Auto Club Insurance Association v. Sentry Insurance et al
ORDER - The summary-judgment motion of plaintiff Auto Club Insurance Association 34 is DENIED; The summary-judgment motion of defendant Sentry Insurance 28 is GRANTED; and Plaintiff's complaint is DISMISSED WITH PREJUDICE AND ON THE MERITS. LET JUDGMENT BE ENTERED ACCORDINGLY. (Written Opinion). Signed by Judge Patrick J. Schiltz on 08/03/11. (bjs)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
AUTO CLUB INSURANCE
Case No. 10-CV-4044 (PJS/TNL)
SENTRY INSURANCE, a Mutual Company,
John R. Crawford and Mason M. Hill, JOHNSON & LINDBERG, P.A., for plaintiff.
Paula Weseman Theisen and Anthony J. Alt, MEAGHER & GEER, PLLP, for defendant.
In this case, two insurers — plaintiff Auto Club Insurance Association (“Auto Club”) and
defendant Sentry Insurance (“Sentry”) — dispute whether Sentry is responsible for some of the
attorney’s fees and costs incurred in defending Jason McCann in an underlying personal-injury
action. McCann was driving his personal automobile when he collided with another vehicle.
The driver of the other vehicle sued McCann. McCann’s automobile was insured by Auto Club,
and Auto Club concedes that it was required to defend McCann in the underlying action. But
Auto Club contends that, because McCann was driving his automobile in the course of his
employment with Life Time Fitness (“Life Time”), Life Time’s insurer — Sentry — is also
responsible for some of the litigation expenses incurred in defending McCann. Sentry denies
that it has any responsibility for those expenses.
The parties have cross-moved for summary judgment. For the reasons that follow, the
Court denies Auto Club’s motion and grants Sentry’s.
A. The Underlying Lawsuit
McCann worked at Life Time’s location in the Highland Park neighborhood of St. Paul,
Minnesota. His main responsibility was selling memberships to prospective Life Time members.
Shutt Dep. at 8. He was paid primarily on commission. McCann Dep. 9; Shutt Dep. 10.
McCann was asked by his manager, Earl Shutt, to work a shift at Life Time’s booth at a
special event held at the Minneapolis Convention Center in connection with the 2008 Republican
National Convention. McCann Dep. 10. McCann testified at his deposition that, on the day of
the event, he worked for about an hour at the Highland Park location and then drove to the
Minneapolis Convention Center for his shift. McCann Dep. 8, 47-49.
While en route to the Convention Center, McCann rear-ended a vehicle driven by Jeffrey
Kreml. Alt Aff. Ex. A. Kreml sued McCann for injuries he sustained in the collision and named
Life Time as an additional defendant. Kreml alleged that McCann acted in the scope of his
employment, and thus that Life Time was vicariously liable to Kreml. Id.
Auto Club assumed McCann’s defense. On behalf of McCann, Auto Club also tendered
defense of the action to Sentry. Hill Aff. Ex. E. In the underlying lawsuit, Life Time denied that
it was vicariously liable for McCann’s actions, and in responding to the tender of defense, Sentry
denied that it was responsible for defending McCann. Hill Aff. Exs. B, F. The parties ultimately
settled Kreml’s claims, with Auto Club paying $100,000 (the limits of its policy) to settle
Kreml’s claims against McCann, and Sentry paying $125,000 to settle Kreml’s claims against
Life Time. Hill Aff. Exs. G & H.
Before finalizing the settlement, McCann executed a loan-receipt agreement with Auto
Club. In that agreement, Auto Club purported to loan McCann sufficient funds to cover the
expenses that had been incurred in defending Kreml’s lawsuit. Hill Aff. Ex. I. The agreement
further provided that Auto Club would seek reimbursement of those expenses from Sentry. Id.
Auto Club agreed that if it did not succeed in recovering any of the expenses from Sentry, Auto
Club would forgive McCann’s loan, and McCann would owe Auto Club nothing. Id.
