Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-01950/USCOURTS-ca8-14-01950-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

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No. 14-1882

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Zup’s of Babbitt-Aurora, Inc.; Security National Insurance Co., Inc.

lllllllllllllllllllll Plaintiffs - Appellants

v.

West Bend Mutual Insurance Company, Inc.

lllllllllllllllllllll Defendant - Appellee

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No. 14-1950

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Zup’s of Babbitt-Aurora, Inc.; Security National Insurance Co., Inc.

lllllllllllllllllllll Plaintiffs - Appellees

v.

West Bend Mutual Insurance Company, Inc.

lllllllllllllllllllll Defendant - Appellant

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Appeals from United States District Court 

for the District of Minnesota - Minneapolis

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Appellate Case: 14-1950 Page: 1 Date Filed: 05/21/2015 Entry ID: 4277339 
Submitted: February 10, 2015

 Filed: May 21, 2015

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Before GRUENDER, SHEPHERD, and KELLY, Circuit Judges.

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GRUENDER, Circuit Judge.

This is a suit to determine how two insurers should pay for the income lost

when a supermarket burned down. On cross-motions for summary judgment, the

district court determined that Security National Insurance Co., Inc. (“Security

1

National”) wasliable and West Bend Mutual Insurance Company, Inc. (“West Bend”)

was not. We affirm this holding and dismiss the appeal of West Bend’s counterclaim

as moot.

Zup’s of Babbitt-Aurora, Inc. (“Zup’s”) owned a strip mall in Babbitt,

Minnesota, where it operated a supermarket and rented the remaining space to other

businesses. When the strip mall burned down in 2011, Zup’s lost income from its

supermarket as well as rent from its tenants. Zup’s had two relevant insurance

policies, one from Security National and one from West Bend. The parties agree that

Security National’s policy covered Zup’s lost supermarket income and West Bend’s

policy covered Zup’s lost rent. The question here is whether West Bend is also

responsible for Zup’s lost supermarket income.

TheSecurityNational policy explicitly covered supermarkets. Most obviously,

it repeatedly referred to “supermarkets.” It charged premiums for “caterers.” And it

had endorsements related to “spoilage” and “liquor liability.” This policy covered

The Honorable Patrick J. Schiltz, United States District Judge for the District 1

of Minnesota.

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Appellate Case: 14-1950 Page: 2 Date Filed: 05/21/2015 Entry ID: 4277339 
several Zup’s supermarkets, and one premium wasspecifically allocated to cover the

income of the Babbitt supermarket. 

As relevant here, the West Bend policy covered Zup’s rental income from

leasing space in the strip mall. The policy did not mention supermarkets or charge

supermarket-specific premiums. Further, the phrase “lessor’s risk only” appeared on

the declarations page. This policy, however, ultimately covered Zup’s “actual loss

of Business Income” without specifically limiting “Business Income” to rent or

excluding business income from the supermarket.

Both policies had “other insurance” clauses. Such clauses attempt to order

recovery from multiple insurers. As the policies explained in nearly identical

language, “[i]f there is other insurance covering the same loss or damage,” the insurer

“will pay only for the amount of covered loss or damage in excess of the amount due

from that other insurance.” In short, each policy tried to make any others pay first.

After the fire, Zup’s sought payment from Security National for the lost

supermarket income and payment fromWest Bend for the lostrent. SecurityNational

then learned of the West Bend policy and concluded that West Bend also had insured

the lost supermarket income. Security National agreed to pay Zup’s fully for the lost

supermarket income. Then (together with Zup’s) Security National sued West Bend

for West Bend’s purported share of the payment.

The district court faced three primary issues. First, the insurers disputed

whether the West Bend policy covered the lostsupermarket income at all. West Bend

insisted that its policy covered Zup’s as a “lessor”—that when the policy covered

“actual loss of Business Income,” that meant loss of rent. After all, West Bend

insisted, if the policy had been meant to cover lostsupermarket income, it would have

charged premiums related to supermarkets. SecurityNational, in turn, read the policy

broadly. To Security National, the “Business Income” coverage included lost

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Appellate Case: 14-1950 Page: 3 Date Filed: 05/21/2015 Entry ID: 4277339 
supermarket income, not just rent, because Zup’s was in the supermarket business. 

Second, West Bend counterclaimed for reformation. It argued that if the district court

did find that the West Bend policy covered the lost supermarket income, then the

court should excise that coverage because the parties did not intend to contract for it. 

