Summary
In Tennant Co., the policy required the insured to send notice to the insurer's claims department at a particular address, which the insured failed to do.
Summary of this case from UnitedHealth Grp. Inc. v. Columbia Cas. Co.Opinion
Civil No. 99-349 (JRT/FLN).
June 29, 2001.
James T. Martin and Julian C. Janes, GISLASON, MARTIN VARPNESS, P.A., Edina, Minnesota, for plaintiff, The Home Insurance Company of Illinois.
Ludwig B. Gartner, Jr. and Eric Hageman, GARTNER, BENNETT SCHUPP, P.C., Minneapolis, MN., for defendant Tennant Company.
Steven P. Zabel, LEONARD, STREET AND DEINARD, P.A., Minneapolis, MN., and Carrie A. Durkin, AON CORPORATION, Chicago, IL., for third-party defendants Aon Risk Services of Minnesota and Sherwood Insurance Services.
Daniel J. Trudeau, LARSON KING, L.L.P., St. Paul, MN., for third-party defendant Crawford Company.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S AND THIRD-PARTY DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT
This declaratory judgment action arises out of an insurance policy purchased by defendant Tennant Company ("Tennant") from plaintiff Home Insurance Company of Illinois ("Home"). Tennant is the insured under a Comprehensive General Liability policy issued by Home. Tennant is seeking coverage for losses incurred as a result of a previous lawsuit in which a verdict of $1.2 million was rendered against Tennant, in favor of a third-party. Home brings this suit alleging that Tennant did not properly notify it of the claim as required in the insurance policy and therefore requests a declaration from the Court that it is not obligated under the policy to cover Tennant's losses. The matter is now before the Court on the summary judgment motions of defendant Tennant and third-party defendants Crawford Company ("Crawford"), AON Risk Services of Minnesota, Inc., ("AON"), and Sherwood Insurance Services ("Sherwood"). For the reasons set forth below, the Court grants summary judgment in favor of Tennant, Crawford, AON, and Sherwood.
While Home did not bring a motion for summary judgment, it claims that it is entitled to summary judgment pursuant to Fed.R.Civ.P. 56. Home argues, citing Johnson v. Bismark Public Sch. Dist., 949 F.2d 1000, 1004-05 (8th Cir. 1991), that the Court may grant summary judgment against the party making a motion for summary judgment despite the fact that the party opposing the motion has not made a cross motion for summary judgment.
BACKGROUND
A. The Parties and the Basis for Tennant's Claim
Tennant is the insured under a Comprehensive General Liability policy issued by Home. Crawford acted as the claims administrator for Tennant, assisting Tennant in administering the terms of the policy. Sherwood and Aon were Tennant's insurance brokers. Sherwood and Aon worked with Tennant to procure insurance from Home that met Tennant's needs. Although not a party to the lawsuit, Glendale Specialty Insurance Risks ("Glendale") is a wholly owned subsidiary of Home that handled the actual underwriting responsibilities for the Tennant account. Aon, Tennant's broker, dealt directly with Glendale concerning Tennant's policy. Tennant nor any of its brokers or agents ever dealt directly with Home concerning its policy. Instead it was Glendale, the subsidiary of Home, with which Tennant and its brokers and agents had day-to-day contact regarding the Home policy.
Aon was formerly known as Frank B. Hall.
The parties differed in the particular characterizations of Aon and Sherwood. Home characterized Aon as a "wholesale" broker and Sherwood as a "retail" broker, while Aon and Sherwood characterized Sherwood as a "wholesale" broker and Aon simply as an "insurance broker." These distinctions are immaterial for the resolution of the motion now before the Court.
In April 1995, a products liability lawsuit captioned Commercial Printing Co., Inc. v. Batzer Construction, Inc., et al., was served on Tennant, a named defendant in the case. The lawsuit, venued in Oregon state court, alleged that a Tennant floor-coating product containing muratic acid caused damage to two of Commercial Printing Co.'s printing presses. The case was tried to a jury and in September 1998, resulted in a verdict against Tennant and its co-defendants in the amount of $1.2 million. On December 18, 1998, three months after the jury verdict in the Commercial Printing lawsuit, Sherwood, on behalf of Tennant, sent a "First Notice of Loss" to Home requesting coverage under the Comprehensive General Liability policy for the Commercial Printing judgment. Home responded by letter, stating that it reserved the right to deny the claim due to untimely notice.
