Talen v. Employers Mut. Cas. Co.
| Decision Date | 02 September 2005 |
| Docket Number | No. 02-1536.,02-1536. |
| Citation | 703 N.W.2d 395 |
| Parties | William C. TALEN and Farmer's Savings Bank and Trust-Vinton, Appellees, v. EMPLOYERS MUTUAL CASUALTY COMPANY and Minnesota Fire and Casualty Company, Appellants. |
| Court | Iowa Supreme Court |
Lorraine J. May of Hopkins & Huebner, P.C., Des Moines, for appellant Employers Mutual Casualty Company.
Michael J. Coyle and Norman J. Wangberg of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., Dubuque, for appellant Minnesota Fire and Casualty Company.
Andrew M. Reidy, Murray D. Sacks, and Cass W. Christenson of McKenna Long & Aldridge LLP, Washington, D.C., and Eugene J. Kopecky of Ackley, Kopecky & Kingery, Cedar Rapids, for appellees.
Employers Mutual Casualty Company (Employers) and Minnesota Fire and Casualty Company (Minnesota Fire), defendants in the district court, each appeal from a judgment following a bench trial in which the court found that both of these insurers insured plaintiff, William Talen, and that Employers also insured Farmers Savings Bank and Trust of Vinton (Vinton bank) against the costs of defense and resulting settlement of legal liability growing out of litigation commenced by a former employee of the Vinton bank, Duane Pearson. The district court further found that both insurers were guilty of bad faith in not defending against the Pearson claims. As a result of these findings, the district court awarded Talen and the Vinton bank damages for costs of defense not assumed by other insurers, amounts expended to settle the legal liability in the Pearson litigation, and costs and attorney fees in the present action.
After reviewing the record and considering the arguments presented, we conclude that Employers did not act in bad faith in refusing to defend these claims. As a result of policy exclusions, it did not insure either Talen or the Vinton bank against liability or costs of defense in the Pearson litigation and was not liable for the sums awarded against it by the district court. We conclude that the Minnesota Fire policy did insure Talen against at least one of the claims in the Pearson litigation. The attorney fees incurred in defending the Pearson litigation that were not paid by other insurers were paid by the Vinton bank, a party not insured by Minnesota Fire. Consequently, those fees are not recoverable in the present litigation. We conclude that Minnesota Fire, although obligated to defend Talen, did not act in bad faith in declining coverage. However, under Minnesota law, which is determinative of the issue, Talen is entitled to recover from Minnesota Fire the amount of the actual attorney fees he has incurred in the present litigation. The judgment of the district court is affirmed in part, reversed in part, and remanded to the district court for further proceedings consistent with this opinion.
Talen, a resident of Minnesota, controls the holding company that owns the Vinton bank and a bank in Traer. He is the chairman of the board, president, and CEO of the Vinton bank. On April 10, 1996, Pearson commenced an action against Talen and the Vinton bank. The petition alleged that Pearson had resigned his employment at the Vinton bank pursuant to a written termination agreement that provided as follows:
Pearson shall fully cooperate with the Bank with regard to any information or actions concerning the Bank's operations of which he has knowledge. Neither party shall disclose the contents of this Agreement nor any circumstances surrounding the resignation, except with the express written consent of the other party. The parties will cooperate in the public disclosures of the resignation and each will present the resignation and subsequent events as positively as possible.
Pearson's petition alleged that the bank and Talen had breached that agreement "by contacting prospective employers of the Plaintiff and by disclosing information made confidential by the agreement." The petition further alleged that, "[a]s a result of the breaches of contract by Defendants, Plaintiff has lost and has been deprived of opportunities for employment and has suffered monetary damages and loss." The petition prayed for judgment as a result of that alleged loss.
In May 1997 Pearson filed a request for permission to amend his petition to add claims based on slander, tortious interference with a prospective business relationship, and violation of Iowa Code section 730.1 (1995) (). The district court refused to allow the proposed amendment to Pearson's petition. That ruling proved to be without legal significance, however, because Pearson later filed an independent action raising his additional legal theories, and that action was ultimately consolidated with his original breach-of-contract action.
