Opinion
No. A06-1755.
Filed July 31, 2007.
Appeal from the District Court, Hennepin County, File No. 27-CV-05-011703.
Ken D. Schueler, Dunlap Seeger, P.A., (for appellants).
William M. Bradt, Hansen, Dordell, Bradt, Odlaug Bradt, P.L.L.P., (for respondent).
Considered and decided by Halbrooks, Presiding Judge; Lansing, Judge; and Hudson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2006).
UNPUBLISHED OPINION
Jared Sachs, John Bauer, Ralph Stoeffel d/b/a Spiral Fence Company, and Grinnell Mutual Reinsurance Company (collectively Grinnell), appeal from the district court's denial of Grinnell's summary-judgment motion and grant of Illinois Farmers Insurance Company's summary-judgment motion, in this insurance-benefits-recovery action. Grinnell argues that Farmers breached its duty to defend and indemnify, thereby causing Grinnell to pay benefits that it contracted to recover through loan-receipt agreements executed by the insureds. We affirm.
FACTS
This dispute over insurance coverage developed from a July 1996 automobile accident in which Jared Sachs struck a vehicle driven by Christa Kramer. At the time of the accident, Sachs was driving John Bauer's pickup truck while in the course of his employment with Ralph Stoeffel d/b/a Spiral Fence Company. Illinois Farmers Insurance Company insured Bauer's truck, and its policy covered Bauer, Sachs, and Stoeffel. Stoeffel was also insured under a policy with Grinnell Mutual Reinsurance Company, which provided coverage for any liability he might incur as the result of a motor-vehicle accident. Farmers provided primary coverage up to $30,000, and Grinnell provided excess coverage up to $300,000.
Kramer brought a personal-injury action against Sachs, Bauer, and Stoeffel. Grinnell tendered defense of the claim to Farmers on August 15, and Farmers accepted the defense on September 13. Farmers tendered the defense back to Grinnell on September 24, claiming that Minnesota law obligated Stoffel to indemnify his employees for losses sustained in the course of their employment. Farmers also tendered its policy limit of $30,000 for settlement. Grinnell rejected the tender of defense.
Between September 25 and the date of trial, the parties discussed a possible settlement. Because Farmers tendered its policy limit, Grinnell conducted the negotiations. Grinnell's initial offer of $50,000 fell short of Kramer's $100,000 demand. Grinnell's offer gradually rose to $100,000, but Kramer rejected the offer for unstated reasons. The case proceeded to trial at which Farmers provided the defense. The jury returned a verdict of $88,015 in damages, and the court assessed costs and disbursements of $13,399.04 plus $2,223.11 in prejudgment interest.
Grinnell assumed responsibility for $58,015 of the damages, but contended that Farmers remained responsible for the prejudgment interest and the costs and disbursements. Grinnell requested that Farmers pay those amounts. When Farmers refused, Grinnell informed Farmers that it would pay the amounts and then seek recovery based on loan-receipt agreements with Sachs, Bauer, and Stoeffel.
In August 2004 Grinnell sued Farmers in the insureds' names, seeking reimbursement for prejudgment interest, costs and disbursements, and attorneys' fees expended in defense of the insureds. Grinnell alleged that it was entitled to reimbursement because Farmers breached its duty to defend and indemnify when it attempted to tender the defense back to Grinnell on September 24. Farmers counterclaimed that it was entitled to reimbursement because Stoeffel was statutorily obligated to indemnify his employees.
On cross-motions for summary judgment the district court found that (1) Farmers did not breach its duty to defend or indemnify; (2) Farmers did not owe prejudgment interest, attorneys' fees, or costs and disbursements; and (3) the loan-receipt agreements were valid but would achieve an inequitable result. This appeal followed.
DECISION
On appeal from summary judgment we assess whether there are any genuine issues of material fact and whether the district court correctly applied the law. Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 324 (Minn. 2004). In the course of making this assessment 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). The interpretation of a contract and the construction of a statute are questions of law, which we review de novo. Rosenberg, 685 N.W.2d at 324.
Illinois Farmers Insurance Company asserts as a threshold issue that Grinnell Mutual Reinsurance Company cannot seek reimbursement because the loan-receipt agreements are invalid. A loan-receipt agreement is an instrument under which an insurer "loans" its insured amounts covered under its policy in exchange for the insured's promise to seek recovery from a third party liable for the costs and to apply any amount recovered toward the loan. Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 164 (Minn. 1986). In this way, loan-receipt agreements circumvent the general rule that one insurer cannot seek reimbursement from another insurer for costs incurred in defending or indemnifying a mutual insured. Home Ins. Co. v. Nat'l Union Fire Ins. of Pittsburgh, 658 N.W.2d 522, 527 (Minn. 2003). Because the insured is the named party, the rule prohibiting insurers from seeking reimbursement is avoided.
