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Bassford Remele is a full service litigation firm located in Minneapolis, Minnesota. Founded in 1882, the firm represents local, national and international clients in all areas of civil litigation and dispute resolution.
Case Law Update
Date: Sep 14, 2007 — Minneapolis, MN
During the week of September 14, 2007, the Minnesota appellate courts released an opinion on the following topic that may be of interest to our clients:
INSURANCE COVERAGE - INSURER–INSURED RELATIONSHIPS
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The insurer-insured relationship is not fiduciary before the insurer assumes the duty to defend and acquires control of the settlement negotiations.
From the 1940s until the early 1970s, A.P.I., Inc. (“API”) sold, distributed and installed insulation materials, some of which contained asbestos. In the early 1980s, API began being sued in asbestos-related bodily injury lawsuits due to exposure to API’s products. API tendered hundreds of these lawsuits to its multiple insurers, seeking defense and indemnification, including OneBeacon Insurance Company (“OneBeacon”), as successor to General Accident Insurance Company. API could not locate any actual policies issued by OneBeacon. Rather, it produced accounting records showing premiums paid to OneBeacon, which themselves contained inconsistent information.
In 2001, after an $8 million jury verdict against API, one of its insurers commenced a declaratory judgment action against API seeking a declaration that it had no continuing obligation to defend API in asbestos-related bodily injury and property damage actions. API brought third-party actions against several insurers, including OneBeacon, seeking a declaration that all insurers had a duty to defend and to pay all sums API had become or could become obligated to pay as damages. By 2005, all of the insurers, with the exception of OneBeacon, had settled with API. At the time of trial, API had not incurred any costs to defend or indemnify itself. Rather, all of its expenses were paid by other insurers. Nonetheless, the jury returned a verdict for API, finding that OneBeacon had, in fact, issued three comprehensive liability policies to API, and awarded API $27 million based on OneBeacon’s breach of its contractual obligation to defend and indemnify API in asbestos-related matters. The jury also awarded API $25 million in extra-contractual damages, finding that OneBeacon acted in bad faith and breached fiduciary duties owed. An appeal followed.
The Minnesota Court of Appeals affirmed the decision in part, but reversed and remanded the case for further consideration on numerous issues. The Court reversed the finding that OneBeacon acted in bad faith and breached fiduciary duties owed to API on the grounds that the jury was improperly instructed on the nature of OneBeacon’s fiduciary obligations. It remanded the issue for further consideration, with the following guidance: The rights and obligations of the insurer and insured are determined by the insurance policy, and at its inception, this relationship is contractual, not fiduciary. A fiduciary obligation arises only in the special circumstance when the insurer assumes the duty to defend and thereinafter owes the insured a duty to settle claims in good faith. Having concluded that the court’s instructions on bad faith were erroneous, the Court of Appeals reversed the award of extra-contractual damages. On remand, the Court of Appeals stressed that to recover extra-contractual damages API must establish more than simply a breach of contract, but must also establish the existence of a breach of a separate tort such as the duty to settle claims in good faith after assuming the defense of an insured or a misrepresentation
Next, the Court reversed the jury’s finding that OneBeacon breached its duty to defend because there was no record of any finding as to when the breach occurred or how it resulted in the damages awarded. The Court of Appeals remanded the case for re-consideration of these issues.
Finally, the Court of Appeals affirmed the district court’s determination that pro rata time on the risk allocation of coverage was appropriate in asbestos-related personal injury claims, but remanded to the district court the task of determining the total period over which liability would be allocated.
In sum, the Court’s decision does not overturn the well-settled law that there is no first-party bad faith in Minnesota. Bad faith claims are limited to situations where the insurer has assumed the control of a defense of their insured and breached a duty to settle the matter in good faith, yielding an excess verdict against their insured. Moreover, the Court’s decision does not provide any further clarification to the Supreme Court’s decision in Wooddale Builders, Inc. v. Maryland Cas. Co., 722 N.W.2d 283 (Minn. 2006), concerning whether damages will be allocated to the insured for periods of time when insurance is “unavailable.” This is the first time that an appellate court has addressed allocation matters within the context of asbestos personal injury litigation, and affirmed the trial court’s ruling that pro rata by time on the risk allocation can be appropriate.
St. Paul Fire & Marine Co. v. A.P.I., Inc., Minnesota Court of Appeals, No. A06-1229, September 11, 2007.
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C. Lundberg, C. Morris, K. Putney, R.A. Williams, |
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