Catholic Mutual Relief Society of America, The v. Arrowood Indemnity Company
Filing
69
MEMORANDUM OPINION AND ORDER denying 30 Motion to Dismiss for Lack of Jurisdiction. (Written Opinion) Signed by Chief Judge John R. Tunheim on 8/10/2018. (JMK)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
THE CATHOLIC MUTUAL RELIEF
SOCIETY OF AMERICA,
Civil No. 17-3141 (JRT/LIB)
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER DENYING
MOTION TO DISMISS
ARROWOOD INDEMNITY
COMPANY, f/k/a Royal Indemnity
Company and successor to Royal
Indemnity Company, Connecticut
Indemnity Company, The Fire & Casualty
Insurance Company, Security Insurance
Company Of Hartford, Connecticut
Specialty Insurance Company, New
Amsterdam Casualty Company, and
Orion Capital Companies,
Defendants.
Christopher L. Lynch, BARNES & THORNBURG LLP, 225 South Sixth
Street, Suite 2800, Minneapolis, MN 55402, and Everett J. Cygal and
Daniel J. Schufreider, SCHIFF HARDIN LLP, 233 South Wacker Drive,
Suite 7100, Chicago, IL 60606, for plaintiff.
Robert D. Brownson, BROWNSON NORBY, PLLC, 225 South Sixth
Street, Suite 4800, Minneapolis, MN 55402, for defendant.
This action arises out of a dispute between two insurers of the same insured party.
The Catholic Mutual Relief Society of America (“Catholic Mutual”) brought this case for
declaratory judgment against Arrowood Indemnity Company (“Arrowood”). Catholic
Mutual issued insurance coverage certificates to the Diocese of St. Cloud (“the Diocese”)
-1-
and other parishes (“the Parishes”) for periods during which they were also allegedly
covered by policies issued by Arrowood’s predecessor company.
For decades,
Arrowood’s predecessor company acknowledged responsibility under those policies for
sexual abuse claims filed against the Diocese and Parishes, despite the fact that the
complete original polices could not be located. In 2011, however, Arrowood began
denying claims under the same policies.
Catholic Mutual now seeks a judicial declaration that Arrowood is liable under its
predecessor company’s policies and therefore must defend and indemnify the Diocese
against the sexual abuse claims covered by both insurers’ policies. Catholic Mutual also
seeks declaratory judgments regarding the terms of the policies and regarding a right of
contribution from Arrowood for expenses incurred by Catholic Mutual in defending the
Diocese.
Arrowood seeks to dismiss this action pursuant to Federal Rule of Civil
Procedure 12(b)(1). Because Catholic Mutual has alleged an actual case and controversy
that is neither premature nor moot, the Court will deny Arrowood’s Motion to Dismiss.
BACKGROUND
I.
FACTUAL BACKGROUND
A.
THE PARTIES
Plaintiff Catholic Mutual is a Nebraska non-profit corporation with its principal
place of business in Nebraska. (Compl. ¶ 7, July 20, 2017, Docket No. 1.) Catholic
Mutual “operates as a self-protection fund of the Catholic Church in the United States
-2-
and Canada” and “issues certificates of coverage to participating members, which provide
the members with coverage for certain property and casualty risks.” (Id.)
The Diocese is a Minnesota general business entity with its principal place of
business in Minnesota. (Id. ¶ 11). From February 1971 to February 1990, Catholic
Mutual issued certificates to the Diocese that “may provide coverage . . . for liability
arising from acts of sexual abuse that took place during each certificate’s coverage
period.” (Id. ¶ 19.) Catholic Mutual alleges that the Diocese was also covered under
occurrence-based general liability insurance protection policies issued by the Security
Insurance Company of Hartford (“Security”) for injuries occurring from 1964 through
1971.1 (Id. ¶ 1.) From at least 1990 to 2011, Security “stood by its insured and paid
claims submitted by the Diocese.” (Compl. ¶¶ 3, 30.) Security no longer exists, but its
obligations are now managed by Defendant Arrowood, a Delaware corporation with its
principal place of business in North Carolina. (Id. ¶ 8.)
