Travelers v. Bloomington Steel, No. A04-1713.

• Decision Date: 03 August 2006
• Docket Number: No. A04-1713.
• Citation: 718 N.W.2d 888
• Parties: The TRAVELERS INDEMNITY COMPANY, et al., Respondents, v. BLOOMINGTON STEEL & SUPPLY COMPANY, et al., Defendants, Jose Padilla, Appellant.
• Court: Minnesota Supreme Court

718 N.W.2d 888

The TRAVELERS INDEMNITY COMPANY, et al., Respondents, v. BLOOMINGTON STEEL & SUPPLY COMPANY, et al., Defendants Jose Padilla, Appellant.

No. A04-1713.

Supreme Court of Minnesota.

August 3, 2006.

COPYRIGHT MATERIAL OMITTED

Charles D. Slane, Terry & Slane, P.L.L.C., Bloomington, MN, for Appellant.

Duana J. Grage, Holly J. Tchida, Hinshaw & Culbertson, L.L.P., Minneapolis, MN, for Respondents.

Charles A. Bird, Bird, Jacobsen & Stevens, P.C., Rochester, MN, for Amicus

Curiae Minnesota Trial Lawyers Association.

Heard, considered, and decided by the court en banc.

OPINION

PAGE, Justice.

This case presents the issue of whether, and under what circumstances, the intent or knowledge of an agent of a corporation may be imputed to the corporation for purposes of determining whether bodily injury inflicted by the agent upon a third party was expected or intended from the standpoint of the corporate insured.

On October 18, 2000, Cecil Reiners struck Jose Padilla on the head, causing Padilla serious injury. Padilla sued Reiners for assault and battery and sued Bloomington Steel and Supply Company (Bloomington Steel), a corporation of which Reiners was the sole shareholder, officer, and director, for respondeat superior, negligent hiring,¹ negligent retention, and negligent supervision. Bloomington Steel's insurers, the Travelers Indemnity Company and the Charter Oak Fire Insurance Company (collectively, Travelers), denied any obligation to defend or indemnify Reiners in the underlying action. Travelers did defend Bloomington Steel in the underlying action, but reserved the "right to withdraw from the defense if there is a determination that there is no coverage for any claims under the policy."

After the district court denied Bloomington Steel's motion for summary judgment in the underlying action, Travelers brought this action seeking a declaratory judgment that it had no duty under its policies with Bloomington Steel to indemnify Bloomington Steel in the underlying action. Travelers, Bloomington Steel, and Padilla then all brought motions for summary judgment in this coverage dispute. The district court denied Bloomington Steel's and Padilla's motions and granted Travelers' motion for summary judgment. The district court found that coverage for Padilla's injuries was barred by the expected or intended injury exclusion of the insurance policies. Padilla appealed,² and the court of appeals affirmed. Travelers Indem. Co. v. Bloomington Steel & Supply Co., 695 N.W.2d 408, 409, 411 (Minn.App. 2005). The court of appeals held that, given Reiners' history of violent behavior, Bloomington Steel must be held to have "expected" the damages resulting from the injury to Padilla. Id.

This court granted Padilla's petition for further review and instructed the parties to address whether the intent or knowledge of an agent of a corporation may be imputed to the corporation for purposes of determining whether bodily injury was expected or intended from the standpoint of the corporation. Because we conclude that nothing in the policies issued by Travelers to Bloomington Steel requires that Reiners' knowledge of his own history of violence be imputed to Bloomington Steel, we reverse the court of appeals and remand for further proceedings.

I.

Reiners began working for Bloomington Steel, a corporation, in 1968. In 1991, he became the sole shareholder, director, and officer of Bloomington Steel. From May 31, 2000, through May 31, 2001, a period spanning Reiners' assault of Padilla, Travelers provided both commercial general liability insurance coverage and umbrella liability insurance coverage to Bloomington Steel. The terms of the two policies relevant to our disposition in this case are essentially the same. Under the policies, Travelers is obligated to "pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." The policies "appl[y] to `bodily injury' and `property damage' only if: * * * [t]he `bodily injury' or `property damage' is caused by an `occurrence.'" "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policies exclude "`[b]odily injury' or `property damage' expected or intended from the standpoint of the insured" from coverage. In addition, the policies contain a "separation of insureds" clause which, in relevant part, reads: "[T]his insurance applies: [(1)] As if each Named Insured were the only Named Insured; and [(2)] Separately to each insured against whom claim is made or `suit' is brought."³

On October 18, 2000, Padilla was working as an employee of Key Star, a company that at the time shared a common work area with Bloomington Steel. In the underlying lawsuit, Padilla alleged that Reiners approached Padilla and told Padilla to speak in English, not in Spanish. Later that day, when Reiners discovered Padilla speaking Spanish, Reiners hit Padilla in the head with a piece of wood, fracturing Padilla's skull. Padilla alleges that he suffered a severe brain injury and that he has permanent injuries as a result. Reiners eventually pleaded guilty to first-degree assault for his actions.

