National Farmers Union Standard Ins. Co. v. Souris River Telephone Mut. Aid Co-op.

• Decision Date: 31 January 1996
• Docket Number: 95-1087 and 95-1214,Nos. 94-3777,s. 94-3777
• Citation: 75 F.3d 1268
• Parties: NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Appellant, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren Hight, Appellees. NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Appellant, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren Hight, Appellees. NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Cross-Appellee, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren Hight, Cross-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1268

75 F.3d 1268

NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Appellant, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren

Hight, Appellees.

NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Appellant, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren

Hight, Appellees.

NATIONAL FARMERS UNION STANDARD INSURANCE COMPANY, Cross-Appellee, v. SOURIS RIVER TELEPHONE MUTUAL AID COOPERATIVE and Warren

Hight, Cross-Appellants.

Nos. 94-3777, 95-1087 and 95-1214.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 18, 1995.

Decided Jan. 31, 1996.

Lawrence Roy Klemin, Bismarck, North Dakota, argued, for appellant.

Orell D. Schmitz, Bismarck, North Dakota, argued (David L. Peterson, on the brief) for appellee.

Before BOWMAN, FLOYD R. GIBSON and WOLLMAN, Circuit Judges.

BOWMAN, Circuit Judge.

This is a complex insurance coverage case. The Souris River Telephone Mutual Aid Cooperative sought coverage for the death of one of its employees from its insurer, National Farmers Union Standard Insurance Company (NFU). After lengthy proceedings in the District Court, a jury found for the cooperative and its general manager Warren Hight (collectively, SRT). The District Court entered judgment on the verdict and awarded SRT damages in the amount of $371,906.30 plus prejudgment and postjudgment interest. The court subsequently entered an order granting SRT's motion for attorney fees in the amount of $105,488.65 but denying SRT's claim for $10,422.50 in paralegal fees. NFU now timely appeals the judgment entered against it (No. 94-3777). NFU also appeals the order awarding attorney fees to SRT (No. 95-1087). SRT cross-appeals the order denying its request for paralegal fees (No. 95-1214). We reverse the judgment entered on the jury's verdict and remand this case to the District Court for entry of judgment in favor of NFU. The award of attorney fees to SRT is vacated, and SRT's cross-appeal from the order denying its request for paralegal fees is dismissed as moot.

I.

Thomas Schettler, an employee of SRT, died when he fell from the roof of an office building in Sioux Falls, South Dakota, on November 14, 1989, while he was installing a satellite television dish. SRT is headquartered in Minot, North Dakota, and Schettler lived and ordinarily worked for SRT in North Dakota. In fact, Schettler's death in Sioux Falls occurred on the first day in at least twenty years that SRT had any of its employees perform work outside of North Dakota. The work in Sioux Falls was being performed by SRT on behalf of Hughes Network Systems pursuant to a contract between SRT and Hughes that the parties signed on August 9 and August 14, 1989, respectively.

Schettler's widow filed a claim for death benefits with the North Dakota Worker's Compensation Bureau (the Bureau). Pursuant to N.D.Cent.Code § 65-08-01(2) (Supp.1989), which became effective July 27, 1989, the Bureau dismissed the claim because Schettler's death occurred at an identifiable out-of-state job site and thus was not incidental and referable to Schettler's principal employment in North Dakota. SRT could have covered its employees working in South Dakota through the Bureau at no additional cost by obtaining a certificate of extraterritorial coverage. North Dakota and South Dakota have reciprocal agreements, and South Dakota regularly approves requests by the Bureau to cover employees of North Dakota companies working in South Dakota. SRT, however, never notified the Bureau that it would have employees working in South Dakota. The Supreme Court of North Dakota affirmed the Bureau's decision to deny benefits. SRT v. North Dakota Workers' Compensation Bureau, 471 N.W.2d 465 (N.D.1991).

While SRT was appealing the Bureau's decision, Schettler's widow filed wrongful death actions against SRT in South Dakota and North Dakota state courts. SRT turned to its insurer, NFU, to determine whether SRT's insurance policies with NFU provided coverage for Schettler's death. NFU then filed this action in the District Court seeking a declaratory judgment that none of SRT's policies covered the loss; SRT filed a counterclaim alleging that the loss was covered or that NFU was negligent in not providing the appropriate coverage. Originally, Mrs. Schettler was also named as a defendant by NFU. NFU and SRT, however, settled Mrs. Schettler's claims and both companies contributed equally to the settlement. The declaratory judgment action continued in order to determine whether either NFU or SRT could recover from the other the amount it paid to Mrs. Schettler.

