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LLC v. Lambert Commercial Construction LLC

Court of Appeals of Minnesota

December 16, 2019

King's Cove Marina, LLC, Respondent,
v.
Lambert Commercial Construction LLC, et al., Defendants, United Fire & Casualty Company, Appellant.

          Washington County District Court File No. 82-CV-14-527

          Stephen P. Watters, Watters Law Office, Minnetonka, Minnesota; and Mark R. Bradford, Bassford Remele, Minneapolis, Minnesota (for respondent)

          Kay Nord Hunt, Keith J. Broady, Bryan R. Feldhaus, Lommen Abdo, P.A., Minneapolis, Minnesota (for appellant)

          Considered and decided by Cochran, Presiding Judge; Slieter, Judge; and Klaphake, Judge. [*]

         SYLLABUS

         A Miller-Shugart settlement agreement that fails to allocate covered and non-covered damages is unreasonable as a matter of law and unenforceable against the insurer.

          OPINION

          SLIETER, JUDGE

         This appeal arises out of a Miller-Shugart settlement agreement[1] between respondent King's Cove Marina LLC and defendant Lambert Commercial Construction LLC, and a subsequent garnishment action filed by the marina against Lambert's insurance company, appellant United Fire & Casualty Company. The district court granted partial summary judgment in the marina's favor on coverage issues and approved the Miller-Shugart settlement agreement. On appeal, United Fire argues that the district court erred by granting partial summary judgment in the marina's favor on coverage issues and by approving the Miller-Shugart settlement agreement. Because an applicable policy exclusion limits Lambert's coverage and the Miller-Shugart settlement agreement failed to allocate between covered and non-covered damages, the agreement is unreasonable as a matter of law. As a result, we reverse and remand the district court's grant of partial summary judgment. Because we reverse and remand, we do not reach the additional arguments asserted by United Fire or the argument asserted by the marina on cross-appeal.

         FACTS

         King's Cove Marina is a full-service marina in Hastings. In 2011, the marina sought to expand and remodel its main building by installing new exterior walls, a new ceiling, new windows, and a new second-level mezzanine floor above the showroom floor. The marina hired Lambert to perform construction work on the remodeling project, although the parties disagree over the nature and extent of Lambert's involvement. The marina claims that Lambert served as the project's general contractor, while Lambert argues that it was hired on a time-and-materials basis. However, it is uncontested that Lambert supplied pre-engineered metal building products, supplied and erected the metal building addition, supplied the exterior metal roof and metal wall paneling, supplied the metal insulation, and supplied and installed window trim. Lambert also hired Roehl Construction, Inc. as a subcontractor to install new concrete footings on the main level of the building and to provide concrete for the second-level mezzanine floor.

         During the course of the remodeling project in 2012, the marina's president wrote a letter to Lambert explaining that there were problems with "extremely large cracks" on the first and second floors, and "cracking, popping and buckling" of the concrete floor. The letter stated that both the first and second floors required "significant and expensive repairs to the concrete and in floor heating system." The marina also identified problems with leaking from the walls and the roof, leading to damage to the interior finishes and to ceiling tiles, carpet, and sheetrock. The marina refused to pay the outstanding balance on Lambert's invoices and, in response, Lambert stopped performing work on the project.

         In July 2013, the marina initiated a civil action against Lambert, asserting causes of action for breach of contract and negligence.[2] Specifically, the marina alleged that the concrete floors on the first and second levels were not constructed in accordance with industry standards or with project plans and specifications, resulting in excessive movement and cracking of the new concrete floors. The marina also alleged defects with Lambert's metal building products and metal roof, and claimed that the in-floor heating systems were not installed properly, causing the concrete floors to move, crack, and expand. Lambert tendered its defense to its insurer, United Fire, who defended Lambert under a reservation of rights to deny any duty to defend or indemnify Lambert.

         In July 2015, two years after the initial lawsuit, United Fire commenced a declaratory-judgment action against Lambert and the marina, seeking a ruling that United Fire did not have a duty to defend or indemnify Lambert under the terms of its commercial general liability and umbrella insurance policies. While the declaratory-judgment action was pending, Lambert and the marina entered into settlement negotiations to resolve the underlying lawsuit. United Fire received notice of a proposed Miller-Shugart settlement, but did not participate in the settlement discussions.

         On June 23, 2016, Lambert and the marina entered into a Miller-Shugart settlement agreement in which Lambert confessed judgment in the marina's favor in the amount of $2 million, plus interest. The Miller-Shugart settlement agreement was expressly limited to claims and damages for work performed by Lambert. On July 18, 2016, the district court approved the Miller-Shugart settlement agreement between the marina and Lambert and entered judgment against Lambert.

         Following approval of the Miller-Shugart settlement agreement, the marina moved to file a supplemental complaint for garnishment against United Fire, and the district court granted that motion. United Fire answered, asserting in part that the settlement was unreasonable to the extent it incorporated, but failed to allocate, covered and non-covered damages.

         In November 2016, the marina moved for partial summary judgment against United Fire, seeking a determination that there is insurance coverage under the terms of the policies.

         In April 2017, the district court determined that there was insurance coverage for the claims and damages asserted by the marina against Lambert. The district court concluded that United Fire provided coverage and insured Lambert "for defects related to or arising from the work and operations performed by Lambert on the project, the products or goods incorporated in the project, and the work performed 'on its behalf,' such as by [Lambert's subcontractors]."

         In August 2018, following a hearing, the district court issued an order determining that the Miller-Shugart settlement agreement between the marina and Lambert was reasonable and enforceable against United Fire. The district court also issued an amended order for judgment removing Lambert as the judgment debtor and naming United Fire as the judgment debtor for the judgment entered against Lambert on July 18, 2016. United Fire filed posttrial motions for a new trial or for amended findings, which the district court denied. The district court also denied the marina's motion for pre- and post-judgment interest. These appeals follow.[3]

         ISSUES

         I. Did the district court err in determining that Lambert had insurance coverage for the claims and damages asserted by the marina and settled in the Miller-Shugart settlement agreement?

         II. Did the district court err in determining that the Miller-Shugart settlement agreement was reasonable and prudent despite its lack of ...


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