Tennant was apportioned 15% of the fault in the case and was therefore jointly and severally liable for the entire verdict. Its co-defendants were both apportioned fault in the amount of 35%. Plaintiff was also found to be 15% at fault. Based on Oregon state law, a finding of negligence in a percentage of 15% or more results in joint and several liability. If a defendant's negligence is found to be less than 15%, it is only severally liable. Apparently, Commercial Printing Co. has attempted to collect the entire verdict from Tennant.
Home later filed this lawsuit seeking a declaration that it did not receive timely notice of Tennant's claim prior to the jury's verdict and therefore has no obligation under the policy to provide coverage for Tennant's loss. In response, Tennant has filed several third-party claims against its brokers (Aon and Sherwood) and its claims administrator (Crawford), alleging that if Home did not receive timely notice of the underlying claim, one or more of the third-party defendants was at fault for not providing such notice.
B. The Insurance Policy
The insurance policy at issue in this case covered "occurrences" causing property damage from May 1, 1993 to May 1, 1994. Pursuant to the policy, Home was obligated "to pay on behalf of the name insured the ultimate net loss which the name insured shall become legally obligated to pay as damages for bodily injury or property damage caused by an occurrence to which this insurance applies." There is no dispute that the loss incurred by Tennant as a result of the Commercial Printing case is an "occurrence" that is covered by the policy.
The policy included an endorsement that provided for a $250,000 Self-insured Retention ("SIR"). Tennant then was fully responsible for any occurrences under the policy up to $250,000.
The policy also included a "Notification of Claims Endorsement" ("Endorsement No. 4"). Endorsement No. 4 provided that "[t]he Named Insured shall notify the company, in writing, at 59 Maiden Lane, New York, New York, 10038, to the attention of the Claims Department, of all accidents, incidents, claims or occurrences of any nature which . . . [m]ay result in a reserve equal or greater than $125,000." It is undisputed that Tennant (or any of its agents) failed to provide notice of the Commercial Printing lawsuit to the New York address of Home.
Tennant and Home also entered into a Claims Services Agreement (the "Agreement") in 1992 following the issuance of the policy. The Agreement summarized the procedures to be followed between the two companies concerning products liability claims. It provided that "[a]s outlined in the Notification of Claims Endorsement, it is understood that the insured is required to notify the insurance company of any incident, claim or occurrence of any nature which . . . may result in a reserve equal or greater than $125,000." There is vigorous dispute as to the effect of this Agreement. Tennant argues that the Agreement modified Endorsement No. 4 as to Tennant's responsibilities regarding products liability claims. Home argues that the Agreement simply clarified the notification procedure between Tennant and Home, but did not replace or supercede the notice language contained in Endorsement No. 4.
The Agreement resulted from a meeting between representatives of Tennant, Home (through Glendale), Crawford, Sherwood and Aon held on June 9, 1992.
Tennant contends that the Agreement and its notice provision, not the notice provision contained in Endorsement No. 4, control Tennant's responsibilities concerning its notice obligations. Accordingly, Tennant contends that it was not obligated to send notice of the Commercial Printing litigation to the New York address of Home. Instead, Tennant argues that the Agreement only required Tennant to "notify the insurance company." That notice, Tennant contends, was satisfied by notice to Home's subsidiary, Glendale. Home, however, argues that the Agreement specifically referenced Endorsement No. 4 and that the notice requirements in that endorsement are controlling, i.e., notice must be provided to the New York address of Home.
C. Notice to Glendale and its Relationship with Home
As noted above, the parties do not dispute that notice of the Commercial Printing litigation was not provided to Home at its New York address. Tennant contends that notice of the litigation was provided to Home, through its subsidiary Glendale, on at least five different occasions between May 3, 1996 and September 22, 1997. It was the normal practice of Crawford to draft periodic "claims reports" on behalf of Tennant and forward them to Glendale. These claims reports included general information regarding all of Tennant's on-going litigation that could potentially result in a claim under the insurance policy. Each of the five claims reports included a summary, in general terms, of the status of the Commercial Printing litigation. Of these five claims reports that were provided to Glendale, at least one of them was forwarded directly to the Brea, California claims office of Home.
