Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-13-01754/USCOURTS-ca8-13-01754-0/pdf.json

Parties Involved:
Northwest Airlines, Inc.
Appellee
Professional Aircraft Line Service
Not Party
Westchester Fire Insurance Company
Appellant

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 13-1754

___________________________

Northwest Airlines, Inc.

lllllllllllllllllllllCreditor - Appellee

v.

Professional Aircraft Line Service

lllllllllllllllllllllDebtor

Westchester Fire Insurance Company

lllllllllllllllllllllGarnishee - Appellant

____________

Appeal from United States District Court 

for the District of Minnesota - Minneapolis

____________

 Submitted: October 8, 2014

 Filed: January 14, 2015

____________

Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.

____________

RILEY, Chief Judge.

This case began with an uncontrolled, runaway commercial aircraft at Las

Vegas’s McCarran International Airport (McCarran Airport). After the aircraft came

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to a rest at the bottom of an embankment, the resulting property damage and loss-ofuse of the aircraft totaled over $10 million. The aircraft’s owner, Northwest Airlines,

Inc. (Northwest), obtained a default judgment in Minnesota state court against

Professional Aircraft Line Service (PALS), the maintenance company responsible for

the wreck. In this garnishment action, Northwest seeks to recover part of the amount

of this default judgment from PALS’s insurer, Westchester Fire Insurance Company

(Westchester). The district court granted summary judgment in Northwest’s favor. 

Although this case raises unanswered questions ofstate law, we ultimately agree with

the district court’s reasoning, and therefore affirm.

1 2

I. BACKGROUND

A. Insurance Coverage and Requirements

PALS is an aircraft maintenance company that services commercial airplanes

at McCarran Airport in Clark County, Nevada. PALS obtained a Temporary

Operating Permit (permit) with Clark County allowing PALS to operate at McCarran

Airport. The permit required PALS to maintain a minimum level of insurance for

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certain specified coverage types, none of which included hangarkeepers liability

insurance.

Clark County also has a compulsory insurance ordinance relating to McCarran

Airport:

The Honorable John R. Tunheim, United States DistrictJudge for the District 1

of Minnesota.

We have appellate jurisdiction under 28 U.S.C. § 1291. 2

Although both parties cite the permit asif it were in effect during the February 3

6, 2002, incident, the permit states an effective date of February 1, 2001, and

provides, “The term of this Permit shall be for a period not-to-exceed one hundred

eighty (180) days from the effective date.” The record shows successive temporary

permits were issued to replace prior ones.

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Each operator not otherwise providing insurance as hereinafter set forth

pursuant to an existing agreement with Clark County, Nevada, shall, at

its own expense, keep in force insurance of the following types and in

not less than the following amounts, . . . insuring itself against all

liabilities for accidents arising out of or in connection with the

operator’s use and occupancy of and/or operations at the airport . . . :

. . .

(c) Hangarkeepers liability insurance in an amount adequate to

cover any non-owned property in the care, custody and control of

the operator on the airport, but in any event in an amount not less

than five million dollars, combined single limit.

Clark County, Nevada, Code of Ordinances (Clark County Code) § 20.10.020.

PALS obtained hangarkeepers liability insurance from Westchester with $5

million per occurrence and per aircraft limits. As a condition of coverage, the policy

required PALS to ensure that Westchester was notified “as soon as practicable” of

any covered claim orsuit against PALS. The policy also required PALS to cooperate

with Westchester “in the investigation, settlement or defense of” any claim or suit

against PALS.

B. Northwest and the Underlying Accident

Northwest contracted with PALS to service and maintain Northwest’s aircraft

at McCarran Airport. The agreement between Northwest and PALS required PALS

to indemnify Northwest for any loss arising from the negligence of PALS’s

employees and required PALS to maintain at least $25 million of commercial general

liability insurance, including hangarkeepers liability coverage.

On February 6, 2002, a PALS employee failed to engage properly the parking

brake on a Northwest aircraft. As a result, the uncontrolled aircraft rolled down an

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embankment, causing more than $7 million in property damage to the aircraft and

more than $3 million for loss of use.

