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Occidental Fire & Casualty Company of North Carolina v. Interstate Risk Placement, Inc.

United States District Court, D. Minnesota

July 2, 2018

OCCIDENTAL FIRE & CASUALTY COMPANY OF NORTH CAROLINA, Plaintiff,
v.
INTERSTATE RISK PLACEMENT, INC., Defendant and Third-Party Plaintiff,
v.
OLSON INSURANCE AGENCY, INC.; and MARY OERTLI, Third-Party Defendants.

          Patrick J. Larkin, LIND, JENSEN, SULLIVAN & PETERSON, P.A., for plaintiff Occidental Fire & Casualty Company of North Carolina.

          Rolf E. Sonnesyn and Beth L. LaCanne, TOMSCHE, SONNESYN & TOMSCHE, P.A., for defendant and third-party plaintiff Interstate Risk Placement, Inc.

          Ken D. Schueler and Jennifer M. Peterson, DUNLAP & SEEGER, P.A., for third-party defendants Olson Insurance Agency, Inc., and Mary Oertli.

          Patrick J. Schiltz United States District Judge

         Plaintiff Occidental Fire & Casualty Company of North Carolina (“Occidental”) is an insurance company. Defendant Interstate Risk Placement, Inc. (“Interstate”) served as Occidental's general agent, with authority to issue policies on Occidental's behalf. In August 2008, Interstate issued a liability policy to a trucker named Thomas Hipp, who purchased the policy through his agents, third-party defendants Olson Insurance Agency, Inc. and Mary Oertli (collectively “Olson”). Consistent with his longstanding practice, Hipp asked for $500, 000 in coverage, and everyone involved in the transaction-Hipp, Olson, Interstate, and Occidental-intended that the coverage limits of Hipp's policy be $500, 000.

         Months later, Hipp was involved in a collision in which the other driver was killed. In the wake of the accident, Hipp's insurance policy was closely examined, and a typographical error was discovered: Hipp's coverage limits were incorrectly identified as $1 million in one of the endorsements. Hipp's coverage limits were correctly identified as $500, 000 in the declarations page, in the certificate of insurance issued to Hipp, and in every other document related to the policy.

         The typographical error proved costly to Occidental. In later coverage litigation, Hipp's policy was found to be ambiguous because of the typographical error, that ambiguity was resolved against Occidental, and Occidental was ordered to pay $1 million to the estate of Hipp's victim. Occidental then filed this lawsuit against Interstate. Occidental argues that Interstate is responsible for the typographical error; that, but for the error, Occidental would have owed the estate of Hipp's victim only $500, 000; and that Interstate must now indemnify Occidental for the extra $500, 000 under the terms of the agency agreement between the parties.

         Interstate admits that it is responsible for the typographical error; that the error was a but-for cause of $500, 000 in damages to Occidental; and that, as a general matter, Interstate is contractually obligated to indemnify Occidental for damages caused by Interstate's errors. Interstate argues, however, that Occidental cannot recover the extra $500, 000 from Interstate because Occidental failed to reasonably mitigate its damages. Specifically, Interstate contends that the lawyer who represented Occidental in the coverage litigation failed to competently argue that coverage was limited to $500, 000 under the reasonable-expectations doctrine-that is, Minnesota case law holding that an ambiguous insurance policy cannot be construed to provide coverage that is “beyond the reasonable expectations of the insured.” Rusthoven v. Commercial Standard Ins. Co., 387 N.W.2d 642, 645 (Minn. 1986). Had the lawyer done so, Interstate contends, Occidental would not have been ordered to pay the extra $500, 000 to the estate of Hipp's victim.

         This matter is before the Court on the parties' summary-judgment motions. For the reasons that follow, the Court agrees with Interstate that Occidental failed to act reasonably in mitigating its damages, and the Court therefore finds that Interstate is not required to indemnify Occidental for the extra $500, 000. Instead, the Court finds that Interstate is required to indemnify Occidental only for the amount of attorney's fees that Occidental incurred in litigating the question of whether the coverage limits of Hipp's policy were $500, 000 or $1 million.

