Art Goebel, Inc. v. North Suburban Agencies, Inc.

• Decision Date: 14 August 1997
• Docket Number: No. C6-96-695,C6-96-695
• Citation: 567 N.W.2d 511
• Court: Minnesota Supreme Court
• Parties: ART GOEBEL, INC., Plaintiff, v. NORTH SUBURBAN AGENCIES, INC., Defendant, Cleary Agency, Inc., Respondent, West Bend Mutual Insurance Company, a Wisconsin corporation, Appellant.

Page 511

567 N.W.2d 511

ART GOEBEL, INC., Plaintiff, v. NORTH SUBURBAN AGENCIES, INC., Defendant, Cleary Agency, Inc., Respondent,

West Bend Mutual Insurance Company, a Wisconsin corporation,

Appellant.

No. C6-96-695.

Supreme Court of Minnesota.

Aug. 14, 1997.

Syllabus by the Court

Under the terms of an agency agreement between an insurance company and its agent, the insurance company is not required to indemnify the agent against a meritless claim brought by a policyholder when there was no showing that any acts or omissions of the insurance company caused damages to the policyholder.

Under common law, an insurance company is not required to indemnify its agent against a meritless claim brought by a policyholder when the agency agreement between the insurance company and the agency contains an indemnity clause which implicitly precludes the common law claim.

Dale M. Wagner, Bassford, Lockhart, Truesdell & Briggs, P.A., Minneapolis, for Appellant.

Clarance E. Hagglund, William C. Weeding, Hagglund & Weimer, Minneapolis, for Respondent.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, Justice.

Respondent Cleary Agency, Inc. (Cleary) is an independent insurance agency that was acting under a contract as an agent for appellant West Bend Insurance Company (West Bend). Cleary asserts that West Bend must indemnify it for costs and attorney fees it incurred in defending a meritless lawsuit brought by West Bend's policyholder, Art Goebel, Inc. (Goebel). Goebel brought an action against Cleary alleging that Cleary negligently failed to procure the proper insurance coverage for Goebel with West Bend. The district court granted summary judgment for Cleary on Goebel's complaint. Cleary brought a crossclaim seeking indemnity from West Bend. The district court granted summary judgment, holding that Cleary was West Bend's agent and thus West Bend was obligated to indemnify Cleary for Cleary's costs of defending Goebel's claim. The Minnesota Court of Appeals agreed with the district court that West Bend had an obligation to indemnify Cleary. We reverse.

Goebel, a Minnesota automobile dealership, purchased an insurance policy with West Bend by contacting Goebel's insurance broker, North Suburban Agencies, Inc. (North Suburban). Goebel and North Suburban worked together to determine the appropriate insurance coverage. Goebel communicated exclusively with North Suburban regarding its insurance needs. On or about January 1, 1990, North Suburban asked Cleary, West Bend's agent, to procure certain insurance coverage for Goebel with West Bend. Cleary had no direct contact with Goebel regarding Goebel's insurance needs; rather, Cleary followed all of North Suburban's express requests regarding coverage. Cleary was not asked to recommend coverage and did not agree to monitor Goebel's insurance needs. After Cleary procured Goebel's coverage, West Bend issued an insurance policy to Goebel and accepted premium payments for the policy.

At the time Cleary procured the insurance coverage for Goebel with West Bend, there was an agency agreement in effect between West Bend and Cleary. The agency agreement provided that Cleary was authorized to solicit, receive, bind, and execute insurance contracts for West Bend. It also contained an indemnity clause which provided that West Bend would indemnify Cleary against liability imposed upon Cleary for damages caused by the acts or omissions of West Bend and not caused by the acts or omissions of Cleary.

After Cleary procured Goebel's insurance coverage, an incident occurred that eventually gave rise to this lawsuit. A customer purchased a van from Goebel. In November 1990, the van was damaged as a result of an accident in New Mexico, while en route to the customer in California. The customer sued Goebel for failing to deliver the van. Goebel's insurer, West Bend, refused to defend the claim. West Bend asserted that Goebel's insurance policy did not cover the loss because the policy did not provide for "drive away" coverage (collision coverage for vehicles driven more than 50 miles from the automotive dealership) and because the van accident occurred more than 50 miles from Goebel's business. Goebel eventually settled the lawsuit with its customer.

Goebel brought this action in August 1993, seeking reimbursement for the amount that Goebel paid to its customer as a result of the van accident, as well as its costs of defense. Goebel brought the action because the insurance policy Cleary procured from West Bend did not cover the van accident. Goebel initially sued North Suburban and Cleary, but later amended its complaint to include a claim against West Bend. Goebel brought what was, in effect, a claim that Cleary and North Suburban negligently procured insurance coverage that differed from the insurance coverage Goebel had requested. Goebel alleged that North Suburban, through Cleary, was supposed to obtain a "replacement" policy from West Bend. Goebel asserted that its prior insurance policies provided drive away coverage, that Cleary and North Suburban failed to procure a policy with West Bend providing drive away coverage, and thus North Suburban failed to obtain a replacement policy that provided the same coverage as Goebel's prior policy. Goebel further alleged that Cleary and North Suburban failed to notify Goebel of this difference between the policy Goebel requested and the policy Cleary and North Suburban procured. Goebel's claim against West Bend alleged that Cleary was acting as West Bend's agent in procuring the coverage and thus West Bend was vicariously liable for Cleary's actions. Cleary and West Bend brought crossclaims against each other seeking indemnity.

Cleary, West Bend, and North Suburban eventually brought motions for summary judgment against Goebel on the amended complaint. Cleary, West Bend, and North Suburban submitted evidence showing that Goebel's prior insurance policies did not provide for drive away coverage and that the policy Cleary procured with West Bend did not differ from Goebel's prior policies in that regard. At the hearing on the summary judgment motions, Goebel admitted that there was no evidence to support its claims. The district court granted the summary judgment motions on August 18, 1994, concluding that there was no evidence to support Goebel's claim that Cleary, West Bend, and North Suburban failed to procure the same insurance coverage with respect to drive away coverage as Goebel had under its prior insurance policies.

In the same order granting summary judgment in favor of Cleary, West Bend, and North Suburban, the district court also granted Goebel's motion to amend its complaint a second time to add a new claim against North Suburban. In this claim, Goebel alleged that North Suburban negligently failed to advise Goebel about the need for drive away coverage. Goebel alleged that North Suburban knew Goebel sold vehicles outside of the 50-mile limit and thus North Suburban should have recommended drive away coverage. Goebel ultimately settled its claim against North Suburban. The only remaining claims in this action are West Bend's and Cleary's crossclaims against each other.

Cleary and West Bend each filed motions for summary judgment. Cleary contended that it was entitled to summary judgment because West Bend had a common-law duty to indemnify it for the costs and attorney fees it incurred in defending against Goebel's claim. West Bend denied that it had a duty to indemnify Cleary and contended that West Bend was entitled to summary judgment because its agency agreement with Cleary precluded Cleary's indemnity claim. West Bend also argued that Cleary did not have standing to bring its indemnification claim because Cleary's errors and omissions insurer had paid all of Cleary's costs and attorney fees.

The district court granted Cleary's motion and denied West Bend's motion. The court held that Cleary was West Bend's agent and that West Bend had a common-law duty to indemnify Cleary under the Restatement (Second) of Agency § 439(d) (1958). ¹ The court held that the agency agreement did not preclude Cleary's indemnity claim. The court construed the agency agreement to provide that Cleary was entitled to indemnification unless Cleary...