And third, the insurers disputed the extent of their liabilities if the West Bend policy

covered the lost supermarket income and the court did not reform the policy. In that

case, both policies would cover the lostsupermarket income, but each policy’s “other

insurance” clause would purport to shift the cost onto the other insurer. 

After the insurers filed cross-motions for summary judgment on both Security

National’s claim for payment and West Bend’s counterclaim for reformation, the

district court first concluded that West Bend’s policy covered the lost supermarket

income. It next held that reformation was unwarranted. Finally, the court held that

even though both policies covered the lostsupermarket income, Minnesota law made

only Security National responsible for it.

Although the partiesreargue these three issues on appeal, we reach only the last

one. As we will see, even if the West Bend policy covered the lost supermarket

income and even if the policy should not be reformed, Security National alone is

liable. We thus assume that Security National would prevail on the first two issues,

and we address only the situation in which the West Bend policy, unreformed,

covered the lost supermarket income.

This court reviews a grant of summary judgment de novo. Torgerson v. City

of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). Summary judgment is

proper if “the movant shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 

Here summary judgment turns on West Bend’s liability for Zup’s lost supermarket

income. The parties agree that this is a matter of Minnesota law, which we also

review de novo. See Integrity Floorcovering, Inc. v. Broan-Nutone, LLC,

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Appellate Case: 14-1950 Page: 4 Date Filed: 05/21/2015 Entry ID: 4277339 
521 F.3d 914, 917 (8th Cir. 2008); U.S. Fid. & Guarantee Ins. Co. v. Commercial

Union Midwest Ins. Co., 430 F.3d 929, 933 (8th Cir. 2005). 

When two insurance policies cover the same loss and their “other insurance”

clauses conflict, “Minnesota courts applytwo different testsin apportioning liability.” 

U.S. Fid., 430 F.3d at 934. The first is the “total policy insuring intent” analysis, “a

broader test [that] ‘examines the primary policy risks upon which each policy’s

premiums were based and the primary function of each policy.’” Id. (quoting CPT

Corp. v. St. Paul Fire & Marine Ins. Co., 515 N.W.2d 747, 751 (Minn. Ct. App.

1994)). The second test asks which policy was closer to the risk. Id. “The tests are

similar, though application of the total policy insuring intent analysis is less

mechanical than the closer to the risk analysis.” Id. Ultimately a court will determine

whether insurers are concurrently liable or whether coverage should stack. Integrity

Mut. Ins. Co. v. State Auto. & Cas. Underwriters Ins. Co., 239 N.W.2d 445, 446-47

(Minn. 1976). If, as Security National argues, the insurers are concurrently liable,

“each must pay a pro rata share of the entire loss.” Id. at 447. But if one policy is

primary and the other secondary, then coverage stacks; that is, “the primary insurer

must pay up to its limit of liability, and then the secondary insurer must pay for any

excess up to its own limit.” Id. at 447. Here both tests show that Security National’s

policy was primary and West Bend’s only secondary.

Security National’s “total policy insuring intent” plainly included lost

supermarket income because the policy covered, in its language, “Business Income”

lost by “supermarkets.” Indeed, Security National charged premiums specifically for

supermarkets, and it allocated a premium specifically for the income from the

supermarket that burned. In contrast, the West Bend policy

does not mention supermarkets or grocery stores, and nothing in the

policy even hints that [Zup’s] has any business income other than as a

lessor of space in the strip mall. . . . None of the premium for West

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Appellate Case: 14-1950 Page: 5 Date Filed: 05/21/2015 Entry ID: 4277339 
Bend’s policy was specifically allocated to coverage of lost business

income, much less to coverage of lost business income of a particular

grocery store. An educated layperson who read through the two policies

would readily discern that the Security National policy insured the

income of the Babbitt grocery store, but would have no inkling that the

West Bend policy did likewise.

Zup’s of Babbitt–Aurora, Inc. v. W. Bend Mut. Ins. Co., Inc., No. 12-CV-3084,

2014 WL 1117019, at *6 (D. Minn. Mar. 20, 2014). In short, Security National

provided a policy for supermarkets, and West Bend provided a policy for the strip

mall. We thus have no trouble concluding that Security National’s total policy

insuring intent was to cover lost supermarket income and that West Bend’s was not. 