Catholic Mutual alleges that Arrowood – a “run-off manager” – has aggressively
managed its claims, requiring “exacting evidence of insurance coverage purchased over
50 years ago” and routinely denying claims filed against the Diocese, despite the fact that
Security previously acknowledged responsibility under the same policies and agreed to
pay claims under the same policies. (Id. ¶¶ 5-6.) Catholic Mutual alleges that, “starting
in 2011, when it became clear that there was significant potential liability relating to
1
Catholic Mutual alleges that several companies managed and/or administered claims
under the Security Insurance Company of Hartford prior to Arrowood’s management, but for
simplification purposes refers to them all as “Security Insurance Company of Hartford.”
(Compl. ¶ 2.)
-3-
alleged sexual misconduct claims . . . [Arrowood] abandoned [the Diocese] and asserted
defenses that [Security] waived long ago.” (Id. ¶ 6.)
B.
THE UNDERLYING CLERGY SEXUAL ABUSE CLAIMS
Since the Minnesota Child Victims Act, Minn. Stat. § 541.073, became law, 75
actions (“the Underlying Claims”) have been filed against the Diocese and the Parishes.2
(Id. ¶¶ 13, 15.) The Underlying Claims allege sexual abuse by members of the clergy or
other individuals associated with the Diocese and Parishes between 1948 and 1995 and
allege that the Diocese continues to conceal important information about priests accused
of abuse. (Id. ¶¶ 15-16.) The Underlying Claims allege public and private nuisance,
negligence, negligent supervision, and negligent retention. (Id. ¶ 17.)
The Diocese and the Parishes tendered the defense of 35 of the 75 Underlying
Claims to Catholic Mutual in September 2016. (Compl. ¶ 23 & Ex. 1.) At least a portion
of the abuse alleged in each of the 35 claims took place during Catholic Mutual’s
coverage period. (See Compl. ¶ 23 & Ex. 1.) In October 2016, Catholic Mutual accepted
the defense and indemnity of 34 of the 35 claims without a reservation of rights. (Compl.
¶¶ 24-25 & Exs. 2-3.)
Catholic Mutual alleges that Security “issued at least three insurance policies to
the Diocese” that may cover the Underlying Claims: LGC 314009, covering 1964 to
1967; GLA 437394, covering 1967 to 1970; and GLA 606265, covering 1970 to 1973 but
The Parishes “are included within the protection provided by” the certificates that
Catholic Mutual issued to the Diocese. (Compl. ¶ 18.)
2
-4-
canceled November or December 1971. (Compl. ¶ 26.) Catholic Mutual alleges that the
Diocese has been unable to locate complete copies of any of the policies, but it has
located a portion of GLA 606265 and offers secondary evidence of the existence of the
other two policies and their material terms and conditions. (Id. ¶¶ 27-29.)
Secondary evidence of the LGC 314009 policy includes a series of letters between
Security and the Diocese regarding a claim within the policy’s coverage period, (id.
¶¶ 32-33, 35 & Exs. 6-7), and a draft affidavit prepared based on those letters that was
sent to an agent stating that he wrote a general liability insurance coverage for the
Diocese, (Compl. ¶ 34 & Exs. 8-10). Security accepted the defense and indemnification
of the claim without a reservation of rights. (Compl. ¶¶ 36 & Exs. 12.) Secondary
evidence of the GLA 437394 policy and the GLA 606265 policy includes correspondence
between Security and the Diocese indicating that Security agreed to defend various
claims within the policies’ coverage periods. (Compl. ¶¶ 39-41 & Exs. 17-23.) Security
explicitly stated several times that it would honor coverage of claims from November
1967 to December 1971 and acknowledged certain policy limits during that time period.
(Compl. ¶ 40 & Exs. 19-21.)
C.
ARROWOOD’S DENIAL OF COVERAGE
On May 27, 2011, the Diocese sought indemnity contribution from Arrowood, as
successor to Security, for a claim alleging abuse from 1967-1969 and in 1971. (Compl.
¶ 44 & Ex. 25.) Arrowood denied that it owed defense or indemnity to the Diocese under
GLA 437394 because the Diocese could not provide an entire copy of the policy or any
-5-
document that indicated the named insured, policy period, or limits of insurance.