C. Prior Litigation

In a letter in early November 2003, Northwest’s counsel informed Westchester

of the accident. Nearly a year later, in October 2004, Northwest served PALS with

a Minnesota state court complaint seeking damages for the accident. PALS never

responded to the complaint. On November 15, 2004, Northwest advised Westchester

of the lawsuit and potential default judgment and demanded Westchester tender the

$5 million policy limit. On January 4, 2005, having received no response from

PALS, Northwest moved for default judgment. The Minnesota state court granted the

motion and entered a default judgment against PALS on January 10, 2005, for over

$10 million.

In December 2005, Westchester sued Phil Mendez, PALS’s owner, in the

United States District Court for the District of Nevada, seeking a declaration it had

no obligation to provide PALS coverage in light of PALS’s failure to cooperate with

Westchester or notify Westchester of the aircraft accident. See Westchester Fire Ins.

Co. v. Mendez, No. 2:05-CV-01417-PMP, 2010 WL 2694960, at *2 (D. Nev. July 1,

2010). Northwest moved to intervene to protect its interest in the proceeds of the

Westchester policy, and the Nevada federal court granted the motion. See id. 

Because PALS failed to “meaningfully participate” in the Nevada suit, the Nevada

federal court granted Westchester’s motion for default judgment and declared

Westchester was not obligated to pay the loss. Id. The Nevada federal court also

bound Northwest to the judgment because Northwest chose voluntarily to intervene. 

See id. On appeal, the Ninth Circuit vacated the judgment and remanded, concluding

Northwest could not be bound by PALS’s failure to defend itself. See Westchester

Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1190 (9th Cir. 2009).

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On remand, the Nevada federal court held Westchester was entitled to a default

judgment against PALS but declined to decide whether Westchester could be directly

liable to Northwest. See Mendez, 2010 WL 2694960, at *6, *8-9. Instead, the

Nevada federal court determined Northwest would need to raise a direct claimagainst

Westchester in a separate lawsuit. See id. at *6.

D. This Case

Following the decision of the Nevada federal court, Northwest filed this

garnishment suit against Westchester in Minnesota state court. Westchester removed

to federal court and argued PALS’s failure to provide notice and to cooperate

extinguished Westchester’s payment obligation. Northwest moved for summary

judgment, arguing that because PALS was subject to Clark County’s mandatory

insurance ordinance, PALS’s failure to provide notice and to cooperate did not permit

Westchester to avoid covered liability. The district court conducted a choice-of-law

analysis, concluding that neither the Minnesota nor Nevada state courts have

addressed what it called the “compulsory insurance doctrine” in situations such as

this, but that both appear willing to do so. Applying Minnesota law, the district court

concluded the Clark County ordinance obliged Northwest to provide hangarkeepers

liability insurance to protect parties like Northwest. Given this purpose, the district

court reasoned insurance coverage could not be avoided for an insured’s simple

failure to satisfy the technical post-loss conditions on his statutorily mandated

coverage. Because this reasoning disposed of Westchester’s bases for denying

coverage, the district court granted summary judgment in Northwest’s favor. 

Westchester appeals.

II. DISCUSSION

“On appeal, this court reviews grants of summary judgment de novo, and

reviews the evidence and all reasonable inferences in the light most favorable to the

nonmoving party.” Moody v. Vozel, 771 F.3d 1093, 1096 (8th Cir. 2014) (quoting

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Davis v. Jefferson Hosp. Ass’n, 685 F.3d 675, 680 (8th Cir. 2012)) (internal marks

omitted).

Westchester’s appeal is limited solely to legal arguments challenging the

district court’s application of what it called the “compulsory insurance doctrine” to

the circumstances of this case. “‘Minnesota law applies, as Minnesota is the forum

state and neither party has raised a choice-of-law claim’” on appeal. NetherlandsIns.

Co. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014) (quoting

Progressive N. Ins. Co. v. McDonough, 608 F.3d 388, 390 (8th Cir. 2010)).

A. Scope of the Clark County Ordinance

Westchester argues the compulsory insurance doctrine cannot apply because

PALS was under no obligation to carry hangarkeepers liability insurance. 

Westchester reasons the ordinance excepts PALS from its insurance requirements

because PALS, by virtue of the insurance obligations in its operator’s permit, was

“otherwise providing insurance as hereinafter set forth pursuant to an existing

agreement with Clark County.” Clark County Code § 20.10.020. Westchester reads

this phrase to mean the ordinance’s “insurance provisions apply unless insurance

requirements are otherwise provided for under an agreement with the County.” This

reading—simply requiring an agreement containing any insurance

requirements—ignores the ordinance language excepting an operator only if its

agreement with Clark County requires the operator to provide the insurance “as . . .

set forth” in the ordinance’s listed insurance obligations. Id. (emphasis added). 

