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Home Insurance Co. v. National Union Fire Insurance of Pittsburgh

February 20, 2003



1. A loan receipt agreement entered into between an insurer and an insured gives standing to that insurer to pursue reimbursement from another insurer for defense costs incurred in defending their mutual insured.

2. An insured gives formal tender of a defense request to a primary or umbrella insurer upon providing notice of the claim or suit and an opportunity for the insurer to defend.

3. An umbrella insurer breaches the insurance contract by failing to defend its insured's lawsuit, suspending the insured's duty to give notice of defense costs arising out of the lawsuit. Whether the suspension may benefit a third party to the contract depends on the application of equitable principles.

4. Travelers had a duty to defend its insured because the pleadings are construed broadly and a claim against its insured was arguably made in the underlying complaint.

The opinion of the court was delivered by: Meyer, Justice

Took no part, Hanson, J.

Affirmed in part, reversed in part, and remanded.

Heard, considered, and decided by the court en banc.


This case is part of Cargill, Inc.'s ongoing efforts to recover its expenses in defending itself and three of its subsidiaries in a patent infringement suit. We are asked to determine the nature and extent of three insurers' duties to reimburse Cargill for its defense costs. The patent infringement suit will be reviewed briefly, followed by Cargill's insurance coverage at the time of the suit, and then the legal issues in the instant case will be presented.

Life Point Systems, Inc. (Life Point) owned proprietary rights to three patents in a spread spectrum radio frequency device. Beginning in late 1988, Life Point attempted to negotiate licensing agreements with Cargill and several of its subsidiary companies: Waycrosse, Inc.; Willknight, Inc.; and Silent Knight Security Systems, Inc. (we will refer to the four collectively as Cargill). In the course of negotiations, Cargill received various documents and information regarding the device after executing a confidentiality agreement. However, the negotiations ended without an agreement.

In May of 1993, Life Point sued Cargill (the Life Point action) alleging that the Cargill subsidiaries improperly used the Life Point Device in brochures and advertising, in soliciting business, and took advantage of confidential information disclosed during negotiations. The Life Point complaint alleged patent infringement, tortious interference of contract, divulgence of trade secrets, unfair competition, and false advertising. All counts included an allegation that the conduct complained of was ongoing and would continue unless enjoined by the court. In addition to injunctive relief, the Life Point complaint sought compensatory and treble damages totaling $460 million.

Cargill retained attorneys to defend the various Cargill entities under a joint defense arrangement. The joint defense was successful; the claims against Cargill in the Life Point action were dismissed. The defense costs totaled approximately $3 million.

During the period in question, Cargill or its subsidiaries were insured under general liability policies and umbrella policies from three different insurers: the Home Insurance Company (Home), Travelers Indemnity Company of Connecticut (Travelers), and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union).

A. Home Insurance Company

Upon being served with the complaint in the Life Point action, Cargill immediately notified its primary insurer, Home, by sending it copies of the Life Point complaint. Home accepted this tender of defense subject to a reservation of rights. Pursuant to that reservation of rights, Home commenced a declaratory action against Cargill seeking a declaration that it had no duty to defend or indemnify Cargill for the claims asserted in the Life Point action. That declaratory judgment action eventually was moved to federal court in Minnesota where a federal judge decided that Home indeed had to defend the suit. Home Ins. Co. v. Waycrosse, Inc., 990 F. Supp. 720, 730-31 (D. Minn. 1996), aff'd, 131 F.3d 143 (8th Cir. 1997). Neither Travelers nor National Union was involved in the suit and the federal court did not determine whether they shared any responsibility for the defense of the Life Point action.

Home continued to dispute its responsibility, and eventually Cargill and its subsidiaries brought suit to enforce the declaratory judgment in U.S. District Court in 1999. Four years after Home was first adjudged responsible, it entered into a loan receipt agreement with Cargill in May of 2000. In the loan receipt agreement, Home pledged to "loan" $2,450,000 to Cargill, as reimbursement for defense costs, while reserving its right to seek reimbursement from other insurers; Cargill released any claims against Home, and Cargill agreed to repay Home's "loan" with any settlement or judgment from National Union or Travelers.

B. National Union Fire Insurance of Pittsburgh, Pennsylvania

Cargill had an umbrella policy from 1989 to 1994 through National Union with a limit of $25 million, and that policy listed as insureds: Waycrosse; Cargill; and any subsidiary in which Cargill had greater than 50% ownership. Thomas Peiffer, of Cargill's insurance department, sent a copy of the Life Point complaint to National Union with a letter in July of 1993 (the complaint was initially served in May of 1993). His correspondence in July and August of 1993 pointed out that the defendants were Cargill subsidiaries and placed National Union "on notice of potential excess exposure." National Union responded to the notice from Cargill with a series of correspondence from its attorney, first asserting that the Life Point claims were not covered by the National Union policy and then simply closing the file.

Three provisions of the National Union policy are pertinent to this case: Insuring Agreement I, Insuring Agreement II, and the defense costs endorsement. Insuring Agreement I is an excess insurance provision, promising to pay Cargill for "net losses" it incurs that exceed the limit of its primary coverage. Insuring Agreement II is a gap-filling provision, promising to defend Cargill as a primary insurer for losses covered by National Union but not covered by the primary insurer. The defense costs endorsement is an indemnification provision, pledging to indemnify the underlying insurer for defense costs that exceed $750,000 if particular conditions are met.

C. Travelers Insurance Company

Waycrosse, one of the Cargill subsidiaries and a defendant in the Life Point suit, was initially incorporated in Minnesota and insured under Cargill's primary policy with Home. After Waycrosse incorporated in Delaware,*fn1 it took out a general liability policy with Travelers from June of 1991 through at least 1995. Waycrosse II sent notice to Travelers of the Life Point action in June of 1993. Travelers responded in July of 1994 by denying coverage, based on an assertion that Waycrosse was acting through a joint venture, but reserving its right to assert additional defenses later.

D. The present action

Prior to the loan receipt agreement, Home instituted this suit against National Union and Travelers, seeking reimbursement of defense costs incurred in the Life Point action. Cargill and the subsidiaries entered the suit as intervenors after the loan receipt agreement was finalized. Both National Union and Travelers moved for summary judgment.

The district court granted summary judgment to National Union and Travelers. The district court ruled that National Union did not have to reimburse Cargill for three reasons: (1) Cargill did not experience a "net loss" needed to invoke the excess coverage in Insuring Agreement I; (2) Cargill failed to specifically request that National Union defend it in the Life Point action, which was necessary to trigger National Union's duty to defend; and (3) Cargill did not comply with the conditions of the defense costs endorsement, rendering it inoperative. The district court also held that Travelers did not owe any reimbursement, because Travelers had no duty to defend Waycrosse since ...

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