(Compl. ¶ 44, Ex. 25 at 113.) Arrowood stated that it had paid out a prior claim under
GLA 437394 “in error” and that it was “unable to confirm the basis for which [Security]
previously agreed to accept coverage for the Diocese” for the period 1967 to 1973. (Id. at
114.) Arrowood also noted that it did not have documentation of certain material terms
for GLA 606265. (Id. at 115.) Arrowood appeared to be warning the Diocese that it
would no longer honor the agreement the Diocese had with Security without additional
documentation or evidence of the terms of the purported policies.
In 2016, the Diocese tendered 52 of the Underlying Claims to Arrowood, as they
were purportedly covered by the Security policies, but Arrowood disputed that the
Claims were covered. (Compl. ¶¶ 49-50.) Catholic Mutual alleges that “Arrowood
abandoned the Diocese and refused to defend any of the Underlying Claims.” (Id. ¶ 51 &
Ex. 29.)
Arrowood “agreed to cover some defense costs and provide very limited
indemnity to the Diocese” for 20 of the 52 claims, (Compl. ¶ 52), all of which allege
abuse in the period covered by GLA 437394 and GLA 606265, (id. ¶ 53 & Ex. 30).
Eight of these 20 claims allege abuse in the time period covered by Security’s policies
and Catholic Mutual’s policies (“the Overlapping Claims”).
(Id. ¶ 55.) Arrowood
maintains that this agreement was a compromise and not an admission of coverage.
(Compl. ¶ 51, Ex. 29 at 132.)
Arrowood’s compromise agreement is subject to a
reservation of rights and applies to the Diocese alone – not to the Parishes. (Compl. ¶
54.) Arrowood has denied or refused to acknowledge any obligation whatsoever on the
remaining claims. (Id. ¶ 56.)
-6-
II.
PROCEDURAL BACKGROUND
Catholic Mutual filed its Complaint on July 20, 2017. (Compl.) Its complaint
presents an action for declaratory judgment pursuant to 28 U.S.C. §§ 2201 and 2202. (Id.
¶ 58.)
In Count One, Catholic Mutual “seeks a judicial determination that, under
[Security’s policies], Arrowood has a duty to defend and indemnify the Diocese and
Parishes in connection with these twenty-eight claims subject to a $100,000 per
occurrence limit and no aggregate limit.” (Id. ¶ 78.) Catholic Mutual also seeks judicial
declarations that the policies exist and contain certain terms and conditions, as well as
costs and expenses. (Id.) In Count Two, Catholic Mutual seeks “a declaration that it has
a right of contribution from Arrowood for a fair share of the defense costs incurred by
Catholic Mutual in providing a defense of the Diocese and Parishes in connection with
the Overlapping Claims.” (Id. ¶ 84.) Catholic Mutual also seeks a judicial declaration
that the policies exist and require Arrowood to defend and indemnify the Diocese in
connection with the Underlying Claims, a judicial declaration that it has a right of
contribution from Arrowood for defense expenses incurred in defending the Diocese and
Parishes in connection with the Overlapping Claims in excess of its fair share, and costs
and expenses. (Id.)
Arrowood filed a Motion to Dismiss for Lack of Jurisdiction Pursuant to Federal
Rule of Civil Procedure 12(b)(1). (Mot. to Dismiss, Oct. 16, 2017, Docket No. 30.)
Briefing followed. (Def.’s Mem. Supp. Mot. to Dismiss (“Supp. Mem.”), Oct. 16, 2017,
Docket No. 32; Pl.’s Opp. Mem. (“Opp. Mem.”), Nov. 27, 2017, Docket No. 40; Def.’s
Reply Mem. (“Reply Mem.”), Dec. 11, 2017, Docket No. 41.)
-7-
DISCUSSION
I.
STANDARD OF REVIEW
A.
28 U.S.C. § 2201
Catholic Mutual seeks a declaratory judgment pursuant to the Declaratory
Judgment Act, which states:
In a case of actual controversy within its jurisdiction . . . any
court of the United States, upon the filing of an appropriate
pleading, may declare the rights and other legal relations of
any interested party seeking such declaration, whether or not
further relief is or could be sought.
