King's Cove Marina, LLC v. Lambert Commercial Constr. LLC, A19-0078
| Decision Date | 14 April 2021 |
| Docket Number | A19-0078 |
| Citation | 958 N.W.2d 310 |
| Court | Minnesota Supreme Court |
| Parties | KING'S COVE MARINA, LLC, Appellant, v. LAMBERT COMMERCIAL CONSTRUCTION LLC, et al., Defendants, United Fire & Casualty Company, Respondent. |
Mark R. Bradford, Bassford Remele, P.A., Minneapolis, Minnesota; and Stephen P. Watters, Watters Law Office, Minnetonka, Minnesota, for appellant.
Kay Nord Hunt, Keith J. Broady, Bryan R. Feldhaus, Lommen Abdo, P.A., Minneapolis, Minnesota, for respondent.
Jennifer E. Olson, Schwebel, Goetz & Sieben, P.A., Minneapolis, Minnesota, for amicus curiae Minnesota Association for Justice.
Dale O. Thornsjo, Lance D. Meyer, O'Meara, Leer, Wagner & Kohl, P.A., Minneapolis, Minnesota, for amicus curiae Insurance Federation of Minnesota.
Beth A. Jenson Prouty, Jeffrey M. Markowitz, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota, for amicus curiae American Property Casualty Insurance Association.
This case requires us to determine whether a commercial general liability insurance policy, which includes coverage for the "products-completed operations hazard," covers property damage to the insured's own completed work, notwithstanding an exclusion for property damage arising out of the insured's work. We also consider whether a Miller-Shugart settlement agreement1 that fails to allocate between claims that are covered and not covered by the insurance policy is per se unreasonable and unenforceable against the insurer. The district court determined that the insurance policy covers all of the claimed property damage and also determined that the Miller-Shugart settlement agreement is reasonable and enforceable against the insurer. The court of appeals reversed, concluding that (1) the insurance policy covers some but not all of the claimed property damage, and (2) the Miller-Shugart settlement agreement is unreasonable as a matter of law because the agreement failed to allocate between covered and uncovered claims. We hold that the insurance policy does not cover all of the claimed property damage and a Miller-Shugart settlement agreement that fails to allocate between covered and uncovered claims is not per se unreasonable and unenforceable. Therefore, we affirm in part, reverse in part, and remand to the court of appeals for the consideration of the remaining issues on appeal.
Appellant King's Cove Marina, LLC, is a full-service marina in Hastings. King's Cove undertook an expansion and remodeling project involving the main building of the marina. The project included new exterior walls, new windows, a new second-level mezzanine space for offices, and a new roof. Defendant Lambert Commercial Construction LLC performed work on the building's roof and siding. Lambert also performed other work, including the framing of window openings, installing window trim materials, and installing wood flooring on the second level. Lambert hired Roehl Construction, Inc., to perform concrete work.
During the course of the construction project, King's Cove advised Lambert of a number of issues with the work. King's Cove stated that the concrete floors were showing "excessive cracking." King's Cove also reported problems with water leaking from the walls and the roof, leading to damage to interior finishes and damage to existing ceiling tiles, carpet, and sheetrock. When King's Cove refused to pay the outstanding balance on Lambert's invoices, Lambert stopped work on the project.
King's Cove sued Lambert and others for breach of contract and negligence.2 King's Cove alleged that the concrete floors were not constructed in accordance with industry standards or project plans and specifications, resulting in excessive movement and cracking. King's Cove also alleged that there were defects with Lambert's metal building products and metal roof and claimed that the in-floor heating systems were not installed properly, causing the concrete floors to move, crack, and expand.
Lambert tendered the defense of the lawsuit to respondent United Fire & Casualty Company, which insured Lambert under a commercial general liability policy and a commercial liability umbrella policy. The commercial general liability policy contained a general aggregate limit of $2 million, a products-completed operations aggregate limit of $2 million, and an each-occurrence limit of $1 million. The umbrella policy contained a general aggregate limit of $1 million. United Fire denied coverage for the claims but defended Lambert under a reservation of rights.
