United States Court of Appeals

For the Eighth Circuit 

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No. 19-2404

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Tile Shop Holdings, Inc.

 Plaintiff - Appellant

v.

Allied World National Assurance Company

 Defendant - Appellee

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Appeal from United States District Court 

for the District of Minnesota

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Submitted: June 17, 2020

 Filed: December 7, 2020 

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Before KELLY, ERICKSON, and STRAS, Circuit Judges. 

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STRAS, Circuit Judge.

After Tile Shop Holdings, Inc. settled multiple lawsuits with its shareholders, 

it sought indemnification under its directors-and-officers insurance policies. Its 

excess insurer, Allied World National Assurance Company, denied coverage. Tile 
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Shop sued, but the district court1 granted Allied’s motion for summary judgment. 

We affirm.

I. 

Founder Robert Rucker started Tile Shop in 1984. The company, which 

operates a chain of retail tile stores, was privately owned until 2012, when Rucker

decided to take the company public. The reason for the move was the potential for 

“a national presence.”

As relevant here, the move created a new company, Tile Shop Holdings, Inc., 

which filed a series of documents with the Securities and Exchange Commission, 

including a registration statement in June 2012, several amendments in July, and a 

prospectus in early August. Those filings never mentioned certain related-party 

transactions. See 17 C.F.R. § 229.404(a). Specifically, Tile Shop had obtained 

millions of dollars in supplies from Chinese export companies owned and operated 

in substantial part by Rucker’s brother-in-law. Id. (explaining that related-party 

transactions include dealings with an “immediate family member of a director or 

executive officer”). 

About 15 months after Tile Shop went public, an investment-research firm 

reported that Tile Shop had failed to disclose the related-party transactions in its SEC 

filings. The report stated that Tile Shop “secretly control[led] its largest supplier” 

and had “use[d] this dubious entity to report fictitious margins.” In one explosive 

passage, the report made comparisons to the schemes run by “Bernie Madoff and 

Allen Stanford[],” and explained that “Tile Shop’s gross margins [we]re too good to 

be true.” Shareholders were advised to “sell . . . immediately.”

1

The Honorable Ann D. Montgomery, United States District Judge for the 

District of Minnesota.
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The report spelled trouble for the company. Tile Shop’s alleged misconduct 

led to two types of lawsuits. The first were shareholder class-action lawsuits under 

the Securities Act of 1933 and Securities Exchange Act of 1934. See 15 U.S.C. 

§§ 77a, et seq., 78a, et seq.; 17 C.F.R. § 240.10b-5; Consolidated Am. Compl. at 

¶¶ 1, 4–5, Beaver Cnty. Emps.’ Ret. Fund v. Tile Shop Holdings, Inc., No. 0:14-cv00786-ADM-TNL (D. Minn. May 23, 2014), ECF No. 66. The second were 

derivative suits against the company’s officers and directors for breaches of 

fiduciary duty and unjust enrichment. See Verified Consolidated Stockholder 

Derivative Compl. at ¶ 1, In re Tile Shop Holdings, Inc. Stockholder Derivative 

Litig., No. 10884-VCG (Del. Ch. July 31, 2015). Both sets of lawsuits eventually 

settled. 

To recover some of what it had lost, Tile Shop sought benefits under its

directors-and-officers policies. American International Group, Inc., more 

commonly known as AIG, was its primary insurer, but Tile Shop’s claims exceeded 

the policy limit of $10 million. So Tile Shop turned to Allied, its excess insurer, 

which denied coverage. The reason was a policy exclusion for wrongful prior acts. 

Not satisfied with Allied’s reason for denying benefits, Tile Shop sought 

declaratory relief and damages in federal district court. The court, on a motion for 

summary judgment, reached the same conclusion that Allied had: the losses were 

nonrecoverable under a policy exclusion. 

II. 

Minnesota courts use a two-step burden-shifting framework when evaluating 

insurance-coverage questions. At the first step, Tile Shop must prove that the 

policy’s insuring clause covers its losses. See Midwest Family Mut. Ins. Co. v. 

