Senger v. Minnesota Lawyers Mut. Ins. Co.
| Decision Date | 24 November 1987 |
| Docket Number | No. C2-87-1206,C2-87-1206 |
| Citation | 415 N.W.2d 364 |
| Parties | Dave F. SENGER, et al., Respondents, v. MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY, Appellant. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. The trial court did not err in applying collateral estoppel to bar insurance company from relitigating issues decided in trial where it refused to defend its insured.
2. The trial court erred in finding that insurance company had a duty to defend action arising from activity excluded by insurance policy.
3. The trial did not err in holding that insurer had no duty to indemnify insured for damages clearly and unambiguously excluded by insurance policy.
James F. Roegge, Robert E. Salmon, Meagher, Geer, Markham, Anderson, Flaskamp & Brennan, Minneapolis, for respondents.
John M. Degnan, Mark P. Hodkinson, Bassford, Heckt, Lockhart & Mullin, P.A., Minneapolis, for appellant.
Heard, considered, and decided by WOZNIAK, P.J., and FOLEY and CRIPPEN, JJ.
This is an appeal from the trial court's grant of summary judgment on two issues. The trial court ruled that the insurer breached its duty to defend under its contract with the insured, but that the insurer had no duty to indemnify the insured for damages sustained as a result of a lawsuit against them by a third party. We reverse the trial court on the insurer's duty to defend, and affirm the trial court's determination that there was no duty to indemnify.
The underlying litigation. In the summer of 1981, Valerie Kolbert and Doreen Treat considered the possibility of owning a diet center franchise. Treat worked at an existing Nutri/System franchise. They mentioned their idea to the wife of respondent Voeller, who suggested that the women meet with her husband, an attorney at the law firm of Wiese & Cox.
Kolbert met with Voeller at his law office on September 10, 1981. They discussed the women's plans to buy a franchise. Kolbert indicated that she sought both help to form a corporation and the funds to put one together. Voeller then contacted other Nutri/System franchisees to gather information regarding sales and operation costs. Voeller had never heard about Nutri/System before talking with Kolbert.
On October 3, 1981, both Kolbert and Treat met with the three respondent attorneys at Voeller's office. All three were employed at Wiese & Cox. The attorneys told the two women that they were not interested in lending them money, but were interested in applying for a franchise, investing in the business themselves, and employing the women in the business. The attorneys indicated that if they were investors, they could not act as the women's lawyers.
Voeller then contacted the franchisor to obtain materials for starting a franchise. He told the franchisor he had terminated his relationship with Kolbert. On October 9, 1981, six days after their initial conference with Kolbert and Treat, all three attorneys applied for the franchise.
On October 13, 1981, the two women met with the attorneys for a second time. The attorneys told the women they were applying for a franchise themselves, and discussed employing (with options to purchase stock) the women in the new venture. No employment agreement was reached.
On October 19, 1981, the attorneys met with their firm's managing partner, who inquired as to whether the three had previously withdrawn from representation. After indicating they had not done so in writing, Voeller wrote the women and informed them that the attorneys no longer represented them "since the nature of our relationship has changed." The women were orally advised at an earlier time that the respondents no longer represented them.
On October 22, respondents sent the women draft employment agreements and stock options.
A third meeting was held on October 27. Voeller told the women that he received approval for the franchise. Employment agreements and stock options again were discussed.
On October 28, the attorneys wrote Kolbert "terminating our relationship with you."
The franchise was opened under the ownership, management, and control of the attorneys; Treat became an employee. The relationship between the attorneys and Treat deteriorated after the attorneys misrepresented the value and condition of the business when she was exercising her stock option. The attorneys also voted a reverse stock split to effectively preclude her participation in the business.
The women filed separate lawsuits. Both actions alleged similar causes of action: tortious interference with prospective business opportunity, intentional misappropriation of business opportunity, "prima facie tort," negligent/intentional misrepresentations (regarding holding client information confidential and acting in their client's best interests), breach of fiduciary duty arising out of attorney-client relationship, and attorney negligence amounting to malpractice.