Talen and the Vinton bank tendered the defense of the Pearson actions to Employers and two other liability insurers, Fidelity and Deposit and Farm Bureau Mutual. In addition, Talen tendered the defense of those actions to Minnesota Fire. Employers' policy insured the Vinton bank against liability for personal injury, as defined in its policy, and insured Talen, as an executive officer of the bank, with respect to his activities as such. Employers declined coverage of Pearson's claims from the outset based on policy exclusions that it deemed applicable. Minnesota Fire, which had issued a business protector policy to Talen, initially indicated that it would defend him under reservation of right, but ultimately elected not to do so. Fidelity and Deposit and Farm Bureau Mutual did share the defense under reservation of right and each contributed to the cost of settling the Pearson actions.
Pearson's claims against Talen and the Vinton bank were ultimately settled for $600,000. Farm Bureau Mutual contributed $125,000 toward the settlement, Fidelity and Deposit contributed $100,000, and Talen personally paid the remaining $375,000. Although Fidelity and Deposit and Farm Bureau Mutual paid a portion of the attorney fees expended in defending the Pearson claims, the Vinton bank was required to contribute $55,628 toward the attorney fees that it and Talen incurred in defending the litigation.
Talen and the Vinton bank commenced the present action against Employers and Minnesota Fire, seeking a declaration that those insurers breached a duty to defend Talen and the bank against Pearson's claims and to satisfy that portion of the settlement that was not paid by Fidelity and Deposit and Farm Bureau Mutual. The petition further asserted that both insurers had acted in bad faith in handling the Pearson claims and sought recovery of attorney fees incurred by the Vinton bank in the Pearson litigation and attorney fees incurred by Vinton bank and Talen in pursuing the present litigation.
The claims of Talen and the Vinton bank against Employers and Minnesota Fire were tried to the court. Because Pearson's claims against Talen and the Vinton bank had been settled, there had been no prior judicial determination of the extent of their liability under any particular legal theory that had been alleged against them. The settlement agreement did not allocate the sum paid to settle these claims to any particular count of the multifaceted claim. Evidence was presented in the present litigation, however, concerning the facts on which Pearson relied. The gist of this evidence was that, after Pearson ceased to be employed at the Vinton bank, another bank was considering hiring him. That bank, located in Oelwein, inquired of the Vinton bank concerning Pearson's prior employment there. This inquiry was referred to Talen who telephoned both the owner of the Oelwein bank and an executive officer thereof and gave a negative account of Pearson's performance as a loan officer at the Vinton bank. After these conversations, the Oelwein bank's offer of employment to Pearson was withdrawn. These circumstances formed the basis of the claims against Talen and the Vinton bank in the Pearson litigation.
The district court found that both insurers had a duty to defend the Pearson claims and were liable for defense costs not paid by Fidelity and Deposit and Farm Bureau Mutual. The court further concluded that both insurers must indemnify Talen for the amounts that he personally contributed to the settlement. The court also found that both Employers and Minnesota Fire acted in bad faith in their handling of these claims and held them liable for the attorney fees and certain costs incurred by Talen and the Vinton bank in the present litigation. Other facts material to the appeal will be considered in our discussion of the legal issues presented.
The action was tried in equity in the district court. Consequently, our review of both the law and the facts on appeal is de novo. In re Custer's Estate, 229 Iowa 1061, 1064, 295 N.W. 848, 851 (1941); Iowa Const. art. V, § 4; Iowa R.App. P. 6.4.
The claim of Talen and the Vinton bank against Employers is predicated on a general-liability policy issued by Employers insuring the Vinton bank as named insured and executive officers of the bank, such as Talen, to the extent that the claim arises from their performance of duties as a bank officer or director. The Employers policy obligates it to pay those sums the insureds become legally obligated to pay because of "personal injury." "Personal injury" is defined so as to include:
The contract states that the insurance does not apply to:
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