Archer Daniels Midland v. Aon Risk Serv. Of Mn

• Decision Date: 21 January 2004
• Docket Number: No. 02-3788.,02-3788.
• Citation: 356 F.3d 850
• Parties: ARCHER DANIELS MIDLAND COMPANY, Plaintiff-Appellee, v. AON RISK SERVICES, INC. OF MINNESOTA, formerly known as Rollins Burdick Hunter of Minnesota, Inc., formerly known as Rollins Hudig Hall of Minnesota, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 850

356 F.3d 850

ARCHER DANIELS MIDLAND COMPANY, Plaintiff-Appellee, v. AON RISK SERVICES, INC. OF MINNESOTA, formerly known as Rollins Burdick Hunter of Minnesota, Inc., formerly known as Rollins Hudig Hall of Minnesota, Inc., Defendant-Appellant.

No. 02-3788.

United States Court of Appeals, Eighth Circuit.

Submitted: November 17, 2003.

Filed: January 21, 2004.

COPYRIGHT MATERIAL OMITTED

Shand S. Stephens, argued, San Francisco, CA (Alan L. Kildow, Sonya R. Braunschweig, on the brief), for appellant.

Philip A. Sechler, argued, Washington, DC (Aubrey M. Danniel, III, Mary Beth Long, Bradley J. Bondi and Jerry W. Snider, on the brief), for appellee.

Before MURPHY, LAY, and FAGG, Circuit Judges.

LAY, Circuit Judge.

Archer Daniels Midland Company ("ADM") filed suit against Aon Risk Services, Inc. of Minnesota ("Aon"), its insurance broker, alleging breach of contract, breach of fiduciary duty, and negligence due to Aon's failure to obtain contingent business interruption and extra expense insurance coverage as requested by ADM. The jury returned a verdict in favor of ADM. Aon appeals, asserting several errors. We affirm.

I. BACKGROUND

ADM, a Delaware corporation with its principal place of business in Illinois, processes and markets a variety of agricultural commodities such as corn, wheat, and soybeans. ADM uses corn to make such products as high-fructose corn syrup ("HFCS") and ethanol. Aon, a Minnesota corporation with its principal place of business in Minnesota, is an insurance broker who acts as an intermediary between insurance companies and its clients in trying to place insurance coverage for those clients.

Beginning in 1983, ADM established a property-insurance program known as the "difference-in-conditions" ("DIC") program. The DIC program was a "layered" program covering all risks of property loss that were not specifically excluded. Under this program, multiple insurers provided different layers of coverage totaling $100 million. The first five layers of coverage were in the amount of $5 or $10 million each. The final layer was a $50 million excess layer that would be penetrated only if the underlying insurers had to pay their $50 million in coverage.

Each insurer in the DIC program provided coverage under the same terms, which were found in the DIC policy specifically drafted for ADM. The policy provided traditional property-insurance coverages and also included coverages for contingent business interruption and extra expense.¹

Aon became ADM's insurance broker for the DIC program in 1988. For the 1992-93 policy period, ADM instructed Aon to renew coverage in the DIC program under the terms of the DIC policy but to obtain coverage for the $50 million excess layer from a new insurer because the previous insurer's premium increase was unacceptable. Aon procured coverage for the $50 million excess layer from Hartford Fire Insurance Company ("Hartford"). However, Aon failed to include contingent business interruption and extra expense insurance coverage in the Hartford policy, an omission that forms the basis of the case leading up to this appeal.

In 1993, flooding occurred in many parts of the Mississippi River system, which negatively impacted the Midwestern corn crop for that year and hampered the ability to move products by barge on the river. ADM claimed the flood caused it to incur extra expense in order to procure sufficient quantities of corn for its processing. ADM also claimed prolonged closures of parts of the Mississippi and Illinois Rivers caused it to lose income and incur additional expense as it sought alternative means of transportation. ADM ultimately submitted claims to its insurers for losses from the flood totaling more than $166 million. ADM believed the contingent business interruption and extra expense coverages applied to a substantial amount of these losses since Midwestern farmers, who were unable to provide sufficient corn, and the U.S. Government, which operated the Mississippi River system, were two of ADM's suppliers.

ADM's insurers, other than Hartford, paid approximately $10.7 million to ADM for damage to its property and certain other losses caused by the flood. The insurers denied payment on ADM's claims for contingent business interruption and extra expense, concluding those coverages did not apply because Midwestern farmers and the U.S. Government were not "any supplier."