SRT claimed coverage under three insurance policies it had in force through NFU at the time of Schettler's death: (1) a Rural Utilities Insurance Plan (RUIP), which is a general commercial liability policy; (2) a Commercial Umbrella Liability Policy (CULP); and (3) a Directors, Officers, and Managers Liability Insurance Policy (DOM). NFU sought a judgment declaring that Schettler's death was not covered by any of these policies. In its counterclaim, SRT alleged that Schettler's death was covered and requested a declaratory judgment to that effect. Additionally, SRT alleged that, even if there was no coverage under the three NFU policies, NFU or its agents were negligent when they failed to provide a stop-gap endorsement to SRT's RUIP and that such an endorsement would have covered Schettler's death. SRT also contended that NFU was negligent in other, unspecified ways by failing to provide SRT with appropriate insurance coverage.

The District Court granted partial summary judgment to NFU, holding that the RUIP and the CULP issued by NFU to SRT do not provide coverage for the loss here at issue. SRT has not appealed the court's grant of partial summary judgment, and thus no issues concerning the RUIP and the CULP are before us. In the same order, the court refused to grant summary judgment with respect to the DOM policy, holding that as a matter of law the DOM policy covered SRT for any losses SRT incurred as a result of the negligent acts or omissions of its general manager Warren Hight. The case proceeded to trial, and the court submitted the question of Hight's negligence to the jury. The court also submitted to the jury SRT's negligence counter-claims against NFU. The jury returned a special verdict in which it found that (1) Hight was "negligent in failing to ensure that SRT had secured extraterritorial workers compensation coverage"; (2) "NFU or one of its agents [was] negligent in failing to provide the Stop Gap endorsement on the 1989 RUIP"; and (3) "NFU or one of its agents [was] negligent in [some] other way in failing to provide proper insurance coverage for SRT." Verdict Form at 1, 2, 3, NFU v. SRT, No. A1-92-055 (D.N.D. Sept. 20, 1994). Based on the jury's verdict, the court entered judgment for SRT in the amount of $371,906.30 plus prejudgment and postjudgment interest. The court later entered an order awarding attorney fees in the amount of $105,488.65 but denying SRT's claim for $10,422.50 in paralegal fees. NFU appeals the court's ruling on the coverage afforded by the DOM policy, the judgment entered on the jury's verdict, and the attorney fees award. SRT cross-appeals the denial of its claim for paralegal fees.

II.

NFU argues that the District Court erred when it held that the DOM policy covered SRT for losses it incurred as a result of the negligence of its general manager Warren Hight. The interpretation of an insurance policy is a matter of state law. Bell Lumber & Pole Co. v. United States Fire Ins. Co., 60 F.3d 437, 441 (8th Cir.1995). "We review questions of state law de novo," without giving any deference to the District Court's decision. Id.

The DOM policy at issue in this case provides that NFU will pay on behalf of SRT any "loss" that results from "any ... claims made during the policy period ... against each and every Director, Officer or Manager by reason of any Wrongful Act for which the Insured may be required or permitted by law to indemnify such Director, Officer or Manager." DOM Policy at 1, reprinted in Appellant's Appendix vol. I at A53. SRT's theory of the case is that SRT itself has a claim against Hight for his negligent failure to ensure that extraterritorial workers' compensation coverage was obtained for SRT's employees working in South Dakota. SRT contends that its claim against Hight would be successful and that this loss to Hight as a result of SRT's claim is a loss for which SRT could indemnify Hight. Because the DOM policy does not specifically exclude coverage for claims made by SRT against its own directors, officers, or managers, SRT contends that the DOM policy covers its claim against Hight.

We conclude that SRT's theory of the case is fatally flawed. A condition precedent of coverage under the DOM policy is a "loss" to a director, officer, or manager. While we agree with SRT that SRT need not actually bring a lawsuit against Hight to trigger the coverage of the policy, the plain language of the policy at least requires SRT to show that Hight would incur a loss if SRT pursued its negligence claim against him. In the circumstances of this case, SRT cannot show that Hight would suffer a loss if SRT pursued its claim because state law provides Hight with immunity against such a claim. Hight thus being insulated from loss, he would have no need for indemnification, and SRT thus could have no basis in fact for a claim under the DOM policy.

Hight's immunity is derived from the chapter of the North Dakota Century Code that relates to cooperative associations such as SRT. The code provides as follows:

Directors, trustees, and officers, and the manager who is the person most responsible for carrying out the policies and directives of the trustees, officers, or board of directors, are immune from civil liability for any act or omission relating to their service or function as a director, trustee, officer, or manager, unless the act or omission constitutes...