Jackson National Life Insurance Company v. Catlin Speciality Insurance Company
ORDER denying 49 Motion for Summary Judgment; granting 57 Motion for Summary Judgment; dismissing 7 Amended Complaint with prejudice. (Written Opinion). Signed by Judge Richard H. Kyle on 08/26/13. (KLL)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Jackson National Life Insurance Company,
Civ. No. 12-1406 (RHK/FLN)
Catlin Specialty Insurance Company,
Richard C. Kraus, Scott L. Mandel, Foster, Swift, Collins & Smith, P.C., Lansing,
Michigan, Shane H. Anderson, Mychal A. Bruggeman, Mackall, Crounse & Moore, PLC,
Minneapolis, Minnesota, for Plaintiff.
Robert E. Salmon, Andrew D. Deutsch, Meagher & Geer, P.L.L.P., Minneapolis,
Minnesota, for Defendant.
In October 2011, Plaintiff Jackson National Life Insurance Company (“Jackson”)
obtained a judgment in this Court against Workman Securities Corporation
(“Workman”). When the Judgment went unpaid, Jackson commenced the instant action
against Defendant Catlin Specialty Insurance Company (“Catlin”), seeking a declaration
that the Judgment is covered by an insurance policy Catlin had issued to Workman.
Presently before the Court are the parties’ cross-Motions for Summary Judgment. For the
reasons that follow, the Court concludes that the Judgment is not covered by the policy
and, accordingly, Catlin’s Motion will be granted and Jackson’s Motion will be denied.
The key facts are undisputed. Jackson is an insurance company that issues, among
other products, variable annuities. 1 In 2005, it entered into an agreement with Workman
(the “Selling Agreement”) pursuant to which Workman agreed to act as a “broker/dealer”
selling Jackson’s products. As part of that agreement, Workman represented that (1) all
employees selling Jackson’s products would be “duly registered with” Workman and
(2) it would properly supervise all such “registered representatives.” Workman also
agreed to indemnify Jackson for, among other things, claims resulting from its
(Workman’s) failure to comply with the Selling Agreement and claims resulting from
untrue or misleading statements made by registered representatives or negligence by
Workman or its representatives in the course of selling Jackson’s products.
In late 2005, an individual named Gayle Sanderson contacted Thomas Petracek, an
investment adviser with whom she had previously worked, to seek retirement investment
advice. Petracek recommended that Sanderson purchase a variable annuity issued by
Jackson. At the time, he was not licensed to sell such a product, so he informed
Sanderson that his “supervisor,” Derrick Shields (who was Petracek’s son-in-law and a
Workman registered representative), would have to sign the paperwork. Sanderson
eventually agreed to purchase the annuity, and as part of the transaction, Shields signed a
document in which he certified that he had discussed the annuity with Sanderson and
A variable annuity is “a contract between [an individual] and an insurance company, under
which the insurer agrees to make periodic payments to [the individual], beginning either
immediately or at some future date. [One] purchase[s] a variable annuity contract by making
either a single purchase payment or a series of purchase payments.” http://www.sec.gov/
investor/pubs/varannty.htm (last visited August 21, 2013).
knew of her investment goals. These statements were false. Nevertheless, Workman
submitted Sanderson’s application to Jackson, including the document containing
Shields’s misrepresentations, and Jackson accepted it and issued the annuity in January
2006. Sanderson’s initial investment in the annuity totaled nearly $1.1 million.
In late 2008, Sanderson wrote to Jackson demanding the return of her investment,
plus interest. She asserted that before purchasing the annuity, Petracek had informed her
that its value would never drop below the amount of her initial investment, but she had
discovered that it was then worth well below that amount. She also expressed concern
that Petracek was not registered with Workman at the time of the annuity’s sale. Jackson
contacted Workman, which confirmed that Petracek was not registered with Workman
when the annuity was sold. As a result, and because of Shields’s misrepresentations and
the fact that Jackson did not know what Petracek had represented to Sanderson before she
purchased the annuity, Jackson agreed to rescind the annuity and refund Sanderson’s
initial investment, resulting in a loss of slightly more than $360,000 (the annuity’s
decline in value).
