Employers Mutual v. Wendland & Utz, Ltd.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-2554
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Employers Mutual Casualty Company, *
*
Plaintiff - Appellee, *
*
v. * Appeal from the United States
* District Court for the District
Wendland & Utz, Ltd., * of Minnesota.
*
Defendant - Appellant, *
*
Terry Lynn Djonne; Wen-Po *
Daniel Su; Man-Mei Nadine Su, *
*
Defendants, *
*
Frederick ('Fritz') Banfield; *
Heartman Agency, Inc., *
*
Defendants - Appellants. *
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Submitted: March 14, 2003
Filed: December 17, 2003
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Before WOLLMAN, RICHARD S. ARNOLD, and SMITH, Circuit Judges.
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SMITH, Circuit Judge.
Wendland & Utz seeks reversal of a summary judgment entered in favor of its
insurer, Employers Mutual Casualty Company ("EMC"). An attorney at the law firm
of Wendland & Utz, while driving his own vehicle to pick up a witness, struck and
seriously injured a pedestrian, Dr. Wen-Po Daniel Su ("Dr. Su").1 EMC denied
coverage because the policy it issued to Wendland & Utz does not provide coverage
for automobile accidents, even those occurring during the scope of employment.
EMC sought a declaratory judgment that no coverage exists under the policy. In
response, Wendland & Utz, sought to reform the insurance policy, or in the
alternative, show that EMC negligently or intentionally misrepresented the terms of
the policy to the agent and thus should be estopped from refusing to honor the terms
as represented. The district court found that no genuine issues of fact exist on
Wendland & Utz's claim because the law firm never contacted EMC about providing
coverage for Wendland & Utz's employee-owned vehicles. We agree and affirm the
district court's grant of summary judgment.
I. Facts
This coverage dispute began after Terry Lynn Djonne ("Djonne"), an associate
of Wendland & Utz, struck and injured Dr. Su when Djonne lost control of his vehicle
while on company business. Dr. Su and his wife, Man-Mei Nadine Su, asserted claims
for personal injury against Djonne personally and Wendland & Utz on the basis of
respondeat superior.
At the time of the accident, EMC insured Wendland & Utz under a Business
Owners' Insurance Policy ("BOP").2 Craig Wendland, on behalf of Wendland & Utz,
1
Wendland & Utz settled the case with Dr. Su for $1,000,000 the limitation of
liability in its policy with EMC. The errors-and-omissions insurance carrier for the
agency that issued the EMC policy to Wendland & Utz supplied the money for the
settlement in a loan arrangement.
2
A BOP combines insurance coverage from many sources into a single,
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purchased the EMC policy from the Heartman Agency–an independent insurance
agency. Wendland discussed the firm's insurance needs with Heartman's agent,
Frederick Banfield. Wendland testified that he was aware that Wendland employees
drove their own vehicles on personal business and would annually update Banfield
regarding any significant changes to the firm's property and personnel activities.
Wendland would then ask Banfield "Are we fully covered? . . . Is there anything we
should be covered for?" According to Wendland, Banfield responded "no." As a
result of these annual reviews and assurances, Wendland understood that the EMC
policy covered firm employees for any employment related activities, including
driving a vehicle.
Banfield and Wendland's accounts differ. Banfield remembered a series of
conversations that Wendland did not recall. Banfield testified that, sometime around
1995, he and Wendland met to discuss coverages under the EMC policy. Wendland
inquired if the policy would provide liability coverage for a loss such as a secretary
driving her own vehicle on a business errand for the law firm. Banfield said he
responded that he did not know, and would have to call EMC to find out if this type
of coverage was included in its package policy. According to Banfield, he
immediately called the EMC underwriting department and posed the same
hypothetical to one of the underwriters (either Roland Troup or Karen Anderson), and
was told that the EMC policy did indeed provide such coverage. Banfield testified
that he then called Wendland and relayed these assurances; Wendland did not recall
receiving this phone call. Also, both underwriters–Troup and Anderson–vehemently
deny that they made any assurances to Banfield.
comprehensive package. It commonly provides protection for buildings, equipment,
inventory, and computers. Some BOPs also insure against losses owing to personal
injury, lost business income, dishonesty, and liability.
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The BOP policy purchased by Wendland contains a specific "Aircraft, Auto,
and Watercraft" exclusion. The provision expressly excludes coverage for bodily
injury arising out of the ownership, maintenance, or use of a motor vehicle.3 It is
undisputed that because Dr. Su's injury claim is based on damages flowing from an
automobile accident, the motor vehicle exclusion in the BOP applies.
EMC brought the controversy to federal court, seeking declaratory judgment
that its policy excluded coverage for Wendland & Utz's liability to Dr. Su. Wendland
& Utz counterclaimed for reformation and misrepresentation (both tort and
reformation). In response, EMC moved for summary judgment. The district court
granted the motion, dismissing all of Wendland & Utz's claims.