Giving effect to this phrase, the district court read the ordinance as exempting

operators “from its requirements with respect to a particular type of insurance only

to the extent that those operators are subject to county agreements that require them

to obtain that type of insurance.” We need not say whether the district court’s reading

is best because the prefatory language makes clear to us that the ordinance’s

requirement as to a particular type of insurance applies where an agreement is silent

as to that type of insurance. Here, PALS’s permit did not refer to hangarkeepers

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liability insurance, so under any reasonable reading, PALS was not excused from the

ordinance’s hangarkeepers requirement.

B. Compulsory Insurance Doctrine

Having concluded the ordinance applied to PALS, we turn to whether the

ordinance affects Westchester’s obligation to pay Northwest. 

Ordinarily, an injured party’s right to recover depends on the insured’s

coverage, and an insurer’s obligation to indemnify the insured depends on the insured

satisfying its policy responsibilities. See Franklin v. Carpenter, 244 N.W.2d 492, 495

(Minn. 1976) (noting that with liability insurance “the rights of the [injured third

parties] are derived from those of the insured” (alteration in original) (quotation

omitted)). However, “[i]n the case of liability policies issued pursuant to, and in

compliance with, compulsory insurance or financial responsibility statutes, the rule

followed generally . . . is that the injured person is not subject to defenses arising out

of the breach of conditions subsequent to the accident even though they would be

available to the insurer as against the insured.” 7A Steven Plitt, et al., Couch on

Insurance § 106:27 (3d ed. 2014); accord Young v. Allstate Ins. Co., 282 S.E.2d 115,

116 (Ga. 1981) (stating this is the majority rule); Kambeitz v. Acuity Ins. Co., 772

N.W.2d 632, 638 (N.D. 2009). This is because “such statutes are for the benefit of

members of the public and not of the insured,” Couch on Insurance, supra § 106:27,

and most courts reason the “beneficial purpose of compulsory insurance would be

thwarted in the event the insurer be permitted technical defenses under the policy

relating to conditions” the performance of which the injured person is wholly unable

to control, Royal Indem. Co. v. Olmstead, 193 F.2d 451, 453 (9th Cir. 1951). See

Gabrelcik v. Nat’l Indem. Co., 131 N.W.2d 534, 536 n.7 (Minn. 1964) (citing several

of these cases and explaining, “The rationale is that the licensing authority requires

insurance coverage for the public’s protection and this rule prevents thwarting that

objective”); see also Young, 282 S.E.2d at 116; Cotner v. Grissley, 447 S.W.2d 603,

605 (Ky. 1969).

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Nearly fifty years ago, the Minnesota Supreme Court considered a case

involving a driver who maintained liability coverage consistent with his obligation

under Minn. Stat. § 170.40, subd. 6(1) (1969), but who, after a collision, “fail[ed] to

notify the insurer that the car involved in the accident was a replacement of the one

originally insured.” Nimeth v. Felling, 165 N.W.2d 237, 238 (Minn. 1969). Despite

the insured’s failing, the Minnesota Supreme Court permitted the injured third party

to recover from the insurer directly, relying on the “ample authority to the effect that

the insurer on a compulsory insurance liability policy may be held liable to one

injured by the insured notwithstanding the fact that the insured himself has lost his

rights under the policy by failure to comply with its terms and conditions.” Id. at 239. 

Because the liability policy was statutorily mandated and the injured party was “a

member of the public for whose benefit the legislature has required issuance of” the

policy in the first place, “[t]he rights of the injured person [we]re independent of and

[we]re not derived from those of the insured.” Id. (emphasis added). The court also

reasoned that the legislature expressly incorporated these principles into the statute

itself, which stated that the insurer’s liability “shall become absolute whenever injury

or damage covered by said motor vehicle liability policy occurs; . . . and no violation

of said policy shall defeat or void said policy,” Minn. Stat. § 170.40, subd. 6(1)

(emphasis added). See Nimeth, 165 N.W.2d at 239. 

Although the compulsoryinsurance doctrine appears generally accepted among

jurisdictions, particularly with respect to auto insurance, it has not often been applied

in other contexts. Given the unusual circumstances here, Westchester identifies a

number of issues which make the doctrine’s application in this case a close question.

