Jerry's Enters., Inc. v. U.S. Specialty Ins. Co.
Decision Date | 11 January 2017 |
Docket Number | No. 15-3324,15-3324 |
Parties | JERRY'S ENTERPRISES, INC., Plaintiff-Appellant v. U.S. SPECIALTY INSURANCE COMPANY, Defendant-Appellee |
Court | U.S. Court of Appeals — Eighth Circuit |
Counsel who presented argument on behalf of the appellant was Richard D. Snyder, of Minneapolis, MN. The following attorney(s) appeared on the appellant brief; Richard D. Snyder, of Minneapolis, MN.
Counsel who presented argument on behalf of the appellee was Douglas M. Mangel, of Washington, DC. In addition to Mr. Mangel, the following attorney(s) appeared on the appellee brief; Robert Lowell McCollum, of Minneapolis, MN., Alexander Karam, of Washington, DC.
Before GRUENDER, BEAM, and SHEPHERD, Circuit Judges.
Jerry's Enterprises, Inc. ("JEI") brought a breach of contract and declaratory judgment action against its liability insurance carrier, U.S. Specialty Insurance Company ("U.S. Specialty"). The conflict concerned the insurance carrier's refusal to indemnify JEI for the settlement of a lawsuit. U.S. Specialty argued that the underlying suit, brought by a former director of JEI, was excluded from coverage by language in the directors' and officers' liability insurance policy. On cross-motions for summary judgment, the district court1 ruled in favor of U.S. Specialty. We note jurisdiction over this final order of the lower court, see 28 U.S.C. § 1291, and affirm.
In 1950, Jerry Paulson founded JEI as a small butcher shop in Edina, Minnesota. Over the decades, JEI came to operate a score of retail and grocery stores in Minnesota, Wisconsin, and Florida. The closely held family company now employs approximately 4,000 employees. As he grew the business, Jerry Paulson gifted non-voting shares in JEI to his three daughters, including Cheryl Sullivan. He also gifted shares to his grandchildren, including Sullivan's daughters Kelly and Monica. Paulson established an estate plan that, upon his death, appointed his daughters as members of the JEI Board of Directors. They would remain as directors until such time as their shares, and those of his grandchildren, were redeemed.
Jerry Paulson died on April 5, 2013. In accordance with Paulson's estate plan, Sullivan became a director of JEI in April, and she held that position until August, when her shares were redeemed. At that time, Cheryl Sullivan owned 28.06% of all outstanding company shares, while Kelly and Monica owned 2.4% and 1.2%, respectively. During her stint as a company director, Sullivan raised a number of concerns with directors of JEI in regards to how her shares were being valued. These concerns were never addressed to her satisfaction.
As a result, Sullivan and her daughters filed suit against JEI, alleging multiple acts of misconduct by JEI directors designed to lower the value of their shares. The complaint contained claims for declaratory judgment, breach of fiduciary duty, aiding and abetting tortious conduct, equitable relief under Minnesota common and statutory law, breach of contract, civil conspiracy, and preliminary and permanent injunctive relief. All claims were brought jointly by all three plaintiffs. After several months of negotiation, JEI reached a confidential settlement agreement with Sullivan and her daughters. When JEI sought coverage for its defense costs and for sums paid under the settlement agreement, U.S. Specialty refused to pay.
JEI held a directors' and officers' liability insurance policy—Policy No. 14–MGU–12–A27558—through U.S. Specialty. Under the policy, U.S. Specialty agreed to "pay to or on behalf of the Insured Persons [or the Insured Organization] Loss arising from Claims first made against them during the Policy Period or Discovery Period (if applicable) for Wrongful Acts." (Appellant App. 32.) There is no dispute that the Sullivan lawsuit is a claim made during the policy period for wrongful acts. The policy defines Insured Person as "any past, present or future director, officer, managing member, manager or Employee of the Insured Organization...." (Appellant App. 34.) Claim is defined, in relevant part, as "any civil proceeding commenced by service of a complaint or similar pleading." (Appellant App. 32.)
