Travelers Property Cas. v. General Cas. Ins. Co.

• Decision Date: 13 October 2006
• Docket Number: No. 05-3863.,05-3863.
• Citation: Travelers Property Cas. v. General Cas. Ins. Co., 465 F.3d 900 (8th Cir. 2006)
• Parties: TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, formerly known as Travelers Indemnity Company of Illinois; Greg Paine, Appellants, v. GENERAL CASUALTY INSURANCE COMPANIES, doing business as Regent Insurance Company, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

465 F.3d 900

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, formerly known as Travelers Indemnity Company of Illinois; Greg Paine, Appellants, v. GENERAL CASUALTY INSURANCE COMPANIES, doing business as Regent Insurance Company, Appellee.

No. 05-3863.

United States Court of Appeals, Eighth Circuit.

Submitted May 15, 2006.

Filed October 13, 2006.

Rehearing and Rehearing En Banc Denied December 1, 2006.

Bethany K. Culp, Duana J. Grage, Michelle Mitchell, Hinshaw & Culbertson, Minneapolis, MN, for Appellants.

Michael R. Quinlivan, Cronan & Pearson, Minneapolis, MN, for Appellee.

Before BYE, HANSEN, and SMITH, Circuit Judges.

HANSEN, Circuit Judge.

In this diversity-based declaratory judgment action, Travelers Property Casualty Company of America (Travelers), a Connecticut corporation, and its insured, Mr. Greg Paine, a Minnesota resident, seek a determination of whether General Casualty Insurance Companies, doing business as Regent Insurance Company (Regent), a Wisconsin Corporation, had a duty to defend Mr. Paine in a negligence suit brought against him by a student who was injured in a physical education class at Shattuck-St. Mary's School (Shattuck). Travelers, which insures Mr. Paine as a member of the Professional Golfers' Association of America (PGA), provided funds for his defense through a Loan Receipt Agreement and now seeks contribution and indemnity from Regent, which insures the golf course that employs Mr. Paine as its head golf professional. The district court¹ granted summary judgment to Regent, finding it had no duty to defend, and we affirm.

I.

Mr. Paine is the head golf professional for Legacy Golf Corporation (Legacy), an 18-hole golf course in Faribault, Minnesota. In this position, he manages the golf shop year round and manages the teaching programs at the golf course among other duties relating to the golf operation. His employment agreement with Legacy provides that his compensation consists of a salary, any income he earns from giving golf lessons, and any bonuses he may receive. His employment agreement requires him to use his best efforts to perform all duties required by the agreement at such places as the needs and business of Legacy may require, and he must market the course and promote membership growth. Legacy offers golf lessons to the public and its members, and it advertises golf lessons by its PGA golf professional. Mr. Paine's only duty at Legacy during the winter months is managing the golf shop, which requires about 20 to 25 hours of work a week at that time of the year.

Mr. Paine entered into a verbal agreement with Shattuck to teach a 45-minute physical education golf class at the school beginning at 8:30 a.m. each morning for three months from December 2002 through February 2003. Shattuck is a college preparatory boarding and day school in Faribault, Minnesota, for students in grades 6 through 12, located on property adjacent to Legacy. Shattuck is also the sole shareholder of Legacy, but the two are separate legal entities. While Mr. Paine had previously taught golf lessons at Legacy for interested Shattuck students as an extracurricular activity in the spring, summer, and fall, this was the first physical education class that he taught at the school during the school day. Mr. Paine negotiated this teaching job at Shattuck with Headmaster Dennis Brown and earned $1,500 for the semester. Mr. Paine worked with Headmaster Brown and Shattuck Athletic Director John Sommer in designing an indoor golf facility in the basement of Shattuck's gymnasium that was then used for the class. Mr. Paine billed Shattuck for the agreed upon cost of his services using Legacy invoices but stating on the invoice that the check should be made to Greg Paine.

On January 17, 2003, during Mr. Paine's golf class at the school, Shattuck student Lilian Wu was struck in the head by a golf ball, suffering a severe and permanent brain injury. Her parents commenced a lawsuit on her behalf in district court, naming Shattuck and Mr. Paine as the only defendants. See Lilian Wu, et al. v. Shattuck-St. Mary's School, 2003 WL 24092451 (D. Minn. filed Aug. 8, 2003). The amended complaint claimed that Shattuck was vicariously liable for the acts of its agent, Mr. Paine, and that the golf class was a joint enterprise between Mr. Paine and Shattuck.

