Nelson v. Am. Home Assurance Co.

• Citation: 702 F.3d 1038
• Decision Date: 06 December 2012
• Docket Number: No. 12–1638.,12–1638.
• Parties: Curtis L. NELSON; Ethel A. Nelson, Plaintiffs–Appellants v. AMERICAN HOME ASSURANCE COMPANY, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

702 F.3d 1038

Curtis L. NELSON; Ethel A. Nelson, Plaintiffs–Appellants

v.AMERICAN HOME ASSURANCE COMPANY, Defendant–Appellee.

No. 12–1638.

United States Court of Appeals,

Eighth Circuit.

Submitted: Oct. 16, 2012.

Filed: Dec. 6, 2012.

Jonathan Millea Bye, argued, Meghan M. Elliott, Jessica Lynn Meyer, Lindquist & Vennum, Minneapolis, MN, for appellants.

Katherine A. McBride, argued, Robert Edward Salmon, Meagher & Geer, Minneapolis, MN, for appellee.

Before RILEY, Chief Judge, COLLOTON and GRUENDER, Circuit Judges.

GRUENDER, Circuit Judge.

Curtis and Ethel Nelson entered into a stipulated judgment with Metropolitan Council (“Metro Council”) to recover damages sustained during a construction project. The Nelsons then filed suit against Metro Council's insurer, American Home Assurance Company (“American Home”), to collect on the judgment. On cross-motions for summary judgment, the district court ¹ entered judgment in favor of American Home, holding that the Nelsons did not present evidence to establish that Metro Council's liability was covered by the American Home policy. The Nelsons now appeal, arguing that the district court erred in requiring them to present evidence of coverage. We affirm.

I.

In 2005, Metro Council, a state-chartered regional planning agency for the Minnesota Twin Cities metropolitan area, announced plans to upgrade the Blue Lake Interceptor Sewer System. Part of the project was to take place near Curtis and Ethel Nelson's home in Excelsior, Minnesota. Metro Council selected S.M. Hentges & Sons, Inc. (“Hentges”) as its general contractor. Hentges obtained a general commercial liability policy from American Home and named Metro Council as an additional insured. American Home agreed to insure Hentges against “property damage” that was caused by an “occurrence.” The policy defined “property damage” as “physical injury to tangible property, including all resulting loss of use of that property,” or “loss of use of tangible property that is not physically injured.” It defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general or harmful condition.” Because Metro Council was an “additional insured,” the policy limited its coverage to “liability arising out of [Hentges's] operations.”

Construction began near the Nelsons' home in the fall of 2007 and did not go smoothly. In a March 25, 2008 letter, Metro Council acknowledged that the Nelsons suffered property damages, and in an April 18, 2008 letter, it proposed to mitigate those damages by repairing the property once the project was completed. In April 2010, the Nelsons sued both Metro Council and Hentges in Minnesota state court, seeking to recover property damages under theories of strict liability, trespass, nuisance, negligence, and indemnification. They also sued Metro Council alone for breach of contract, claiming it failed to honor its promises to repair their property. Metro Council tendered its defense to Hentges's insurer, American Home, which initially agreed to defend Metro Council as an additional insured, subject to a reservation of rights. The parties began discovery, and Metro Council and Hentges subsequently moved for summary judgment based on the statute of limitations.² The Nelsons asserted estoppel against Metro Council, arguing that they relied on the letters Metro Council sent as promises to mitigate their property damages. The state court subsequently granted Hentges's motion for summary judgment but denied Metro Council's motion, finding a question of fact as to whether the Nelsons had relied on the letters. After Hentges was dismissed from the case, American Home notified Metro Council that it would deny coverage and would no longer provide legal representation.

The Nelsons settled with Metro Council, which agreed to pay the Nelsons $250,000 and to stipulate to a Miller–Shugart judgment for $900,000. ³ As part of the judgment, Metro Council assigned all of its claims against American Home to the Nelsons. The parties agreed that the settlement amounts were “all for claimed damages because of physical injury to tangible property of [the Nelsons], including resulting loss of use of that property, caused by an accident, including continuous or repeated exposure to substantially the same general harmful conditions, arising out of Hentges'[s] operations.” This language closely tracks the language in the American Home policy.

