United States District Court, D. Minnesota
ZUP'S OF BABBITT-AURORA, INC., and SECURITY NATIONAL INSURANCE CO., INC., Plaintiffs,
WEST BEND MUTUAL INSURANCE CO., INC., Defendant.
Jeffrey W. Gunn, MORRIS & STELLA; Hilary J. Loynes and David C. Linder, LARSON KING, LLP, for plaintiffs.
Kevin J. Kennedy and Forrest G. Hopper, BORGELT, POWELL, PETERSON & FRAUEN S.C., for defendant.
PATRICK J. SCHILTZ, District Judge.
Plaintiff Zup's of Babbitt-Aurora, Inc. ("ZBA") owns a strip mall in Babbitt, Minnesota. ZBA operates a grocery store in part of the strip mall and leases the remaining space to various tenants. A fire destroyed the strip mall on September 24, 2011. As a result, ZBA suffered three types of losses: (1) property damage to the strip mall itself; (2) lost rental income from the tenants; and (3) lost business income from the grocery store. The strip mall was eventually rebuilt.
At the time of the fire, ZBA was insured by both Security National Insurance Co., Inc. ("Security National") and West Bend Mutual Insurance Co., Inc. ("West Bend"). West Bend concedes that its policy covers the first two categories of losses (the property damage to the strip mall and the lost rental income), and Security National concedes that its policy covers the third category of losses (the lost grocery income). The question in this lawsuit is whether the lost grocery income is also covered by West Bend's policy. ZBA has no dog in this fight; the dispute is between the two insurers.
This matter is before the Court on the parties' cross-motions for summary judgment. For the reasons that follow, the Court finds that, although West Bend does indeed cover the lost grocery income, its coverage is excess to Security National's - and, because the liability limits of the Security National policy have not been exhausted, West Bend is not liable to ZBA. Accordingly, West Bend's motion for summary judgment is granted, and plaintiffs' motion for summary judgment is (mostly) denied.
Zupancich Bros. Inc. ("Zupancich Brothers") owns and operates six grocery stores in northeastern Minnesota through ZBA and other wholly-owned subsidiaries. See Fifth Kennedy Aff. Ex. B at 1 [ECF No. 66-2]. ZBA owns and operates the grocery store in Babbitt. As noted, the grocery store occupies part of a strip mall that is owned by ZBA. See Edward Zupancich Dep. 15-18 [ECF No. 60-1]. The remainder of the strip mall is leased to various tenants. Id. at 28-29. As also noted, the strip mall - including the grocery store - was largely destroyed by fire on September 24, 2011. See Compl. ¶ 24. At the time, the strip mall and the grocery store were covered under two separate insurance policies.
First, Zupancich Brothers purchased a policy from Security National covering the operations of the six grocery stores that it owns, including the grocery store in Babbitt. See Linder Decl. Ex. H ("Security National Policy") [ECF No. 60-8]. ZBA is an additional named insured under that policy. Id. at 63. The policy provides (among other things) that Security National "will pay for the actual loss of Business Income you sustain due to the necessary suspension' of your operations'" at the Babbitt grocery store. Id. at 201. The parties agree that the Security National policy covers the lost grocery income suffered as a result of the fire. The Security National policy also provides property coverage for damage to the buildings in which four of the six grocery stores were located; the Babbitt strip mall is not one of those four buildings. Id. at 55.
Second, ZBA purchased an insurance policy from West Bend that provides (among other things) property coverage for the Babbitt strip mall, as well as property coverage for other ZBAowned buildings near the strip mall. See Linder Decl. Ex. I ("West Bend Policy") [ECF No. 60-9]. The West Bend policy also provides that West Bend "will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations'...." Id. at 22. The parties agree that this provision of the West Bend policy covers the lost rental income suffered by ZBA a result of the fire. What the parties dispute is whether this provision also covers the lost grocery income.
Shortly after the fire, ZBA filed claims with both West Bend and Security National. From West Bend, ZBA sought coverage for only the damage to the strip mall and the lost rental income; ZBA did not claim that West Bend was liable for the lost grocery income. West Bend eventually paid approximately $1.4 million to ZBA on its claim. See Rykken Dep. 169-70 [ECF No. 60-5]. ZBA sought coverage for the lost grocery income from Security National. After a forensic accounting, Security National assessed the amount of that lost grocery income as $310, 966.50. See ECF No. 1-5.
In the course of processing ZBA's claim, Security National learned of the West Bend policy, reviewed it, and concluded that it also covered the lost grocery income. Id. Security National then entered into a loan-receipt agreement with ZBA, under which Security National agreed to pay the entire amount of the lost grocery income, including the portion that it contended was West Bend's responsibility. In return, ZBA essentially agreed that it would bring this action against West Bend, and that Security National (which is also a plaintiff) would be entitled to any recovery.
West Bend now argues that, for three reasons, it has no duty to indemnify ZBA for the lost grocery income:
First, West Bend argues that its policy does not cover lost grocery income. West Bend relies almost entirely on the fact that the phrase "Lessor's Risk Only" appears on the policy's declarations page. See West Bend Policy at 6. This phrase, argues West Bend, makes it clear that the only business income covered under the policy is business income that ZBA earns as a lessor - i.e., rental income paid by tenants of the strip mall.
Second, West Bend argues that if its policy is interpreted to also cover grocery income, then that additional coverage reflects a mutual mistake of the parties, and the Court should reform the policy to exclude the coverage. According to West Bend, the broker who applied for the policy on ZBA's behalf did not mention on the application that ZBA operated a grocery store in the strip mall. Instead, the broker told West Bend that ZBA leased all of the space in the strip mall to others - i.e., that the only income earned by ZBA in connection with the strip mall was rental income. See Fifth Kennedy Aff. Ex. J at 9 [ECF No. 66-10]. Citing this evidence, West Bend argues that ZBA intended to procure - and West Bend intended to provide - coverage of only ZBA's rental income, not its grocery income. West Bend contends that the policy should be reformed to reflect the true intent of the parties.
Finally, West Bend argues that if its policy is interpreted to cover lost grocery income, and if the policy is not reformed, then West Bend is still not liable to ZBA. It is undisputed that Security National's policy also covers lost grocery income, and both the Security National and West Bend policies contain "other insurance" clauses that exclude coverage when another insurance policy covers the same loss. Under Minnesota law, when the other-insurance clauses of two insurance policies conflict, the "coverages of a given risk shall be stacked' for payment in the order of their closeness to the risk." Auto Owners Ins. Co. v. Northstar Mut. Ins. Co., 281 N.W.2d 700, 703 (Minn. 1979) (quotation omitted). West Bend argues that Security National's policy is closer to the risk, and thus that Security National's coverage is primary and West Bend's ...