See Interstate Fire & Cas. Co. v. Auto–Owners Ins. Co., 433 N.W.2d 82, 83, 86

(Minn. 1988) (analyzing coverage for a student’s injury during gym class under the

“total policy insuring intent” test and concluding that homeowner’s insurance

covering the student was secondary to the school’s umbrella policy, which

“contemplated coverage for accidents and injuries sustained on school property

during school events”). 

Similarly, Security National’s policy was closer to the risk. This test asksthree

questions:

(1) Which policy specifically described the accident-causing

instrumentality? (2) Which premium is reflective of the greater

contemplated exposure? (3) Does one policy contemplate the risk and

use of the accident-causing instrumentality with greater specificity than

the other policy—that is, is coverage of the risk primary in one policy

and incidental to the other?

U.S. Fid., 430 F.3d at 934 (quoting Ed Kraemer & Sons, Inc. v. Transit Cas. Co.,

402 N.W.2d 216, 222 (Minn. Ct. App. 1987)). The first factor is a wash because both

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Appellate Case: 14-1950 Page: 6 Date Filed: 05/21/2015 Entry ID: 4277339 
policies specifically contemplated fire as a cause of accidents. Nor is the second

factor helpful because, though the West Bend policy had higher premiums, those

premiums covered broader risks than the specific premiums in the Security National

policy. Cf. U.S. Fid., 430 F.3d at 936. But the third question, whether risk coverage

was primary in only one policy, weighs heavily in favor of the Security National

policy being closer to the risk. As we just explained, Security National provided a

policy for supermarkets and West Bend provided a policy for the strip mall. See Auto

Owners Ins. Co. v. Northstar Mut. Ins. Co., 281 N.W.2d 700, 704 (Minn. 1979)

(analyzing coverage for a boating accident under the “closeness to the risk” test and

concluding that coverage of the risk was incidental in a homeowner’s policy and

primary in a policy “specifically designed to insure against comprehensive liability

for the accident”). We thus conclude that the “closeness to the risk” test, like the

“total policy insuring intent” test, deems Security National’s coverage primary.

2

Security National does not seriously challenge these dispositive

characterizations. Rather, SecurityNational urges usto follow its reading ofNesheim

v. Iowa Mutual Insurance Co., 305 N.W.2d 320 (Minn. 1981). Security National

argues that under Nesheim, where two policies “are on the same property, [on] the

same interest in the property, in favor of the same party, and against the same risks,”

In conducting these two tests, the district court considered extrinsic evidence 2

suggesting that neither Zup’s nor West Bend seemed to think that West Bend insured

the lost supermarket income. Security National objects to the court looking beyond

the language of the policies. Although we have stated that courts do look “beyond

the language of the policies” to determine insurer priority, that statement seems to

have referred to looking beyond the priority rules found in “other insurance” clauses,

not looking beyond the language of the policies as a whole. U.S. Fid.,

430 F.3d at 933 (citing Christensen v. Milbank Ins. Co., 658 N.W.2d 580, 587

(Minn. 2003)). Regardless, we need not address Security National’s concern further. 

Here Zup’s and West Bend’s views make no difference; they only confirm that

Security National was the primary insurer of the lost supermarket income. We thus

need not and do not decide whether the district court properly considered those views.

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then those two policies have concurrent “total policy insuring intent,” and a lossfalls

pro rata on both. Id. at 321-22. And here, under our assumptions, both the Security

National and West Bend policies did insure the same supermarket’s income in favor

of Zup’s against the risk offire. Thus, Security National concludes, Nesheim requires

us to allocate the loss pro rata. But this argument simply omits some of Nesheim’s

language. Consistent with the “total policy insuring intent” test, what Neisheim

actually asks is whether “[t]he intent of each policy was to protect the same interest

in the same property in favor of the same person against a casualty loss by fire.” Id.

at 322 (emphasis added). We have answered this question already.

Because West Bend’s policy wassecondary to Security National’s, West Bend

need pay only if Security National’s coverage was exhausted. See Integrity Mut. Ins.

Co., 239 N.W.2d at 447. Security National does not dispute that its coverage was not

exhausted. Accordingly, with respect to Security National’s complaint, we affirmthe

grant of summary judgment to West Bend. We dismiss the appeal of West Bend’s

counterclaim as moot.

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Appellate Case: 14-1950 Page: 8 Date Filed: 05/21/2015 Entry ID: 4277339