National Union Fire Insurance Company of Pittsburgh, PA et al v. Donaldson Company, Inc.
Filing
122
MEMORANDUM OPINION AND ORDER denying without prejudice defendant Donaldson Company's 14 Motion for Summary Judgment and Partial Summary Judgment; denying without prejudice plaintiffs American Home Assuranc e Company and National Union Fire Insurance Company of Pittsburgh, PA's 29 Motion for Partial Summary Judgment; denying with prejudice defendant Federal Insurance Company's 97 Motion for Judgment on the Pleadings; denying without prejudice defendant Federal Insurance Company's 97 Motion for Summary Judgment (Written Opinion). Signed by Judge John R. Tunheim on March 30, 2012. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA and
AMERICAN HOME ASSURANCE
COMPANY,
Plaintiffs,
Civil No. 10-4948 (JRT/AJB)
MEMORANDUM
OPINION AND ORDER
v.
DONALDSON COMPANY, INC. and
FEDERAL INSURANCE COMPANY,
Defendants.
Cody S. Moon, Kelly L. Stoltz, and Matthew J. Fink, BATES CAREY
NICOLAIDES LLP, 191 North Wacker Drive, Suite 2400, Chicago, IL
60606; and Nicholas H. Jakobe and Patrick D. Reilly, ERSTAD &
RIEMER, P.A., 8009 34th Avenue South, Suite 200, Minneapolis, MN
55425, for plaintiffs.
Bradley M. Orschel, Gary J. Haugen, and Margaret S. Brownell, MASLON
EDELMAN BORMAN & BRAND, LLP, 90 South 7th Street, Suite
3300, Minneapolis, MN 55402, for defendant Donaldson Company, Inc.
Beth A. Jenson Prouty, Curtis D. Ruwe, and Lindsay G. Arthur, Jr.,
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, PA, 81
South 9th Street, Suite 500, Minneapolis, MN 55402-3214; and Daniel J.
Cunningham, TRESSLER LLP, 233 South Wacker Drive, Chicago, IL
60606, for defendant Federal Insurance Company.
Plaintiffs National Union Fire Insurance Company of Pittsburgh, PA (“National
Union”) and American Home Assurance Company (“American Home”) bring this action
against their insured, Defendant Donaldson Company, Inc. (“Donaldson”), and
23
Donaldson’s excess insurer, Defendant Federal Insurance Company (“Federal”).
Plaintiffs seek to recover amounts that they contributed to a settlement on behalf of
Donaldson. Donaldson argues that Plaintiffs may not recover their contribution to the
settlement because of estoppel and because Plaintiffs’ insurance policies required their
contribution to the settlement. Federal argues that Plaintiffs cannot seek reimbursement
because of waiver, estoppel, accord and satisfaction, and judicial estoppel. Federal has
requested judgment on the pleadings, and all parties have filed motions for summary
judgment or partial summary judgment. The Court will deny all of the motions because,
among other reasons, the parties have completed little discovery and the summary
judgment motions are premature.
BACKGROUND
Throughout the 1990s, Donaldson designed and manufactured plastic air-intake
ducts for the air-intake system on trucks manufactured by Western Star Trucks (“Western
Star”). (First Decl. of Margo S. Brownell, Ex. 2 at Vol. II-39, May 2, 2011, Docket
No. 17; Donaldson Countercl. ¶ 76, Docket No. 8.) These trucks were used in the
logging and construction industries. (Donaldson Countercl. ¶ 76.) The purpose of an airintake system for diesel trucks is to deliver clean air into the internal part of the engine.
(First Brownell Decl., Ex. 2, at I-131.)
Donaldson made its air-intake ducts out of plastic.
(Id. at II-16.)
Molding
machines created the ducts. (Id. at II-16-17.) The machines poured a premeasured
amount of ground resin into the molds in a dry form. (Id. at II-17.) The molds then
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closed, rotated, and entered an oven that melted the resin. (Id. at II-18-20.) After the
resin cooled, the air-intake ducts were removed from the molds. (Id. at II-21.)
Donaldson created more than one type of duct, including a “crossover” duct and a
“45-degree” or “elbow” duct. (Id. at I-176, II-13-15, II-41, II-153; Second Decl. of
Margo S. Brownell, Ex. 2, at 7, June 29, 2011, Docket No. 48.) The ducts were produced
at a plant in Iowa and, later, a plant in another state. (First Brownell Decl., Ex. 2, at II38-41.) According to Donaldson, the plastic air-intake ducts were manufactured with the
same molds and processes at both plants, but Plaintiffs and Federal dispute this claim.
A.
Legal Action Regarding Air-Intake Ducts
Starting in 2001,1 purchasers of Western Star trucks began filing lawsuits against
Donaldson alleging that the air-intake ducts it designed and manufactured possessed
insufficient wall thickness, which allegedly caused the ducts to soften and melt. (First
Brownell Decl., Ex. 3, at 323; Donaldson Countercl. ¶ 78.) The melting of the ducts
allegedly caused “engine dusting” and the failure of engines in some trucks. (Donaldson
Countercl. ¶ 78.) A “dusted engine” is an engine that has ingested unfiltered air into the
combustion chamber. (First Brownell Decl., Ex. 3, at 134.) This dusting can destroy the
engine’s rotating assemblies. (Id. at 134.)
On November 8, 2001, fifteen purchasers of Western Star trucks filed Ortho
Arender v. Burroughs Diesel, Inc. in Mississippi state court against Burroughs Diesel,
1
On November 1, 2001, a purchaser of Western Star trucks filed Sammie Bonner
Construction Company, Inc. v. Western Star Trucks et al., against Western Star and Donaldson
in Alabama state court. (Donaldson Countercl. ¶ 79.)
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Inc. (“Burroughs”), Donaldson, and Western Star, alleging that the Western Star trucks
they purchased were inoperable due to the air-intake system. (First Decl. of Matthew J.
Fink, Exs. J, K, June 1, 2011, Docket No. 32; Donaldson Countercl. ¶¶ 81-82.)
Burroughs, a commercial dealer of Western Star trucks, filed a cross-claim against
Donaldson alleging the premature failure of engines due to the air intake system (“the
Burroughs cross-claim”). (Donaldson Countercl. ¶¶ 77, 83.)
Burroughs sold “a couple of hundred” Western Star trucks starting in 1989. (First
Brownell Decl., Ex. 3, at 160.) The trucks at issue in the Burroughs cross-claim appear
to have been Western Star Heritage model trucks sold from 1989 to 1999. (See Second
Brownell Decl., Ex. 2, at 2.) Burroughs alleged that a problem with Donaldson’s 45degree duct damaged approximately seventy-five to one-hundred of its trucks. (First
Brownell Decl., Ex. 3, at 160.)
Burroughs further alleged that problems with
Donaldson’s crossover duct damaged fourteen to fifteen of its trucks. (Id. at 161.)
