Bob Useldinger & Sons, Inc. v. Hangsleben

• Citation: 505 N.W.2d 323
• Decision Date: 27 August 1993
• Docket Number: C9-91-2096,Nos. C9-91-2065,s. C9-91-2065
• Parties: BOB USELDINGER & SONS, INC., et al., Judgment Creditors, Respondents (C9-91-2065), Judgment Creditors (C9-91-2096), Honek Brothers Potato Company, et al., Judgment Creditors, Respondents (C9-91-2096), Judgment Creditors (C9-91-2065), v. Gust HANGSLEBEN, et al., Judgment Debtors, Insurance Company of North America, Garnishee, Petitioner, Appellant, State Farm Fire & Casualty Company, Garnishee, Petitioner, Appellant (C9-91-2065), Garnishee/Defendant (C9-91-2096), St. Paul Fire & Marine Insurance Company, Garnishee, Petitioner, Appellant.
• Court: Supreme Court of Minnesota (US)

Page 323

505 N.W.2d 323

BOB USELDINGER & SONS, INC., et al., Judgment Creditors Respondents (C9-91-2065), Judgment Creditors (C9-91-2096) Honek Brothers Potato Company, et al., Judgment Creditors Respondents (C9-91-2096), Judgment Creditors (C9-91-2065), v. Gust HANGSLEBEN, et al., Judgment Debtors Insurance Company of North America, Garnishee, Petitioner, Appellant, State Farm Fire & Casualty Company, Garnishee, Petitioner, Appellant (C9-91-2065), Garnishee/Defendant (C9-91-2096), St. Paul Fire & Marine Insurance Company, Garnishee, Petitioner, Appellant.

Nos. C9-91-2065, C9-91-2096.

Supreme Court of Minnesota.

Aug. 27, 1993.

Rehearing Denied Oct. 7, 1993.

Syllabus by the Court

1. The insurance policies at issue in these cases do not provide coverage for the alleged injuries.

2. Summary judgment may not be avoided with evidence that is merely speculative.

3. It is appropriate for an insured to enter into a Miller-Shugart agreement when the insurer has denied coverage on the policy which is a condition to coverage under an umbrella policy although the insurer has not expressly denied coverage on the umbrella policy.

4. Failure to allocate the amount to be paid by each defendant in a Miller-Shugart settlement with multiple defendants is unreasonable and the settlement is void.

Gordon Myerchin, David M. Box, Grand Forks, ND, Timothy J. McLarnan, Moorhead, William M. Hart, Laura J. Hanson, Charles E. Spevacek, Kay Nord Hunt, Minneapolis, for appellant.

Patrick R. Morley, Robert M. Light, Grand Forks, ND, Patrick W. Fisher, Michael F. Daley, Grand Forks, ND, for respondents.

Heard, considered and decided by the court en banc.

TOMLJANOVICH, Justice.

In these cases, we are asked to construe several insurance policies issued by petitioners to determine if they provide coverage for claims brought by purchasers of seed potatoes whose crops were contaminated with bacterial ring rot. ¹ The trial court ruled that certain of the policies did not provide coverage. The court of appeals disagreed and reversed. 483 N.W.2d 495 (Minn.App.1992). We agree with the trial court's ruling and reverse the court of appeals.

We also must address whether the Miller-Shugart ² agreements entered into between Richard and David Paquin ("the Paquins"), suppliers of seed potatoes, and plaintiffs Bob Useldinger & Sons, Inc. and Greg Useldinger, Inc. are enforceable. The trial court ruled that they were improperly entered into because the insurer of the Paquins had not denied coverage. We believe that in this situation it was proper for the Paquins to enter into Miller-Shugart agreements with the plaintiffs. The trial court also ruled that these Miller-Shugart agreements were defective because the parties failed to allocate the damages among the various defendants. We agree with the trial court that the failure to allocate damages among the defendants voids the Miller-Shugart agreements. Thus, we reverse in part, vacate the judgments as to the Miller-Shugart agreements, and remand for further proceedings consistent with this opinion.

FACTS

Bob Useldinger & Sons, Inc. and Greg Useldinger, Inc. ("the Useldingers") contracted with Paquin Potato Company, operated by the Paquins, for seed potatoes for the crop years 1981 through 1984. Paquin Potato Company supplied the Useldingers with seed potatoes grown by P & H Farms, a partnership founded by the Paquins and Hangsleben. The Paquins were insured by State Farm Fire and Casualty Company ("State Farm"). Gust Hangsleben was insured by Insurance Company of North America ("INA") and St. Paul Fire & Marine Insurance Company ("St. Paul"). ³

In 1983, the Useldingers discovered that seed potatoes supplied by the Paquins were contaminated with a disease known as bacterial ring rot. The Useldingers were able to salvage some of their potato crop, but most of the crop was destroyed.

In 1982 and 1983, P & H Farms sold seed potatoes to Honek Brothers Potato Company, Mack Farms and Tri-Mack Potatoes, Inc. This seed was also infected with bacterial ring rot. The result was similar to the Useldingers' experience.

