No. 95-1980

 

C.J. Duffey Paper Company, *

*

 Appellee, *

* Appeal from the United States

 v. * District Court for the

 * District of Minnesota.

Liberty Mutual Insurance Company, * 

*

 Appellant. *

 

Submitted: November 17, 1995 

 Filed: January 16, 1996 

Before BOWMAN, BEAM, and MORRIS SHEPPARD ARNOLD, Circuit Judges. 

MORRIS SHEPPARD ARNOLD, Circuit Judge.

Liberty Mutual Insurance Company ("Liberty Mutual") appeals

the district court's order granting summary judgment for the

plaintiff, C.J. Duffey Paper Company ("Duffey"). We reverse.

I.

Liberty Mutual issued a primary commercial general liability

insurance policy to Hammermill Paper Company covering the period

from January 1, 1988, to January 1, 1989. The policy provided

coverage for subsidiaries of Hammermill, including Thilmany Pulp &

Paper Company, and included a vendor's endorsement that provided

coverage for vendors of Hammermill products. Duffey purchased a

Hammermill paper product from Thilmany and sold the paper to Ebert

Construction. Ebert then installed the paper in Georgene and Ward

Holasek's barn. 
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In 1988, the Holaseks' barn caught on fire, and they sued

Duffey, Thilmany, and Ebert in 1989, alleging in part that the

paper caused the barn to burn faster than it otherwise would have.

Duffey, however, did not initially tender its defense to Liberty

Mutual. Duffey first asked its primary insurer to defend the case,

but the insurer refused. Duffey tendered its defense to Liberty

Mutual on September 17, 1991, after learning about the vendor's

endorsement during discovery. Liberty accepted the tender over a

year later, agreeing to defend and indemnify Duffey for

compensatory damages awarded in the Holasek's lawsuit. Liberty

Mutual settled the Holasek lawsuit in 1993 and reimbursed Duffey

for litigation expenses incurred on and after September 17, 1991.

Duffey then sued Liberty Mutual in federal court seeking

reimbursement for attorneys' fees and costs incurred between 1989

and September 1991. The district court granted Duffey's motion for

summary judgment and ordered Liberty Mutual to reimburse Duffey for

those expenses. The court held that Liberty Mutual's duty to

defend arose as soon as it learned that Duffey was a defendant in

the Holaseks' lawsuit. Liberty Mutual appeals. 

 

II.

The issues set forth on appeal are simple and straightforward.

Liberty Mutual argues that Duffey is not entitled to recover

expenses incurred prior to September 17, 1991 because, under

Minnesota law, it had no duty to defend until Duffey formally

tendered its defense. Liberty Mutual contends that the district

court erroneously endorsed a "constructive tender" rule and imposed

an affirmative duty to inform Duffey about potential coverage under

the vendor's endorsement. We agree.

A.
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The Minnesota Supreme Court has made it clear that "the formal

tender of a defense request is a condition precedent to the

recovery of attorneys' fees that a party incurs defending claims

that a third party is contractually obligated to pay." SCSC Corp.

v. Allied Mutual Ins. Co., 536 N.W.2d 305, 316 (Minn. 1995); see

also Pedro Companies v. Sentry Ins., 518 N.W.2d 49, 51 (Minn. App.

1994). Liberty Mutual is therefore not required to reimburse

Duffey for expenses incurred before Duffey tendered its defense.

SCSC Corp., 536 N.W.2d at 317; Pedro Companies, 518 N.W.2d at 51-52

(holding insurer was not responsible for costs incurred defending

a claim that was dismissed before insured tendered its defense).

The district court held that Liberty Mutual's duty to defend

Duffey arose in May 1989, when it received a copy of the Holaseks'

complaint. The court reasoned that the complaint acted as a

constructive tender by notifying Liberty Mutual that Duffey, a

Hammermill vendor, had been sued. We are unable to find any

Minnesota case endorsing constructive tender, a rule that is

antithetical to Minnesota's hard-and-fast requirement that only

formal tender triggers the duty to defend. In fact, we believe

that the Minnesota Supreme Court impliedly rejected constructive

tender in SCSC Corporation v. Allied Mutual Insurance, 536 N.W.2d

at 316, when it reversed a judgment awarding attorneys' fees for

legal proceedings resulting from groundwater contamination. Id. at

305. SCSC had informed its insurer about the contamination a full

year before formally requesting that the insurer defend and

indemnify it for related legal expenses, but the court held that

simply informing the insurer about the contamination did not

trigger the duty to defend. Rather, "SCSC did not invoke this duty

[to defend] until it properly tendered its defense request in the

[second] letter." Id. at 317. The court reversed the judgment and

remanded the case to the trial court to eliminate any expenses

incurred prior to SCSC's formal tender request. Id. SCSC

Corporation teaches that Liberty Mutual became responsible for
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litigation expenses only after Duffey formally asked it to defend

it on September 17, 1991; merely learning that the Holaseks had

sued Duffey did not trigger Liberty Mutual's duty to defend. 

B.

The district court also held, and Duffey now argues, that

Liberty Mutual was obligated to disclose potential coverage under

the vendor's endorsement because, under Minnesota law, an insurer

has a fiduciary duty to act in the best interests of those with

whom it contracts and to disclose all material facts to them.

Short v. Dairyland Ins. Co., 334 N.W.2d 384, 387 (Minn. 1983), and

Klein v. First Edina National Bank, 196 N.W.2d 619, 622 (1972).

Duffey implies that it would have tendered its defense to Liberty

Mutual promptly after being notified of the provisions of the

relevant policy, and the district court evidently acted on that

assumption.

We are not convinced that Minnesota law requires an insurer to

act at all times as a fiduciary with respect to those who contract

for insurance with it. We need not resolve the issue, however,

because Duffey never contracted with Liberty Mutual for insurance;

Duffey was only a third-party beneficiary of the insurance contract

between Hammermill and Liberty Mutual. Therefore, even if

Minnesota law establishes an ongoing fiduciary relationship between

the parties to an insurance contract, no such relationship existed

between Liberty Mutual and Duffey. We know of no authority for

imposing the extraordinary duties of a fiduciary on an insurance

company under these circumstances. 

III.

For the foregoing reasons, we hold that Liberty Mutual is not

obligated to pay litigation expenses Duffey incurred before

September 17, 1991. We reverse the judgment of the district court

and remand this case for proceedings consistent with this opinion.
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A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.