Wolters, 831 N.W.2d 628, 636 (Minn. 2013). Only then, at the second step, does 

the burden shift to Allied to prove that an exclusion applies. See id. “At both of 

these steps, our review is de novo, and we must give the policy, including individual 
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terms and exclusions, its plain and ordinary meaning.” Westfield Ins. Co. v. Miller 

Architects & Builders, 949 F.3d 403, 405 (8th Cir. 2020) (internal citations omitted) 

(applying Minnesota law).

The second step is the focus here. Allied concedes that Tile Shop has shown 

that its losses are covered under the policy’s insuring clause. The disagreement is 

about whether they fall within an exclusion. 

A.

Tile Shop’s excess policy contains what is called a “follow-form clause,” 

which subjects it to the terms and conditions of the primary policy. See Rausch v. 

Beech Aircraft Corp., 277 N.W.2d 645, 646 (Minn. 1979) (“A ‘follow[-]form 

endorsement’ is designed to ‘track’ or provide the same coverage as a separate 

underlying policy.”). The idea is to limit risk for the excess insurer by covering the 

same basic risks as the primary insurer, even if the excess policy contains some of 

its own unique terms and conditions. See 4 Jeffrey E. Thomas, New Appleman on 

Insurance Law Library Edition § 24.02, at 24-11 (2018) (explaining that follow-form 

clauses “contribute to uniform coverage and the spreading of risk among the 

insurers”). 

Here, the spotlight is on the interaction between the follow-form clause and 

the primary policy’s prior-acts exclusion, which eliminates coverage for certain 

wrongful acts committed before the policy went into effect. The question is whether 

this exclusion has been made a part of the excess policy through its follow-form 

clause. 

The follow-form clause in this case is fairly typical. See 4 Thomas, supra, 

§ 24.02, at 24-10. “Except as [t]herein stated,” the excess policy “is subject to all 

terms, conditions, agreements and limitations of the Primary Policy.” The default, 

in other words, is that “all terms” and “limitations” in the primary policy, including 

any exclusions, are part of the excess policy, as if they had been copied and pasted
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directly into the document. See id. (“A [follow-form clause] incorporates by 

reference the terms, conditions[,] and exclusions of the underlying policy.” 

(emphasis added)); cf. Halbach v. Great-West Life & Annuity Ins. Co., 561 F.3d 872, 

876 (8th Cir. 2009) (“Basic contract principles instruct that where a writing refers to 

another document, . . . the portion to which reference is made[] becomes 

constructively a part of the writing . . . .” (internal quotation marks and brackets

omitted)). 

B. 

The relevant exclusions here deal with “prior acts.” The first prior-acts 

exclusion explains that 

the Insurer shall not be liable to make any payment for Loss in 

connection with any Claim made against an Insured alleging any 

Wrongful Act occurring prior to August 20, 2012 or after the end of 

the Policy Period. This policy only provides coverage for Wrongful 

Acts occurring on or after August 20, 2012 . . . . Loss arising out of the 

same or related Wrongful Act shall be deemed to arise from the first 

such same or related Wrongful Act. 

Of key importance here is the last sentence—what we will call the relation-back 

clause. It treats certain wrongful acts occurring after August 20, 2012, the policy’s 

retroactive date, as if they happened earlier. Losses are excluded from coverage if 

the underlying wrongful act occurred “prior to August 20, 2012,” or is “the same 

[as] or related [to]” a pre-August-20 act. Wrongful acts can, in other words, relate 

back to an earlier date. 

The second prior-acts exclusion appears in the excess policy itself. It says 

that

[the] Policy shall not cover any Loss in connection with any claim 

alleging, arising out of, based upon, or attributable to any wrongful 

act(s) committed, attempted, or allegedly committed or attempted prior 
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to August 20, 2012. This Policy shall provide coverage only with 

respect to wrongful acts occurring on or after August 20, 2012 . . . . 

The dispute is over whether the second prior-acts exclusion is a supplement 

or replacement for the first. Allied’s position is that its own prior-acts exclusion 

adds to the one in the primary policy.2

 Tile Shop, by contrast, believes the second 

one substitutes for the first, leaving the excess policy without a relation-back clause. 