1. Statutory Language and Purpose

Westchester points to the absence of language in the ordinance making the

insurer’s liability “‘absolute’ upon the occurrence of a covered incident” or “stat[ing]

that post-incident conduct of the insured cannot void coverage.” See, e.g., Minn.

Stat. § 170.40, subd. 6(1). While this language does distinguish the ordinance here

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from the statute in Nimeth, it fails to put the present situation beyond the rationale of

the compulsory insurance doctrine. “Most of the cases dealing with this question

involve statutes or policies specifically depriving the insurer of the kind of defense

urged here,” Royal Indem., 193 F.2d at 454, but the reasons for denying the insurer

these defenses do not necessarily depend on specific statutory language—the

rationale instead focuses on effectuating the statute’s purpose. See Kambeitz, 772

N.W.2d at 638 (deciding the doctrine can be “based either on specific statutory

provisions or the overriding purpose of statutory schemes”). For this reason, courts

have applied the doctrine where the ordinance’s clear purpose was to protect a class

of the public to which the injured party belongs. See Royal Indem., 193 F.2d at 454;

Young, 282 S.E.2d at 117; Allen v. Canal Ins. Co., 433 S.W.2d 352, 354 (Ky. 1968);

Ott v. Am. Fid. & Cas. Co., 159 S.E. 635, 636 (S.C. 1931). Although Westchester

contends the ordinance exists for other reasons, we agree with the district court that

the Clark County ordinance is intended at least in part to “protect[] injured third

parties such as [Northwest].”

Westchester also correctly observes that courts encounter the compulsory

insurance doctrine most often in the context of statutes requiring auto liability

insurance. The doctrine, however, is not necessarily limited to that paradigm, see,

e.g., Capitol Indem. Corp. v. Lowe, 166 F.3d 346 (10th Cir. 1998) (unpublished table

decision), and Westchester has not provided a case suggesting otherwise.

Westchester next maintains “Northwest was not an injured member of the

general public” and “PALS was not an entity either serving or directly interacting

with members of the general public.” The ordinance’s protected class need not

embrace the general public in its entirety because the doctrine applies insofar as the

injured party belongs to the protected segment of the public. See Royal Indem., 193

F.2d at 453 (declaring that for the doctrine to apply, the plaintiff must be “an injured

member of the public within the class sought to be protected by statute” (emphasis

added)); see, e.g., Dave Ostrem Imports, Inc. v. Globe Am. Cas./GRE Ins. Grp., 586

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N.W.2d 366, 368 (Iowa 1998) (“motoring public”); Great Am. Ins. Co. v. Brad

Movers, Inc., 382 N.E.2d 623, 626 (Ill. Ct. App. 1978) (“members of the public

utilizing public warehouses”). The class protected here is anyone whose property is

“in the care, custody and control of the operator on the airport,” Clark County Code

§ 20.10.020(c), whether it be a commercial aircraft or otherwise.4

2. Contractual Relationship

Westchester next makes a number of arguments drawing attention to the

contractual relationship between PALS and Northwest. Westchester first proposes

this case is unlike the negligent driver situation (where this doctrine most often

arises) because PALS injured its “contracting partner” in the context of a “private

contractual relationship.” Westchester neglects to demonstrate how this fact

undermines the doctrine’s application. The ordinance protects “any non-owned

property in the care, custody and control of the operator on the airport,” see Clark

County Code § 20.10.020(c) (emphasis added), giving no regard to the presence or

absence of an ongoing business relationship.

Westchester mainly contendsthe compulsoryinsurance doctrine does not apply

“where injured parties have some other avenue available . . . to recover

compensation” or where it is not “‘wholly outside the ability of the injured person’

to secure performance by the tortfeasor of policy conditions such as notice and

cooperation.” (Quoting Royal Indem., 193 F.2d at 453). We do not disagree with

thisreasoning as a logical matter, but the record here does not suggest Northwest had

any other unexplored avenue of compensation for the damages sought here or any

Westchester also reasons the Clark County ordinance “does not apply to a

4

broad class of actors analogous to parties seeking a license to sell propane to the

public atretail, operating a public warehouse, providing taxicab servicesto the public

or operating a motor vehicle on public roads,” but we do not understand (and

Westchester does not explain) how the number of prospective insureds is relevant to

the rationale behind the compulsory insurance doctrine.

