Reinhardt v. Certain Underwriters at Lloyd's, London, No. A06-949 (Minn. App. 3/27/2007)
| Decision Date | 27 March 2007 |
| Docket Number | No. A06-949.,A06-949. |
| Parties | Charles H. Reinhardt, et al., Appellants, Cecil H. Bell, Appellant, v. Certain Underwriters at Lloyd's, London, et al., Respondents. |
| Court | Minnesota Court of Appeals |
Appeal from the District Court, Hennepin County, File No. 27-CV-05-016648.
James H. Kaster, Sofia B. Andersson, Nichols, Kaster & Anderson, PLLP, (for appellants Charles H. Reinhardt and Louise B. Reinhardt)
Richard T. Ostlund, Randy G. Gullickson, Janel M. Dressen, Anthony Ostlund & Baer, P.A., (for appellant Bell)
Alec J. Beck, Corie J. Tarara, Seaton Beck & Peters, P.A., and Kari A. Timm, Walker Wilcox Matousek LLP, (pro hac vice) (for respondents)
Considered and decided by Halbrooks, Presiding Judge; Kalitowski, Judge; and Collins, Judge.*
UNPUBLISHED OPINION
Appellants challenge the district court's decision to grant respondents' motion for judgment on the pleadings, arguing that the district court erred (1) because issues of fact exist with regard to whether appellants were provided with "professional services" by Family Financial Strategies, Inc. (FFS), and (2) by granting respondents' motion without oral argument on the motion. Because we conclude that the district court did not err, we affirm.
Appellants Charles H. Reinhardt and Louise Reinhardt are husband and wife. Prior to their marriage, Louise was known as Louise Bell; appellant Cecil Bell is Louise's brother. Louise and Cecil's grandparents, James F. Bell and Louise H. Bell, created trusts for the benefit of both Louise and Cecil. Family Financial Strategies, Inc. (FFS) is a Minnesota corporation that served as trust manager and equity-investment manager of appellants' trusts.
In December 2002, Cecil Bell sent a demand letter to FFS, asserting various claims against FFS and alleging that FFS's actions and omissions resulted in damages estimated to be in excess of $75,000,000. Similarly, in March 2003, Charles and Louise Reinhardt brought suit against FFS and its President and CEO, John D. Wunsch, alleging that the market value of their trusts' assets decreased from $32,660,290 in July 2000 to $7,172,106 in April 2002 as a direct result of improprieties committed by FFS.1
FFS was insured by respondents Certain Interested Underwriters at Lloyd's of London (Lloyd's) and Wachovia Insurance Agency, Inc., d/b/a/ E-risk Services (E-risk).2 Respondents denied coverage for appellants' claims, declining to either indemnify FFS for appellants' losses or to defend FFS in the claims brought by appellants on the ground that the policy excluded coverage for claims arising out of "professional services."
The renewal application for insurance was completed by FFS's Chief Operating Officer on March 11, 2000. The application provides, in relevant part:
The undersigned declares that to the best of his/her knowledge the statements herein are true. Signing of this Application does not bind the undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Certificate be issued, and this application will be attached to and become a part of such Certificate, if issued.
The application allowed an applicant to request up to five separate types of coverage, including: (1) Employment Practices Coverage; (2) Directors & Officers and Assured Organization Coverage; (3) Fiduciary Coverage; (4) Crime Coverage; and (5) Miscellaneous Professional Services Coverage. FFS completed only the "Employment Practices Coverage Section" and the "Directors & Officers and Assured Organization Coverage Section" and did not fill out the "Miscellaneous Professional Services Coverage Section."3 Further, the "Directors & Officers and Assured Organization Coverage Section" asked in question 4: "Does the Assured Organization render any professional services for others for a fee or compensation?" FFS checked "No," but qualified its answer by writing in "No one outside of our client base."4
Based on the application completed by FFS, respondents issued an insurance policy, which states in pertinent part:
DIRECTORS & OFFICERS AND ASSURED ORGANIZATION COVERAGE SECTION
. . . .
A. INSURING CLAUSES
1. Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.