The defense of the lawsuits was tendered to the attorneys' professional liability insurer, appellant Minnesota Lawyers Mutual Insurance Company (MLM), pursuant to the policy. The tender letter of July 23, 1984 (advising them of the Treat lawsuit) indicated "[t]his action arises out of a business owned by Defendants Voeller, Sangalis, and Senger." After receiving this letter and the complaint, MLM denied coverage to defend and to indemnify based on the following exclusions in the policy:
(1) Any act or omission of the insured committed with actual fraudulent, dishonest, criminal or malicious purpose or intent.
* * *
(3) Any claim made in connection with any business enterprise, not named in the declarations, which is:
(a) Owned by the insured; or
(b) In which any insured is a partner or employee; or
(c) Directly or indirectly controlled, operated or managed by any insured.
* * *
(6) Any claim arising out of an insured's activities as an officer or director of an employee trust, charitable organization, corporation or business other than that of the named insured.
MLM later was informed of the Kolbert lawsuit. It denied coverage for those claims on the same grounds.
The attorneys retained their own counsel to defend the suits.
The Treat lawsuit was tried in December 1984. The jury returned a special verdict finding both liability and damages. In part, the special verdict contained the following specific findings:
1. Was there an attorney client relationship between defendants and plaintiff? Answer yes or no. Yes.
2. Did defendants wrongfully appropriate unto themselves a business opportunity belonging to the plaintiff? Answer yes or no. Yes.
In its instructions to the jury on question 2, the court directed:
In order to answer this question yes, you must find the following: * * * that such conduct on the part of the defendants was intentional.
Both the Treat and Kolbert actions subsequently were settled.
Senger, et al. v. MLM. The attorneys brought this declaratory judgment action to determine whether the liability insurer, MLM, breached its duty to defend and indemnify under respondent attorneys' professional liability insurance contract. Both parties moved for summary judgment.
The trial court ruled that MLM was collaterally estopped from relitigating the issue of whether there was an attorney-client relationship between the women and the attorneys. The trial court reasoned that, since the wrongful appropriation occurred during the attorney-client relationship, the behavior was covered by the insurance policy. The court found that since no outside business enterprise existed at the time the attorneys began their attorney-client relationship with Treat and Kolbert, the outside business exclusions did not apply. The court concluded there was a duty to defend, but that the duty to indemnify was precluded by the implicit finding in the earlier litigation that the attorneys acted in an intentionally dishonest manner by misappropriating the business opportunity. Their actions thus fell within the policy exclusion for intentional acts.
1. Did the trial court err in applying the doctrine of collateral estoppel to preclude relitigation of issues decided in the underlying suit?
2. Did the trial court err in granting summary judgment on the insurer's duty to defend and indemnify the insured attorneys?
On appeal from summary judgment, the reviewing court is to determine whether there are any genuine issues of material fact and whether the trial court erred in its application of the law. Betlach v. Wayzata Condominium, 281 N.W.2d 328, 330 (Minn.1979). Both parties agree that there is no dispute as to any issue of material fact, so our review is limited to an application of the relevant law.
1. The doctrine of collateral estoppel applies to insurance contracts if the insured gives the insurer notice of the pendency of the action and an opportunity to defend on his behalf. Brown v. State Automobile & Casualty Underwriters, 293 N.W.2d 822, 825 (Minn.1980).
MLM asserts that it was not in privity with respondents, so it is not bound by the issues decided in the Treat litigation. While Brown does not specifically state that privity exists as a matter of law in such circumstances, further guidance can be gleaned from indemnification case law. For collateral estoppel purposes, the Minnesota Supreme Court has treated insurance and indemnification contracts in a similar manner. See Brown, 293 N.W.2d at 825. Where a lawsuit has been tendered to a proposed indemnitor under a contract of indemnity, issues necessarily decided in the ensuing trial are conclusively established against the indemnitor....
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