Regent, Legacy's insurer, denied any duty to defend Mr. Paine in the Wu lawsuit on the ground that Mr. Paine was not an insured under Legacy's policy because he was not acting within the scope of his employment with Legacy or performing any duties related to Legacy's business at the time of the accident. As a PGA member, Mr. Paine had obtained general and excess liability insurance issued by Travelers through a PGA members' policy that provided coverage "while ... teaching the game of golf for or on behalf of the [PGA]."² (Appellants' App. at 219.) Travelers agreed to loan Mr. Paine sufficient funds to defend against and resolve the Wu lawsuit through a Loan Receipt Agreement.³ On May 20, 2005, the district court⁴ approved a settlement in the Wu case.

Travelers and Mr. Paine filed the current suit against Legacy's insurer, Regent, seeking a declaratory judgment that Regent had a duty to defend Mr. Paine in the Wu lawsuit and seeking indemnity on the ground that Mr. Paine is an insured and the Regent policy provides the primary coverage. The parties filed cross motions for summary judgment and partial summary judgment. After comparing the allegations of the Wu complaint to the relevant policy language and considering the relevant extrinsic evidence, the district court concluded that Regent had no duty to defend Mr. Paine as a Legacy employee because he was not acting within the scope of his employment or to further his employer's interests, and that there was no allegation that he was acting as Legacy's golf professional. Accordingly, the district court granted summary judgment to Regent. Travelers and Mr. Paine appeal.

II.

We review the district court's grant of summary judgment de novo, applying the same standards as the district court and viewing the evidence in the light most favorable to the nonmoving party. See Noran Neurological Clinic, P.A. v. Travelers Indem. Co., 229 F.3d 707, 709 (8th Cir.2000). We affirm the grant of summary judgment when "there is no genuine issue as to any material fact and [ ] the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We apply de novo review to the district court's interpretation of an insurance policy, which is a question of law. Noran Neurological Clinic, P.A., 229 F.3d at 709. Similarly, "[t]he question of whether a legal duty to defend or indemnify arises is a legal question subject to de novo review." Metro. Prop. and Cas. Ins. v. Miller, 589 N.W.2d 297, 299 (Minn.1999).

Minnesota law governs this dispute and dictates that an insurer's duty to defend is determined as follows:

First, an insurer's duty to defend is determined by comparing the allegations of a complaint with the relevant policy language. Second, if a complaint fails to establish coverage, an insurer still must accept tender of defense if it has independent knowledge of facts that may establish coverage. And third, if an insured fails to meet its burden of presenting a covered claim through a complaint or extrinsic evidence, an insurer need not speculate about facts that may trigger its duty to defend.

St. Paul Mercury Ins. Co. v. Dahlberg, Inc., 596 N.W.2d 674, 676-77 (Minn.Ct. App.1999) (internal citations omitted). The "duty to defend an insured ... arises when any part of the claim is `arguably' within the scope of the policy's coverage," and an insurer wishing "to escape that duty has the burden of showing that all parts of the cause of action fall clearly outside the scope of coverage." Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 165-66 (Minn.1986). The relevant extrinsic evidence is that which, at the time the defense is tendered, id. at 166, is independently known by the insurer, see Dahlberg, 596 N.W.2d at 677. There is no duty to defend one who is not an insured under the policy, but "[a]n insurer's duty to defend claims arguably within the policy's coverage extends until it can be concluded as a matter of law that there is no basis on which the insurer may be obligated to indemnify the insured." Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 416 (Minn.1997).

In the first step of the analysis set forth in Dahlberg, that is, comparing the Wu amended complaint to the relevant contract language of Regent's policy, see 596 N.W.2d at 676, we agree with the district court's conclusion that no duty to defend arose on the part of Regent. Regent's policy provides coverage for bodily injury damages caused by Legacy employees, "but only for acts within the scope of their employment by you [Legacy] or while performing duties related to the conduct of your [Legacy's] business." (Appellants' App. at 101.) The policy also provides general liability insurance in a special endorsement for "any person(s), other than your [Legacy's] `employees,' while acting as your [Legacy's] tennis or golf professional" for damages "arising out of professional services as a tennis or golf professional." (Id. at 129.) The Wu complaint did not allege that Mr. Paine was Legacy's employee or golf professional or that he was performing duties relevant to the conduct of Legacy's business. Those pleadings alleged only that Shattuck was negligent in supervising its agent, Mr. Paine, and that Mr. Paine and Shattuck were engaged in a joint enterprise. Thus, the complaint alone did not provide Regent with notice of an arguable claim of coverage that would trigger the duty to defend.

The appellants argue that Regent had a duty to defend Mr. Paine under the second step of the Dahlberg analysis, see 596 N.W.2d at 677, because they presented sufficient extrinsic evidence to establish that the Wu claim was arguably within the scope...