ADM filed suit against the DIC program insurers, including Hartford, in federal court in Illinois alleging the contingent business interruption and extra expense coverages provided under their policies extended to ADM's lost income and extra expense incurred as a result of the flood's damage to Midwestern farmers and the U.S. Government. ADM and the insurers (other than Hartford) eventually settled for $23.5 million.² The district court granted Hartford's motion for partial summary judgment on September 9, 1997, finding that Hartford's policy insured only against direct physical damage to ADM's insured property.

Thereafter, ADM filed suit against Aon on September 25, 1997, alleging breach of contract, breach of fiduciary duty, and negligence, and seeking $50 million in damages for Aon's failure to secure contingent business interruption and extra expense coverages in the Hartford policy. Aon moved to dismiss on the grounds that ADM could not seek to recover from Hartford (or, therefore, Aon) in the $50 million excess layer because it had not exhausted the underlying $50 million layers. The district court³ denied the motion, holding that ADM had exhausted the lower layers by agreeing to settle with the underlying insurers for a partial sum and absorbing the balance of the $50 million.

Prior to trial, the district court entered orders excluding evidence that ADM "passed on" its extra corn expense to its consumers by raising prices and that ADM continued to produce ethanol during the period following the flood even though it was losing money on this production. The district court also excluded evidence proffered by one of Aon's expert witnesses that ADM could have maximized profit and minimized loss by switching production from ethanol to HFCS. In addition, the district court prohibited Aon from introducing evidence concerning allegations of price-fixing by ADM in the HFCS market.

A jury trial began on March 4, 2002. Since Aon admitted negligence during its opening statement, the trial primarily focused on damages. ADM introduced evidence of the extra expense it incurred in obtaining suitable corn for production of ethanol and HFCS. Aon offered expert testimony to refute ADM's evidence and argued that ADM's alleged losses were offset by ADM's use of hedging, a program by which ADM would buy and sell commodity futures in order to minimize loss due to price fluctuation. According to Aon, the expert ADM used to present evidence of its increased corn costs did not take hedging into account in his analysis of ADM's total corn costs. On April 15, 2002, the jury returned a $16.5 million verdict in favor of ADM. The district court entered judgment in favor of ADM on April 17, 2002.

Aon then moved for a new trial, judgment as a matter of law, and a stay of execution of judgment. The district court denied Aon's post-trial motions and awarded ADM $3.6 million in prejudgment interest. On appeal, Aon argues that the district court erred in denying its motions for judgment as a matter of law or a new trial and in awarding ADM $3.6 million in prejudgment interest.

II. DISCUSSION

A. Choice of Law

We first address Aon's contention that the district court should have construed the DIC policy under Illinois law rather than Minnesota law. "In a diversity case, a federal court applies the choice of law rules of the forum state." Northwest Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1393 (8th Cir.1997). The first consideration under Minnesota's choice of law rules is whether an actual conflict exists between the laws of the different states. Jepson v. Gen. Cas. Co. of Wis., 513 N.W.2d 467, 469 (Minn.1994). If the choice of one state's laws over the other does not create an actual conflict, there is no choice of law issue to be decided. Vetter v. Sec. Cont'l Ins. Co., 567 N.W.2d 516, 521-22 (Minn.1997).

In concluding that it correctly applied Minnesota law, the district court pointed out that Aon failed to demonstrate that a conflict exists between the legal principles and standards applicable to contract interpretation, negligence, or breach of contract and fiduciary duty under Minnesota and Illinois law. Thus, there was no choice of law issue for the district court to decide. Id. at 522. We conclude the relevant legal principles concerning the district court's interpretation of the DIC policy are the same in both states.

B. Business Interruption

On appeal, Aon argues that ADM cannot recover contingent extra expense under Section 13Q because it did not suffer any business interruption as a result of the flood. Aon asserts that under Section 13Q, ADM was required to establish that it actually ceased production at its plants in order for the extra expense coverage to apply. Because ADM failed to prove this element of its case, Aon claims it is entitled to judgment as a matter of law.

Although Aon couches its argument in terms of a failure of proof, the crux of its argument is that the district court incorrectly interpreted the meaning of the phrase "interruption of business" as used in Section 13Q. Because the district court provided the meaning of "interruption of business" in a jury instruction, ADM argues we must review the issue for an abuse of discretion. See Warren v. Prejean, 301 F.3d 893, 900 (8th Cir.2002) (stating that a district court's jury instructions are reviewed for an abuse of discretion). However, the district court fashioned its jury instruction based on an interpretation of the DIC policy. All issues related to the district court's interpretation of...