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effective means of securing PALS’s compliance with the policy conditions. The

simple existence of a continuing businessrelationship with PALS did not necessarily

give Northwest control over whether the policy conditions were met.

First, to the extent Westchester claims Northwest had “its own insurance,”

Northwest actually recovered only part of its loss, and the district court took this

source of compensation into account, awarding Northwest only for the

uncompensated portion of damages—$4,089,446.32.

Second, Westchester asserts Northwest must have known the identity of

PALS’s insurer and could have supplied notice itself because, under their agreement,

Northwest was contractually entitled to know the identity of PALS’s insurer. Relying

only on these contractual rights, Westchester faults Northwest for failing to provide

earlier notice to Westchester when “Northwest wasfully aware of who PALS’ insurer

was, and fully able to give Westchester notice.” Yet Westchester provides no record

citation to support this assertion, and we find no indication in the record that

Northwest actually succeeded in obtaining this information from PALS.

Third, although Northwest did continue its business relationship with PALS,

it is wrong to assume, as Westchester does, that Northwest could have leveraged its

business as PALS’s customer or its contractual rights to prod PALS into satisfying

the policy conditions. Westchester even suggests Northwest should have threatened

to terminate its business agreement with PALS. There is no evidence of undue delay

or laxity on Northwest’s part. And given PALS’s and its owner’s proven record of

failing to respond to communications, court summonses, civil complaints, and

subpoenas (all of which led to two unfavorable default judgments), we cannot assume

Northwest could have done more to ensure PALS’s cooperation even if it had learned

sooner of Westchester’s policy. Nor isit reasonable to assume Northwest could walk

away and terminate its businessrelationship with PALS outright, even if it was within

Northwest’s contractual rights to do so.

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Throughout late 2003 and early 2004, Northwest and its insurer made

Westchester aware of Northwest’s claim, requested Westchester’s coverage position,

and provided considerable documentation of the incident. After reviewing

Northwest’s claim and information, Westchester agreed the incident occurred within

the scope of the policy, identifying the only defects as being the absence of notice

from PALS and PALS’s lack of cooperation. By summer 2004, Westchester

determined the claim was not covered due to lack of notice from PALS. Thereafter,

Westchester did not respond to Northwest’s June 30, 2004, request for a coverage

position or Northwest’s November 15, 2004, letter informing Westchester of the

Minnesota state court litigation and the impending possibility of a default judgment. 

On thisrecord, we find little fault with Northwest’s communication with Westchester.

Neither the Minnesota Supreme Court nor any other court we could find has

considered whether to apply the compulsory insurance doctrine in circumstances as

unusual as those presented here. Yet the doctrine has been applied with significant

consistencyacross multiple jurisdictions. Applying the reasoning and principlesfrom

those cases, we predict the Minnesota Supreme Court would find in Northwest’s

favor. We do not perceive a principled reason why the Minnesota Supreme Court

would place this case outside the rationale of Minnesota’s compulsory insurance

doctrine. 

Finally, this doctrine exists at a balance point between the interests of the

injured party in recovering and the insurer in obtaining prompt notice and

cooperation. That being the case, it is certainly relevant in our assessment of this

unusual scenario that (1) beginning soon after Northwest learned of the Westchester

policy and over a year before Northwest filed suit, Northwest gaveWestchester actual

notice of its claim, the lawsuit, and the possibility of a default judgment, and (2) it

was Westchester who spurned the notice from Northwest, discontinued

communications, and, despite its actual knowledge, chose not to participate in the

Minnesota litigation.

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C. Motive for Purchasing Insurance

The district court concluded that under the compulsory insurance doctrine, an

insurer could not avoid paying the injured party for the insured’s lack of notice or

cooperation if “(1) the insurance policy at issue [was] purchased to comply with the

requirements of a statute; and (2) the plaintiff [was] an injured member of the public

within the class protected by the statute.” Arguing the district court’s first

requirement was not met, Westchester claims PALS purchased the policy only

intending to comply with its obligation to carry hangarkeepers liability insurance

under the Northwest-PALS service agreement. Assuming PALS’s subjective intent

isrelevant, there is no evidence in thisrecord indicating PALS’s motive in purchasing

its Westchester policy—PALS could have purchased coverage intending to comply

with the contract, the ordinance, or both.

III. CONCLUSION

For the foregoing reasons, we affirm.

______________________________

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