Padilla brought suit against both Reiners and Bloomington Steel. Against Reiners, Padilla asserted a claim of assault and battery. Against Bloomington Steel, Padilla alleged that Reiners was acting within the course and scope of his duties as an employee of Bloomington Steel when Reiners assaulted him, and that Bloomington Steel was therefore responsible for the damages caused by Reiners under the doctrine of respondeat superior. Finally, Padilla alleged that Bloomington Steel was negligent in its retention and supervision of Reiners.

Bloomington Steel moved for summary judgment on the claims against it. In denying Bloomington Steel's motion, the district court noted that an employer is vicariously liable for the torts of its employees if those torts are committed within the course and scope of employment. The court concluded that, "viewing the facts in a light most favorable to Padilla, as the non-moving party, the assault was arguably related to Reiners' supervisory duties at Bloomington Steel because Reiners was angry at Padilla for interfering with the work of Bloomington Steel employees." The court further concluded that "a corporation may be liable for negligently retaining or supervising an employee even if the employee is the corporation's sole shareholder and director." The court reasoned that "it would be inconsistent to recognize a corporation as a distinct entity shielding its sole shareholder from personal liability for corporate obligations yet disregard the corporate entity as a fiction or an alter ego when the corporation is potentially liable."

Travelers then commenced this action against Bloomington Steel, Reiners, and Padilla, seeking declaratory judgment that it has no obligation to indemnify Bloomington Steel in the underlying action. Travelers asserted that the actions, expectation, and intent of Reiners, as the sole shareholder, sole director, and only officer of Bloomington Steel, must be imputed to Bloomington Steel. As a result, Travelers alleged, any damages awarded to Padilla in the underlying action would not be covered under the policy due to the requirement that the injury be "unexpected and unintended by the insured."

Padilla, Bloomington Steel, and Travelers each moved for summary judgment in the coverage action. In support of his motion for summary judgment against Travelers, Padilla alleged that Reiners had a history of violent behavior, including one incident in which Reiners threatened to kill an employee with a hammer and another in which Reiners threw rocks at an employee's vehicle. Travelers did not contest any of these allegations and used them as a basis for its argument that Bloomington Steel should therefore have "expected" Reiners' assault against Padilla. However, there is no admissible evidence in the record of Reiners' violent past, and, for purposes of this appeal, Padilla's allegations are nothing more than allegations.

In entering judgment for Travelers, the court concluded that the exclusion in the Travelers' policy for intentional acts precluded coverage for any damages Bloomington Steel could be legally obligated to pay to Padilla. The court cited American Family Mutual Insurance Co. v. M.B., a case in which the insured corporation was held to have no coverage for sexual harassment because the corporation's president knew or should have known the harassment was likely to occur, and therefore the harassment was held to have been "expected" from the standpoint of the insured corporation. 563 N.W.2d 326, 328-29 (Minn.App.1997), rev. denied (Minn. July 28, 1997). The court reasoned that, "given Reiners' extensive history of physical violence on the job," Bloomington Steel "knew or should have known that an outburst of violence by Reiners was highly likely to occur." Moreover, the court reasoned, if a company president's knowledge is to be imputed to the corporation under M.B., then Reiners' knowledge, as the sole owner, director, and operator of Bloomington Steel, of his own violent tendencies made the assault of Padilla "expected" under the Travelers' policy exclusion.

On appeal to the court of appeals, Padilla argued that the district court erred in applying the objective test of M.B., and argued that this court had adopted a stricter, subjective standard in the case of Domtar v. Niagara Fire Insurance Co., 563 N.W.2d 724 (Minn.1997). In Domtar, we observed that "it is the insured's actual expectation of damage that allows a defense to coverage." Id. at 735. The court of appeals declined to decide whether an objective or subjective standard applied, concluding that under either standard Bloomington Steel must be held to have expected the damages resulting from...