It is also important to clarify the relationship between Home and Glendale. Glendale is a wholly owned subsidiary of Home and has been for the course of this litigation. Home directly managed Glendale. The consequence of the relationship was that Glendale's tax returns were consolidated with Home's; Home purchased all office equipment for Glendale; Home provided Glendale with funds for extraordinary expenses; Glendale did not have its own in-house attorneys, but used Home's attorneys; Glendale did not hold board meetings; and Glendale did not collect commissions from Home policies, but passed those commissions on to wholesalers such as Aon and Sherwood. Glendale also held itself out as a part of Home in much of its correspondence. As noted above, Glendale was the company with which Tennant had day-to-day contact regarding its policy. Glendale received Tennant's claims reports, received communications concerning Tennant's Certificates of Insurance, provided premium quotations for Home's policies, and dealt with account service issues. Glendale did not, however, handle any of Home's claims duties.
DISCUSSION
I. Standard of Review
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, a court is required to view the facts in a light most favorable to the nonmoving party. Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc., 824 F.2d 582, 585 (8th Cir. 1987). Summary judgment is to be granted only where the evidence is such that no reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of bringing forward sufficient evidence to establish that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
II. Adequacy of Notice
Plaintiff brings suit pursuant to Minnesota Statute §§ 555.01 et. seq., seeking a declaration from the Court that it is not obligated under the insurance policy to provide coverage for Tennant's loss stemming from the Commercial Printing litigation because of Tennant's alleged failure to timely notify Home of the claim.
A. Justiciable Controversy for Purposes of Declaratory Judgment Act
The Minnesota Declaratory Judgment Act empowers courts "to declare rights, status and other legal relations whether or not further relief is or could be claimed." Minn. Stat. § 555.01. "Any person interested under a . . . written contract . . . may have determined any question of construction or validity arising under the . . . contract . . . and obtain a declaration of rights, status, or legal relations thereunder. Minn. Stat. § 555.02. A declaratory action is a justiciable controversy if it (a) involves definite and concrete assertions of right that emanate from a legal source; (b) involves a genuine conflict in tangible interests between parties with adverse interests; and (c) is capable of specific resolution by judgment rather than presenting hypothetical facts that would form an advisory opinion. Cincinnati Insurance Co. v. Franck, 621 N.W.2d 270, 272 (Minn.Ct.App. 2001). There is no dispute that the facts of this case give rise to a justiciable controversy providing the Court with jurisdiction to enter a declaratory judgment.
B. Adequacy of Tennant's Notice
Under Minnesota law, the interpretation of language in an insurance policy and its application to the facts of the case are questions of law. Miester v. Western Nat'l Mut. Ins. Co., 479 N.W.2d 372, 376 (Minn. 1992). Whether an insurance policy is ambiguous is also a question of law to be determined by the Court under Minnesota law. St. Paul Fire and Marine Ins. Co. v. Federal Deposit Ins. Corp., 968 F.2d 695, 701 (8th Cir. 1992); Columbia Heights Motors v. Allstate Insurance Co., 275 N.W.2d 32, 34 (Minn. 1979). Any ambiguity is to be construed in favor of the insured. St. Paul Fire and Marine Ins. Co., 968 F.2d at 701 (citing Henning Nelson Constr. Co. v. Fireman's Fund American Life Ins. Co., 383 N.W.2d 645, 652 (Minn. 1986)). The Court, however, cannot create an ambiguity by reading one into the plain language of an insurance contract. Id.