II. Summary Judgment
Summary judgment is proper if there are no disputed issues of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The
court must view the evidence–and the inferences that may be reasonably drawn from
the evidence–in the light most favorable to the nonmoving party. Enter. Bank v.
Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996). However, the "summary judgment
procedure is properly regarded not as a disfavored procedural shortcut, but rather as
an integral part of the Federal Rules as a whole, which are designed to secure the just,
speedy, and inexpensive determination of every action." Celotex Corp. v. Catrett, 477
U.S. 317, 327 (1986).
The moving party bears the burden of showing that there is no genuine issue
of material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92
F.3d at 747. A party opposing a properly supported motion for summary judgment
may not rest upon mere allegations or denials in the pleadings, but must set forth
3
EMC does provide separate automobile coverage. An insured may purchase
either a commercial automobile policy or "non-owned" vehicle coverage.
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specific facts in the record showing that there is a genuine issue for trial. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik v. Le Sueur, 47 F.3d 953,
957 (8th Cir. 1995).
A. Reformation
Minnesota law governs review of Wendland & Utz's claim that–based on
mutual mistake–the contract should be reformed to provide coverage for the loss.4
Under Minnesota law, the courts may reform an insurance policy, or any written
agreement, if it can be proved that:
(1) there was a valid agreement between the parties expressing
their real intentions;
(2) the written instrument failed to express the real intentions of
the parties; and
(3) this failure was due to a mutual mistake of the parties, or a
unilateral mistake accompanied by fraud or inequitable conduct
by the other party.
Leamington Co. v. Nonprofits' Ins. Ass'n., 615 N.W.2d 349, 354 (Minn. 2000)
(quoting Nichols v. Shelard Nat'l Bank, 294 N.W.2d 730, 734 (Minn. 1980)).
Additionally, "[a] party seeking reformation of a contract has an 'onerous' burden of
proof." Wood Goods Galore, Inc. v. Reinsurance Ass'n of Minnesota, 478 N.W.2d
205, 209 (Minn. Ct. App. 1991) (quoting Tollefson v. American Family Ins. Co., 226
N.W.2d 280, 284 (Minn. 1974)). Where reformation is based upon a claimed mutual
mistake, the evidence "must be clear, precise, and convincing." Wood Goods, Inc.,
478 N.W.2d at 209.
4
Wendland & Utz also makes a claim that the contract should be reformed
based on misrepresentation. This argument is without merit and no discussion is
warranted.
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The parties disagree as to the proof requirement–to establish each of the
reformation elements–under Minnesota law. EMC relies on authority stating that
Minnesota law requires these elements be established by evidence that is "clear and
consistent, unequivocal and convincing." Leamington Co. v. Nonprofits' Ins. Ass'n,
615 N.W.2d 349, 354 (Minn. 2000) (quoting Nichols v. Shelard Nat'l Bank, 294
N.W.2d 730, 734 (Minn. 1980)). On the other hand, Wendland & Utz argues that the
Minnesota Supreme Court reduced the standard of proof from clear and convincing
to the ordinary civil burden–preponderance of the evidence.
In support of its position, Wendland & Utz relies on a consumer-fraud case,
Humphrey v. Alpine Air Products, where the Minnesota Supreme Court adopted the
preponderance of the evidence standard. 500 N.W.2d 788, 790–91 (Minn. 1993).
Wendland argues that Humphrey "must have" reduced the prior reformation standard,
because to hold otherwise would be "absurd." We disagree. The fraud action in
Humphrey is not analogous to a contract-reformation remedy based on "unilateral
mistake [by one party] accompanied by fraud or inequitable conduct by the other
party." Leamington Co., 615 N.W.2d at 354. While the former is a complete cause of
action, the latter is only a singular element of a reformation claim. In other words,
basing a reformation action on "fraud or inequitable conduct" does not convert a
contract-reformation action into an action for fraud. Furthermore, the Minnesota
Supreme Court as recently as 2000 upheld the "clear and consistent, unequivocal and
convincing" standard for contract reformation. Leamington Co., 615 N.W.2d at 354;
Fidelity and Guaranty Ins. Co. v. Global Technologies, Ltd., 117 F. Supp.2d 911, 914
(Minn. 2000). We see no reason to presume it would not do so now. Accordingly, we
conclude that clear and convincing is currently the appropriate standard of proof
under Minnesota law.
As an initial step, a party seeking reformation based upon mutual mistake must
prove the existence of a valid agreement between the parties expressing their real
intentions. Leamington, 615 N.W.2d at 354. The intentions shared between the parties
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must be identical."The required mutuality of the mistake can only be found if the
parties had identical intentions as to the particular term at issue. Each party must have
labored under the same misconception. . . . But above all, there must be evidence that
there was an actual agreement as to the terms of the policy." 9 Eric Mills Holmes,
Holmes' Appleman on Insurance 2d § 53.15 at 142–43 (1999).
