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Lunde v. The Cincinnati Insurance Co.

United States District Court, D. Minnesota

April 26, 2018

Stephanie Lunde, Plaintiff,
v.
The Cincinnati Insurance Company, Defendant.

          ORDER

          JOAN N. ERICKSEN UNITED STATES DISTRICT JUDGE.

         Stephanie Lunde brought this action against the Cincinnati Insurance Company (“Cincinnati”), seeking a declaratory judgment, and alleging breach of contract and breach of the duties of good faith and fair dealing. Cincinnati moved to dismiss the two breach claims. For the reasons set forth below, that motion is denied in part and granted in part.

         BACKGROUND

         At all times relevant to this matter, Lunde was an employee and officer of BankFirst, a South Dakota subsidiary of Marshall BankFirst Corporation (“Marshall”). In 2008, Cincinnati issued a Financial Institution Blue Chip Policy (“the Policy”) to Marshall. The Policy included directors and officers (“D&O”) coverage, under which Cincinnati agreed to pay certain costs and losses that Marshall's directors and officers might incur from claims for “wrongful acts, ” and/or to defend those insureds against such claims. ECF No. 15-1 at 10. The original policy period ran from April 6, 2008 to April 6, 2009. ECF No. 15-1 at 7. Cincinnati subsequently issued an extended reporting endorsement that permitted claims from April 6, 2009 to April 6, 2010. ECF No. 15-2 at 37.

         On April 3, 2009, an attorney representing BankFirst's directors and officers allegedly notified Cincinnati that “the [i]nsureds have become aware of potential claims” of possible wrongful acts involving, among other things, a $228 million loan for a condominium development in Florida known as Lake Austin Properties. See Compl. ¶¶ 26-28. On March 26, 2010, the Federal Deposit Insurance Company sent a demand letter to BankFirst directors and officers, including Lunde, seeking damages for alleged “wrongful acts” in connection with various loans. Compl. ¶ 29. Cincinnati was notified of the FDIC demand letter. Compl. ¶ 30.

         On December 21, 2016, Lunde was indicted by a federal grand jury on charges of conspiracy and bank fraud in connection with the Lake Austin Properties loan. Pl.'s Mem. at 2. Lunde tendered the defense of the indictment to Cincinnati on May 22, 2017. Compl. ¶ 34. Cincinnati denied Lunde's coverage on July 27, 2017. ECF No. 15-5.

         On November 27, 2017, Lunde moved to dismiss the charges against her, alleging prosecutorial misconduct. Compl. ¶ 12. The government issued a superseding indictment on December 13, 2017 that contained no allegations against Lunde. Compl. ¶ 14. On December 26, 2017, the criminal matter was terminated as to Lunde. Compl. ¶ 15. Lunde contends that she incurred “hundreds of thousands of dollars in defense costs” during the course of the criminal case against her, Compl. ¶ 12. She asserts these costs should have been covered under the Policy.

         LEGAL STANDARD

         To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Id. (quoting Twombly, 550 U.S. at 555 (1955)). Plausibility is assessed by “draw[ing] on . . . judicial experience and common sense.” Id. at 679. Moreover, courts must “review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation.” Zoltek Corp. v. Structural Polymer Grp., 592 F.3d 893, 896 n.4 (8th Cir. 2010).

         DISCUSSION

         Lunde's complaint comprises three counts. Count One seeks declaratory judgment as to the disputed insurance coverage, Count Two is for breach of contract, and Count Three is for breach of the duties of good faith and fair dealing. Cincinnati has moved to dismiss the second and third counts only. That motion is denied in part and granted in part.

         A. Breach of Contract

         Count Two of Lunde's complaint alleges that Cincinnati breached the Policy by refusing to defend or indemnify Lunde for the claims asserted in the criminal indictment against her. That count also includes a claim for extra-contractual damages if Cincinnati's breach was in bad faith.

         Lunde's breach of contract claim easily withstands Cincinnati's Rule 12 challenge. Under Minnesota law, the elements of breach of contract are “(1) formation of a contract, (2) performance by plaintiff of any conditions precedent to his right to demand performance by the defendant, and (3) breach of the contract by defendant.” Park Nicollet Clinic v. Hamann, 808 N.W.2d 828, 833 (Minn. 2011).[1] Assuming as true Lunde's factual allegations regarding Cincinnati's contractual obligations, Compl. ΒΆΒΆ 18-33, she has clearly stated a plausible claim for breach. ...


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