Farmers argues that the loan-receipt agreements used by Grinnell are invalid because they were signed after Grinnell paid the contested amounts on the insureds' behalf. The district court found that the agreements were valid but inequitable. It is unnecessary, however, to address this issue, because its resolution does not affect our determination. Assuming, for the purpose of review, that the loan-receipt agreements are valid, Grinnell has not sufficiently demonstrated that Farmers breached any duty to defend or indemnify the insureds.
Grinnell argues that Farmers breached its duty to indemnify when Farmers refused to pay the costs, disbursements, and prejudgment interest added to the principal balance of the judgment. Grinnell first argues that statutory law requires Farmers to pay these amounts and, alternatively, that Farmers' policy covered these amounts while its own policy did not. Grinnell's interpretation of both the law and Farmers' policy is unsustainable.
Minnesota law provides that when "judgment is entered against an insured, the principal amount of which is within the applicable policy limits, the insurer is responsible for their insured's share of the costs, disbursements, and prejudgment interest . . . even if the total amount of the judgment is in excess of the applicable policy limits." Minn. Stat. § 72A.201, subd. 12 (2006). Grinnell argues that, because Farmers' exposure was limited to $30,000, an amount within Farmers' policy limits, Farmers should be required to pay the costs and disbursements as well as its share of prejudgment interest.
Grinnell's argument overlooks the text and purpose of the statute. See Minn. Stat. § 645.16 (2006) (instructing that intent of legislature controls); Am. Tower, L.P. v. City of Grant, 636 N.W.2d 309, 312 (Minn. 2001) (holding that statutes are interpreted according to ordinary meaning when legislature's intent is plain from statute's unambiguous language). The pain meaning of the statute provides that judgments exceeding an insurer's policy limits free that insurer from responsibility for assessed costs, disbursements, and prejudgment interest. The principal amount of the judgment in this case was $88,015. Thus, the principal amount did not fall "within the applicable policy limit." Minn. Stat. § 72A.201, subd. 12.
If Farmers were the sole insurer, these excess amounts would have shifted to the insureds. See Larson v. Anchor Cas. Co., 249 Minn. 339, 354-56, 82 N.W.2d 376, 385-87 (1957) (holding that, absent bad faith, insurer is not liable in excess of policy limits). It would be an illogical result to hold that in a dual-insurer setting with a primary and excess insurer, these excess amounts shift back to the primary insurer because the primary insurer's share does not exceed its policy limits. For the purposes of the statute, the principal balance of the judgment must be viewed in its entirety, rather than proportionally. Because the entire principal balance exceeded Farmers' policy limits, Farmers was not statutorily obligated to pay costs, disbursements, or prejudgment interest.
This result is also required by the Farmers policy. Contractually, Farmers' policy required it to pay, "All costs we incur in the settlement of any claim or defense of any suit." Grinnell broadly interprets this provision to mean that "costs" includes the plaintiff's costs, disbursements, and prejudgment interest. Again, Grinnell overlooks text that refutes its arguments.
Farmers' policy defines "we" to mean "the Company named in the Declarations which provides this insurance." When this definition is read into the cost-payment provision, the provision plainly refers to only those costs Farmers incurs and no others. As a result, Farmers was not contractually obligated to pay the costs, disbursements, and prejudgment interest. Farmers did not breach its duty to indemnify the insureds; thus Grinnell cannot collect on that basis.
Grinnell also argues that it expended approximately $3,700 on attorneys' fees in defense of the insureds because Farmers breached its duty to defend. The duty to defend begins when the insured formally tenders the defense to the insurer. Home Ins. Co., 658 N.W.2d at 531. The duty "extends until it can be concluded as a matter of law that there is no basis on which the insurer may be obligated to indemnify the insured." Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 416 (Minn. 1997). It is an insurance-law axiom that the duty to defend is broader than the duty to indemnify. Jostens, 387 N.W.2d at 165-66.
Farmers acknowledges that, as the primary insurer, it had the duty to defend. See id. at 165 (discussing duty to defend). But Farmers argues that it is not responsible for Grinnell's claimed attorneys' fees because Grinnell failed to introduce sufficient evidence that it incurred the fees due to a breach of that duty by Farmers. We agree.
The only evidence Grinnell submitted in support of its expenditures on attorneys' fees was an affidavit flatly stating an amount incurred after its tender of the defense to Farmers. Grinnell did not clarify what the fees were for, but it appears they arose out of pretrial settlement negotiations and postverdict costs-and-disbursements negotiations. The primary insurer is required to defend from tender to final resolution of arguably covered claims. Meadowbrook, 559 N.W.2d at 416. But there is no evidence that Farmers refused to provide the services for which Grinnell paid. Without evidence of refusal there is no evidence of breach, and Grinnell's outlays are best described as voluntary payments made to protect its own interests.
Without sufficient evidence of breach or damages there can be no recovery. Although all inferences must be drawn in favor of the nonmoving party, "the party resisting summary judgment must do more than rest on mere averments." DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997). At summary judgment, sufficient evidence of the necessary elements must appear in the record. That evidence is absent from this record, and Grinnell's claim for attorneys' fees must, therefore, fail.