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American Family Mutual Insurance Co. v. Donaldson

United States District Court, Eighth Circuit

December 27, 2013

American Family Mutual Insurance Company, Plaintiff,
v.
John Martin Donaldson, Todd Richard Patton, and Jacob Todd Patton, Defendants.

MEMORANDUM AND ORDER

PAUL A. MAGNUSON, District Judge.

This matter is before the Court on the parties' cross-Motions for Summary Judgment. For the reasons that follow, Plaintiff's Motion is granted and Defendants' Motion is denied.

BACKGROUND

This case arises out of a single-car accident, the relevant facts of which are undisputed. On April 10, 2011, Defendant Jacob Patton was driving his father's vehicle with Defendant John Donaldson in the passenger seat. Patton and Donaldson were 18 years old at the time, and both had been drinking heavily. Patton was speeding through his residential neighborhood in Lakeville and a neighbor, fearing for his safety, called 9-1-1 to report Patton's reckless driving. When police tried to pull him over, Patton led them on a high-speed chase for 80 seconds, at one point reaching 96 miles per hour. (Young Aff. Ex. B (Docket No. 72-2).) Patton ultimately crashed the car into a tree and Donaldson was severely injured. At the time of the accident, Patton had both an auto insurance policy and an umbrella policy with Plaintiff American Family Mutual Insurance Company through his father, Defendant Todd Richard Patton. Patton was ultimately charged with two counts of criminal vehicular operation. He has pled not guilty and is awaiting trial.

On March 8, 2012, Donaldson sued the Pattons in Dakota County District Court alleging negligence. American Family hired counsel to defend the case. American Family also notified the Pattons on November 11, 2011, and July 27, 2012, that it reserved all rights to contest coverage. (Duggan Vraa Aff. Ex. 12 (Docket No. 65-2).) On November 1, 2012, the eve of trial, American Family requested a continuance on the grounds that a trial would be unnecessary because Patton was planning to plead guilty and because American Family was poised to file a declaratory judgment action that would resolve the dispute. On November 14, 2012, American Family filed the instant action, seeking a declaration that there is no coverage under the umbrella policy.

American Family subsequently entered into a Drake-Ryan release with Donaldson in exchange for the auto policy limit of $100, 000. Under the agreement, the Pattons were released from all personal liability and the parties agreed that any judgment would only be collectible under the Patton's umbrella policy. Donaldson and the Pattons later executed a Miller-Shugart agreement under which Donaldson agreed to refrain from collecting any judgment from the Pattons. (Duggan Vraa Aff. Ex. 17 (Docket No. 65-2) at 6, ¶ 12.) The agreement further provides that Donaldson "will only seek to satisfy this judgment from American Family as provided under the personal liability umbrella policy[.]" ( Id. at 6, ¶ 11.)

Next, Donaldson and the Pattons engaged in arbitration to determine the amount of damages due to Donaldson under the Miller-Shugart agreement. American Family objected to the Miller-Shugart agreement and refused to participate in the arbitration. On January 2, 2013, the arbitrator issued a $1.25 million award for Donaldson, which is $250, 000 in excess of the Pattons' $1 million umbrella policy limit. The parties agree that under the Miller-Shugart agreement, the Pattons cannot be held responsible for the excess judgment.

This Court previously denied Defendants' Motion to Dismiss, after which Defendants filed their Answers and Counterclaims. Donaldson filed a counterclaim for "Third Party Insurance Bad Faith" claiming that American Family acted in bad faith by refusing to settle for the umbrella policy limit of $1 million, which the Court dismissed. The parties' cross-Motions for Summary Judgment are now before the Court.

DISCUSSION

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(a). 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, "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. Id. at 323; Enter. Bank , 92 F.3d at 747. A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials, but must set forth 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).

The interpretation of the language of an insurance contract is usually a legal question for the Court to decide. Murray v. Greenwich Ins. Co. , 533 F.3d 644, 648 (8th Cir. 2008); Jenoff, Inc. v. N.H. Ins. Co. , 558 N.W.2d 260, 262 (Minn. 1997). In diversity cases such as this, the interpretation of Minnesota-issued insurance policies is a matter of Minnesota law. Murray , 533 F.3d at 648. Under Minnesota law, "[w]hen insurance policy language is clear and unambiguous, the language used must be given its usual and accepted meaning.'" Wanzek Constr., Inc. v. Employers Ins. of Wausau , 679 N.W.2d 322, 324 (Minn. 2004) (quoting Lobeck v. State Farm Mut. Auto. Ins. Co. , 582 N.W.2d 246, 249 (Minn. 1998)).

At issue here is the interpretation of the umbrella policy's language, which differs from that of the underlying auto policy language. Although Defendants attempt to conflate the two, arguing essentially that because there was coverage under the latter policy there should be coverage under the former, "the underlying policy and the umbrella policy are two separate contracts; there is nothing unlawful or improper in defining the scope of coverage differently in each policy." Engelke v. State Farm Fire & Cas. ...


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