Jackson then sought to recoup its loss from Workman. In April 2009, it
commenced an action against Workman in this Court (the “Prior Action”), which was
assigned to the Honorable John R. Tunheim. Jackson eventually filed a five-count
Second Amended Complaint, asserting among other things that Workman had breached
the Selling Agreement by refusing to indemnify it for the losses it had sustained (Count I)
and by failing to properly supervise Shields and Petracek (Count II); it also alleged that
Workman was negligent (Count IV). 2 The parties undertook discovery and, in July 2010,
cross-moved for summary judgment. On March 17, 2011, Judge Tunheim determined
that Jackson was entitled to judgment in its favor on Counts I and II, the breach-ofcontract claims, and that fact issues rendered summary judgment inappropriate on the
remaining claims. Jackson then voluntarily dismissed those remaining claims, including
the negligence claim, and Judgment was entered in its favor on Counts I and II in the
amount of $617,786.47, comprising its loss on Sanderson’s annuity, attorneys’ fees and
costs, and pre-judgment interest.
In June 2012, Jackson commenced the instant action against Catlin, Workman’s
insurer at the time Sanderson purchased the annuity, alleging that the Judgment was
covered by Catlin’s policy. Catlin denied coverage and further asserted that even if the
policy facially applied to the Judgment, several exclusions posed insuperable bars to
recovery. With discovery complete, the parties now cross-move for summary judgment.
Their Motions have been fully briefed, the Court heard argument on July 31, 2013, and
the Motions are ripe for disposition.
STANDARD OF REVIEW
Summary judgment is proper if, drawing all reasonable inferences in favor of the
nonmoving party, there is no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Ricci v. DeStefano, 557
U.S. 557, 586 (2009). The moving party bears the burden of showing that the material
facts in the case are undisputed. Torgerson v. City of Rochester, 643 F.3d 1031, 1042
The remaining claims in the Prior Action are irrelevant to the Court’s analysis here.
(8th Cir. 2011) (en banc); Whisenhunt v. Sw. Bell Tel., 573 F.3d 565, 568 (8th Cir.
2009). The Court must view the evidence, and the inferences that may be reasonably
drawn from it, in the light most favorable to the nonmoving party. Beard v. Banks, 548
U.S. 521, 529-30 (2006); Weitz Co., LLC v. Lloyd’s of London, 574 F.3d 885, 892 (8th
Cir. 2009). The nonmoving party may not rest on mere allegations or denials, but must
show through the presentation of admissible evidence that specific facts exist creating a
genuine issue of material fact for trial. Fed. R. Civ. P. 56(c)(1)(A); Wood v. SatCom
Mktg., LLC, 705 F.3d 823, 828 (8th Cir. 2013).
Where, as here, the Court confronts cross-motions for summary judgment, this
approach is only slightly modified. When considering the Jackson’s Motion, the Court
views the record in the light most favorable to Catlin, and when considering Catlin’s
Motion, the Court views the record in the light most favorable to the Jackson. “Either
way, summary judgment is proper if the record demonstrates that there is no genuine
issue as to any material fact.” Seaworth v. Messerli, Civ. No. 09-3437, 2010 WL
3613821, at *3 (D. Minn. Sept. 7, 2010) (Kyle, J.), aff’d, 2011 WL 873121 (8th Cir. Mar.
State law governs the interpretation of insurance policies. Nat’l Union Fire Ins.
Co. of Pittsburgh v. Terra Indus., Inc., 346 F.3d 1160, 1164 (8th Cir. 2003). Under
Minnesota law, 3 interpretation of an insurance policy is a question of law for the Court.
