Kraus-Anderson Constr. Co v. Transp. Ins. Co

• Decision Date: 12 April 2011
• Docket Number: A10-698
• Citation: Kraus-Anderson Constr. Co. v. Transp. Ins. Co., A10-698 (Minn. App. Apr 12, 2011)
• Parties: Kraus-Anderson Construction Co., Respondent, v. Transportation Insurance Co., et al., Respondents, Evanston Insurance Co., Appellant, RLI Insurance Co., Respondent NewMech Companies, Inc., Respondent.
• Court: Minnesota Court of Appeals

Kraus-Anderson Construction Co., Respondent,

v.Transportation Insurance Co., et al., Respondents,Evanston Insurance Co., Appellant,RLI Insurance Co., RespondentNewMech Companies, Inc., Respondent.

A10-698

STATE OF MINNESOTA IN COURT OF APPEALS

Filed: April 12, 2011

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3(2010).

Affirmed in part, reversed in part

Toussaint, Judge

Hennepin County District Court

FileNo. 27-CV-05-5575

John M. Anderson, Steven P. Aggergaard, Bassford Remele, Minneapolis, Minnesota (for respondentKraus-Anderson Construction Co.)

Robert E. Salmon, Meagher & Geer, P.L.L.P., Minneapolis, Minnesota (for respondentTransportation Insurance Co., et al.)

Katherine L. MacKinnon, St. Louis Park, Minnesota; and

Tory M. Bishop(pro hac vice), Omaha, Nebraska (for appellantEvanston Insurance Co.)

Patricia St. Peter, Christopher R. Paar, Kathryn M. Hoffman, Zelle Hofmann Voelbel & Mason LLP, Minneapolis, Minnesota (for respondentRLI Insurance Co.)

Gerald S. Duffy, Siegel, Brill, Greupner, Duffy & Foster, P.A., Minneapolis, Minnesota (for respondentNewMech Companies, Inc.)

Considered and decided by Peterson, Presiding Judge; Toussaint, Judge; and Hudson, Judge.

UNPUBLISHED OPINION

TOUSSAINT, Judge

AppellantEvanston Insurance Co. challenges the district court's entry of judgment against it and in favor of respondentKraus-Anderson Construction Co., arguing that it did not breach its duty to defend Kraus-Anderson and, in the alternative, that fees, costs, and prejudgment interest were miscalculated.By notice of related appeal, respondentRLI Insurance Co. also challenges the judgment of the district court, arguing that it did not breach its duty to defend and that Evanston is solely liable for defense costs, and alternatively, that the district court erred in calculating and allocating declaratory-judgment fees and costs.Finally, by notice of related appeal, Kraus-Anderson also challenges the judgment of the district court, arguing that the district court erred by failing to award it costs incurred defending respondentsTransportation Insurance Co. and NewMech Companies, Inc., and by miscalculating prejudgment interest.

We conclude that RLI did not owe a duty to defend Kraus-Anderson until all scheduled underlying insurance—including the Evanston policy—was exhausted.Because the limits of the Evanston policy remain available, RLI did not breach its duty to defend.We therefore reverse the judgment against RLI.We affirm in all other respects.

FACTS

Kraus-Anderson was the general contractor for several riverfront construction projects in Minneapolis, including the Stone Arch Lofts and Washburn Lofts projects.Kraus-Anderson contracted with the Stone Arch Lofts developer, Brighton Development Corporation, in 1999.Kraus-Anderson subcontracted with NewMech to provide the heating, ventilating, and air-conditioning systems on the Stone Arch Lofts project.

In August 2001, Stone Arch Lofts unit owners began experiencing excessive humidity and related problems such as mold growth and damage to the wood floors.Brighton contacted Kraus-Anderson for repairs, which in turn contacted NewMech.Litigation ensued between unit owners, Brighton, Kraus-Anderson, and NewMech in 2002.Brighton, Kraus-Anderson, and NewMech reached agreements among themselves to make repairs; the agreement between Brighton and Kraus-Anderson included an arbitration clause.

In December 2002, Brighton filed for arbitration, seeking damages from Kraus-Anderson for work done on the Stone Arch Lofts.Kraus-Anderson made a third-party indemnification claim against and arbitration demand on NewMech.Brighton's December 17, 2002 arbitration demand stated a claim seeking "[i]n excess of $2,000,000.00."In January 2003, Kraus-Anderson filed for arbitration against Brighton in a separate matter, seeking money owed from the Washburn Lofts project, and Brighton filed a counterclaim for damages.Because there were some witnesses and discovery issues common to the Stone Arch Lofts and Washburn Lofts arbitrations, the arbitrator consolidated the two arbitration actions.