Donaldson asserts that, regardless of the particular duct used, the engine failures
allegedly arose from the same design defect.
Purchasers of Western Star trucks filed several other legal complaints against
Donaldson for similar problems. All of these cases eventually settled. As of March 11,
2008, the Burroughs cross-claim was the only outstanding complaint against Donaldson
regarding its air-intake ducts. (Donaldson Countercl. ¶ 86.)
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B.
Notice to Donaldson
The record demonstrates that Donaldson employees likely received notice of
problems with their air-intake ducts in 2000.2 Specifically, the evidence suggests that on
August 9, 2000, Donaldson’s Quality Manager Doug Flemming identified a potential
problem with an air-intake duct in a Western Star truck sold by Burroughs. (See Second
Brownell Decl., Ex. 4.) However, Martin Kohne, the Risk Manager for Donaldson,
appears to have first learned of problems with air-intake ducts installed in Western Star
trucks around November 2001, when he received a copy of a court complaint. (Decl. of
Martin R. Kohne ¶ 7, April 29, 2011, Docket No. 18.)
C.
Insurance Policies
1.
Commercial General Liability Policies
Plaintiffs insured Donaldson from 1996 to 2002, with largely identical insurance
policies. Plaintiffs are separate insurance companies owned by the same parent company.
National Union issued four commercial general liability (“CGL”) policies to Donaldson,
effective for consecutive annual periods from July 31, 1996 to July 31, 2000. 3 American
2
Plaintiffs claim that, as early as October 28, 1994, Donaldson designed a supplemental
product as a fix for its defective air-intake ducts. (See First Fink Decl., Ex. D; Second Brownell
Decl., Ex. 2, at 10-11, Ex. 4.) It is premature to determine the extent of Donaldson’s knowledge
at this early date.
3
National Union issued CGL Policy No. 143-77-30 to Donaldson, effective July 31, 1996
to July 31, 1997. (Compl., Ex. A, Dec. 21, 2010, Docket No. 1.) National Union issued CGL
Policy No. RMGL 143-84-85, effective July 31, 1997 to July 31, 1998. (Compl., Ex. B.)
National Union issued CGL Policy No. RMGL 612-20-98, effective July 31, 1998 to July 31,
(Footnote continued on next page.)
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Home issued two, consecutive CGL policies to Donaldson for annual periods between
July 31, 2000 and July 31, 2002.4 Each policy contained a $1 million per-occurrence
limit and a $500,000 per-occurrence deductible for bodily injury or property damage.
A key question in this matter is how Plaintiffs’ policies were triggered by the
damage allegedly caused by the air-intake ducts. The policies state the following about
property damage:
1.
Insuring Agreement
a.
We will pay those sums that the insured becomes legally
obligated to pay as damages because of . . . “property
damage” to which this insurance applies . . . .
b.
This insurance applies to . . . “property damage” only if:
(1)
The . . . “property damage” is caused by an
“occurrence” . . .; and
(2)
The “bodily injury” or “property damage” occurs
during the policy period.
(Compl., Ex. A at 7, Ex. B at 5, Ex. C at 8, Ex. D at 8, Ex. E at 6; First Brownell Decl.,
Ex. 1 at 6.) Property damage is thus covered if caused by an “occurrence,” which is
defined as “an accident, including continuous or repeated exposure to substantially the
____________________________________
(Footnote continued.)
1999. (Compl., Ex. C.) National Union issued CGL Policy No. GL 612-30-28, effective
July 31, 1999 to July 31, 2000. (Compl., Ex. D.)
4
American Home issued CGL Policy No. 457-12-34 to Donaldson, effective July 31,
2000 to July 31, 2001. (Compl., Ex. E.) American Home issued Policy No. 457-12-34 for the
period July 31, 2001 to July 31, 2002. (First Brownell Decl., Ex. 1.)
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same general harmful conditions.” (Compl., Ex. A at 17.)5 The policies further state that
property damage means:
a.
Physical injury to tangible property, including all resulting loss of
use of that property. All such loss of use shall be deemed to occur at
the time of the physical injury that caused it; or
b.
Loss of use of tangible property that is not physically injured. All
such loss of use shall be deemed to occur at the time of the
“occurrence” that caused it.
(Id. at 18.)
Plaintiffs’ policies also contain a Batch Clause Endorsement, which combines
certain property damage that might otherwise be subject to separate deductibles into one
“occurrence.” The Clause states:
Section V – Definitions [12/13] – Occurrence, is amended to add new
paragraph:
As respects ‘Products Completed Operations Hazard’6 all . . . “property
damage” arising out of and attributable directly or indirectly to the
continuous, repeated or related exposure to substantially the same general
conditions affecting one lot of goods or products manufactured, sold,
handled or distributed by you or others trading under your name, shall be
deemed to result from a single “occurrence.” Such “occurrence” will be
deemed to occur with the first injury notified to you during the policy
period.
5
Throughout this Order, the Court will cite to individual insurance policies that Plaintiffs
issued to Donaldson. The language in the other insurance policies that Plaintiffs issued to
Donaldson is the same, unless noted by the Court.
6
“Products-completed operation hazards” is defined as “‘property damage’ occurring
away from premises you own or rent arising out of ‘your product’ . . . .” (Compl., Ex. A at 17.)
It is notable that the Batch Clause Endorsement applies to this general category of property
damage. (Cf. id. at 18 (setting out distinctions between property that is physically injured and
property that is not physically injured).)
-7-
(Compl., Ex. A, Endorsement 20 Revised, at 57.)7
Under this Endorsement, then,
“occurrences” are deemed to occur with the first injury notified to “you” during the
policy period.
The policies define “you” as “the Named Insured shown in the
Declarations . . . .” (Compl., Ex. A at 7.)8
2.
Federal and National Union’s Umbrella Policies
Federal issued five, consecutive umbrella insurance liability policies to Donaldson
effective for annual periods from July 31, 1996 to July 31, 2001. (Am. Compl. ¶ 18,
Docket No. 45; e.g., Am. Compl., Ex. G.) It also issued a second-layer-excess liability
policy effective July 31, 2001 to July 31, 2002. In addition, National Union issued two
commercial umbrella liability policies to Donaldson, including a policy from July 31,
2001 to July 31, 2002. (See Second Decl. of Matthew J. Fink, Ex. E, July 20, 2011,
Docket No. 53.)
D.
Plaintiffs’ Coverage Position Prior to 2009
Donaldson notified Plaintiffs – or at least American Home – of the complaints
filed against it regarding the air-intake ducts shortly after they were filed. In response, on
7
It appears but is not entirely clear that the Batch Clause Endorsement was included in
the American Home July 31, 2001 to July 31, 2002 policy. (See First Brownell Decl., Ex. 1, at
5.)
8
Donaldson argues, however, that “you” should be defined by another endorsement in
the policy. (See Compl., Ex. A, Endorsement 5.) This endorsement states that Donaldson must
notify Plaintiffs of an “occurrence” when Donaldson’s Director of Risk Management or his/her
designee receives notice of that occurrence. (See id.)
