the Robins plaintiffs to
settle their claims. In a letter dated
May 4, 2001, CNA notified Seren that the Robins plaintiffs were not interested
in releasing Seren from any obligation that might arise for punitive
damages. CNA also advised Seren that the
Transcontinental policy did not cover punitive damages and, citing Meadowbrook, Inc. v. Tower Ins. Co., 559
N.W.2d 411 (
On August 17, 2001, the Robins plaintiffs moved to amend their complaint to assert a claim for punitive damages against Seren. The district court concluded that the Robins plaintiffs had made a threshold showing that Seren had acted with a deliberate disregard for the rights and safety of others. Accordingly, the district court granted the motion of the Robins plaintiffs to amend their complaint. Seren then moved for summary judgment on the Robins plaintiffs’ compensatory and punitive-damages claim, which the district court denied. The district court determined that the punitive-damages claim that the Robins plaintiffs had asserted against Seren was independent of the August 2001 settlement of compensatory damages. Consequently, the district court permitted the Robins plaintiffs to continue to pursue their punitive-damages claim. On December 22, 2003, shortly after the district court denied its motion for summary judgment, Seren settled all remaining claims with the Robins plaintiffs.
After the settlement, CNA learned of a possible conflict of interest between Seren’s counsel, Maslon, and Seren’s primary insurance carrier, Western National. Suspecting collusion between Maslon and Western National related to the Robins plaintiffs’ settlement, CNA began withholding payment from Maslon. CNA subsequently resolved its fee dispute and paid all outstanding invoices owed to Maslon in October 2004.
On April 29, 2004, Seren filed suit against CNA based on CNA’s settlement of the compensatory-damages claim without also settling the punitive-damages claim. Seren alleged that CNA breached (1) its duty to defend; (2) its duty to indemnify; (3) the implied covenant of good faith and fair dealing; and (4) its fiduciary duty. Seren also sought a declaratory judgment that CNA had a continuing duty to defend Seren in all pending cases, or, in the alternative, that CNA had an obligation to pay all outstanding litigation-defense invoices.
On November 18, 2004, the district court dismissed the claims of breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, reasoning that, based on the allegations in the complaint, those claims were incorporated in the claim for breach of the duty to defend and the duty to indemnify. The district court denied the motions to dismiss the other claims. On February 18, 2005, however, the district court granted CNA summary judgment on the remaining claims for breach of the duty to defend and the duty to indemnify. The district court determined that Seren’s insurance policies with CNA did not cover punitive-damages claims. Thus, CNA had not breached its duty to defend or its duty to indemnify Seren. Moreover, because Seren was unable to produce any evidence that it had not received the defense to which it was entitled, the district court concluded that summary judgment was warranted. This appeal followed.
judgment was properly granted is a question of law, which we review de
Because the claims alleged here are
founded on CNA’s failure to settle the Sandquist punitive-damages claim, a
threshold issue to be resolved is whether the CNA insurance polices provided
punitive-damages coverage. To address
this issue, we must examine the language of the insurance contracts. Construction of an insurance contract as
applied to the facts presented is a question of law, which we review de novo. Meister
v. W. Nat’l Mut. Ins. Co., 479 N.W.2d 372, 376 (
Seren’s claims for breach of the duty to defend and breach of the duty to indemnify are grounded in its contention that the insurance policies cover punitive damages. The Transcontinental commercial general-liability policy provides coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage.’” “Bodily injury” is defined in the policy as “bodily injury, sickness or disease sustained by a person, including death.” The policy defines “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” The Continental commercial umbrella policy provides similar coverage for “bodily injury” and “property damage.” The language of the policies is unambiguous. Neither policy contains specific language including or excluding punitive damages. But when giving the terms used in the policies their plain meaning, it is clear that the policies covered only compensatory damages for property damage or bodily injury.
damages addressed in the insurance polices are compensatory damages intended to
compensate injured parties for actual losses.
See Phelps v. Commonwealth Land
Title Ins. Co., 537 N.W.2d 271, 275 (
Generally, insurance coverage for
punitive damages is contrary to public policy because it would defeat the
purpose of punishing wrongdoers. Wojciak v. N. Package Corp., 310 N.W.2d
675, 680 (Minn. 1981) (“In spite of the lack of certainty concerning the
deterrent effect of punitive damages, we are satisfied that in most instances
public policy should prohibit a person from insuring himself against misconduct
of a character serious enough to warrant punitive damages.”). This general prohibition is subject to an
exception for punitive-damages claims based on vicarious liability. Perl v.
St. Paul Fire & Marine Ins. Co., 345 N.W.2d 209, 216 (Minn. 1984); Lake Cable Partners v. Interstate Power Co.,
563 N.W.2d 81, 86 (Minn. App. 1997) (“Punitive damages may only be insured
against by those who may be vicariously liable.”), review denied (Minn. July 10, 1997). The Minnesota Legislature codified this
principle in Minn. Stat. § 60A.06, subd. 4 (2004), by permitting insurance
companies to insure against vicarious liability for punitive damages. 2000
Notwithstanding the absence of specific policy language providing coverage for punitive damages, Seren maintains that the vicarious-liability exception applies here. But this exception does not create punitive-damages coverage where none is provided by the plain language of the insurance contract, even in those cases when the damages arise from vicarious liability. Absent policy language providing coverage for punitive damages, we will not create coverage where coverage does not exist, even if such coverage would fall within the vicarious-liability exception to the punitive-damages-coverage prohibition.
