3M Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA

• Decision Date: 31 May 2017
• Docket Number: No. 15-3495,15-3495
• Citation: 858 F.3d 561
• Parties: 3M COMPANY, a Delaware corporation; 3M Employees Welfare Benefits Associates, a Minnesota corporation; Employee Retirement Income Plan of Minnesota Mining and Manufacturing Company, a citizen of New York, Plaintiffs–Appellants v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation; Great American Insurance Company, an Ohio corporation; St. Paul Fire & Marine Insurance Company, a Connecticut corporation; Federal Insurance Company, a New Jersey corporation; Zurich American Insurance Company, a New York corporation, Defendants–Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

858 F.3d 561

3M COMPANY, a Delaware corporation; 3M Employees Welfare Benefits Associates, a Minnesota corporation; Employee Retirement Income Plan of Minnesota Mining and Manufacturing Company, a citizen of New York, Plaintiffs–Appellants

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation; Great American Insurance Company, an Ohio corporation; St. Paul Fire & Marine Insurance Company, a Connecticut corporation; Federal Insurance Company, a New Jersey corporation; Zurich American Insurance Company, a New York corporation, Defendants–Appellees

No. 15-3495

United States Court of Appeals, Eighth Circuit.

Submitted: October 18, 2016

Filed: May 31, 2017

Counsel who presented argument on behalf of the appellants was James R. Murray, of Washington, DC. The following attorney(s) also appeared on the appellant brief; Christopher Yetka, Thomas C. Mielenhausen, and Thomas A. Boardman, of Minneapolis, MN, Ann Marie Hanrahan, of Saint Paul, MN., and Jared Zola and Omid Safa, of Washington, DC.

Counsel who presented argument on behalf of the appellees was David P. Pearson, of Minneapolis, MN. The following attorney(s) also appeared on the appellees' joint brief; Thomas H. Boyd, Brent A. Lorentz, and Reid Golden, of Minneapolis, MN, for Appellee National Union Fire Insurance Company of Pittsburgh, PA.—Joel T. Wiegert, of Minneapolis, MN, for Appellee St. Paul Fire & Marine Insurance Company.—Eric J. Magnuson, Richard B. Allyn, and Lisa L. Beane, of Minneapolis, MN, and Jeanne H. Unger, of Minneapolis, MN, for Appellee Federal Insurance Co.—Peter G. Van Bergen and Robyn K. Johnson, of Minneapolis, MN, for Appellee Zurich American Insurance Company.—Arthur N. Lambert and M. Diane Duszak, of New York, NY, for Appellee St. Paul Fire & Marine Insurance Company.—Nicholas A. Dolejsi and Patricia St. Peter, of Minneapolis, MN, and Stephen N. Dratch and Martin L. Fenik, of Livingston, NJ, for Appellee Great American Insurance Company.

Before LOKEN, SMITH,¹ and COLLOTON, Circuit Judges.

SMITH, Circuit Judge.

3M Company ("3M") incurred losses on a number of investments due to fraud perpetrated by its own investment advisors. 3M purchased a "Blanket Crime Policy" ("the Policy") issued by National Union Fire Insurance Company of Pittsburgh, PA, Great American Insurance Company, St. Paul Fire & Marine Insurance Company, Federal Insurance Company, and Zurich American Insurance Company (collectively, "the Insurers"). 3M claimed that it earned returns on investments that were subsequently lost due to its advisors' malfeasance. 3M filed an insurance claim to recover the loss of the returns. The Insurers denied the claim, and 3M filed suit in Minnesota state court, seeking a declaration that the Policy covered 3M's losses resulting from the theft of 3M's alleged earnings. The Insurers removed the case to federal court and filed for summary judgment. 3M filed a cross-motion for partial summary judgment. The district court² granted the Insurers' motion and denied 3M's motion, holding that the stolen earnings are not covered under 3M's insurance policy because "3M does not meet the conditions of coverage set forth in the ‘ownership’ provision" of the Policy. We affirm.

I. Background

In 1999, 3M began investing its employee-benefit-plan assets in WG Trading Company LP ("WG Trading"). 3M structured this investment as a limited-partnership interest in WG Trading. Stephen Walsh and Paul Greenwood founded and served as general managing partners of WG Trading and two related entities, Westridge Capital Management, Inc. ("Westridge") and WG Trading Investors, LP ("WG Investors"). Westridge provided marketing services for WG Trading, and WG Investors was a limited partner in WG Trading. WG Trading was regulated and audited, but WG Investors was not.

Eventually, 3M learned that Walsh and Greenwood fraudulently diverted hundreds of millions of dollars from WG Trading and WG Investors. Walsh and Greenwood ultimately pleaded guilty to federal criminal charges. The United States Commodity Futures Trading Commission and the Securities and Exchange Commission initiated civil lawsuits against Walsh, Greenwood, Westridge, WG Trading, WG Investors, and other related entities ("the defendants"). The United States District Court for the Southern District of New York seized the defendants' assets and placed the assets into receivership. The receiver distributed the assets among the defrauded claimants, including 3M, who recovered the capital contribution that it invested in WG Trading. Although 3M recovered its capital contribution, 3M contends that it should also be entitled to recover lost earnings from the investments that WG Trading made in legitimate investment products that produced legitimate earnings.