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March 11, 2002, American Home’s claims administrator sent a letter to Donaldson’s
third-party claims administrator, stating,
[Due to the] Batch Clause Endorsement . . . all claims related to alleged
faulty air intake systems on Western Star trucks would fall under one
occurrence. All the claims are subject to one deductible, and the limits of
insurance for this occurrence are $1,000,000 . . . . Per the Batch Clause
Endorsement, we have created a date of loss of November 14, 2001, the
date on the first summons received by the insured. We have also combined
the Arender and Bonner lawsuits under one claim number, [011811003280-PB]. We suggest that you take similar steps regarding the date of
loss and combination of all claims into one . . . . This matter has the
potential to exceed the policy limit of $1,000,000, therefore, the umbrella
and excess carriers have been placed on notice.
(First Brownell Decl., Ex. 5.) The letter carbon copied Donaldson. (Id.) At the time of
this letter, the Burroughs cross-claim was pending.
American Home also sought
information from Donaldson’s third-party claims administrator relating to Donaldson’s
claim. (Second Fink Decl., Ex. C.)
On May 28, 2002, American Home’s claims administrator sent Donaldson a letter
stating that it would “defend Donaldson subject to a full reservation of all of its rights”
and that providing the defense “shall not act as an estoppel or waiver of any of the rights
arising out of the policy or law.” (First Fink Decl., Ex. O (Corrected), Docket No. 35.)
The letter further stated that it only addressed coverage under the American Home 20012002 Primary Policy, and that Donaldson should submit claims for coverage under
different policies separately.
(Id.) Then on June 9, 2003, National Union’s claims
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administrator also sent a letter to Donaldson purporting to reserve its rights. (Second
Fink Decl., Ex. E.)9
Donaldson selected the Mississippi firm of Butler Snow from a list of approved
panel counsel to defend it in various lawsuits. (Kohne Decl. ¶ 10.) Donaldson asserts
that, starting in 2002 and through the Burroughs settlement, a third-party claims
administrator advanced payments to Donaldson for defense costs and settlements under
the claim number 011811-003280-PB, all of which Plaintiffs approved. (Id. ¶ 13.)
E.
Plaintiffs’ Handling of the Burroughs Cross-Claim
In early 2009, the state court scheduled a mediation regarding the Burroughs
cross-claim for October 15, 2009. (Id. ¶¶ 14-15.) On July 22, 2009, Donaldson advised
Plaintiffs’ attorney of the mediation. (First Fink Decl., Ex. P.) From July to September
2009, at the request of Plaintiffs, Donaldson apparently provided copies of depositions,
discovery, and pleadings related to the cross-claim. Plaintiffs argue that, during this time,
they first learned of certain issues relevant to Donaldson’s claim, such as when
Donaldson first received notice of the property damage.10
9
The letter declared, among other reservations, “National Union’s determination as to
coverage as available to your company under the commercial umbrella policy is based upon the
facts as presently known to us. As a result, we reserve our right to modify our coverage position
upon receipt of additional information. All legal and policy defenses that National Union may
have in connection with this matter, whether stated or not in this correspondence, are hereby
reserved.” (Second Fink Decl., Ex. E.)
10
As explained below, the date that Donaldson first received notice of the property
damage is relevant to coverage under Plaintiffs’ policies.
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On September 2, 2009, Plaintiffs’ authorized representative sent Donaldson a
reservation of rights letter. (First Fink Decl., Ex. Q; Donaldson Countercl. ¶ 112.) The
letter stated that Plaintiffs would defend Donaldson subject to a reservation of rights,
including the right to seek the reimbursement of all deductibles. (First Fink Decl.,
Ex. Q.) It further requested specific information regarding the Burroughs cross-claim and
the air-intake ducts. (Id.)
According to Donaldson, “The October 15th mediation failed, in large part due to
[Plaintiffs’] refusal to offer realistic sums to the Burroughs plaintiff to settle the case.”
(Kohne Decl. ¶ 16.) According to Donaldson, Plaintiffs offered paltry sums at the
settlement conference and put their own interests ahead of Donaldson.
(Countercl.
¶ 116.)
On December 28, 2009 and January 21, 2010, Plaintiffs’ authorized representative
again sent reservation of rights letters to Donaldson regarding their primary and umbrella
policies. (First Fink Decl., Exs. R and S.) Plaintiffs stated for the first time that they
sought a contribution of $2.5 million from Donaldson to satisfy deductibles for the
Burroughs cross-claim. (First Fink Decl., Ex. S.) On January 27, Plaintiffs’ authorized
representative sent an e-mail to Donaldson’s in-house counsel, stating that “[t]he
coverage [dispute] will be addressed, if not before the mediation, then sometime
thereafter.” (Moon Decl., Ex. D, Oct. 24, 2001, Docket No. 110.) Donaldson’s counsel
responded that Plaintiffs “must attempt to resolve the Burroughs claim at the mediation.
If [Plaintiffs] believe[] there are litigation coverage issues, [Plaintiffs] should reserve
[their] rights with respect to the settlement.” (Id.)
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On February 22, 2010, the Burroughs cross-claim settled. Plaintiffs contributed a
total of $3,548,387.10 and Federal contributed $2,451,612.90. (Lindsay G. Arthur Aff.,
Ex. 1, at 1-8, Sept. 26, 2011, Docket No. 100.) The settlement agreement signed by
Donaldson and Burroughs stated, “Donaldson and its insurers shall have no further
obligation.” (Id. at 4.) Although the insurance companies’ payment obligations were
outlined in the settlement, no insurance company was a signatory to the settlement and
the settlement only stated that it “contain[ed] the entire agreement between Burroughs
and Donaldson . . . .” (Id. at 7-8.) On June 30, 2010, Plaintiffs sent Donaldson an
invoice seeking repayment from the settlement in the amount of almost $2.5 million.
(Countercl. ¶ 121.)
F.
Federal’s Involvement with the Burroughs Cross-Claim
Prior to the Burroughs settlement, Federal and Plaintiffs disputed the amount they
should each contribute. On February 9, 2010, Matthew Fink, coverage counsel for
Plaintiffs, sent an e-mail to Michael Simmons, coverage counsel for Federal, about the
Burroughs cross-claim. (Moon Decl., Ex. E.) The e-mail stated that Plaintiffs were,
willing to pay additional sums allocable to [Federal] to attempt to settle the
case under a reservation of rights. I requested [to your associate] that if
[Federal has] an objection with the mediation continuing in this matter or
an objection as to the reasonableness of the settlement offers that [Federal]
make its objection known. I was informed that [Federal has] no position as
it was still evaluating coverage and the liability/damage exposure presented
by the case. Therefore, [your associate] expressed to me that [Federal] was
neither agreeing to nor objecting to the reasonableness of the settlement or
the manner in which the mediation was proceeding.