Strict compliance with notice provisions in insurance polices is not required. St. Paul Fire and Marine Ins. Co. v. Metropolitan Urology Clinic, 537 N.W.2d 297, 300 (Minn.Ct.App. 1995) (citing Sterling State Bank v. Virginia Surety Co., 173 N.W.2d 342, 353-54 (Minn. 1969)). Substantial compliance with a notice provision is adequate to satisfy an insured's notice obligation. Id. "Like other provisions of an insurance contract, the requirements of notice and proof of loss should be construed liberally as against the insured and strictly as against the insurance company `so as not to defeat without a plain necessity [the owner's] claim for the indemnity which, in the making of the insurance contract, it was his object to secure.'" Sterling State Bank, 173 N.W.2d 343-44 (quoting Struble v. Occidental Life Ins. Co., 120 N.W.2d 609, 616 (Minn. 1963)).
Tennant argues that the Agreement entered into between the parties modified the notice obligations contained in Endorsement No. 4 with respect to product liability claims. It argues that notice was not required to be made at the New York office of Home, but simply needed to be made to the insurance company. Tennant therefore argues that Home was provided adequate notice of Tennant's claim concerning the Commercial Printing lawsuit from the five claims reports sent by Crawford to Glendale, one of which was forwarded directly to Home.
Home argues that it is not required to cover Tennant's loss associated with the Commercial Printing lawsuit because it did not receive timely notice of Tennant's claim as required in the policy. Home contends that Endorsement No. 4 clearly provides that notice of a claim must be made to the New York address of Home. It argues that the language of Endorsement No. 4 is clear and unequivocal. It also contends that the later Agreement entered into between the parties was not meant to replace or supercede the language of Endorsement No. 4. Home argues that any notice made to Glendale through Crawford's claims reports was ineffective because of the express language in the policy requiring that notice be made directly to Home at its New York office. Home further argues that Tennant's failure to provide notice until after the jury verdict was prejudicial as a matter of law.
The Court concludes that the insurance policy is ambiguous concerning Tennant's notice obligations. Accordingly, the provision is construed liberally in favor of Tennant and strictly against Home. Tennant substantially complied with the notice provision and provided Home with adequate notice of the Commercial Printing claim. Home is therefore obligated to cover Tennant's loss resulting from the Commercial Printing litigation. Summary judgment is therefore granted in favor of Tennant, Aon, Sherwood and Crawford.
The starting point in the Court's analysis is the language of Endorsement No. 4. It provides that "[t]he Named Insured shall notify the company, in writing, at 59 Maiden Lane, New York, New York, 10038, to the attention of the Claims Department, of all accidents, incidents, claims or occurrences of any nature which . . . [m]ay result in a reserve equal or greater than $125,000." The language in this provision is clear and unambiguous. Tennant is to provide Home notice at its New York office of any claim or occurrence that may implicate the policy. If the Court's analysis were to end at this point, it is likely that Tennant's notice would be insufficient to trigger coverage. However, Endorsement No. 4 is not the only writing that addresses Tennant's notice obligations.
On June 9, 1992, representatives of Tennant, Home, Aon, Crawford and Sherwood met to specifically discuss product liability claims procedures under the Home policy. The meeting resulted in a Claims Services Agreement that specifically outlined the obligations of Home and Tennant with respect to product liability claims. Included in the Agreement was a paragraph outlining the notice requirements for such claims. It stated that "[a]s outlined in the Notification of Claims Endorsement, it is understood that the insured is required to notify the insurance company of any incident, claim or occurrence of any nature which . . . [m]ay result in a reserve equal to or greater than $125,000." While this language clearly referenced Endorsement No. 4, it notably did not include language to the effect that notice had to be given to Home's New York office. In fact, nowhere did the Agreement explicitly provide where notice of a claim or occurrence was to be made.
There is no dispute that the claim at issue here is a product liability claim. As such, it falls within the scope of the Agreement. Because the Agreement purports to explain the "[c]laims Procedures [that] will be followed relative to products liability claims," but does not specify the form that notice is to take nor the place to which notice is to be sent, the Court finds that the language renders the policy ambiguous on this particular issue. Had Home intended that notice of product liability claims be made only to its New York office, that requirement should have been detailed in the parties' Agreement. It was certainly reasonable for Tennant to believe that the Agreement, rather than Endorsement No. 4, controlled its notice obligations for product liability claims considering that the parties entered in to the Agreement after the initial policy was entered into. Any ambiguity in an insurance policy is to be construed in favor of the insured. St. Paul Fire and Marine Ins. Co., 968 F.2d at 701. The notice obligation should therefore be construed in favor of Tennant rather than Home.