Here, Wendland & Utz has failed to establish by clear and convincing evidence
that it and EMC (through Banfield) agreed–shared identical intentions–as to the scope
of the coverage. Wendland asked Banfield on a number of occasions to assure him
that "full coverage" was in place. Only Banfield recalls Wendland presenting a
hypothetical scenario implicating the type of coverage in question, and only he recalls
assuring Wendland that liability involving employee-owned vehicles would be
covered. However, Wendland's desire for "full coverage" is too vague to constitute
a request for or an agreement on a specific policy term. Wendland's "belie[f]" that he
"would have" discussed this type of risk with Banfield cannot overcome the reality
that Wendland does not recall asking about the coverage. The evidence presented,
even when viewed in the light most favorable to Wendland & Utz, does not support
the existence of an agreement that the law firm would be covered for the use of
employee-owned vehicles. Consequently, the district court properly granted EMC
summary judgment on Wendland & Utz's reformation claim.
B. Misrepresentation
Minnesota law allows insureds to sue insurers for coverage misrepresentations
in tort. Saltou v. Dependable Ins. Co., Inc., 394 N.W.2d 629, 633–634 (Minn. Ct.
App. 1986). In defining the tort of negligent misrepresentation, the Minnesota Courts
have relied on the Second Restatement of Torts, that explains the tort as follows:
One who, in the course of his business, profession or employment, or in
any other transaction in which he has a pecuniary interest, supplies false
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information for the guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information.
Restatement (Second) of Torts § 552(1) (1977); see Hebrink v. Farm Bureau Life Ins.
Co., 664 N.W.2d 414, 420 (Minn. Ct. App. 2003) (adopting the Restatement's
definition of negligent misrepresentation).
Wendland & Utz seeks tort damages based upon EMC's alleged
misrepresentation to Banfield. Banfield asserts that someone at EMC informed him
that Wendland & Utz's policy covered employee-owned vehicles. However, Banfield
does not recall the name of the EMC representative with whom he spoke, and no
underwriters at EMC could remember having such a conversation with Banfield. In
fact, the two underwriters in charge of the Wendland & Utz policy specifically denied
that they would have provided such information to Banfield without looking at the
policy, and had they looked at the policy, it would have been clear that the policy did
not cover the use of employee-owned vehicles.
To establish the tort of misrepresentation, Wendland & Utz must show that its
reliance on EMC's alleged statement regarding coverage was reasonable. Northern
Petrochem. Co. v. United States Fire Ins. Co., 277 N.W.2d 408, 410 (Minn. 1979).
EMC contends that because the policy language unambiguously excluded employee
automobiles, any reliance on an alleged representation to the contrary is unreasonable
as a matter of law. See Anderson v. Minnesota Ins. Guar. Ass'n, 534 N.W.2d 706, 709
(Minn. 1995) ("[R]eliance on any explanations contrary to the unambiguous meaning
of the policy language is, as a matter of law, unreasonable."). We agree.
The insurance policy in question, though long and complex, unambiguously
excludes the coverage Wendland & Utz seeks to enforce. Both Banfield and
Wendland had access to the policy and could have discovered–by simply reading the
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policy–that employee-owned vehicles were excluded. Accordingly, because these
facts do not give rise to an actionable tort, the district court properly granted summary
judgment in EMC's favor.
III. Agency
Lastly, Wendland & Utz argues that EMC is vicariously liable for Banfield's
negligence under the general rule that an insurance company is liable for the torts of
its agents acting within the scope of their employment. Eddy v. Republic Nat'l Life
Ins. Co., 290 N.W.2d 174, 177 (Minn. 1980). At the outset, we must determine
whether Banfield is an agent of EMC or an independent agent, also known as a
broker. The distinction is important because an insurance company is only liable for
the torts of its agents. Conversely, a broker is "independently liable to the insured in
either contract or tort for failing to procure insurance as instructed." Frank v. Winter,
528 N.W.2d 910, 914 (Minn. Ct. App. 1995) (citing Eddy, 290 N.W.2d at 177). In
other words, a broker's liability for negligence cannot be imputed to the insurance
company.
The Heartman Agency markets its services representing that it is not obligated
to write coverage for any one company, due to its status as an "independent" agency.
Banfield stated in his deposition that his goal is to obtain the broadest possible
coverage for his client (the insured) at the best price–regardless of which carrier
writes the policy. These facts are determinative. An insurance agent acts on behalf of
a particular insurance company, whereas an insurance broker acts on behalf of the
prospective insured. Eddy, 290 N.W.2d at 176. The evidence supports only one
conclusion–Banfield was an agent for an independent insurance brokerage firm not
an agent for EMC.
IV. Conclusion
The plain language in the parties' insurance contract unequivocally excludes
liability coverage for employee-owned automobiles. Wendland & Utz did not have
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a valid agreement that such coverage would be provided. Wendland & Utz cannot
show that EMC was ever asked to provide such coverage, and Wendland & Utz never
paid for such coverage. Because there are no genuine issues of material fact to be
resolved, we conclude that summary judgment was properly granted. Accordingly,
we affirm the judgment of the district court.
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