[Federal] has been on notice of this claim in excess of six months.
[Plaintiffs] believe[] that [Federal] has had a sufficient time to evaluate the
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coverage issues and liability/damages exposure in the underlying case.
[Plaintiffs] will proceed to protect [their] insured’s interests and reserve[]
the rights to recoup any settlement payment that is allocable to [Federal].
(Id.)
Simmons responded on February 9, 2010 stating, “Do not presume to tell me
[Federal] has had sufficient time to consider coverage issues” and “We will disclose our
coverage position when it has been finalized.” (Moon Decl., Ex. F.) Simmons’s e-mail
acknowledged that Plaintiffs “had changed its position three weeks before a mediation,
taking $25 million in primary coverage off the table and the position that it now has only
$3 million in primary coverage.” (Id.) It further recognized that policy years prior to
2001-2002 were potentially implicated by Plaintiffs’ position. (Id.)
On February 18, Simmons sent a letter to Fink and Donaldson’s lawyer outlining
Federal’s willingness to contribute to the settlement. (Moon Decl., Ex. 7.) It also stated,
“The foregoing offer to contribute to settlement is made . . . with a full reservation of all
rights against all parties, both under Federal’s policies and applicable law.”
(Id.)
Plaintiffs allege that, on February 19, Plaintiffs and Federal had a telephone conversation
in which they again reserved all rights against each other to seek additional contribution.
(See Moon Decl., Ex. H.) Then, that same day, Plaintiffs’ authorized representative sent
Federal’s authorized representative an e-mail describing the exact dollar amounts
proposed for the settlement of the Burroughs counter-claim. (Id.) The e-mail stated,
“Please note that [Plaintiffs have] reserved all rights in this matter; and [we]
acknowledge[] that [Federal] has reserved all rights as well.”
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(Id.)
Federal’s
representative responded by stating the amounts that Federal would pay for the settlement
under particular policy numbers. (Id.)
G.
Status of Discovery
Only limited discovery has been completed in this case. (See Order on Disc.
Motions, Oct. 14, 2011, Docket No. 103.) Matthew Fink, attorney for Plaintiffs, and
Lindsay G. Arthur, attorney for Federal, both submitted Rule 56(d) affidavits arguing that
discovery of additional facts is necessary before the Court rules on Donaldson’s summary
judgment motion. (Rule 56(d) Aff. of Matthew J. Fink, June 1, 2011, Docket No. 33;
Rule 56(d) Aff. of Lindsay G. Arthur, Sept. 26, 2011, Docket No. 95.)
ANALYSIS
I.
STANDARDS OF REVIEW
Federal brings a motion for judgment on the pleadings. When considering a
motion for judgment on the pleadings under Fed R. Civ. P. 12(c), the Court must “‘accept
as true all factual allegations set out in the complaint’ and . . . ‘construe the complaint in
the light most favorable to the plaintiff[s], drawing all inferences in [their] favor.’”
Ashley Cnty., Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009) (quoting Wishnatsky
v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006)). A motion for judgment on the pleadings is
reviewed under the same standard as a motion to dismiss under Rule 12(b)(6). Clemons
v. Crawford, 585 F.3d 1119, 1124 (8th Cir. 2009); see also Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
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Federal, Donaldson, and Plaintiffs also bring summary judgment or partial
summary judgment motions. Summary judgment is appropriate where there are no
genuine issues of material fact and the moving party demonstrates that it is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a). A fact is material if it might affect
the outcome of the suit, and a dispute is genuine if the evidence is such that it could lead
a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). A court considering a motion for summary judgment must view
the facts in the light most favorable to the non-moving party and give that party the
benefit of all reasonable inferences that can be drawn from those facts. See Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
II.
FEDERAL’S MOTIONS
Plaintiffs included Federal in this action in case the Court determines that the
Burroughs settlement falls in a policy year for which Federal possessed additional
coverage responsibilities.11 (Am. Compl. ¶¶ 68-75.) Federal responded by bringing a
motion for judgment on the pleadings or, alternatively, summary judgment on the ground
that Plaintiffs did not reserve their rights to reallocate the Burroughs settlement payments
between Plaintiffs and Federal. (Docket No. 97.) Federal presents four arguments why
Plaintiffs cannot seek reimbursement for its settlement payments: (1) waiver,
11
Specifically, Plaintiffs contend, “To the extent that the settlement is allocated to a
single policy period, the settlement must be allocated to the 1999-2000 policy period [instead of
the 2001-2002 policy period]. In that case, American Home and/or National Union paid amounts
to settle the Burroughs cross-claim in excess of their applicable policy limits, which are within
the coverage obligation of the Federal umbrella policies.” (Am. Compl. ¶ 70.)
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(2) estoppel, (3) accord and satisfaction, and (4) judicial estoppel. Because the pleadings
and the evidence presented thus far have established none of Federal’s theories, the Court
will deny Federal’s motions.
A.
Waiver
Federal first argues that Plaintiffs’ conduct waived their right to seek
reimbursement from Federal for the Burroughs settlement. Waiver is “an intentional
relinquishment of a known right.” Stephenson v. Martin, 259 N.W.2d 467, 470 (Minn.
1977). Both knowledge and intention are essential elements of waiver. Id. Knowledge
may be actual or constructive, and intention can be inferred from conduct. Id. Unlike
estoppel, waiver does not require detrimental reliance.
Slidell, Inc. v. Millennium
Inorganic Chems., Inc., 460 F.3d 1047, 1056 (8th Cir. 2006). Waiver is “ordinarily a
question of fact for the jury” and is “rarely to be inferred as a matter of law.” Physical
Distrib. Servs., Inc. v. R.R. Donnelley & Sons Co., 561 F.3d 792, 795 (8th Cir. 2009)
(internal quotation marks omitted).
The settlement agreement entered into by Burroughs and Donaldson does not, by
its plain terms, waive Plaintiffs’ right to seek reimbursement from Federal. Although the
settlement states that “Donaldson and its insurers shall have no further obligation,” this
statement is a release of Donaldson, Federal, and Plaintiffs by Burroughs. It does not
release Federal from claims by Plaintiffs because this statement was included in a clause
discussing payment obligations to Burroughs and because neither Plaintiffs nor Federal
were signatories to the agreement. (See Arthur Aff., Ex. 1, at 4); cf. Stephenson, 259
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N.W.2d at 470-71 (holding that an insurance company waived its right of subrogation by
executing an “unambiguous” stipulation of “full, final and complete settlement” with an
opposing party, despite a reservation of rights letter). At this stage, Federal has pointed
to no documents executed by Plaintiffs or Donaldson12 that release Federal from further
liability.
The question remains, however, whether Plaintiffs’ conduct around the time of the
Burroughs settlement, including their contribution to the settlement, constituted an
intentional relinquishment of a known right. To make this determination, the Court must
analyze whether Plaintiffs’ actions demonstrate an intention to release Federal from
further liability.