3M's employee-benefit plans are insured under Endorsement 3 of the Policy (the "ERISA Rider" provision). 3M sought coverage for the stolen earnings under the "Employee Dishonesty" provision, which (as amended by Endorsement 10) states:

1. Insuring Agreement 1, EMPLOYEE DISHONESTY, of the attached policy is hereby deleted in its entirety and replaced with the following:

The [Insurers] shall be liable for direct losses of Money, Securities or other property caused by Theft or forgery by any Employee of any Insured acting alone or in collusion with others.

2. Section 3., DEFINITIONS, is hereby amended to include the following:

Theft means the unlawful taking of Money, Securities or other property to the deprivation of the Insured.

3. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, limitations or provisions of the attached policy, except as above stated.

ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS REMAIN UNCHANGED.

Section 5 "OWNERSHIP OF PROPERTY; INTERESTS COVERED" defines "insured property," and (as amended by Endorsement 8) states:

The insured property may be owned by the Insured, or held by the Insured in any capacity whether or not the Insured is legally liable, or may be property as respects, which the Insured is legally liable [ ("ownership requirement of Endorsement 8") ]. Client property may be owned by the Client, held by the Client in any capacity whether or not the Client is legally liable, or may be property as respects which the Client is legally liable; provided the Insured is legally liable for such property and it is included in the Insured's proof of loss, in which event the third paragraph of Section 8 is applicable.

3M argued that the ownership requirement of Endorsement 8 does not apply to coverage for theft of other property under the Employee Dishonesty provision because the ownership requirement only applies to insured property . Alternatively, 3M contended that it "owned" the lost earnings because it had a right to possess the earnings and courts interpret the ownership requirement broadly.

The district court concluded that the ownership requirement of Endorsement 8 "limits the coverage available under the ‘Employee Dishonesty’ provision." The court rejected 3M's claim of ownership, holding that 3M's limited-partnership interest in WG Trading did not confer ownership over the lost earnings because "[u]p until the point at which earnings were distributed to the partners, the earnings of WG Trading were owned by WG Trading, and not by 3M or any of the other limited partners." 3M appeals, arguing that coverage under the Employee Dishonesty provision is not limited by an ownership requirement.

II. Discussion

"Insurance disputes are particularly well suited for summary judgment because the proper construction of an insurance contract is always an issue of law for the court." Modern Equip. Co. v. Cont'l W. Ins. Co. , 355 F.3d 1125, 1128 (8th Cir. 2004). However, the rules of construction are inapplicable if an insurance contract is unambiguous. Id. "When the words of an insurance contract are unambiguous, the intent of the parties is determined by the language of the policy itself. If the terms of an insurance contract are clear, they are to be accorded their plain and ordinary meaning." Id. (citation omitted).

"Under Minnesota law, the initial burden of establishing coverage rests with the insured." Grinnell Mut. Reinsurance Co. v. Villanueva , 798 F.3d 1146, 1148 (8th Cir. 2015) (citing Midwest Family Mut. Ins. Co. v. Wolters , 831 N.W.2d 628, 636 (Minn. 2013) ).³ "When an insured establishes coverage, the burden shifts to the insurer to prove the applicability of an exclusion." Id. (citing Wolters , 831 N.W.2d at 636 ). " ‘[U]nambiguous words [are] given their plain, ordinary, and popular meaning.’ If the words are ambiguous, however, they are to be ‘construed against the insurer according to the reasonable expectations of the insured.’ " Ritrama, Inc. v. HDI–Gerling Am. Ins. Co. , 796 F.3d 962, 966 (8th Cir. 2015) (second alteration in original) (citation omitted) (quoting Gen. Cas. Co. of Wis. v. Wozniak Travel, Inc ., 762 N.W.2d 572, 575 (Minn. 2009) ).

"An ambiguity exists when a word or phrase in an insurance contract is reasonably subject to more than one interpretation." Mut. Serv. Cas. Ins. Co. v. Wilson Twp. , 603 N.W.2d 151, 153 (Minn. Ct. App. 1999). The absence of a definition in an insurance policy does not per se render a term ambiguous. See League of Minn. Cities Ins. Trust v. City of Coon Rapids , 446 N.W.2d 419, 422 (Minn. Ct. App. 1989) ; see also Hawkeye–Sec. Ins. Co. v. Bunch , 643 F.3d 646, 652 (8th Cir. 2011) ("We are also not persuaded that the lack of a definition of the word ‘vehicle’ in the uninsured and underinsured motorists sections renders them ambiguous."). "[W]here a term is not defined in an insurance policy but possesses a clear legal or common meaning that may be supplied by a court, the contract is not ambiguous." Genesis Ins. Co. v. City of Council Bluffs , 677 F.3d 806, 815 (8th Cir. 2012) (internal quotation marks omitted). "In deciding whether an ambiguity truly exists, however, a policy must be read as a whole." Mut. Serv. , 603 N.W.2d at

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