Pursuant to the loan-receipt agreement, Auto Club brought this action against Sentry.
Auto Club seeks to recover the bulk of the attorney’s fees and costs that were incurred in
defending McCann in the underlying action.
B. The Coverage Dispute
There is no dispute that McCann is covered under the Auto Club policy — the policy that
McCann himself purchased to cover his personal vehicle. See Alt Aff. Ex. C at C1. The Auto
Club policy contains a provision entitled “Other Insurance,”1 which provides:
If the car involved in a loss and described on the Declaration
Certificate is also covered by other liability insurance, we will pay
the ratio of our Limit of Liability to the total applicable Liability
Alt Aff. Ex. C at C6. The parties dispute whether McCann’s car is, in fact, “covered by other
This section heading, like certain other portions of the Auto Club and Sentry policies,
appears in all upper-case letters. For legibility, the Court will use upper- and lower-case letters
when quoting from the policies.
1. Auto Club’s Position
As noted, the Sentry policy was purchased by Life Time, McCann’s employer. The
policy provides that Sentry “will pay all sums an ‘insured’ legally must pay” for covered bodilyinjury damages. Alt Aff. Ex. K at K18. It further provides, in a section entitled “Other
For any covered “auto” you own, this Coverage Form provides
primary insurance. For any covered “auto” you don’t own, the
insurance provided by this Coverage Form is excess over any other
Alt Aff. Ex. K at K31.
The Sentry policy further provides that “[t]hroughout this policy the words ‘you’ and
‘your’ refer to the Named Insured shown in the Declarations.” Alt Aff. Ex. K at K16. Hence,
the Sentry policy provides primary coverage only for vehicles that are owned by a “named
insured” — and, at most, excess coverage for vehicles that are not owned by a “named insured.”
Excess insurance will not do McCann — or, by extension, Auto Club — any good. The
claims against McCann in the underlying lawsuit were settled for the limits of the Auto Club
policy.3 Sentry has no obligation to defend or indemnify McCann unless it provides primary
insurance to him. And, as explained above, Sentry does not provide primary insurance to
McCann unless McCann is a “named insured” under the policy. The critical question in this
coverage action, then, is whether McCann is indeed a “named insured” under the Sentry policy.
The Sentry policy defines “covered auto” broadly to include just about any
automobile. See Alt Aff. Ex. K at K9. There is no dispute that the vehicle owned by McCann is
a “covered auto” under the Sentry policy.
As noted, Sentry settled Kreml’s claims against Life Time in the underlying suit for
$125,000. Sentry has paid nothing with respect to Kreml’s claims against McCann.
The Sentry policy contains an endorsement — an endorsement that, for the sake of
brevity, the Court will refer to as the “controlled-entities endorsement” — that defines certain
entities and persons as “named insureds.” Specifically, the controlled-entities endorsement
The persons or organizations named below are named insureds
under this policy[:]
Life Time Fitness, Inc[.]
Life Time Fitness, Inc[.] and its subsidiaries . . .
and any other divisions, subsidiaries and persons and organizations
under the control of the named insured, and any business entity
incorporated or organized under the laws of the United States of
America . . . while the organization named maintains, during the
policy period, an ownership or majority interest in such entity. . . .
Alt Aff. Ex. K at K12. In the quotation above, the first ellipsis substitutes for a list of almost two
dozen business entities that are defined as “named insureds.” Id. No specific individuals are
defined as “named insureds.”
According to Auto Club, though, the controlled-entities endorsement defines McCann as
a “named insured” because of the language that immediately follows the long list of business
entities. Auto Club argues that, at the time of the collision, McCann was acting within the scope
of his employment by Life Time. There is no dispute that Life Time is a “named insured.” And
thus, according to Auto Club, McCann is a “person . . . under the control of the named
insured.” That means that McCann himself was a “named insured” by virtue of the controlledentities endorsement — and, for reasons explained above, that means that the Sentry policy
extends primary coverage to McCann.