The Court finds that, based on the evidence currently before it, Plaintiffs did not
waive any right to reimbursement. See Bogenholm by Bogenholm v. House, 388 N.W.2d
402, 405 (Minn. Ct. App. 1986) (declining to bind party to results of previous
adjudication without evidence that the party agreed to be bound by that result). Plaintiffs
and Federal both made reservations of rights to one another around the time of
settlement. (See Moon Decl., Exs. E, F, G, H.) Specifically, Plaintiffs stated that they
12
The Court notes that, to the extent that Plaintiffs’ claims against Federal rely on a
theory of subrogation, any release of Federal from further liability executed by Donaldson might
preclude Plaintiffs from pursuing this action against Federal. See West American Ins. Co. v.
Ford Motor Co., 759 F. Supp. 547, 550-52 (D. Minn. 1991) (holding that an insurance company
could not seek subrogation against third party when the insured had released the third party from
liability); but see Travelers Indem. Co. v. Vaccari, 245 N.W.2d 844, 847 (Minn. 1976) (“[W]hen
a [party and a party’s insurer], with notice of an insurer’s subrogation claim, procures a general
release by making a settlement with the insured, the release will not affect the insurer’s right of
subrogation.”).
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“reserved[d] the rights to recoup any settlement payment that is allocable to [Federal]”
and again reserved their rights when they proposed specific contributions to the
settlement. (Moon Decl., Exs. E, H.)13 In other words, it appears that both Plaintiffs and
Federal left the question of ultimate responsibility for the settlement unresolved. In
addition, Federal appears to have known the nature of the coverage dispute and the
potential implications of Plaintiffs’ reservation of rights. (See Moon Decl., Ex. F.); see
Jacobs v. Cable Constructors, Inc., 704 N.W.2d 205, 209-10 (Minn. Ct. App. 2005)
(holding that excess insurer could recoup a contribution to a Minnesota Rule of Civil
Procedure 68 settlement, if the primary insurer had notice of the excess insurer’s intent to
recoup). As the record stands now, Federal has not established waiver.
C.
Estoppel
“A party seeking to invoke the doctrine of equitable estoppel has the burden of
proving three elements: (1) that promises or inducements were made; (2) that it
reasonably relied upon the promises; and (3) that it will be harmed if estoppel is not
13
Federal has cited cases from other jurisdictions that demand specific and timely
reservations of rights. Federal has cited to no Minnesota case that demands a specific reservation
of rights or requires that the reservation occur at the time of settlement. But even assuming that
Minnesota courts adopt these positions, Federal has not proven that Plaintiffs failed to effectively
reserve their rights or that Federal did not know that Plaintiffs might seek reimbursement. See
Nobel Ins. Co. v. Austin Powder Co., 256 F. Supp. 2d 937, 940 (W.D. Ark. 2003) (holding that
an insurer must “1) timely and explicitly reserve[] its right to recoup the costs; and 2) provide[]
specific and adequate notice of the possibility of reimbursement”); Am. Nat’l Fire Ins. Co. v.
York Cnty., 582 F. Supp. 2d 69, 80-81 (D. Maine 2008) (holding that insurer was estopped from
seeking reimbursement because, considering the overall settlement negotiations, it was
unreasonable for insurer not to explicitly reserve its rights when it offered its contribution); Mut.
of Enumclaw Ins. Co. v. State Farm, 682 P.2d 317, 319 (Wash. Ct. App. 1984) (mandating that
reservations of rights expressly reserve a claim).
- 18 -
applied.” Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 919 (Minn. 1990). At this
stage, Federal has not shown that Plaintiffs made a promise or inducement. Instead, as
discussed above, Plaintiffs appear to have reserved their rights and Federal to have been
on notice of the ongoing coverage dispute. As with waiver, the Court finds that Federal
has not established estoppel.14
D.
Accord and Satisfaction
An accord and satisfaction exists if (1) the party, in good faith, tenders an
instrument to a claimant as full satisfaction of the claim; (2) the instrument or an
accompanying written communication contains a conspicuous statement to the effect that
the instrument is tendered as full satisfaction of the claim; (3) the amount of the claim is
unliquidated or subject to a bona fide dispute; and (4) the claimant obtained payment of
the instrument. Webb Bus. Promotions, Inc. v. Am. Elecs. & Entm’t Corp., 617 N.W.2d
67, 73 (Minn. 2000). “The purpose of accord and satisfaction is to allow parties to
resolve disputes without judicial intervention by discharging all rights and duties under a
contract in exchange for a stated performance, usually a payment of a sum of money.”
Id. Accord and satisfaction can apply to insurance agreements. See Addison Miller, Inc.
14
There may be additional barriers if Federal attempts to require Plaintiffs to contribute
more to the settlement than was warranted under the terms of Plaintiffs’ insurance policies. See
infra Part III(B); Minn. Commercial Ry. Co. v. Gen. Star Indem. Co., 408 F.3d 1061, 1064 (8th
Cir. 2005) (“[T]he insured must demonstrate prejudice and an assumption of defense to expand
the scope of coverage.”).
- 19 -
v. Am. Cent. Ins. Co., 249 N.W. 795, 797-99 (Minn. 1933); Couch on Insurance § 215:9
(3d ed. 2011).
Federal and Plaintiffs did not enter into an accord and satisfaction because they
did not owe debts directly to one another, nor did they tender payments to one another.15
Federal has pointed to no case in Minnesota or elsewhere where an insurer’s payment of
an insured’s claim has constituted an accord and satisfaction between insurers. Also, it
appears that Plaintiffs did not accept or tender any payments in full satisfaction of their
coverage dispute with Federal, but rather expressly reserved their rights against Federal.
See Am. Nat’l Fire Ins. Co. v. York Cnty., 582 F. Supp. 2d at 79 (“An accord and
satisfaction would not be found if [the insurer] had explicitly reserved its rights . . . .”).
Thus, accord and satisfaction does not preclude Plaintiffs from seeking payments from
Federal.16
15
Any agreement between Federal and Plaintiffs would more properly be described as a
contract. At this stage, Federal has not established that Plaintiffs entered into a contract with
Federal to resolve their coverage dispute.
16
Plaintiffs appear to be seeking reimbursement on their own behalf under a theory of
indemnification.
“Indemnification differs from subrogation in that the entity seeking
indemnification does so in its own right, while in the latter the subrogee succeeds to another’s
right to payment.” Home Ins. Co. v. Cincinnati Ins. Co., 821 N.E.2d 269, 276 (Ill. 2004). To the
extent that Plaintiffs’ claims rest on subrogation, however, Plaintiffs stand in the shoes of
Donaldson. See Medica, Inc. v. Atlantic Mut. Ins. Co., 566 N.W.2d 74, 77 (Minn. 1997).
Federal has not established that it had a valid accord and satisfaction with Donaldson, either,
because it has pointed to no conspicuous statement that its insurance payment was tendered as
full satisfaction of its insurance obligations to Donaldson.
