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Midwest Family Mutual Insurance Co. v. Justkyle, Inc.

United States District Court, D. Minnesota

July 19, 2018


          Michael T. Burke, LIND JENSEN SULLIVAN & PETERSON, PA, for plaintiff.

          Mark P. Essling, for defendants.



         The question presented in this case sounds something like a bad riddle: “When is an asbestos case not an asbestos case?” The punchline sounds even worse: When a portion of the property damage alleged against a third-party defendant in the underlying action is not inarguably and clearly a natural and reasonable consequence of the existence of, or presence of, asbestos. Because that is the case in this case, the Court will deny the Motion for Summary Judgment brought by Plaintiff Midwest Family Mutual Insurance Company (“Midwest Family”) in this declaratory judgment action against insured Defendants Justkyle, Inc. (“Justkyle”), and Nicholas Guettler.


         Midwest Family brings this declaratory judgment action to determine whether it is obligated to defend or indemnify its insured, Justkyle, for claims brought against that company in Minnesota state court. (Compl. ¶ 1, May 17, 2017, Docket No. 1.)

         Midwest Family is an Iowa corporation authorized to transact business in Minnesota. (Id. ¶ 3.) Guettler is the owner and sole employee of Justkyle, a Minnesota corporation; Midwest Family insures both parties. (Id. ¶¶ 1, 4-5, 7; Guettler Ans. ¶¶ 3, 6, July 31, 2017, Docket No. 15.) Alleging an amount in controversy greater than $75, 000, Midwest Family properly states that the Court has diversity jurisdiction over this case. (See Compl. ¶¶ 2, 6.)

         Homeowners Eric and Barbara Grutzner brought the underlying state-court action against contractor M.A. Peterson Designbuild, Inc., and Mark Peterson (collectively, “M.A. Peterson”) in 2016. (Compl. ¶ 8, Ex. C (“Grutzner Compl.”), May 17, 2017, Docket No. 1-3.) M.A. Peterson in turn filed third-party claims against Justkyle and another contractor, UMR Geothermal, Inc., for contribution and indemnification. (Compl. ¶ 10, Ex. D (“M.A. Peterson Compl.”), May 17, 2017, Docket No. 1-4.)


         Eric and Barbara Grutzner purchased their Inver Grove Heights home in 2005. (Grutzner Compl. ¶ 6.) The house was built in 1956. (Id. ¶ 7.) The Grutzners contacted their long-time friend, Mark Peterson, to get his professional opinion as to whether they should remodel the house or tear it down and rebuild. (Id. ¶¶ 9-10.) In 2006, Peterson recommended that they hire his firm, M.A. Peterson, to remodel it. (Id. ¶¶ 17, 24.) The Grutzners did so, entering into two contracts - one governing demolition and the other construction. (Id. ¶¶ 25, 28.) Both contracts contained a provision stating that M.A. Peterson would stop work and immediately notify the Grutzners if the contractor encountered any “hazardous substances.” (Id. ¶¶ 26, 29.)

         The 2006 remodel focused on the main floor, but the Grutzners allege that it also involved work in the floors, walls, and basement - areas that contained asbestos. (Compare Id. ¶¶ 39, 41, 44, with M.A. Peterson Compl. ¶¶ 8, 27.) According to the Grutzners, Peterson conceded in the state-court litigation that he discovered asbestos during the course of the 2006 remodel, and that he understood then that the asbestos was a “hazardous substance” under the terms of the contracts. (Grutzner Compl. ¶¶ 46, 57.) Instead of telling the Grutzners about the asbestos, however, M.A. Peterson allegedly concealed its existence and completed the project. (Id. ¶¶ 50, 52.)