28 U.S.C. § 2201(a). Federal courts have jurisdiction to issue declaratory judgments only
where there is an actual “case or controversy.” Marine Equip. Mgmt. Co. v. United
States, 4 F.3d 643, 646 (8th Cir. 1993).
“The test to determine whether there is an actual controversy within the meaning
of the Declaratory Judgment Act is whether ‘there is a substantial controversy between
the parties having adverse legal interests, of sufficient immediacy and reality to warrant
the issuance of a declaratory judgment.’” Id. (quoting Caldwell v. Gurley Refining Co.,
755 F.2d 645, 649 (8th Cir. 1985)). The jurisdiction of the federal courts “is limited by
Article III of the Constitution to cases or controversies; if a plaintiff lacks standing to sue,
the district court has no subject-matter jurisdiction.” ABF Freight Sys., Inc. v. Int’l Bhd.
of Teamsters, 645 F.3d 954, 958 (8th Cir. 2011).
A justiciable controversy is distinguishable from “a difference or dispute of a
hypothetical or abstract character” or from a dispute that is “academic or moot.” Aetna
-8-
Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240 (1937). It must be
“definite and concrete, touching the legal relations of parties having adverse legal
interests.” Id. at 240-41.
B.
Federal Rule of Civil Procedure 12(b)(1)
Arrowood’s Motion to Dismiss pursuant to Federal Rule of Civil Procedure
12(b)(1) “challenges the Court’s subject matter jurisdiction and requires the Court to
examine whether it has authority to decide the claims.” Damon v. Groteboer, 937 F.
Supp. 2d 1048, 1063 (D. Minn. 2013). Federal courts have limited jurisdiction, and
subject-matter jurisdiction is a threshold matter that the plaintiff must establish. See
Sheehan v. Gustafson, 967 F.2d 1214, 1215 (8th Cir. 1992). “Whether a plaintiff has
standing to sue ‘is the threshold question in every federal case, determining the power of
the court to entertain the suit.’” McClain v. Am. Econ. Ins. Co., 424 F.3d 728, 731 (8th
Cir. 2005) (quoting Steger v. Franco, Inc., 228 F.3d 889, 892 (8th Cir. 2000)).
In a facial challenge to jurisdiction, “all of the factual allegations concerning
jurisdiction are presumed to be true and the motion is successful if the plaintiff fails to
allege an element necessary for subject matter jurisdiction.” Titus v. Sullivan, 4 F.3d 590,
593 (8th Cir. 1993). The court “determine[s] whether the asserted jurisdictional basis is
patently meritless by looking to the face of the complaint and drawing all reasonable
inferences in favor of the plaintiff.” Biscanin v. Merrill Lynch & Co., 407 F.3d 905, 907
(8th Cir. 2005) (citations omitted).
-9-
II.
SUBJECT MATTER JURISDICTION
Arrowood argues that the Court lacks subject matter jurisdiction because no actual
controversy exists and Catholic Mutual lacks standing to seek coverage on behalf of its
certificate holder, the Diocese. Arrowood also argues that Catholic Mutual’s request for
a judicial declaration regarding contribution is both premature and moot.
A.
Standing
Arrowood argues that, because Catholic Mutual “is a complete stranger to the
Alleged Policies,” (Supp. Mem. at 8), no legal relation – real or purported – exists
between the parties. Therefore, Arrowood argues that no actual case or controversy
exists and that Catholic Mutual lacks standing to seek a declaration of coverage under the
alleged policies. While Minnesota law historically precluded actions by one insurer
against another insurer of the same insured party, see Iowa Nat’l Mut. Ins. Co. v.
Universal Underwriters Ins. Co., 150 N.W.2d 233, 236-37 (Minn. 1967), the Minnesota
Supreme Court overruled that precedent in Cargill, Inc. v. Ace Am. Ins. Co., 784 N.W.2d
341, 354 (Minn. 2010). In Cargill, the Minnesota Supreme Court held that “a primary
insurer that has a duty to defend, and whose policy is triggered for defense purposes, has
an equitable right to seek contribution for defense costs from any other insurer who also
has a duty to defend the insured, and whose policy has been triggered for defense
purposes.” 784 N.W.2d at 354; see also Cont’l Cas. Co. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa, 940 F. Supp. 2d 898, 917-18 (D. Minn. 2013), as amended (Aug. 9,
2013).