- 20 -
E.
Judicial Estoppel
“Judicial estoppel is an equitable doctrine that prevents a party from assuming
inconsistent positions in the course of litigation.” Ill. Farmers Ins. Co. v. Glass Serv.
Co., 683 N.W.2d 792, 800 (Minn. 2004). The doctrine of judicial estoppel has three
elements: (1) “the party presenting the allegedly inconsistent theories must have
prevailed in its original position[,]” (2) “there must be a clear inconsistency between the
original and subsequent position of the party[,]” and (3) “there must not be any distinct or
different issues of fact in the proceedings.” State v. Pendleton, 706 N.W.2d 500, 507
(Minn. 2005). The purpose of judicial estoppel is “to protect the integrity of the judicial
process.” N.H. v. Me., 532 U.S. 742, 743 (2001). The Minnesota Supreme Court has not
decided if judicial estoppel exists in Minnesota. See Pendleton, 706 N.W.2d at 507.
To establish judicial estoppel, the facts must demonstrate that Plaintiffs promoted
a successful position that they have now disavowed. See id.; Kale v. Obuchowski, 985
F.2d 360, 361-62 (7th Cir. 1993) (“Persons who triumph by inducing their opponents to
surrender have ‘prevailed’ as surely as persons who induce the judge to grant summary
judgment.”). It appears, however, that Plaintiffs have not contradicted an earlier position.
Rather, it seems that Plaintiffs contributed to the Burroughs settlement after objecting to
their obligation to pay, reserving their rights, and giving notice that they might pursue
additional contributions from Federal. See Faber v. Roelofs, 250 N.W.2d 817, 820
(Minn. 1977) (stating that an insurer may deny liability under an insurance policy when
that insurer goes through the “simple procedure of giving a notice of reservation of
rights”). Accordingly, Plaintiffs have not degraded the integrity of the judicial process or
- 21 -
abandoned a position that prevailed in a previous proceeding. See Me., 532 U.S. at 750;
Pendleton, 706 N.W.2d at 507.
Because Federal has not established waiver, estoppel, accord and satisfaction, or
judicial estoppel, the Court will deny Federal’s motions. The Court will deny Federal’s
motion for judgment on the pleadings with prejudice. Because of the early stage of the
litigation, however, the Court will deny Federal’s summary judgment motion without
prejudice to allow for further development of the record.
III.
PLAINTIFFS’ AND DONALDSON’S MOTIONS
Plaintiffs seek partial summary judgment on their complaint and, specifically, a
declaration that the Burroughs settlement triggers multiple insurance policy periods and
that the settlement must be allocated across those periods. (Docket No. 29.) If Plaintiffs
succeed in this motion, Donaldson would be responsible for additional $500,000
deductibles.
Donaldson seeks summary judgment on Plaintiffs’ declaratory judgment claims
and partial summary judgment on its declaratory judgment counterclaim. (Docket No.
14.) Specifically, Donaldson seeks a declaration that the Burroughs settlement is covered
as a single occurrence under the American Home 2001-2002 Policy, and accordingly, that
the additional policies under which the Plaintiffs seek reimbursement from Donaldson do
not apply. (See id.) Under this analysis, Donaldson would be responsible for only one
$500,000 deductible under the 2001-2002 policy. The Court will deny both motions
because Plaintiffs are not estopped by their prior conduct and because the Court
- 22 -
possesses insufficient information to determine the coverage obligations implicated by
the Burroughs settlement.
A.
Estoppel
Donaldson first claims that Plaintiffs are estopped from denying that the
Burroughs settlement constitutes one “occurrence” under the 2001-2002 policy and must
provide coverage accordingly, as a result of American Home’s March 11, 2002 letter and
subsequent conduct. To estop an insurer from denying coverage that may not fall under
its insurance policy, an insured must demonstrate that (1) the insurer controlled litigation
for the insured when it contributed to a settlement or other award, and (2) the insured will
experience prejudice if the insurer is allowed to claim that it should not have contributed
that amount due to the terms of its insurance policy. Minn. Commercial Ry. Co. v. Gen.
Star Indem. Co., 408 F.3d 1061, 1064 (8th Cir. 2005). Estoppel does not apply where the
insurer gives adequate notice of a reservation of rights or does not possess knowledge of
critical facts when contributing to a settlement. Id. Estoppel must be “established by a
preponderance of the evidence, and the facts used to prove [it] must be clear, positive,
and unequivocal in their implications.” Id. at 1063 (internal quotation marks omitted).
Donaldson has not demonstrated the necessary elements of estoppel.
As a
preliminary matter, the primary basis for Donaldson’s estoppel claim is a letter from
American Home, and Donaldson has not established that American Home’s letter estops
National Union. Furthermore, the current record indicates that Plaintiffs reserved their
rights in 2002, 2003, and again in 2009 and 2010.
- 23 -
(See First Fink Decl., Ex. O
(Corrected); Second Fink Decl., Ex. E; First Fink Decl., Exs. Q, R and S.)17 Finally,
Donaldson has failed to demonstrate prejudice from Plaintiffs’ actions. Donaldson has
alleged, for example, that it missed settlement opportunities as a result of Plaintiffs’
conduct, but has not provided the details or evidence necessary to support these
allegations. Accordingly, at this stage, Donaldson has not established estoppel.
B.
Insurance Policies and the Burroughs Settlement
Because Plaintiffs are not estopped from denying coverage, the Court must
determine how Plaintiffs’ policies apply to the Burroughs settlement. As an overarching
matter, the Court finds that Plaintiffs’ and Donaldson’s summary judgment motions are
premature and that it cannot determine the policy periods or number of “occurrences”
implicated by the Burroughs settlement. The Court cannot determine at this stage, among
other matters, the relevant characteristics of the air-intake ducts, the cause of the alleged
damage to the ducts and engines, or when Donaldson’s employees were first notified of
that damage. Federal Rule of Civil Procedure 56(d), 56(e)(1), and 56(e)(4) permit a court
to deny a motion for summary judgment if a party has not yet had the opportunity to
present facts essential to justify its opposition. The parties have completed very little
discovery, and there are factual disputes on critical issues. The Court will thus deny
17
See also St. Paul Sch. Dist. No. 625 v. Columbia Transit Corp., 321 N.W.2d 41, 46-47
(Minn. 1982) (holding that an insurance company was not estopped from denying coverage,
despite a late reservation of rights), abrogated on other grounds by Cargill, Inc. v. Ace Am. Ins.
Co., 784 N.W.2d 341 (Minn. 2010); Secura Ins. v. Horizon Plumbing, Inc., Civil No. 11-2427,
2012 WL 686209, at *5 (8th Cir. Mar. 5, 2012) (declining to find waiver under Missouri law
where an insurance company tendered a defense subject to an express reservation of rights).
- 24 -
Plaintiffs’ and Donaldson’s motions, without prejudice, as premature.18 See Iverson v.