United Fire subsequently brought a declaratory judgment action, seeking a ruling that United Fire does not have a duty to defend or indemnify Lambert. While the declaratory judgment action was pending, King's Cove and Lambert entered into settlement negotiations to resolve the underlying lawsuit. United Fire received notice of a proposed Miller-Shugart settlement and, according to the district court, "minimally participate[d] in discussions" about the settlement.
King's Cove and Lambert ultimately reached an agreement to resolve the lawsuit and executed a Miller-Shugart settlement agreement. According to the agreement, because United Fire had denied insurance coverage in the declaratory judgment action, Lambert faced the possibility of not having any coverage for the claims of King's Cove. And even if coverage is available, the agreement stated that Lambert faced exposure for amounts in excess of the coverage limits. Therefore, Lambert stipulated to a judgment against it for the sum of $2 million, plus interest and costs, and King's Cove agreed to enforce the judgment against only United Fire. The agreement specified that the settlement "relates to the claims and damages for the work provided by Lambert, including the roof and siding" of the main building at the marina, but not for the work of Roehl Construction or other defendants. The agreement reserved the right of King's Cove to pursue claims against Roehl Construction for the concrete work.
Specifically, the parties stipulated and agreed as follows regarding "the claims and damages for the work provided by Lambert." The estimated cost of repairing the main building at the marina was $1,085,000. The agreement attributed $599,000 of the cost to Lambert for Lambert's work, including the roofing and siding work. In addition, because the cost of the repairs would exceed 50 percent of the value of the building, the parties believed that a municipal flood-plain ordinance would require King's Cove to raise the elevation of the main building, as well as make changes to other buildings and areas of the marina property. As a result, the total damages that King's Cove sustained, which included the cost to comply with the flood-plain ordinance, ranged from $4.5 million to $5.2 million. Lambert's proportionate share of liability—calculated as 55.2 percent of the total damages—ranged from $2,426,000 to $2,870,000.
The district court approved the Miller-Shugart settlement agreement. The court ordered the entry of judgment against Lambert for $2 million, plus interest and costs, "to be satisfied by any insurance coverage provided to Lambert by United Fire."
The district court then granted the motion of King's Cove to file a supplemental complaint for garnishment against United Fire. In the garnishment proceeding, United Fire denied that insurance coverage exists for the claims of King's Cove. United Fire also asserted, among other defenses, that the Miller-Shugart settlement agreement is unreasonable to the extent that the settlement fails to allocate damages between covered and uncovered claims.
The district court granted partial summary judgment to King's Cove. The court ruled that there is insurance coverage under the United Fire policies for the claims that King's Cove brought against Lambert. The court determined that "there have been multiple ‘occurrences’ causing property damage" to the main building at the marina and that United Fire had not "established any exceptions to coverage."
The district court then considered the reasonableness of the Miller-Shugart settlement agreement. Following a 2-day evidentiary hearing, which included testimony from expert attorneys, the court ruled that the settlement was reasonable in light of Lambert's potential exposure. The court stressed that, at the time of the settlement, "Lambert had a very real and reasonable concern that it could be without insurance coverage for the claims" brought by King's Cove. Therefore, the court issued an order for judgment, naming United Fire as the judgment debtor for the judgment against Lambert. The court denied United Fire's post-trial motions.
Both sides appealed. The court of appeals reversed and remanded. King's Cove Marina, LLC v. Lambert Com. Constr. LLC , 937 N.W.2d 458 (Minn. App. 2019). Applying an exclusion in the United Fire policies that bars coverage for property damage to the insured's own work, the court of appeals concluded that the district court erred in its coverage determination by failing "to distinguish between damages directly caused by Lambert's work, and damages arising from Lambert's work that were not part of the scope of work Lambert was hired to perform." Id. at 468. In addition, the court of appeals determined that King's Cove and Lambert were required to identify "covered and non-covered damages in their Miller-Shugart agreement." Id. at 470. Because the agreement does not "allocate between covered and non-covered damages," the court of appeals concluded that the agreement is "unreasonable as a matter of law and unenforceable" against United Fire. Id. After resolving the appeal on these grounds, the court of appeals did not reach other issues raised on appeal. Id. at 464 n.3.3
King's Cove petitioned for further review. We granted review on two issues: the scope of coverage under the United Fire policies and the reasonableness of the Miller-Shugart settlement agreement.
We first review the issue of coverage for the claimed...
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