As a primary insurer seeking a declaratory judgment regarding Arrowood’s
- 10 -
obligation as a co-insurer to contribute, Catholic Mutual alleges an actual case or
controversy and has standing under Minnesota law.
Arrowood also argues that Minnesota law only allows for actions of contribution
by “established primary insurers, whose liability and duty to defend under the policies at
issue have been determined.” (Reply Mem. at 4.) Not so. “The fundamental question
in an equitable contribution action is precisely the question [Catholic Mutual] seeks to
have determined here – does [Arrowood] owe an obligation to [the Diocese] such that
[Arrowood] can be liable to [Catholic Mutual] for contribution?” Cont’l, 940 F. Supp. 2d
at 918. To answer this question requires the Court to determine whether the Underlying
Claims are covered by Arrowood’s purported policies. As the Court has explained, “[t]he
right to seek contribution would be meaningless if a co-insurer could stymie attempts to
seek contribution by asserting it does not have a duty to defend, and then preventing the
paying insurer from examining the insurance policy to challenge that assertion.” Id.
And, in order to determine contribution, the Court must determine precisely “which
insurers have a duty to defend [the insured].” Cargill, 784 N.W.2d at 354. Therefore,
Catholic Mutual alleges a case or controversy and has standing to seek determination of
these questions.3
Arrowood also argues that “the very existence of the Alleged Policies ha[s] not been
determined” and that the Complaint “fails to identify any terms of the Alleged Policies.” (Reply
Mem. at 4.) Although complete copies of the policies have not been produced, Catholic Mutual
has supplied supporting evidence of the policies and their terms, including acknowledgments by
Arrowood’s predecessor that the policies existed and acknowledgment of some of their terms.
At this time, the Court need not decide whether the policies existed and what their terms were.
The Court only decides that Catholic Mutual has sufficiently alleged a case and controversy.
3
- 11 -
B.
Justiciability
Arrowood argues that a declaratory judgment on contribution for the Overlapping
Claims would be premature and “would require this Court to . . . issue an advisory
opinion on a completely hypothetical set of facts.” (Supp. Mem. at 8.) Arrowood argues
that the Complaint fails to establish (1) common liability and (2) that Catholic Mutual
paid more than its fair share of the common liability, which are the elements of a claim
for contribution. (Supp. Mem. at 11 (quoting Nuessmeier Elec., Inc. v. Weiss Mfg. Co.,
632 N.W.2d 248, 251 (Minn. Ct. App. 2001)).) Arrowood’s argument fails because it
asks the Court to determine the merits of the claim at the motion to dismiss stage.
As the Court noted in Continental, the threshold question in a contribution claim is
whether an insurer owes an insured a duty to defend. 940 F. Supp. 2d at 918.4 Catholic
Mutual asks the Court to answer that question. Furthermore, Catholic Mutual plausibly
alleges that Arrowood owes the Diocese and the Parishes a duty to defend on the
Overlapping Claims; thus, it plausibly alleges common liability. Common liability need
not be “established” at the motion to dismiss stage.
Arrowood’s liability is also a threshold question in determining whether Catholic
Mutual has paid more than its fair share. Catholic Mutual alleges that it has provided a
Arrowood’s attempt to distinguish Continental from the present case is unavailing.
Arrowood argues that Continental involved an interpretation and declaration of duties under
insurance policies whose existence was not in dispute. But nothing in Continental suggests that
the Court is precluded from making a threshold determination regarding the existence of a
contract – and therefore the existence of a duty to defend – or from interpreting a purported
contract when the complete policy is unavailable. Reading Cargill and Continental together, and
in light of the secondary evidence provided by Catholic Mutual regarding the purported
contracts, the Court finds that Catholic Mutual has standing to seek a judicial determination on
the existence of the contract and on its terms as a predicate question to determine contribution.