The parties dispute whether Minnesota law or New York law, which is designated in Catlin’s
policy, applies in this case. But the parties agree that Minnesota law and New York law are in
Watson v. United Servs. Auto. Ass’n, 566 N.W.2d 683, 688 (Minn. 1997). When policy
language is unambiguous, it is interpreted “in accordance with its plain and ordinary
meaning.” Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 799 (Minn. 2004).
The Court must construe the policy as a whole, Watson, 566 N.W.2d at 693, and
“ascertain and give effect to the intentions of the parties as reflected in the terms of the”
policy, Jenoff, Inc. v. N.H. Ins. Co., 558 N.W.2d 260, 262 (Minn. 1997).
The parties agree that Jackson bears the burden of establishing coverage for the
Judgment in the Prior Action (Pl. Mem. in Supp. at 15; Def. Mem. in Supp. at 18), which
“does not turn on the pleadings” in that case, but rather on “the actual basis of
[Workman’s] liability” as adjudged by Judge Tunheim. (Pl. Mem. in Supp. at 15.) In
other words, resolution of this case requires the Court to compare the policy’s terms with
the basis for liability imposed in the Prior Action. Having carefully done so, the Court
concludes that the pertinent policy terms are unambiguous and, under those terms, no
coverage exists for the Judgment.
The relevant policy language provides that Catlin “shall pay, on behalf of an
Insured, Damages which the Insured becomes legally obligated to pay because of a
Claim that is . . . made against the Insured . . . for a Wrongful Act committed solely in
the rendering or failing to render Professional Services for a Client.” The policy defines
each bolded term in this clause, and the parties’ primary dispute concerns whether
accord in all relevant respects. (See Pl. Reply at 1 (acknowledging that “New York and
Minnesota law do not conflict”); Def. Mem. in Supp. at 14.) Accordingly, the Court will apply
Minnesota law here. See, e.g., Glover v. Merck & Co., 345 F. Supp. 2d 994, 997 (D. Minn.
2004) (Rosenbaum, J., adopting Report & Recommendation of Noel, M.J.) (no choice-of-law
analysis necessary where two states’ laws do not conflict).
Jackson falls within the definition of the term “Client,” that is, “an individual, company
or entity for whom or which an Insured renders Professional Services to gain monetary
Seizing on the word “for” in this definition, Jackson argues that it was Workman’s
“Client” because Workman sold variable annuities and other products for Jackson. (Pl.
Mem. in Supp. at 21 (“A broker/dealer . . . sell[s] and service[s] insurance and annuity
products for the issuing insurer. In this case, Workman’s professional services included
selling annuities for Jackson.”) (emphases in original).) Catlin responds that Jackson was
not Workman’s “Client,” but rather Sanderson was. It points out that much of the
policy’s language would make no sense if Catlin rather than Sanderson were the “Client.”
(See, e.g., Def. Mem. in Supp. at 24 (noting the policy’s discussion of “Client financial
needs,” “Client funds,” and “Investment of the Client’s assets,” all of which would be
stripped of meaning if Jackson were Workman’s “Client”).) And it notes that under
Jackson’s interpretation of the policy, Sanderson would not be a “Client” because
Workman sold the annuity to her (not for her), yet Jackson and Workman repeatedly
referred to Sanderson as Workman’s client in the Prior Action and in the investigation
leading up to that lawsuit.
While the Court is inclined to agree that Catlin has the better of these arguments,
ultimately it need not wade into this dispute in order to resolve this case. Assuming
arguendo that Jackson fits within the policy’s definition of “Client,” its claims still fail
because Workman’s liability did not arise out of “the rendering or failing to render
Professional Services,” which is a prerequisite to coverage under the policy.