The seed potato buyers subsequently commenced actions against the suppliers, alleging breaches of warranties, negligence and strict liability in tort. ⁴ The suits were consolidated for trial purposes.

In June 1987, P & H Farms, Paquin Potato Company, and the partners of P & H Farms jointly stipulated to the entry of judgment in favor of the Useldingers pursuant to a Miller-Shugart settlement. On May 24, 1988, the trial court entered judgment nunc pro tunc in conformity with the agreement. The judgment states that plaintiff Greg Useldinger, Inc. claimed an actual loss of $187,783.25 but that the parties had agreed to settle the claim for $128,652. The parties stipulated that Greg Useldinger, Inc. would look to the personal assets of the defendants for only $28,125 of the judgment amount. Further, Greg Useldinger, Inc. agreed that it could recover no more than 50 percent of the $28,125 from the assets of Hangsleben. Greg Useldinger, Inc. agreed that it would seek to recover the remainder of the judgment only against the insurance proceeds.

A similar stipulation was entered on behalf of plaintiff Bob Useldinger and Sons, Inc. This stipulation stated that Bob Useldinger and Sons, Inc. claimed $128,027.50, but that the parties had agreed to settle the dispute for $87,000. This agreement stated that Bob Useldinger and Sons, Inc. would only look to the defendants for $22,093 of the judgment and also stipulated that only half of this amount could be recovered against Hangsleben. As in the other stipulated agreement, Bob Useldinger and Sons agreed that it would seek enforcement of the remainder of the judgment only against the insurance proceeds.

In October 1987, shortly before trial, Gust Hangsleben entered into a Miller-Shugart agreement on his individual liability with plaintiffs Honek Brothers Potato Company, Robert Honek, James Honek, Tri-Mack Potato, Inc., and Mack Farms. The agreement stipulated that the claimants were awarded--totally and in the aggregate--$650,000. The judgment stipulated that this was the total sum which could be awarded against Hangsleben regardless of how the plaintiffs apportioned the amounts among themselves. Further, the parties stipulated that the judgment could only be collected from the insurance proceeds. Judgment was entered pursuant to this stipulated settlement on March 3, 1989. Claims against other suppliers were subsequently determined at trial.

The plaintiffs, now judgment creditors, initiated garnishment actions against the insurers to enforce the Miller-Shugart agreements. The trial court granted summary judgment for the insurers. It gave several reasons for its ruling. It ruled that there was no coverage under the State Farm general liability and commercial umbrella policies issued to the Paquins, nor any coverage under the policies issued to Gust Hangsleben by INA and St. Paul. The trial court additionally ruled that the Paquins had violated the personal umbrella policies they had with State Farm by entering into Miller-Shugart agreements, and that these Miller-Shugart agreements were invalid because they did not allocate damages among the various defendants, but rather held all of several defendants jointly and severally liable for one lump sum.

The judgment creditors appealed to the court of appeals. It reversed on all counts, holding that there was coverage under all of the policies and that the Miller-Shugart agreements were valid. It also ruled that the trial court's granting of summary judgment to INA and St. Paul, the insurers of Hangsleben, was improper because, although the policies did not explicitly name the P & H Farms' land on the declarations page, there was enough evidence to support the theory that Hangsleben had spread ring rot from his land to the land of the partnership, P & H Farms, leaving open the issue of coverage.

I.

First we must decide whether the State Farm comprehensive general liability and commercial umbrella policies issued to the Paquins provide coverage. ⁵ These policies contain the following exclusion:

In consideration for the premium charged, no coverage is provided for claims of consequential loss or damages because of but not limited to:

A. Failure of seed sold by the insured to conform to the variety or quality of specified (sic) or to be suitable for the purpose specified.

B. Failure of seed to conform to the variety or quality specified when sold by the insured in unopened packages, received by the insured from a supplier.

C. Germination quality of seed.

State Farm argues that the exclusion precludes coverage because the claims of the judgment debtors arose out of the failure of the seed potatoes to conform to the quality specified. The plaintiffs-judgment creditors argue, and the court of appeals agreed, that "quality specified" as used in this context, means a particular "grade" of seed and that the exclusion does not include seed which is contaminated by disease. The court of appeals thus reasoned that because the claim in this case was not for breach of a specific warranty, but for a general failure of the seed potatoes to perform as expected, the exclusion did not apply and the two policies provided coverage.

The insurer bears the burden of proving that a given exclusion applies. Caledonia Community Hosp. v. St. Paul Fire & Marine Ins. Co., 307 Minn. 352, 354, 239 N.W.2d 768, 770 (1976). Exclusions are to be strictly interpreted against the insurer and an insurer denying coverage because of an exclusion bears the burden of proof. Milwaukee Mutual Ins. Co. v. City of Minneapolis, 307 Minn. 301, 307, 239 N.W.2d 472, 475 (1976).

The use of the term "quality specified " might require that a specific guarantee of quality has been made by the seller as to the seed for the exclusion to apply. State Farm, however, argues that the exclusion applies because the plaintiffs claims are essentially...