Because both Auto Club and Sentry provide primary coverage to McCann, Auto Club
contends, Auto Club’s other-insurance provision obligates Auto Club to pay only “the ratio of
[its] Limit of Liability to the total applicable Liability Limit.” Alt Aff. C at C6. Auto Club’s
liability limit is $100,000, and Sentry’s liability limit is $1,000,000, for a total applicable
liability limit of $1,100,000. Thus, as Auto Club sees it, Auto Club is responsible for only 9% of
the costs of defending McCann against Kreml’s claims, and Sentry is responsible for the
2. Sentry’s Position
Sentry disputes Auto Club’s reading of the controlled-entities endorsement. According
to Sentry, the controlled-entities endorsement applies only to entities that are controlled by Life
Time — such as the two dozen entities specifically listed — and not to employees. Sentry points
out that two other policy provisions specifically address the coverage provided to employees.
The first such provision, which the Court will call the “who-is-an-insured provision,”
Who Is An Insured
The following are “insureds”:
You [i.e., the named insured] for any covered
Anyone else while using with your permission a
covered “auto” you own, hire or borrow except:
Your “employee” if the covered “auto” is
owned by that “employee” or a member of
his or her household.
Alt Aff. Ex. K at K19. When the who-is-an-insured provision is viewed in isolation, then,
McCann is not even an “insured” — which, under the policy, is different from a “named
insured” — because he was an employee and he owned the covered auto.
The second provision — an endorsement titled “Employees As Insureds” that the Court
will call the “employees-as-insureds endorsement” — modifies the who-is-an-insured provision.
The who-is-an-insured provision, in subsection (b), broadly grants coverage to anyone using,
with permission, a car owned, hired, or borrowed by the “named insured.” Then, in
subsection (b)(2), that coverage is taken away from a small group of people: employees using
cars that they (or their household members) own. Because an employee and the “named
insured” are not likely to jointly own a car, the effect of subsection (b)(2) is to deprive an
employee coverage when he is driving his own car, even if the car has been “borrowed” or
“hired” by his employer (the “named insured”).
But the employees-as-insureds endorsement grants back, in part, coverage that was taken
away from employees in subsection (b)(2) of the who-is-an-insured provision. The employeesas-insureds endorsement provides in relevant part:
Any “employee” of yours is an “insured” while using a covered
“auto” you don’t own, hire or borrow in your business or your
Alt Aff. Ex. K at K54. Under the most natural reading of this endorsement, then, McCann is an
“insured” — although not a “named insured” (at least, not by virtue of this endorsement) — if he
was using his car in Life Time’s “business or . . . personal affairs.”
Sentry contends that these two provisions, read together, make clear the precise status of
Life Time employees such as McCann: When employees drive their own automobiles within the
scope of their employment by Life Time, they are “insureds” who receive excess coverage under
the Sentry policy, not “named insureds” who receive primary coverage under the Sentry policy.
(Of course — according to Sentry — when they drive their own automobiles outside the scope of
their employment, they are neither “insureds” nor “named insureds” under the Sentry policy.)
And thus, Sentry argues, even if McCann acted within the scope of his employment when he
rear-ended Kreml — an issue that Sentry disputes4 — Sentry is not liable for any of the expenses
incurred in defending the underlying action.
A. Standard of Review and Applicable Law
Summary judgment is appropriate “if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A dispute
over a fact is “material” only if its resolution might affect the outcome of the suit under the
substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute over a
Because the Court concludes that McCann was not a “named insured” under the Sentry
policy, the Court need not decide whether McCann was acting within the scope of his
employment. Even if he was, he would be defined only as an “insured” under the Sentry policy,
the Sentry policy would provide only excess coverage to him, and Sentry would have no
responsibility to pay any of the defense costs incurred in the underlying action.
fact is “genuine” only if “the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Id. “The evidence of the non-movant is to be believed, and all justifiable
inferences are to be drawn in his favor.” Id. at 255.