Moreover, we note that the record does not support a conclusion that the punitive damages at issue here were based on vicarious liability. The record establishes that Seren failed to take adequate safety measures and failed to provide training to its agents. As the district court aptly concluded when granting the Robins plaintiffs’ motion to amend their complaint:
There is no evidence Defendant Seren had any type of safety program in place, either for itself or Defendant CCI, nor is there evidence that Defendant Seren required that CCI have a safety program in place. There is no evidence Defendant Seren supplied safety training, nor did it question whether the crews received training. There is no proof of training on the appropriate response to emergency situations, including hitting a natural gas line.
The record supports the district court’s determination that Seren’s conduct gave rise to the punitive-damages claim. Accordingly, there is no factual basis to support Seren’s contention that the punitive-damages claim was based on vicarious liability.
In sum, because the unambiguous language of the policies does not provide coverage for punitive damages, the district court correctly concluded that the CNA policies covered only the compensatory-damages claims.
Seren contends that CNA breached its
duty to defend by abandoning Seren during the litigation of the Robins plaintiffs’
punitive-damages claims. The duty of an
insurer to defend its insured arises when the insurance contract “arguably”
provides coverage for the claims alleged in the complaint.
determined by the allegations of the complaint and the indemnity coverage of the policy. If any part of a cause of action is arguably within the scope of coverage, the insurer must defend. Any ambiguity is resolved in favor of the insured, and the burden is on the insurer to prove that the claim clearly falls outside the coverage afforded by the policy. If the claim is not clearly outside coverage, the insurer has a duty to defend.
Prahm v. Rupp Constr. Co., 277
N.W.2d 389, 390 (
An insurer can be liable for a
breach of its duty to the insured for failing to exercise “good faith in
considering offers to compromise the claim for an amount within the policy
limits.” Short v. Dairyland Ins. Co., 334 N.W.2d 384, 387 (
Seren maintains that CNA structured a settlement agreement that was prejudicial to Seren by refusing to settle all claims for an amount within the policy limits. According to Seren, CNA wrongfully limited coverage by refusing to settle the Robins plaintiffs’ claims, regardless of whether the types of damages being sought were covered. We disagree. First, the uncontroverted record establishes that CNA sought to settle all claims and that the Robins plaintiffs refused to settle the punitive-damages claims during the negotiations that resulted in the compensatory-damages settlement. Second, claims for punitive damages were not covered by the policies. Short does not extend the duty to defend by creating a duty to settle all claims within the policy limits regardless of whether the policy provides coverage for a particular claim. Such an argument implies that the policy-coverage amount controls a determination of good faith rather than the policy language itself.
Seren argues that CNA concealed its intent to use the August 2001 settlement as the basis for refusing to contribute to the punitive-damages claims. But this argument is contrary to the record. Seren had notice that the Robins plaintiffs intended to seek punitive damages as early as May 4, 2001, when CNA informed Seren that it was negotiating with the Robins plaintiffs in the hopes of reaching a settlement. At that time, CNA advised Seren that the Robins plaintiffs were contemplating a claim for punitive damages and that such a claim was not covered under the Transcontinental policy. CNA also notified Seren that it intended to settle the compensatory-damages claims and sought contribution for settlement of any possible punitive-damages claims. Seren declined. Seren maintained that a punitive-damages claim had not been asserted, and because CCI was responsible for the accident, a punitive-damages claim against Seren would lack a basis in fact. Our careful review of the record establishes that there is no evidence to support Seren’s claim that CNA concealed its position on punitive damages or its attempt to settle the compensatory-damages claims. As such, Seren has not established that a genuine issue of material fact exists as to whether CNA concealed its intentions in a manner that breached its duty to defend Seren.
Moreover, Seren has not established
that the defense it received was prejudiced by CNA. If a complaint alleges numerous claims and
any one of them would obligate the insurer to indemnify if liability is
assessed, the insurer must provide a defense against all claims in the
complaint. Reinsurance Ass’n of Minn. v. Timmer, 641 N.W.2d 302, 307 (Minn.
App. 2002), review denied (
In its notice of review, CNA contends
that the district court erred by failing to conclude, based on the principles
articulated in Meadowbrook, Inc. v. Tower
Ins. Co., 559 N.W.2d 411 (Minn. 1997), that CNA’s duty to defend Seren
ceased with the August 2001 circular-indemnification agreement for the
Sandquist compensatory-damages claims. In
Meadowbrook, the Minnesota Supreme Court
held that an insurer who undertakes an insured’s defense can “withdraw its
defense once all arguably covered claims have been dismissed with
finality.” 559 N.W.2d at 416. “[A]n insurer cannot withdraw from a defense
until its duty to defend all arguably covered claims has been completely
extinguished—in other words, when no further rights to appeal those arguably
covered claims exist.”