Johnson Gas Appliance Co., 172 F.3d 524, 530 (8th Cir. 1999). To aid the parties and
limit the scope of this matter, however, the Court will analyze key provisions of
Plaintiffs’ insurance policies and how they may apply to this case.
1.
Insurance Policy Interpretation
Established principles must guide the Court’s interpretation of an insurance policy.
If a policy is unambiguous, the Court must give the language its plain and ordinary
meaning. Henning Nelson Constr. Co. v. Fireman’s Fund Am. Life. Ins. Co., 383 N.W.2d
645, 652 (Minn. 1986). If the policy language is ambiguous, the ambiguity must be
resolved in favor of the insured. Columbia Heights Motors, Inc. v. Allstate Ins. Co., 275
N.W.2d 32, 36 (Minn. 1979). Policy language is ambiguous if it is subject to two or
more reasonable interpretations. Medica, Inc. v. Atl. Mut. Ins. Co., 566 N.W.2d 74, 77
(Minn. 1997). Policy words of inclusion are broadly construed, and words of exclusion
are narrowly considered. Gen Cas. Co. of Wis. v. Wozniak Travel, Inc., 762 N.W.2d 572,
575 (Minn. 2009).
The insured – here, Donaldson – bears the burden of demonstrating coverage
under an insurance policy. Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718
N.W.2d 888, 894 (Minn. 2006). Exclusions are construed narrowly and strictly against
the insurer.
Id.
Coverage under the policy is construed in accordance with the
18
Plaintiffs seek a judicial determination that more than one policy period is triggered,
but the Court cannot make even this general determination without more information, as
explained further below.
- 25 -
expectations of the insured. Id. The Court must construe the insurance contract as a
whole, rather than mechanistically parse individual provisions. See Horizon III Real
Estate v. Hartford Fire Ins. Co., 186 F. Supp. 2d 1000, 1004-05 (D. Minn. 2001).
For insurance contract-related issues, Minnesota courts consider many factors,
including policy language, parties’ intent or reasonable expectations, canons of
construction, and public policy. N. States Power Co. v. Fidelity and Cas. Co. of N.Y., 523
N.W.2d 657, 661 (Minn. 1994). Under Minnesota law, however, courts may consider
issues outside the contract’s plain language, such as parol evidence, “only if the contract
is ambiguous on its face.” See Thomsen v. Famous Dave’s of Am., Inc., 606 F.3d 905,
908 (8th Cir. 2010) (quoting Hous. and Redev. Auth. of Chisholm v. Norman, 696 N.W.2d
329, 337 (Minn. 2005)). Using these principles of interpretation, the Court will analyze
provisions of Plaintiffs’ policies that are important to the parties’ dispute.
2.
Notification Requirement
The parties argue that different events trigger coverage for property damage under
Plaintiffs’ insurance policies. The events that trigger coverage are critical to the parties’
dispute because it defines which policies cover the Burroughs cross-claim and how many
deductibles are triggered under each policy.
To determine which events trigger coverage for the Burroughs cross-claim, the
Court must interpret the policies’ Batch Clause Endorsement.
See Domtar, Inc. v.
Niagara Fire Ins. Co., 563 N.W.2d 724, 733 (Minn. 1997) (“CGL policies come in many
forms and it is a mistake to read our case law as if the scope of coverage has been
- 26 -
resolved for all such policies, no matter what their language.”).
The Batch Clause
Endorsement states that certain property damage19 “shall be deemed to result from a
single ‘occurrence’” and that this single occurrence “will be deemed to occur with the
first injury notified to you during the policy period.” (Compl., Ex. A, Endorsement 20
Revised, at 57 (emphasis added).) The Court finds that this language unambiguously
combines property damage, including damage that may take place across multiple policy
periods, into one “occurrence” that takes place when Donaldson is notified of that
damage.20
Plaintiffs assert that the Batch Clause Endorsement only combines injuries that
take place during an individual policy year into one “occurrence” and cannot combine
injuries that extend across policy years. As support, they point out that the Batch Clause
Endorsement combines claims into one “occurrence” based on the “first injury notified to
you during the policy period.” (See Compl., Ex. A, Endorsement 20 Revised, at 57
(emphasis added).) This provision does not indicate, however, that the Batch Clause
19
The Court will only discuss how coverage is triggered for the type of property damage
that falls under the Batch Clause Endorsement, because this appears to be the property damage at
issue. The Batch Clause Endorsement applies to property damage “arising out of and
attributable directly or indirectly to the continuous, repeated, or related exposure to substantially
the same general conditions affecting one lot of goods . . . .” (Compl., Ex. A, Endorsement 20
Revised, at 57.) It appears, at this stage, that the property damage at issue stemmed from
continuous, repeated, or related exposure to substantially the same general conditions that
affected one or more lots of goods.
20
Of course, an “occurrence” that causes an injury cannot, in reality, “occur” after the
injury already exists and is known to Donaldson. The Batch Clause Endorsement thus
artificially bundles property damage into one “occurrence” that “occurs,” for the purposes of
coverage, at the time when Donaldson is notified of an injury to property.
- 27 -
Endorsement can only combine claims that actually took place during that policy period.
Instead, it is notice during the policy period that is required for coverage to exist under
that policy year. In other words, the Batch Clause Endorsement does not state that each
injury itself must occur during a policy period to be covered under that policy.
Accordingly, the Court finds that the Batch Clause Endorsement can combine injuries
across policy years into one “occurrence,” and, accordingly, that it is possible only one
policy year is implicated by the Burroughs cross-claim.21
The remainder of Plaintiffs’ policies is also consistent with this reading of the
Batch Clause Endorsement. See Bobich v. Oja, 104 N.W.2d 19, 24 (Minn. 1960) (“A
policy and endorsements should be construed, if possible, so as to give effect to all
provisions . . . .”). Specifically, the policies’ statement that property damage must
“occur[] during the policy period” is consistent with the Batch Clause Endorsement:
property damage “occurs,” pursuant to the Endorsement, when Donaldson is notified of
that damage, and coverage kicks in when Donaldson receives such notification. (Compl.,
Ex. A, at 7.)22 In addition, even if the body of the policy were inconsistent with the Batch
21
The number of policy years and deductibles implicated by the Burroughs cross-claim
will likely depend on how many “lots” of product are involved, which is discussed further below.
22
Federal argues that, because Plaintiffs’ policies state that “loss of use” stemming from
property damage “shall be deemed to occur at the time of the [physical injury] that caused it,”
Plaintiffs’ policies only cover physical injuries to the Burroughs trucks in the policy years that
those injuries actually took place. (See Compl., Ex. A, at 18.) The Court finds, however, that the
“loss of use” clause simply combines all loss of use with the physical injury that caused it, which
is not inconsistent with the Batch Clause Endorsement. Pursuant to the Batch Clause
Endorsement, the timing of physical injury to property, for the purposes of coverage, is when
Donaldson is notified of that injury. Thus, reading the “loss of use” and Batch Clause
(Footnote continued on next page.)