The parties agree that Minnesota law governs interpretation of the Sentry policy. See
Nat’l Union Fire Ins. Co. of Pittsburgh v. Terra Indus., Inc., 346 F.3d 1160, 1164 (8th Cir. 2003)
(“State law governs the interpretation of insurance policies.”). Under Minnesota law, the
interpretation of an insurance policy is a matter of law for the court. Watson v. United Servs.
Auto. Ass’n, 566 N.W.2d 683, 688 (Minn. 1997).
Insurance policies are interpreted according to the same principles that govern the
interpretation of contracts generally. Progressive Specialty Ins. Co. v. Widness ex rel. Widness,
635 N.W.2d 516, 518 (Minn. 2001); Nathe Bros., Inc. v. Am. Nat’l Fire Ins. Co., 615 N.W.2d
341, 344 (Minn. 2000). Thus insurance policies must be interpreted to give effect to the parties’
intent as expressed in the policy language. Nathe Bros., 615 N.W.2d at 344; Minn. Mining &
Mfg. Co. v. The Travelers Indem. Co., 457 N.W.2d 175, 179 (Minn. 1990).
Further, insurance policies must be construed as a whole. Haarstad v. Graff, 517 N.W.2d
582, 584 (Minn. 1994). All terms of an insurance policy must be given effect if possible.
Bobich v. Oja, 104 N.W.2d 19, 24 (Minn. 1960); Steele v. Great W. Cas. Co., 540 N.W.2d 886,
888 (Minn. Ct. App. 1995). As the Minnesota Supreme Court instructed in Cement, Sand &
Gravel Co. v. Agricultural Insurance Co. of Watertown, New York:
The intent of the contracting parties is to be ascertained, not by a
process of dissection in which words or phrases are isolated from
their context, but rather from a process of synthesis in which the
words and phrases are given a meaning in accordance with the
obvious purpose of the insurance contract as a whole.
30 N.W.2d 341, 345 (Minn. 1947); see also Republic Nat’l Life Ins. Co. v. Lorraine Realty
Corp., 279 N.W.2d 349, 354 (Minn. 1979) (quoting Cement, Sand & Gravel Co.).
The meaning of policy language is assessed against an objective standard: The court asks
what a “reasonable person” in the insured’s position would have understood the language to
mean. Canadian Universal Ins. Co. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn. 1977); Soo
Line R.R. Co. v. Brown’s Crew Car of Wyo., 694 N.W.2d 109, 113 (Minn. Ct. App. 2005).
Whether an insurance policy is ambiguous is a question of law for the court. Columbia
Heights Motors, Inc. v. Allstate Ins. Co., 275 N.W.2d 32, 34 (Minn. 1979); Brault v. Acceptance
Indem. Ins. Co., 538 N.W.2d 144, 147 (Minn. Ct. App. 1995). Policy language is ambiguous if it
can reasonably be interpreted in more than one way. Am. Commerce Ins. Brokers, Inc. v. Minn.
Mut. Fire & Cas. Co., 551 N.W.2d 224, 227 (Minn. 1996). If the language of an insurance
policy is clear, that language must be given its “usual and accepted meaning.” Widness, 635
N.W.2d at 518. Ambiguous policy language will be construed against the insurer who drafted
the policy. Widness, 635 N.W.2d at 518. Put another way, all reasonable doubts about policy
interpretation will be resolved in favor of the policy holder. Brault, 538 N.W.2d at 147.
B. The Sentry Policy
On an initial reading, Auto Club’s interpretation of the controlled-entities endorsement is
not implausible, and Sentry’s is not without problems. But “[w]hen a court attempts to identify
who is insured under a policy, it must consider not only the language of the named-insured
provision, but also what a reasonable person would have understood that language to mean in
light of the surrounding . . . context.” Land O’ Lakes, Inc. v. Emp’rs Mut. Liab. Ins. Co. of
Wisc., No. 09-CV-0693 (PJS/JSM), 2010 WL 5095658, *4, (D. Minn. Nov. 24, 2010).