4
- 12 -
defense to the Diocese for the Overlapping Claims. It follows that, if Arrowood is liable,
Catholic Mutual has paid – and will continue to pay – more than its fair share. Should
the Court determine that Arrowood is liable, a determination of contribution would not be
hypothetical or premature.5
Arrowood also argues that a declaratory judgment on contribution would be moot
because it would require the Court to “make a declaration on a matter that Arrowood has
already agreed to resolve with its purported insured, the Diocese.” (Supp. Mem. at 8.) In
support of this argument, Arrowood notes its “good faith compromise with the Diocese”
whereby Arrowood agreed to “contribute to the necessary and reasonable defense costs”
of 20 of the Underlying Claims, including the Overlapping Claims. (Id. at 13-14.) But –
despite Arrowood’s compromise – the issue of contribution is not moot as a practical
matter or as a matter of law.
Catholic Mutual alleges that “Arrowood has not agreed to provide what the
Complaint alleges it owes: Arrowood has agreed to provide only limited defense and
indemnity, and only to the Diocese.” (Opp. Mot. at 12.) Thus, as a practical matter,
Arrowood has not mooted the case. Furthermore, Arrowood “expressly reserved its right
to change or withdraw its agreement and seek recovery of amounts it has paid pursuant to
that agreement.” (Id.) One important purpose of declaratory judgments is to afford the
parties “relief from the uncertainty, insecurity, and controversy giving rise to the
5
The Court has previously issued declaratory judgments that determined right to
contribution without determining the actual dollar amount of contribution. Cont’l, 940 F. Supp.
2d at 930.
- 13 -
proceeding.” Karsjens v. Jesson, 6 F. Supp. 3d 958, 974 (D. Minn. 2014) (quoting
Alsager v. Dist. Ct. of Polk Cnty., Ia (Juvenile Div.), 518 F.2d 1160, 1163–64 (8th Cir.
1975)). Arrowood’s compromise does not relieve Catholic Mutual of the uncertainty and
insecurity that gave rise to this proceeding.
Additionally, “[m]ere voluntary cessation of allegedly illegal conduct does not
moot a case; if it did, the courts would be compelled to leave the defendant . . . free to
return to his old ways.” United States v. Concentrated Phosphate Export Ass’n, Inc., 393
U.S. 199, 203 (1968) (quoting United States v. W.T. Grant Co., 345 U.S. 629, 632
(1953)).
Arrowood’s compromise was made with a complete reservation of rights,
including the right to withdraw or seek recovery of amounts paid. Thus, as a mater of
law, Arrowood has not shown that “the allegedly wrongful behavior could not reasonably
be expected to recur.” Id. at 203. Arrowood cannot moot a case by promising that it will
change only some of its conduct and reserving the right to change its mind.
CONCLUSION
Because Catholic Mutual has standing to bring this case under Minnesota law and
has alleged an actual case and controversy that is neither premature nor moot, the Court
will deny Arrowood’s Motion to Dismiss.
Catholic Mutual has standing to seek
declaratory judgment for contribution under Minnesota law to determine whether
Arrowood, an alleged co-insurer, owes a duty to defend.
In determining whether
Catholic Mutual is entitled to contribution from Arrowood, the Court must necessarily
determine the threshold questions of whether the purported contracts with Arrowood
- 14 -
exist and whether Arrowood is liable under them. The action is not premature because
Catholic Mutual has plausibly alleged joint liability and payment of more than its fair
share of costs, two issues whose merits can only be decided after the Court determines
the threshold question of Arrowood’s liability.
Nor is the action moot because
Arrowood’s good faith agreement to pay some defense costs was done under a complete
reservation of rights, which neither gives Catholic Mutual certainty nor shows that
Arrowood’s allegedly unlawful behavior cannot reasonably be expected to reoccur.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant Arrowood Indemnity Company’s Motion to
Dismiss [Docket No. 30] is DENIED.
DATED: August 10, 2018
at Minneapolis, Minnesota.
s/John R. Tunheim
JOHN R. TUNHEIM
Chief Judge
United States District Court
- 15 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?