Before the court entered judgment, Metro Council sent a copy of the proposed judgment to American Home along with notice of a hearing, at which American Home did not appear. The state court entered judgment on May 3, 2011. On May 4, 2011, the Nelsons filed suit in federal district court to collect its judgment from American Home. On May 5, 2011, the Nelsons moved for partial summary judgment on the issue of whether the policy covered their damages. In response, American Home sought a continuance, requesting time for discovery so that it could evaluate whether the policy covered Metro Council's liability. SeeFed.R.Civ.P. 56(d). It argued, among other things, that coverage depended on whether there was an “occurrence,” and it sought discovery into “the factual basis for the Miller v. Shugart settlement's assertion that the allocated damages result[ed] from physical injury to Plaintiffs' property ‘caused by an accident,’ which is relevant to the determination of an ‘occurrence’ under the policy.” The Nelsons countered that no discovery was needed because the Miller–Shugart judgment determined coverage. The district court granted the continuance,noting the existence of “numerous threshold coverage issues.”

The parties subsequently filed cross-motions for summary judgment on the coverage issue. American Home argued that its policy did not cover Metro Council's liability because the liability did not arise out of Hentges's operations. Rather, it claimed that the liability arose out of Metro Council's own act of sending letters to the Nelsons, in which Metro Council acknowledged the property damages and agreed to be responsible for repairs. The Nelsons, on the other hand, argued that the Miller–Shugart judgment alone proved coverage. The district court subsequently granted American Home's motion, determining that the Nelsons had the burden to show that American Home's policy covered their damages in order to enforce the Miller–Shugart judgment. The court held that the Nelsons' claim failed because they did not present any evidence to establish the existence of an “occurrence” within the meaning of the policy. The Nelsons then filed a motion to reconsider, which the district court denied, finding that the Nelsons failed to demonstrate the compelling circumstances required to allow reconsideration. See D. Minn. R. 7.1(j). The Nelsons now appeal the district court's grant of summary judgment to American Home and the denial of the motion to reconsider.

II.

“We review a grant of summary judgment de novo.” Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990 (8th Cir.2005). Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Hutson v. Walker, 688 F.3d 477, 483 (8th Cir.2012). The parties agree that we should apply Minnesota's substantive law.

While a Miller–Shugart judgment settles the issue of the underlying defendant's liability to the plaintiff, it does not resolve the question of whether the insurance policy provides coverage for that liability. Rather, coverage is a threshold issue that the court must address before deciding whether the stipulated judgment is enforceable. Corn Plus Coop. v. Cont'l Cas. Co., 516 F.3d 674, 678–79 (8th Cir.2008); Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn.1990) (“[I]f there is found to be no coverage for the Miller–Shugart judgment, that ends the matter.”). In Miller v. Shugart, the Minnesota Supreme Court noted that notwithstanding the settlement between the plaintiff and the underlying defendant, the insurer could still avoid a garnishment action if it prevailed on the issue of coverage: “If the insurer ignores the ‘invitation’ to participate in the settlement negotiations, it may run the risk of being required to pay, even within its policy limits, an inflated judgment.... Of course, the insurer escapes the risk if it should be successful on the coverage issue, and, in that event, it is plaintiff who loses.” 316 N.W.2d at 734.

Coverage is determined by the terms of the insurance policy. Wanzek Constr., Inc. v. Employers Ins. of Wausau, 679 N.W.2d 322, 327 (Minn.2004). “While the insured bears the initial burden of demonstrating coverage, the insurer carries the burden of establishing the applicability of exclusions.” Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn.2006). “To establish or trigger coverage under an occurrence-based policy, ‘an insured must demonstrate that damage “occurred” while the policy was in effect.’ ” Parr v. Gonzalez, 669 N.W.2d 401, 406 (Minn.Ct.App.2003) (quoting N. States Power Co. v. Fid. & Cas. Co., 523 N.W.2d 657, 659–60 n. 3 (Minn.1994)).

Despite bearing the burden of demonstrating coverage, the Nelsons submitted no evidence in support of their motion for summary judgment to establish that the damage to their home was caused by a covered occurrence; that is, they presented no evidence that their property damage was caused by an accident arising out of Hentges's operations.⁴ While the Nelsons believe that the Miller–Shugart judgment alone supplies adequate proof of coverage, Minnesota law makes clear that the judgment only resolves Metro Council's liability to the Nelsons. It is not conclusive on whether the policy covers that liability. Contrary to the Nelsons' argument, no Miller–Shugart case has made a finding of coverage without requiring the plaintiff to produce some evidence that the loss was actually...