The uncontroverted evidence in this case shows that on at least five occasions between May 1996 and September 1997, Crawford, on behalf of Tennant, sent claim reports to Glendale, which included explicit references to the Commercial Printing litigation. One of these notices was forwarded directly to Home's claim office in Brea, California. While Tennant's method and manner of notice did not comport with the technical requirements of Endorsement No. 4, strict compliance with notice provisions is not required under Minnesota law. St. Paul Fire and Marine Ins. Co., 537 N.W.2d at 300. Tennant need only substantially comply with the notice provision. Id. Considering that the notice provision itself was confusing and ambiguous because of the later Claims Services Agreement, Tennant's behavior was sufficient and justified.
While Home has been unable to locate the actual claims report from the Brea office, it does not dispute that the report was forwarded to it.
Additionally, while the claims reports were sent to Glendale rather than to Home, the Court finds that under the circumstances of this case, notice to Glendale constituted notice to Home. Notice to an agent normally constitutes notice to a principal. St. Paul Fire Marine Ins. Co., 968 F.2d at 700 ("an agent's actual notice or knowledge may be imputed to agent's principal"). In this case, Glendale was clearly acting as Home's agent. Home argues that Glendale was its agent for purposes of underwriting, but not for purposes of claims notification. However, the fact that Glendale did not handle claims processing for Home does not insulate Home from responsibility in this case. It was Home's responsibility to coordinate its efforts with Glendale, not Tennant's responsibility to decipher the complex organizational structure of Home. Further, while Glendale did not handle claims processing for Home, Glendale representatives attended the June 9, 1992 meeting with representatives of Tennant, Aon, Sherwood and Crawford on behalf of Home to discuss how Tennant's products liability claims were to be handled. It is a reasonable inference on the part of Tennant and its agents, based on the conduct of Home and Glendale, that providing claims reports to Glendale was the same as providing them to Home. The reasonableness of Tennant's conduct is further bolstered by the course of conduct by the parties. It was Glendale with which Tennant regularly communicated concerning the Home policy. It was Glendale that consistently held itself out as an arm of Home in its correspondence and communications with Tennant. Indeed, there is little, if any evidence in the record to indicate that Tennant ever dealt directly with Home on any issue concerning its policy. As a result, the claims reports sent by Crawford to Glendale served as adequate notice to Home under the policy.
At the very least, Home had a duty to inform Tennant that it considered the notice to be insufficient. Minnesota courts have held that partial or defective notice on the part of an insured triggers a duty on behalf of the insurer to investigate the claim and notify the insured of the deficiency in notice. St. Paul Fire and Marine Ins. Co., 537 N.W.2d at 300 (agreeing with the district court that "because St. Paul unquestionably received notice of the existence of a possible claim, it had an obligation to investigate further or at least make Metropolitan aware of the defects in the notice"). Tennant's practice of forwarding claims reports to Glendale should at least have triggered some response from Home. Because the Court finds that Tennant's notice to Home fulfilled its obligations under the policy, Home is therefore obligated to cover Tennant's loss. Summary judgment is granted in favor of Tennant, Aon, Crawford and Sherwood.
While not critical to the Court's decision, the Court notes that Tennant paid hundreds of thousands of dollars in premiums during 1993-1994 for its policy. The policy was intended to protect Tennant for exactly the type of claim arising from the Commercial Printing litigation. For Home to attempt to avoid its clear obligation under the policy based on a technicality is troubling.
ORDER
Based upon the foregoing, the submissions of the parties, the arguments of counsel and the entire file and proceedings herein, IT IS HEREBY ORDERED that:
1. Defendant Tennant Company's motion for summary judgment [Docket No. 25] is GRANTED.
2. Third-Party defendants' motions for summary judgment [Docket No. 29 and 41] are GRANTED.
3. The Court DECLARES that:
a. Tennant provided Home with appropriate notice pursuant its General Liability Policy;
b. Home is required to cover Tennant's loss associated with the judgment in the Commercial Printing litigation;LET JUDGMENT BE ENTERED ACCORDINGLY.