         The Court takes no pleasure in its holding. Occidental was poorly served by Interstate, which necessitated Occidental's involvement in coverage litigation in the first place. Occidental was then poorly served by the attorney who represented it in that coverage litigation, which resulted in Occidental having to pay $1 million to the estate of Hipp's victim when it should have had to pay only $500, 000. Ultimately, however, Occidental is responsible for the mistakes of its agents.[1]

         I. BACKGROUND

         Occidental is an insurance company owned by IAT Insurance Group. Lindemann Dep. 15. Occidental offers a variety of insurance products, including liability insurance for commercial truckers. Cf. Lindemann Dep. 181.

         Interstate is an insurance agency. It issues insurance policies on behalf of Occidental and other insurance companies. Sutton Dep. 29-30, 41. For many years, Interstate operated as a managing general agent for Occidental. Sutton Dep. 17-18; Lindemann Dep. 16. Occidental authorized Interstate to “receive and accept proposals for insurance; to effect, issue, countersign and deliver” insurance policies for Occidental; to “collect” and “receive” premiums for those policies; and “to cancel or non-renew” those policies at its discretion. Larkin Aff. Ex. 1 at 1. Interstate was paid a commission for its services, and Interstate agreed to indemnify Occidental “for any damages resulting directly or indirectly from any . . . breach of [Interstate's] obligations, acts or omissions under this Agreement, whether intentional or not.” Id. at 2, 4.

         Olson is an insurance broker and retail agent owned by Oertli. Oertli Dep. 22; Fuller Dep. 17, 19, 22; Lindemann Dep. 16. Olson worked with general agents such as Interstate to place insurance coverage for commercial truckers. Oertli Dep. 24-25; Sutton Dep. 41. When a new policy was issued to a trucker by Interstate on behalf of Occidental, Olson would receive a courtesy copy of that policy, and Olson would send a copy of the insurance certificate to the trucker. Olson would also collect premiums from the trucker and remit those premiums to Interstate. Oertli Dep. 117, 135-40, 148-49.

         Hipp is a trucker who hauled cargo for Airline Transportation Specialists, Inc. (“ATS”). ATS purchased insurance from Great West Casualty Company (“Great West”), and that insurance covered Hipp when he was acting on behalf of ATS. Occidental Fire & Cas. Co. of N.C. v. Soczynski, No. 11-CV-2412 (JRT/JSM), 2013 WL 101877, at *1-3 (D. Minn. Jan. 8, 2013) (Occidental I), aff'd, 765 F.3d 931 (8th Cir. 2014). ATS also required Hipp to purchase “bobtail” insurance coverage-that is, insurance that covered Hipp when he was driving his truck for personal reasons. Id.; Lindemann Dep. 25-26.

         Hipp[2] purchased bobtail insurance from Occidental in 2003 and every year thereafter, always seeking and always receiving $500, 000 in coverage. Hipp Dep. 13-21; Oertli Dep. 45-61. In August 2008, Hipp renewed his insurance for the period August 1, 2008, to August 1, 2009. Oertli Dep. 61-63. As usual, Hipp asked for $500, 000 of coverage. Hipp Dep. 22-24. As usual, Hipp paid for $500, 000 of coverage. Lindemann Dep. 26, 54, 86, 93, 100. And as usual, Hipp thought that he had received $500, 000 of coverage. Hipp Dep. 24. Indeed, everyone involved in the transaction-Hipp, Olson, Interstate, and Occidental-believed that Hipp had received $500, 000 in coverage. Hipp Dep. 24 (Hipp); Oertli Dep. 77-78, 80-82, 130-32 (Olson); Sutton Dep. 88-89, 103, 106-07, 127 (Interstate); Fuller Dep. 45-48, 73-74 (Interstate); Lindemann Dep. 205-06 (Occidental).