In the Prior Action, Judge Tunheim determined that Workman had failed to
indemnify Jackson and had failed to supervise its employees, in violation of covenants in
the Selling Agreement. In other words, liability in the Prior Action was predicated on
Workman’s breach of the Selling Agreement with Jackson. This is simply not “the
rendering or failing to render Professional Services.” With regard to a broker/dealer such
as Workman, the policy defines “Professional Services,” in pertinent part, as “the
supervision of conduct or activities [by employees], in accordance with statutes,
regulations or procedures established by governmental or self-regulatory authorities . . .
or duties imposed under common law.” (emphasis added). But Workman’s liability in
the Prior Action was not based on the violation of governmental regulations or commonlaw duties. Rather, it was based upon obligations it owed to Jackson under the Selling
Agreement. 4 Because the Judgment was predicated solely on breaches of the Selling
Agreement and not on any other conduct, it did not arise out of “the rendering or failing
to render Professional Services” and is not covered.
Jackson responds that its claims in the Prior Action were based on the misconduct
of Shields, a Workman registered representative who (in addition to Workman) also was
an “Insured” under the policy. (Pl. Reply at 3-4.) It argues that coverage exists because
“Workman became legally obligated to pay damages because of the claim Jackson made
against Workman, [which] was based on a ‘wrongful act’ committed by Shields . . . in the
rendering of ‘professional services.’” (Id. at 4.)
Notably, Jackson had asserted a negligence claim in the Prior Action but voluntarily dismissed
it, undermining any claim based on common-law duties.
But there are at least two problems with this argument. First, the Judgment in the
Prior Action was not “based on a wrongful act committed by Shields,” but rather based
on Workman’s wrongful conduct, namely, its failure to supervise Shields (in
contravention of the Selling Agreement).
Second, and more importantly, Jackson’s argument misreads the policy’s
language. The policy obligates Catlin to pay “on behalf of an insured, Damages which
the Insured becomes legally obligated to pay because of a Claim that is . . . made against
the Insured . . . for a Wrongful Act committed solely in the rendering or failing to render
Professional Services for a Client.” (emphases added). The policy’s use of the definite
article “the” is critical. Damages were awarded in the Prior Action against Workman and
Workman alone; Shields was not a party to that action. Jackson now seeks a
determination that Catlin is required to pay the Judgment “on behalf of” that insured
(Workman). But the policy makes clear that Catlin must cover damages only for a
“Wrongful Act” committed in the rendering of “Professional Services” by “the Insured.”
Unlike “a” or “an,” the definite article “the” “suggests specificity.” Noel Canning v.
NLRB, 705 F.3d 490, 500 (D.C. Cir. 2013), cert. granted, 133 S. Ct. 2861 (June 24,
2013). Such specificity indicates that “the Insured” means the one “legally obligated to
pay,” that is, Workman.
Accordingly, whether Shields rendered “Professional Services” to Sanderson,
Jackson, or anyone else is irrelevant. In order for coverage to exist for the Judgment in
the Prior Action, which was entered only against Workman, liability must be predicated
on “Professional Services” rendered by Workman – that is, “the Insured” now “legally
obligated to pay.” Jackson is simply wrong in arguing that the policy “does not require
that the claim . . . be brought against the same insured who committed the wrongful act.”
(Pl. Reply at 4.) And it cannot create coverage here by asserting that the conduct of one
“Insured” (Shields) supports the liability of another “Insured” (Workman).
For these reasons, the Judgment in the Prior Action does not fall within the
policy’s ambit, and hence the Court need not consider Catlin’s alternative arguments that
coverage is barred by several policy exclusions. Nor must the Court consider the parties’
arguments regarding coverage for attorneys’ fees and costs. Simply put, Catlin is not
obligated to satisfy any component of the Judgment.
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
ORDERED that Jackson’s Motion for Summary Judgment (Doc. No. 49) is DENIED,
Catlin’s Motion for Summary Judgment (Doc. No. 57) is GRANTED, and Jackson’s
Amended Complaint (Doc. No. 7) is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: August 26, 2013
s/Richard H. Kyle
RICHARD H. KYLE
United States District Judge
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