         The Grutzers say that they were unaware of the existence of asbestos in their home until 2016, when they hired Justkyle (which is really just Guettler) to remodel the lower level. (See Id. ¶ 54.) According to Guettler, he suspected there was asbestos in the floor titles before he began demolition. (Aff. of Nicholas Guettler (“Guettler Aff.”) ¶ 4, Jan. 16, 2018, Docket No. 40.) He had the tiles removed and abated. (Guettler Aff. ¶ 7, Ex. A (“Guettler Dep.”) 29:12-24.) At one point in the project, Guettler pulled down a piece of ceiling tile with his bare hands, and asbestos insulation fell from around pipes that he believed had been accessed by M.A. Peterson and UMR Geothermal, a contractor who had done work in the home in 2015. (Guettler Dep. 35:25-37:25.) Guettler notified the Grutzners, who notified Peterson. (Grutzner Compl. ¶¶ 55-56.) The Grutzners say Peterson came to the home, acknowledged the asbestos, apologized, and said that M.A. Peterson would take responsibility for the matter - a promise that Peterson promptly reneged. (Id. ¶¶ 57-59.) The Grutzners subsequently filed suit in state court, bringing five claims: Breach of Contracts, Negligence, Breach of Warranty, Breach of Fiduciary Duty, and Fraud by Omission. (Id. ¶¶ 60-84.)

         M.A. Peterson denies all liability, including denying failing to notify the Grutzners about the asbestos or disturbing the asbestos. (M.A. Peterson Compl. ¶ 21.) M.A. Peterson specifically denies doing its remodeling work in the impacted area of the home. (Id. ¶ 27.) M.A. Peterson instead points the finger at Justkyle and UMR Geothermal. (Id. ¶¶ 10-13, 22.) Specifically, Peterson alleges that:

24. To the extent Plaintiffs have been damaged as alleged in the Amended Complaint, such damages were caused by the negligence, breach of contract, breach of warranty, or other acts, omissions, or fault of Third-Party Defendants JustKyle, Inc. or UMR Geothermal, Inc., or both of them.
25. Third-Party Defendants performed construction and remodeling work in the lower-level areas of the Home - the exact same areas where the allegedly disturbed asbestos materials were found - long after M.A. Peterson performed its remodeling work in other areas of the Home.
26. To the extent any asbestos materials were disturbed in the Home, Third-party Defendants are responsible for disturbing those materials.
27. M.A. Peterson did not perform its remodeling work in the allegedly impacted areas.
28. To the extent Third-Party Plaintiffs are found liable to the Plaintiffs, Third-Party Plaintiffs are entitled to contribution and/or indemnification from Third-Party Defendants.

(Id. ¶¶ 24-28.) M.A. Peterson did not identify Guettler as the owner or sole employee of Justkyle and did not name him as a third-party defendant; thus, as relevant here, it brought claims solely against Justkyle. (See generally id.)


         Midwest Family brings this case in federal court pursuant to the Declaratory Judgment Act. See 28 U.S.C. § 2201.

         Midwest Family issued an “Artisan Contractor Policy” (“the policy”) insuring “Nick Guettler DBA: Justkyle Inc.” from September 28, 2015, through September 28, 2016, and subsequently renewed through September 28, 2017. (Compl. ¶ 7, Ex. A (“2015-2016 Policy”) at 1, May 17, 2017, Docket No. 1-1; Compl. ¶ 7, Ex. B (“2016-2017 Policy”) at 1, May 17, 2017, Docket No. 1-2.) Guettler states that the policy incorrectly identifies his relationship with Justkyle because he is not doing business as Justkyle, Inc., but rather, Justkyle is a corporation and Guettler its sole employee. (Guettler Ans. ¶ 6.) At the hearing on this motion, Guettler's counsel stated that Guettler understood the policy as insuring his corporation, a claim that Midwest Family did not dispute. (Minute Entry, Mar. 13, 2018, Docket No. 44.) The policy states that, if an insured is “designated in the Declarations as:” a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner. . . .

d. An organization other than a partnership, joint venture, or limited liability company, you are an insured. Your “executive officers” and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also ...

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