Here, the question of what coverage is extended by the Sentry policy to Life Time
employees is directly and specifically addressed by the employees-as-insureds endorsement.
A reasonable person attempting to determine to what extent an employee of Life Time is covered
under the Sentry policy would surely look to the endorsement entitled “Employees As Insureds.”
When an endorsement directly addresses the extent of coverage for Life Time employees acting
within the scope of their employment — and when that endorsement unambiguously provides
that such employees are “insureds” (and not “named insureds”) — then it is very difficult to
believe that the parties intended to define those same employees as “named insureds” under the
(far more general) controlled-entities endorsement. See Burgi v. Eckes, 354 N.W.2d 514, 519
(Minn. Ct. App. 1984) (“[T]he specific in a writing governs over the general.”).
And that raises the first major problem with Auto Club’s reading of the controlledentities endorsement: Reading that endorsement to define every Life Time employee acting
within the scope of his employment as a “named insured” would render the employees-asinsureds endorsement superfluous. See Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 526
(Minn. 1990) (“Because of the presumption that the parties intended the language used to have
effect, we will attempt to avoid an interpretation of the contract that would render a provision
According to Auto Club, an employee engaged in Life Time’s business is a “named
insured” under the controlled-entities endorsement because he is a “person” under Life Time’s
control. But if this is correct, then the employee is also an “insured” under subsection (a) of the
who-is-an-insured provision, which identifies “[y]ou” — the “named insured” — as an
If the employee is an “insured” under subsection (a) by virtue of being a “named
insured,” then the employees-as-insureds endorsement is superfluous. That endorsement
provides coverage to employees acting “in your [e.g., Life Time’s] business or your personal
affairs.” Life Time is a business entity — it does not have personal affairs. Thus, the
employees-as-insureds endorsement addresses one situation and one situation only: an employee
of Life Time using an automobile that Life Time does not own while furthering the interests of
Life Time. But an employee in this same situation is, according to Auto Club, a “named
insured” under the controlled-entities endorsement, and thus is already an “insured” under
subsection (a) of the who-is-an-insured provision.
Auto Club tries to sidestep this problem through its proposed reading of the employeesas-insureds endorsement. According to Auto Club, the key sentence of the employees-asinsureds endorsement — which, again, reads “[a]ny ‘employee’ of yours is an ‘insured’ while
using a covered ‘auto’ you don’t own, hire or borrow in your business or your personal affairs”
— should be read so that the phrase “in your business or your personal affairs” modifies the
phrase “own, hire or borrow” rather than the word “using.” The Court finds Auto Club’s
proposed reading unreasonable.
To begin with, purely as a matter of ordinary English usage, it would be unusual to speak
of “owning” something “in business or personal affairs.” One might own something “in
connection with” business or personal affairs, or “for” such affairs, but the phrase “own in your
business or your personal affairs” is not idiomatic. By contrast, the phrase “us[e] . . . in your
business or your personal affairs” is entirely idiomatic.
Further, the phrase “own, hire or borrow” appears twice in the relevant policy language,
once in the who-is-an-insured provision, and a second time in the employees-as-insureds
endorsement. Subsection (b) of the who-is-an-insured provisions applies to people “using with
your [i.e., the “named insured’s”] permission a covered ‘auto’ you own, hire or borrow . . . .”
Alt Aff. Ex. K at K19. The employees-as-insureds endorsement applies to an employee “using a
covered ‘auto’ you don’t own, hire or borrow in your business or your personal affairs.” Alt Aff.
Ex. K at K54 (emphasis added). According to Auto Club’s reading of the policy language, the
policy contrasts two groups of autos: (1) all autos a “named insured” owns, hires, or borrows,
and (2) only some autos a “named insured” does not own, hire, or borrow — namely, autos the
“named insured” does not own, hire, or borrow for (or “in”) its business or personal affairs. But
when the who-is-an-insured provision and the employees-as-insureds endorsement are read
together, it seems clear that the policy sets up a contrast between two mutually exclusive and
collectively exhaustive sets of autos: (1) all autos a “named insured” does own, hire, or borrow,
and (2) all autos a “named insured” does not own, hire, or borrow. Thus, the phrase “in your
business or personal affairs” should be read to modify “using,” not “own, hire or borrow.”
