Network F.O.B., Inc. v. Great American Insurance Company of New York
Filing
48
ORDER granting 37 Motion for Summary Judgment (Written Opinion). Signed by Senior Judge David S. Doty on 7/7/2014. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 13-500(DSD/FLN)
Network F.O.B., Inc.,
Plaintiff,
ORDER
v.
Great American Insurance
Company of New York,
Defendant.
Adam P. Rutzick, Esq., Rutzick Law Offices, P.A., 101
Fifth Street East, Suite 2620, St. Paul, MN 55101,
counsel for plaintiff.
Daniel N. Moak, Esq., Briggs & Morgan, P.A., 80 South
Eighth Street, Suite 2200, Minneapolis, MN 55402 and
Nicholas T. Moraites, Esq., Eckert, Seamans, Cherin &
Mellott, LLC., 1717 Pennsylvania Avenue N.W., Suite 1200,
Washington, D.C. 20006, counsel for defendant.
This matter is before the court upon the motion for summary
judgment by defendant Great American Insurance Company of New York
(Great American).
Based on a review of the file, record and
proceedings herein, and for the following reasons, the court grants
the motion.
BACKGROUND
This insurance-coverage dispute arises out of the theft of
funds by non-party Laura Schwartz from her employer, plaintiff
Network F.O.B., Inc. (Network).
Schwartz worked for Network as a
billing and bookkeeping clerk and, at all times relevant to the
instant dispute, was classified as an independent contractor for
tax purposes.
See Moraites Aff. Ex. C.
Schwartz’s employment was initially governed by an Independent
Contractor Agreement (2006 Agreement), which was signed by Network
and Schwartz in her individual capacity.
at 1.
See Rutzick Decl. Ex. C,
In 2009, Schwartz established an LLC, LM ENT Services (LM
ENT), which executed a new Independent Contractor Agreement (2009
Agreement) with Network.
See Moraites Aff. Ex. B, at 1.
In 2010
and 2011, Schwartz engaged in numerous fraudulent transactions and
stole approximately $183,000 from Network.
E, at 5.
See Rutzick Decl. Ex.
In December 2012, Schwartz was convicted of six counts of
theft by swindle.
Id.
Great American provided insurance coverage to Network for
business,
property
and
commercial
insurance contract (Policy).1
operations
pursuant
See Moraites Aff. Ex. A.
to
an
The Policy
provided coverage for “loss of or damage to money, securities and
other property resulting directly from theft committed by an
1
Great American insured Network under two policies, one
covering January 2, 2010, to January 2, 2011, and the second
covering January 2, 2011, to January 2, 2012.
Because both
policies are identical with respect to the language at issue in the
instant motion, the court refers to a single Policy.
Further, although Schwartz’s theft began prior to 2010, the
parties agree that the Policy was a “loss sustained” agreement,
which “only covered losses that occurred during the corresponding
policy periods.” Mem. Supp. 1 n.1. In other words, Network only
seeks to recover under the Policy for losses incurred during the
period of January 2, 2010, to January 2, 2012.
2
employee.”
See id. (internal quotation marks omitted).
Network
tendered a claim to Great American for its losses resulting from
the theft by Schwartz.
Compl. at 4.
Great American informed
Network that the claim was not covered by the Policy because
Schwartz was not an “employee” of Network within the meaning of the
Policy.
Id. at 5.
On February 7, 2013, Network filed suit in Minnesota court,
alleging breach of contract.
Great American timely removed, and
moves for summary judgment.
DISCUSSION
I.
Standard of Review
“The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Fed. R. Civ.
P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A fact is material only when its resolution affects the outcome of
the case.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A dispute is genuine if the evidence is such that it could
cause a reasonable jury to return a verdict for either party.
See
id. at 252.
On a motion for summary judgment, the court views all evidence
and inferences in a light most favorable to the nonmoving party.
See id. at 255.
The nonmoving party, however, may not rest upon
3
mere denials or allegations in the pleadings but must set forth
specific facts sufficient to raise a genuine issue for trial.
Celotex, 477 U.S. at 324.
See
A party asserting that a genuine dispute
exists — or cannot exist — about a material fact must cite
“particular parts of materials in the record.”
56(c)(1)(A).
Fed. R. Civ. P.
If a plaintiff cannot support each essential element
of a claim, the court must grant summary judgment because a
complete
failure
of
proof
regarding
an
essential
necessarily renders all other facts immaterial.
element
Celotex, 477 U.S.
at 322-23.
II.
Insurance Coverage
“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) (citation omitted).
parties
agree
that
Minnesota
law
governs
this
Here, the
action.
In
Minnesota, the interpretation of an insurance policy is a question
of law.
Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn.
2001). The court interprets an insurance policy in accordance with
general principles of contract construction, giving effect to the
intent of the parties.
Thommes v. Milwaukee Ins. Co., 641 N.W.2d
877, 879 (Minn. 2002).
The court gives unambiguous language its
plain
and
ordinary
meaning,
and
construes
ambiguous
against the drafter and in favor of the insured.
language
Id. at 880; Nathe
Bros., Inc. v. Am. Nat’l Fire Ins. Co., 615 N.W.2d 341, 344 (Minn.
4
2000).
Language is ambiguous if “reasonably subject to more than
one interpretation.”
Columbia Heights Motors, Inc. v. Allstate
Ins. Co., 275 N.W.2d 32, 34 (Minn. 1979) (citation omitted).
However, the court “guard[s] against invitations to find ambiguity
where none exists.” Metro. Prop. & Cas. Ins. Co. v. Jablonske, 722
N.W.2d 319, 324 (Minn. Ct. App. 2006) (citation and internal
quotation marks omitted).
Under Minnesota law, the insured has the initial burden of
establishing a prima facie case of coverage.
See SCSC Corp. v.
Allied Mut. Ins. Co., 536 N.W.2d 305, 311 (Minn. 1995), overruled
on other grounds by Bahr v. Boise Cascade Corp., 766 N.W.2d 910
(Minn. 2009).
“What constitutes a prima facie showing of coverage
depends on the language of the particular policy.”
Id.
Great
American argues that summary judgment is warranted because Network
cannot establish a prima facie case of coverage.
Specifically,
Great American argues that Schwartz was not an employee within the
meaning of the Policy because coverage expressly extended only to
employees who were natural persons and did not cover Schwartz after
she formed the LLC.2
Here, the Policy provides in relevant part:
2
Further, Great American argues that Network cannot establish
a prima facie case of coverage because (1) Schwartz was not an
employee within the meaning of the Policy because she was not paid
directly by Network and (2) the doctrine of quasi-estoppel bars
Network from arguing that Schwartz was an employee, rather than an
independent contractor.
Because the court finds that summary
judgment is warranted, it need not reach such arguments.
5
[F](5)(a). “Employee” means: (1) any natural
person: (a) while in your service and for the
first 30 days immediately after termination of
service ...; (b) who you compensate directly
by salary, wages or commissions; and (c) who
you have the right to direct and control while
performing services for you ...
(b) “Employee” does not mean any agent,
broker,
factor,
commission
merchant,
consignee,
independent
contractor
or
representative of the same general character
not specified in paragraph 5.a.
Moraites Aff. Ex. A, at F(5)(a)-(b).
Network
argues
that
because
Schwartz,
a
natural
person,
committed and was convicted of the underlying theft, the court need
not consider the fact that her employment relationship with Network
flowed through a corporate entity. Such an argument is unavailing.
Here, it is undisputed that Schwartz established LM ENT as an LLC.
See Rutzick Decl. Ex. H.
the
2009
Agreement,
Thereafter, Network and LM ENT executed
which
detailed
their
identified LM ENT as an independent contractor.
Ex. B.
relationship
and
See Moraites Aff.
Thus, the proper analysis is whether LM ENT - not Schwartz
- was an employee of Network as defined by the Policy.
In
Minnesota,
there
is
a
“presumption
that
the
parties
intended the language used to have effect.” Chergosky v. Crosstown
Bell, Inc., 463 N.W.2d 522, 526 (Minn. 1990) (citation omitted).
Each word in the Policy should be interpreted to have a meaning,
rather than to be redundant or superfluous.
See Econ. Premier
Assurance Co. v. W. Nat’l Mut. Ins. Co., 839 N.W.2d 749, 756 (Minn.
6
Ct. App. 2013). Courts must “attempt to avoid an interpretation of
the
contract
that
would
render
a
provision
Chergosky, 463 N.W.2d at 526 (citation omitted).
meaningless.”
Here, the Policy
provides coverage only for the activities of those workers who are
natural
persons.
If
all
potential
“employees”
were
natural
persons, however, such a provision would be superfluous. See Jones
v. Sun Carriers, Inc., 856 F.2d 1091, 1095 (8th Cir. 1988).
Thus,
the provision contemplates and rejects a definition of “employee”
that includes non-natural entities, such as an LLC.
As a result,
LM ENT - as an LLC rather than a natural person - was not an
employee within the scope of the Policy at issue in this case.
Therefore, Network cannot establish a prima facie case of coverage,
and summary judgment is warranted.
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that the
motion for summary judgment [ECF No. 37] is granted.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated:
July 7, 2014
s/David S. Doty
David S. Doty, Judge
United States District Court
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