- 28 -
Clause Endorsement, the Endorsement would govern. See Bobich, 104 N.W.2d at 24
(“[W]here provisions in the body of the policy conflict with an endorsement or rider, the
provision of the endorsement governs.”).
Although not necessary to the Court’s determination, the Court also notes that this
interpretation of Plaintiffs’ policies is consistent with the apparent intent of the parties.
The result of Plaintiffs’ contrary reading, which would likely deem property damage to
“occur” in policy periods where Donaldson received no notification of such damage,
might be to leave Donaldson with no coverage for such damage. Gaps in coverage “are
fundamentally inconsistent with a ‘comprehensive’ (or ‘ultra comprehensive’) liability
policy . . . .” London Mkt. Insurers v. Superior Court, 53 Cal. Rptr. 3d 154, 166 (Cal. Ct.
App. 2007). Furthermore, the Court should not adopt an interpretation that defeats the
apparent purpose of the Batch Clause Endorsement, which is to combine claims into
fewer “occurrences” and deductibles and not to preclude coverage altogether. See Am.
Ins. Co. v. St. Jude Med., Inc., Civil No. 08-13, 2010 WL 3733009, at *5 (D. Minn. 2010)
(declining to render a batch clause endorsement “meaningless by placing a claim in one
policy period while assigning the bodily injury to another.”).
Accordingly, the Court finds that the Batch Clause Endorsement triggers coverage
for pertinent property damage when the insured is notified of that damage, even if the
damage actually took place across multiple policy periods. The Court cannot determine
____________________________________
(Footnote continued.)
Endorsement together, both loss of use and property damage are deemed to occur at the same
time, which is when Donaldson is notified of the property damage.
- 29 -
how the Batch Clause Endorsement specifically applies to this case, however, for the
reasons outlined below.
3.
Sufficiency of Notification
The parties also dispute who at Donaldson must be notified to trigger policy
coverage under the Batch Clause Endorsement. The Batch Clause Endorsement deems
“occurrences” to take place, and thus property damage to be covered, when the first
injury is notified to “you” during the policy period. The policies define “you” to include
“Donaldson,” including Donaldson’s “executive officers and directors, stockholders, and
employees within the scope of their employment and while performing duties related to
the conduct of their business.” (Compl., Ex. A at 1, 12.) The Court finds that this
definition of “you” is unambiguous and applies to the Batch Clause Endorsement.
The Court acknowledges that a separate endorsement in the policies states that
Donaldson is deemed to have notice of an occurrence only when Donaldson’s Director of
Risk Management and/or his designee receives notice. (See Compl., Ex. A, Endorsement
5, at 36.) This endorsement, however, specifically deals with when Donaldson is deemed
to have notice of an occurrence sufficient to require that it notify Plaintiffs of that
occurrence, in order to request coverage. (See id.) Because this endorsement has a
different purpose and does not modify the definition of “you” applicable to the rest of the
policy, the Court finds that it has no effect on the Batch Clause Endorsement. Because
the Court cannot determine on this record when Donaldson’s employees first received
- 30 -
notice of the property damage at issue, the Court will not grant summary judgment
regarding which policy years are triggered by the Burroughs cross-claim at this stage.23
4.
Definition of “Lot”
The parties also dispute the meaning of the term “lot” within the Batch Clause
Endorsement. As stated above, the Batch Clause Endorsement defines one occurrence as
applying to all
‘property damage’ arising out of and attributable directly or indirectly to
the continuous, repeated or related exposure to substantially the same
general conditions affecting one lot of goods or products manufactured,
sold, handled or distributed by you or others trading under your name . . . .
(Compl., Ex. A, Endorsement 20 Revised, at 57.)
Webster’s Dictionary defines “lot” as “all the members of a present group, kind, or
quantity; . . . kind, sort.” Merriam-Webster’s Collegiate Dictionary 736 (11th Ed. 2007);
see also Webster’s Ninth New Collegiate Dictionary 708 (1984). Because Donaldson
apparently makes unique products tailored to individual companies like Western Star, the
Court finds that “lot” likely applies to each type of unique product as a distinct group,
kind, or sort. See Conagra Foods, Inc. v. Lexington Ins. Co., 2009 WL 3688014, at *4
(Del. Super. Ct. 2009) (suggesting that all bodily injury claims arising collectively out of
salmonella-tainted peanut butter made in one plant could constitute one “lot”), overruled
23
The record has some information regarding when Donaldson received notice of
property damage related to the Burroughs cross-claim, but it does not conclusively demonstrate
when Donaldson first received notice of the damage. Discovery must be completed before the
Court can decide this issue.
- 31 -
on other grounds by ConAgra Foods, Inc. v. Lexington Ins. Co., 21 A.3d 62, 72 (Del.
Super. Ct. 2011).
The Court further finds that the plain meaning of the term “lot” does not contain
an arbitrary temporal limitation. See Miller v. Mut. Life Ins. Co. of N.Y., 289 N.W. 399,
400 (Minn. 1939) (“We do not see any reason for reading into [insurance] policies . . . a
condition . . . when the insurer who drafted the contracts did not care to or at least did not
incorporate such a provision.”). Identifying an artificial temporal limitation in the term
“lot” appears particularly inappropriate in this case because Plaintiffs deleted from their
policy a definition that limited a “lot” to one day’s worth of product. (See Compl., Ex. A,
Original Endorsement #20.)
It is premature, however, for the Court to define how the term “lot” applies to
Donaldson’s products without more information. The air-intake ducts at issue may have
included products with different specifications, product numbers, and base materials.
While the term “lot” potentially applies to each type of unique product designed and
manufactured by Donaldson, the term would not apply to products with distinctive
qualities that cannot reasonably constitute a group, kind, or sort. See Merriam-Webster’s
Collegiate Dictionary 736. Because little discovery has been completed at this stage
regarding the qualities of Plaintiffs’ air-intake ducts, the Court declines to further define
“lot” or to determine how the term applies to Plaintiffs’ products. The Court will deny
Plaintiffs’ and Donaldson’s motions for summary judgment without prejudice to allow
for further development of the record.
- 32 -
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Defendant Donaldson’s Motion for Summary Judgment and Partial
Summary Judgment [Docket No. 14] is DENIED without prejudice;
2.
Plaintiffs American Home Assurance Company and National Union Fire
Insurance Company of Pittsburgh, PA’s Motion for Partial Summary Judgment [Docket
No. 29] is DENIED without prejudice;
3.
Defendant Federal’s Motion for Judgment on the Pleadings [Docket
No. 97] is DENIED with prejudice;
4.
Defendant Federal’s Motion for Summary Judgment [Docket No. 97] is
DENIED without prejudice.
DATED: March 30, 2012
at Minneapolis, Minnesota.
____s/
____
JOHN R. TUNHEIM
United States District Judge
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