Moreover, Auto Club’s proposed interpretation would lead to an absurd result. Suppose
a Life Time employee is on vacation in Disney World driving his family car. That car is, under
Auto Club’s reading of the employees-as-insureds endorsement, a car that Life Time “[does]n’t
own, hire or borrow in [its] business or [its] personal affairs.” Thus, according to Auto Club,
Life Time’s vacationing employee would be an “insured” under the employees-as-insureds
endorsement. The employee would not — even under Auto Club’s reading of the policy — be a
“named insured” because he would not be under Life Time’s control while at Disney World, so
he would not be entitled to primary coverage. But he would — again, under Auto Club’s reading
of the policy — be entitled to excess coverage, because he would be an “insured” under the
employees-as-insureds endorsement, driving a “covered ‘auto’ [Life Time] do[es]n’t own” under
the “Other Insurance” provision.
The Court has never heard of an employer providing, as a fringe benefit, excess autoinsurance coverage for its employees’ private cars while those employees are on vacation or
otherwise not doing the work of their employer. Indeed, Auto Club conceded at oral argument
that it is extraordinarily unlikely that Life Time would purchase — or that Sentry would sell —
excess insurance covering employees when they drive cars that have no connection to Life Time
for reasons that have nothing to do with Life Time. Although Auto Club’s interpretation of the
Sentry policy is not wholly inconsistent with the policy’s literal language, no reasonable person
would read the policy to mean what Auto Club says it means.
Admittedly, Sentry’s interpretation of its own policy is not without problems. What the
Court has been referring to as the “controlled-entities endorsement” is, in fact, a “controlledentities-and-persons endorsement.” After all, it includes “persons . . . under the control of [Life
Time]” within the definition of “named insureds.” If (as Sentry insists) an employee is not such
a “person,” then who is? Sentry does not say. Indeed, Sentry simply ignores the controlledentities endorsement’s reference to “persons.” It occurs to the Court that this phrase might
include a sole proprietorship hired by Life Time to, say, seal a parking lot or repair a leaky
faucet. But it is hard to know the purpose of this language.
Undoubtedly, this problem reflects the fact that the Sentry policy is a form policy, created
by piecing together various paragraphs of boilerplate with little or no effort to customize the
boilerplate to the particular insured. Such policies are ubiquitous, and in interpreting such
policies, courts must use the same common sense that is used by the millions of people who buy
and sell such policies.
Sentry’s interpretation of its policy is not perfect, but it is reasonable — and it is
infinitely more reasonable than Auto Club’s interpretation. Sentry’s interpretation is internally
consistent. It gives the employees-as-insureds endorsement a purpose (to define when
employees are “insureds”). It limits coverage under the Sentry policy to a type of coverage that
a rational company would buy and a rational insurer would sell. And, most importantly, it is
how a reasonable person would understand the policy. See Am. Commerce Ins. Brokers, 551
N.W.2d at 227 (“The language of an insurance policy will be held ambiguous only if it is
reasonably subject to more than one interpretation.”) (emphasis added).
For these reasons, the Court finds that, under the Sentry policy, an employee who uses
his personal automobile while acting within the scope of his employment with Life Time is not a
“named insured” entitled to primary coverage, but only an “insured” entitled to excess coverage.
And thus, even if McCann was acting within the scope of his employment with Life Time when
he collided with Kreml, Sentry had no obligation to defend or indemnify McCann, because the
lawsuit against McCann was settled within the limits of the Auto Club policy.
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
The summary-judgment motion of plaintiff Auto Club Insurance Association
[Docket No. 34] is DENIED;
The summary-judgment motion of defendant Sentry Insurance [Docket No. 28] is
Plaintiff’s complaint is DISMISSED WITH PREJUDICE AND ON THE
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: August 1 , 2011
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
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