         The declarations page of Hipp's policy correctly identified the coverage limits as $500, 000, as did the certificate of insurance issued to Hipp and various other documents issued in connection with the policy. Hipp Dep. 21; Oertli Dep. 56-68; Sutton Dep. 103; Lindemann Dep. 80-81. But one of the endorsements to the policy incorrectly identified the coverage limits as $1 million. Oertli Dep. 77-78. That was a mistake. It is undisputed that “everybody thought this was a $500, 000 policy, ” and “it should have been a $500, 000 policy but for the mistake that happened.” Sutton Dep. 89.

         In March 2009, Hipp was driving his truck when he crossed the center line of a two-lane road and crashed into an SUV driven by Amy Soczynski. Occidental I, 2013 WL 101877, at *4. Soczynski was killed. Her estate sued ATS (insured by Great West) and Hipp (insured by Great West and Occidental) in state court. Great West tendered its policy limits of $1 million to the estate, but Occidental denied coverage, arguing that, at the time of the accident, Hipp was driving on behalf of ATS and therefore was not covered under the bobtail policy.

         Occidental brought a declaratory-judgment action against Soczynski's estate and Hipp, seeking a declaration that its bobtail policy did not provide any coverage to Hipp in connection with the accident that killed Soczynski. The estate moved for summary judgment that Hipp was covered by Occidental's bobtail policy at the time of the accident. The estate also sought summary judgment that the policy limits were $1 million. The estate argued that the typographical error created an ambiguity regarding the amount of coverage and that the ambiguity had to be resolved against Occidental.

         In responding to the estate's summary-judgment motion, Occidental devoted almost its entire brief to arguing that Hipp was not covered at all by the bobtail policy because he was working for ATS at the time of the accident. Occidental devoted just two paragraphs-comprising less than one page of its brief-to arguing that if Hipp was covered, the coverage limits were $500, 000. Case No. 11-CV-2412, ECF No. 21 at 6. In those two paragraphs, Occidental argued simply that because the policy limits were identified as $1 million only once in an endorsement, and because the policy limits were identified as $500, 000 on the declarations page, on the certificate of insurance issued to Hipp, and in other documents related to the policy, “[t]he only reasonable reading of the Occidental Policy is that the limit of coverage is $500, 000.” Id.

         Inexplicably, Occidental did not argue-even in the alternative-that under Minnesota law, the result of any construction of an ambiguous policy “must not be beyond the reasonable expectations of the insured.” Rusthoven, 387 N.W.2d at 645. And Occidental did not submit any admissible evidence regarding Hipp's expectations. Indeed, even though Hipp was deposed twice, Occidental failed to ask him a single question about his expectations.

         Judge John R. Tunheim granted the estate's summary-judgment motion. Almost all of Judge Tunheim's lengthy order was devoted to explaining why he found that Hipp was covered under the Occidental policy at the time of the accident. Occidental I, 2013 WL 101877, at *1-15. But in two brief paragraphs at the end of his order, Judge Tunheim found that the coverage limits of the Occidental policy were $1 million, not $500, 000. Judge Tunheim's analysis was perfunctory, reflecting the perfunctory manner in which Occidental had briefed the issue:

The inconsistencies in the policy create an irreconcilable conflict and render the policy ambiguous. See Rusthoven, 387 N.W.2d at 644-45. The Court construes this ambiguity in favor of Hipp and concludes that the Occidental policy limit is $1, 000, 000. See Id. at 645. The Court further concludes that construing the Occidental policy to provide liability coverage of $1, 000, 000 does not exceed the reasonable expectations of Hipp. See Id. (concluding that resolving a conflict between liability limits of $25, 000 and $1, 675, 000 in favor of the larger limit did not exceed the reasonable expectations of the insured).

Id. at *15.

         Notably, in support of his conclusion “that construing the Occidental policy to provide liability coverage of $1, 000, 000 does not exceed the reasonable expectations of Hipp, ” Judge Tunheim did not cite a single piece of evidence about Hipp's expectations, no doubt because the record did not contain a single piece of evidence about Hipp's expectations. Instead, Judge Tunheim cited Rusthoven, a case in which the Minnesota Supreme Court found a policy to be ambiguous because it identified two different coverage limits, resolved the ambiguity in favor of the higher limits, and in a single sentence declared that the higher limits did not ...


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