Based on the evidence presented here, Meadowbrook’s holding does not compel the conclusion advanced by CNA. Because the circular-indemnification agreement did not release all compensatory-damages claims, it did not completely extinguish them or provide the requisite degree of finality as to Seren’s arguably covered claims to meet the standard articulated in Meadowbrook. Moreover, because the record before us does not include a copy of the December 2003 settlement agreement, we have no basis to conclude that the settlement included an explicit release of all claims, including those for compensatory damages, such that the finality required to meet the Meadowbrook standard existed at that time. Thus, our ruling is confined to the conclusion that the duty to defend did not cease, as CNA argues, upon CNA’s entry into the circular-indemnification agreement.
Seren also challenges the district court’s dismissal of the claims for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, arguing that they are distinct from the duty to defend. We address each claim in turn.
the insurance context, a fiduciary duty arises out of the “‘parties’ unequal
bargaining power and the nature of insurance contracts which would allow
unscrupulous insurers to take advantage of their insureds’ misfortunes in
bargaining for settlement or resolution of claims.’” Kissoondath
district court dismissed Seren’s claim for breach of fiduciary duty, concluding
that Seren had not alleged facts analogous to those in Short to support a separate cause of action for breach of fiduciary
duty. Rather, the facts alleged
established the basis for Seren’s claims for breach of the duty to defend and breach
of the duty to indemnify. On appeal,
Seren also fails to identify factual allegations that support a separate cause
of action for breach of fiduciary duty apart from the insurer’s duty to defend. And Seren cites no authority expressly
providing for a breach-of-fiduciary-duty claim under the facts alleged. Cf.
Miller v. ACE
Even if we were to conclude that Seren’s breach-of-fiduciary-duty claim is a cause of action separate from that of breach of the duty to defend and breach of the duty to indemnify, Seren has not demonstrated that there is a material fact issue as to this claim. The insurer’s fiduciary duty is measured by a standard of good faith, Kissoondath, 620 N.W.2d at 916, which is breached when “the insured is clearly liable and the insurer refuses to settle within the policy limits and the decision not to settle within the policy limits is not made in good faith,” Short, 334 N.W.2d at 388. When viewed in the light most favorable to Seren, the record establishes that CNA (1) had a good faith reason to believe that the punitive damages claims were not covered by Seren’s policies; (2) informed Seren of its intention to settle all covered claims; (3) invited Seren’s participation in settlement negotiations to address punitive damages, which Seren declined; and (4) continued to fulfill its duty to defend Seren by paying for Seren’s legal counsel through the final settlement with the Robins plaintiffs. Thus, dismissal of the breach-of-fiduciary-duty claim was proper.
Minnesota law recognizes that the implied covenant of good faith and fair
dealing is included in every contract, In
re Hennepin County 1986 Recycling Bond Litig., 540 N.W.2d 494, 502 (
Seren next contends that CNA breached
its duty to indemnify. “An insurer
assumes two duties to its insured: the
duty to defend and the duty to indemnify.”
St. Paul Fire & Marine
Ins. Co. v. Nat’l Chiropractic Mut. Ins. Co., 496 N.W.2d 411, 415 (Minn.
App. 1993), review denied (Minn. Apr.
29, 1993). The duty to defend is
distinct from and broader in scope than the insurer’s duty to indemnify.
Seren argues that it is entitled to indemnification for the punitive-damages claims. But CNA did not have a duty to indemnify Seren for punitive damages because the CNA insurance policies did not cover such claims. Because the CNA polices did not cover punitive damages as a matter of law, CNA did not breach its duty to indemnify Seren for the punitive-damages claims.
For the first time on appeal, CNA advances an alternate basis for summary judgment—that Seren refused to sign an updated loan-receipt agreement. This issue is not properly before us. Although the loan-receipt agreement is included in affidavits submitted to the district court in support of CNA’s motion for summary judgment, a review of CNA’s motion to dismiss and its motion for summary judgment does not establish that this issue was presented to the district court. And the district court did not address the loan-receipt agreement in its order on either motion.
generally will not address matters that have not been argued and decided in the
district court. Thiele v. Stich, 425 N.W.2d 580, 582 (
 “A Pierringer agreement allows a plaintiff to release a settling
defendant and to discharge a part of the plaintiff’s cause of action while
reserving the balance of the cause of action against the nonsettling
defendants.” Reedon of Faribault, Inc. v. Fid. & Guar. Ins. Underwriters, Inc.,
418 N.W.2d 488, 490 (
circular-indemnification agreement obligates the plaintiff to “indemnify the
defendant for claims including the plaintiff’s own claim. In such a situation, the plaintiff’s right to
recover damages from the defendant is offset by the plaintiff’s obligation to
repay the same damages to the defendant.” Nat’l
Hydro Sys. v. M.A. Mortenson Co., 529 N.W.2d 690, 693 (