2. Underwriters shall pay on behalf of the Assured Organization Loss which the Assured Organization is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.
3. Underwriters shall pay on behalf of the Assured Organization Loss resulting from any Claim first made against the Assured Organization during the Certificate Period for a Wrongful Act.
Endorsement No. 1 is a professional services errors-and-omissions exclusion which states:
C. EXCLUSIONS
1. Underwriters shall not be liable to make any payment under this Coverage Section in Connection with any Claim:
. . . .
q) based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way relating to any act, error or omission in connection with performance of any professional services by or on behalf of any of the Assureds for the benefit of any other entity or person; provided, however, this exclusion shall not apply to any such Claim brought directly, derivatively or otherwise by one or more securities holders of the Assured Organization.
FFS entered into a Miller-Shugart agreement with appellants, assigning appellants its right to commence suit against respondents to obtain a declaration of coverage for the trust damages. The agreement also assigned appellants the right to bring suit against respondents for any bad-faith claims that FFS may have had against respondents for their refusal to provide coverage or to negotiate a settlement of appellants' claims against FFS. An order for judgment was subsequently entered pursuant to the agreement in the amount of $15,000,000. The district court later amended the caption of the order for judgment to include Cecil Bell as a plaintiff in addition to Charles and Louise Reinhardt.
Appellants brought a declaratory-judgment action seeking, among other things, (1) a declaration that the insurance policy required respondents to defend FFS in the action brought against it by appellants; (2) a declaration that the insurance policy provided liability coverage for the acts committed by FFS up to the policy limit; (3) a declaration that respondents were liable for an additional amount as a result of their bad faith in refusing to provide FFS with coverage or to negotiate a settlement of appellants' claims; and (4) a declaration that the Miller-Shugart agreement was reasonable when entered into.
Respondents requested the district court's permission to file a rule 12.03 motion to be considered without oral argument due to the district court's busy schedule and respondents' desire to save the available hearing date for a potential summary-judgment motion. A few days later, the district court delivered a letter giving permission for respondents to "bring a motion to dismiss without oral argument."
Respondents subsequently moved for judgment on the pleadings under Minn. R. Civ. P. 12.03, arguing that the "professional services" exclusion of the insurance policy excluded coverage for appellants' claims against FFS, and therefore respondents were not liable for appellants' losses. Appellants filed a memorandum in opposition to respondents' motion, arguing that FFS did not provide "professional services" to appellant and requesting oral argument on the motion.
Without oral argument, the district court issued an order granting respondents' motion, concluding: "[b]ecause of the plain language of the Application, Declarations, Policy, and Endorsements, it is clear that FFS did not seek and [respondents] did not provide any coverage for actions arising out of FFS providing professional services to either clients or non-clients." The district court specifically noted that FFS, in its application, checked the box stating that it did not render any professional services for others for a fee or compensation, but later qualified its answer by writing in "No one outside of our client base." The district court reasoned that, "[e]ven liberally construing the pleadings in favor of [appellants], it is clear that by qualifying its answer, FFS admitted that it provided professional services to those within its client base," and that appellants were clearly "members of FFS's client base."
This appeal follows.
A district court may dismiss a claim on the pleadings when a plaintiff fails to set forth a legally sufficient claim for relief. Minn. R. Civ. P. 12.03. Judgment on the pleadings is proper when the dispute centers around the meaning of a contract and the contract language unambiguously entitles the movant to judgment. McReavy v. Zeimes, 215 Minn. 239, 243-45, 9 N.W.2d 924, 926-27 (1943). The facts alleged in the complaint must be taken as true and all reasonable inferences drawn in favor of the nonmoving party. Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550, 553 (Minn. 2003). "Only if the pleadings create no fact issues should a motion for judgment on the pleadings be granted." Ryan v. Lodermeier, 387 N.W.2d 652, 653 (Minn. App. 1986).
On appeal from judgment on the pleadings, this court focuses on the pleadings' allegations. Minn. R. Civ. P. 12.03. If "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment." Id.; see also N. States Power Co. v. Minn. Metro. Council, 684 N.W.2d 485, 491 (Minn. 2004) (...
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