Aside from these particular definitions, JEI's insurance policy contains two other provisions significant to this appeal. The first is the "Insured vs. Insured" exclusion. This provision excludes from coverage under the policy any claim:
The second significant provision of JEI's policy is the allocation clause. This clause deals with a lawsuit involving both covered and uncovered loss in the following way:
If Loss covered by this Policy and loss not covered by this Policy are both incurred in connection with a single Claim, either because the Claim includes both covered and uncovered matters, or because the Claim is made both against Insureds and against others not included within the definition of Insured, the Insureds and the Insurer agree to use their best efforts to determine a fair and proper allocation of all such amounts....
After repeated communications between the parties, in which U.S. Specialty steadfastly refused to extend coverage for the Sullivan settlement and related defense costs, JEI filed this action in Minnesota state court. U.S. Specialty subsequently removed the case to federal district court, which had diversity jurisdiction pursuant to 28 U.S.C. § 1332. JEI's suit alleged claims of breach of contract, declaratory judgment, and estoppel. Both parties filed motions for summary judgment in the district court, raising three primary issues. First, whether Cheryl Sullivan qualified as an Insured Person under the insurance policy. Second, whether the Insured vs. Insured exclusion applied to Cheryl Sullivan's claims. Third, whether the Insured vs. Insured exclusion applied to the claims brought by Sullivan's daughters.
The district court ruled in favor of U.S. Specialty on each issue. It found that the plain language of the insurance policy qualified Cheryl Sullivan as an Insured Person and so the Insured vs. Insured exclusion applied to her claims. The court also held that the exclusion applied to the claims brought by Sullivan's daughters. On this last point, the court's reasoning centered on the nature of the suit. Each and every claim of the suit was brought jointly by Sullivan and her daughters. Therefore, since the Insured vs. Insured exclusion allows coverage only for claims asserted by Insured Persons if they are brought independently and without the active participation of the Insured Person, the claims brought by Sullivan's daughters were not subject to coverage under the policy.
JEI appeals this last ruling of the district court on the issue of coverage for the claims brought by Sullivan's daughters.
"We review de novo ‘the district court's interpretation of the terms of the insurance policy and its' summary judgment decisions." Oakdale Mall Assocs. v. Cincinnati Ins. Co., 702 F.3d 1119, 1122 (8th Cir. 2013) (quoting Corn Plus Co – op. v. Cont'l Cas. Co., 516 F.3d 674, 678 (8th Cir. 2008) ). We will uphold a grant of summary judgment "if the movant shows that 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). The interpretation of an insurance contract is a question of law. Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628, 636 (Minn. 2013). "Because this case is in federal court based on diversity jurisdiction, Minnesota's substantive law controls our analysis of the insurance policy." Corn Plus, 516 F.3d at 678 (citation omitted).
"We must predict how the Supreme Court of Minnesota would rule" if this issue came before it. Neth. Ins. Co. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014) (citation omitted). "Under Minnesota law, the insured bears the initial burden of establishing that coverage exists, at which point the insurer then carries the burden of demonstrating that a policy exclusion applies." Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 951 (8th Cir. 2012) (citing Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006) ). If the insurer succeeds, the burden shifts back to the insured to show that an exception to the exclusion applies. Wolters, 831 N.W.2d at 636.
General contract principles apply to the construction of an insurance policy under Minnesota law, and we must interpret the policy to effect the intentions of the parties. See Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002). "An insurance policy ‘must be construed as a whole, and unambiguous language must be given its plain and ordinary meaning.’ " Wolters, 831 N.W.2d at 636 (quoting Henning Nelson Constr. Co. v. Fireman's Fund Am. Life Ins. Co., 383 N.W.2d 645, 652 (Minn. 1986) ). "Language in a policy is ambiguous if it is susceptible to two or more reasonable interpretations." Id. But we will not read ambiguity into the plain language of an insurance policy. "The courts ‘must fastidiously guard against the invitation to create ambiguities where none exist.’ " Oakdale Mall, 702 F.3d at 1122 (quoting Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917, 921 (Minn. 2011) ).
We turn first to the actual language of the exclusion clause. The language itself, as it applies to this case, is straightforward: "the Insurer will not be liable to make any payment of Loss in connection with a Claim brought by ... any Insured Person." The policy defines Claim, in relevant part, as "any civil proceeding commenced by service of a complaint." Finally, an Insured...
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