The excess policy’s plain language leads to the conclusion that the

supplemental reading is correct. See Westfield Ins. Co., 949 F.3d at 405 (noting that 

we give “terms and exclusions” in insurance policies their “plain and ordinary 

meaning”). The first clue is the follow-form clause, which incorporates “all terms 

. . . and limitations,” “except as [t]herein stated.” Nothing in the excess policy 

suggests, much less “state[s],” that the second prior-acts exclusion displaces the first. 

2

The combined prior-acts exclusion would look something like this:

[FIRST] PRIOR[-]ACTS EXCLUSION

. . . [T]he Insurer shall not be liable to make any payment for Loss in 

connection with any Claim made against an Insured alleging any 

Wrongful Act occurring prior to August 20, 2012 or after the end of 

the Policy Period. This policy only provides coverage for Wrongful 

Acts occurring on or after August 20, 2012 . . . . Loss arising out of the 

same or related Wrongful Act shall be deemed to arise from the first 

such same or related Wrongful Act. 

[SECOND] PRIOR[-]ACTS EXCLUSION

This Policy shall not cover any Loss in connection with any claim 

alleging, arising out of, based upon, or attributable to any wrongful 

act(s) committed, attempted, or allegedly committed or attempted prior 

to August 20, 2012. This Policy shall provide coverage only with 

respect to wrongful acts occurring on or after August 20, 2012 . . . . 
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The second clue is the endorsement adding the second prior-acts exclusion. 

See Indep. Sch. Dist. 833 v. Bor-Son Constr., Inc., 631 N.W.2d 437, 441 (Minn. Ct. 

App. 2001) (“[A]n endorsement is an amendment to an insurance policy.” (internal 

quotation marks and brackets omitted)). By its own terms, it “amend[s]” the policy 

“by adding” the second prior-acts exclusion. (Emphasis added). Contrast this 

language with another endorsement from the same policy, which contained an 

instruction to “delete[]” a clause “and replace[] [it] with the following,” and the only 

reasonable reading is that the second prior-acts exclusion was an addition, not a 

replacement. See Storms, Inc. v. Mathy Constr. Co., 883 N.W.2d 772, 776 (Minn. 

2016) (“We construe a contract as a whole and attempt to harmonize all of its 

clauses.”). So Allied is neither liable for the losses from the prior acts it has excluded 

in its own policy nor those excluded under the primary policy. 

C. 

Having determined that the excess policy combines the prior-acts exclusions 

from both policies, the issue is whether Allied’s denial of coverage falls under either 

one. In other words, is Allied on the hook for some of the money that Tile Shop 

spent in defending and settling the class actions and the derivative suits?

We conclude that the answer is no under the first prior-acts exclusion. There 

is little doubt that the “[l]oss[es]” were “connect[ed]” to “[c]laim[s]” against Tile 

Shop. Indeed, the underlying complaints alleged “[w]rongful [a]cts” by the 

company, including “critical omissions,” “conceal[ment],” misleading 

“representations,” “breaches of fiduciary duties,” and violations of SEC regulations. 

Compl. at ¶¶ 118–19, Beaver Cnty. Emps.’ Ret. Fund; Compl. at ¶¶ 1–2, In re Tile 

Shop Holdings, Inc.

These allegedly wrongful acts also occurred “prior to” August 20, 2012 or 

were the “same” as or “related” to pre-August-20 acts. An example is the allegation

that “Tile Shop failed to disclose its related-party transactions” and gave “false and 

misleading” explanations for its “high margins,” including in post-August-20 filings 
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like its Form 10-Q.3

 Compl. at ¶¶ 118, 126–27, Beaver Cnty. Emps.’ Ret. Fund. As 

it turns out, this “same” information was also absent from Tile Shop’s June, July, 

and early August 2012 filings. The bottom line is that Tile Shop’s wrongful acts 

started well before August 20, which made any “[l]oss[es]” from them excludable 

under the relation-back clause.

III.

We accordingly affirm the judgment of the district court.

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3

Tile Shop argues that under Zimmerman v. Safeco Ins. Co. of Am., “the 

appropriate focus [is] on the liability-creating conduct”—here, the post-August-20 

legal violations for which the plaintiffs in the securities actions sought relief. 605 

N.W.2d 727, 731 (Minn. 2000). Zimmerman is not on point, however, because it 

involved the interpretation of a business-pursuits exclusion, not a prior-acts 

exclusion. Id. at 729–30.