Following extensive arbitration that included 48 days of testimony and over 30,000 pages of documents, the arbitrator issued an interim award of the following: $1,603,914 plus interest in favor of Brighton against Kraus-Anderson, all but $100,000 of which Kraus-Anderson received in indemnification from NewMech; $3,255,378 plus interest in separate damages to Kraus-Anderson from NewMech; and $550,000 in attorney fees to Kraus-Anderson from NewMech.A district court confirmed this award in November 2005.

At all relevant times, Kraus-Anderson had several layers of insurance.Kraus-Anderson had two underlying policies: first, a comprehensive-general-liability (CGL) policy from St. Paul Insurance Company, and second, an architects-and-engineers-professional-liability policy from Evanston.Each had a $1 million liability limit.Kraus-Anderson was also an additional insured under NewMech's CGL policy, which was issued by Transportation.Kraus-Anderson also had an umbrella insurance policy issued by RLI.The RLI umbrella policy followed form to the Evanston policy, but separate terms and exclusions were drafted into the RLI umbrella policy in regard to its coverage in excess of the St. Paul policy.

St. Paul defended Kraus-Anderson in the arbitration subject to a reservation of rights.St. Paul and Kraus-Anderson reached a settlement in October 2003, with St. Paul paying Kraus-Anderson $750,000 for all claims under its policy and $55,000 in defense costs.Pursuant to the settlement, St. Paul then stopped defending Kraus-Anderson.

In July 2003, Kraus-Anderson sued Transportation, seeking a declaratory judgment that Transportation was obligated to defend and indemnify Kraus-Anderson as the primary liability insurer and seeking attorney fees and costs.In November 2005, Kraus-Anderson amended its complaint to add claims against NewMech, RLI, and Evanston.Kraus-Anderson also sought declaratory relief "concerning the respective obligations of [Krause-Anderson], NewMech, and the defendant insurers and the proper apportionment of liability."

In November 2006, Kraus-Anderson, Transportation, and NewMech reached a settlement of all their claims against each other; they stipulated to dismissal with prejudice of their claims against each other, with Kraus-Anderson to defend and indemnify Transportation and NewMech against any cross-claims of the non-settling parties.The district court accepted the stipulation and ordered dismissal with prejudice of Kraus-Anderson's claims against Transportation and NewMech and of NewMech's cross-claim against Transportation and entry of judgment pursuant to Minn. R. Civ. P. 54.02.The settlement provided for payment of $4,580,783.63 plus interest to Kraus-Anderson, $650,000 of which was allocated to defense costs.

In May 2007, Kraus-Anderson and RLI brought cross-motions for partial summary judgment.RLI sought a declaration that it had no duty to defend Kraus-Anderson in the arbitration.Kraus-Anderson sought declarations that RLI breached its duty to defend in the arbitration and that RLI had to reimburse Kraus-Anderson for its unpaid attorney fees and costs incurred in the underlying arbitration and for its attorney fees and costs in the instant suit to compel RLI to acknowledge its defense obligation.

In September 2007, the district court granted Kraus-Anderson's motion for partial summary judgment, denied RLI's motion for partial summary judgment, and granted Kraus-Anderson attorney fees and costs incurred in the underlying arbitration and in this litigation.The court concluded that RLI breached its duty to defend Kraus-Anderson under its follow-form umbrella policy over the Evanston policy; after the St. Paul policy was exhausted through settlement and St. Paul ceased its defense, RLI also breached its duty to defend under that umbrella policy.

A bifurcated bench trial was set to follow; after what was scheduled to be Phase I, the district court issued an order on June 30, 2008.The court found that, although Kraus-Anderson relied on St. Paul for its initial defense, it put both RLI and Evanston on notice of the potential claims on those policies in regard to only the Stone Arch Lofts project.The court found that Kraus-Anderson tendered defense of the arbitration to RLI in December 2002 and to Evanston in January 2003 but that it never formally tendered defense of the Washburn Lofts matter to St. Paul, RLI, or Evanston.

The district court awarded Kraus-Anderson $196,008.11 in unpaid defense costs from the Stone Arch Lofts arbitration; it rejected Kraus-Anderson's request for an additional $90,000, which was based on the Washburn Lofts arbitration.The court also awarded attorney fees and costs incurred in the instant declaratory-judgment action ($321,265.88 through January 1, 2008, plus reasonable amounts incurred through the date the order was filed).The court concluded that Evanston and RLI were jointly and severally liable, but ordered Evanston to pay these amounts first, up to its policy limit, with RLI liable for any remaining amount.

After Phase I of the trial, the parties brought cross-motions for summary judgment, which they agreed could resolve the remaining issues.¹In September 2009, the district court issued an order granting Kraus-Anderson's motion for summary judgment and denying Evanston's motions for summary judgment on its counterclaims against Transportation and NewMech.The court concluded that Transportation and Evanston both were primary insurers of Kraus-Anderson and had a duty to defend.The court also concluded that Kraus-Anderson's settlement with Transportation was reasonable and fulfilled Transportation's obligation to defend and indemnify.The court also concluded that Evanston's contribution claim failed because of the lack...