United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 07-2463

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Mikki M. Murray; Christopher J. *

Dennis, *

*

Plaintiffs - Appellees, *

* Appeal from the United States 

v. * District Court for the District of 

* Minnesota.

Greenwich Insurance Company, *

a Delaware corporation, *

*

Defendants - Appellants. *

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Submitted: March 10, 2008

Filed: July 7, 2008

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Before BYE, SMITH, and COLLOTON, Circuit Judges.

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BYE, Circuit Judge.

Mikki M. Murray and Christopher J. Dennis allege Greenwich Insurance

Company improperly refused to defend them under an insurance policy covering

professional real estate services. The district court concluded Greenwich had a duty

to defend and granted summary judgment in favor of Murray and Dennis. Greenwich

appeals and we reverse.
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I

Murray and Dennis were real estate agents employed by IPM Realty, Inc. IPM

is a Minnesota realty firm and was insured under a real estate professionals errors and

omissions policy issued by Greenwich. In June 2006, Murray and Dennis were sued

by two former clients who alleged Murray and Dennis solicited them for a real estate

venture in Florida and wrongfully withheld $175,000 in deposits made in connection

with the venture. The clients allege they responded to IPM advertisements soliciting

investors to buy real estate in Florida. They further allege they met with, among

others, Murray and Dennis and, after receiving repeated misrepresentations about the

profitability of the real estate scheme, entered into two Condominium Escrow

Reservation Agreements. Under the agreements, the clients deposited a total of

$175,000 with IPM, to be held in trust until they decided to purchase property in a

Florida real estate development. The clients contend they were repeatedly assured the

deposits were fully refundable upon demand.

Several months after depositing the money with IPM, the clients decided to

withdraw from the agreements and demanded the return of the funds. Over the next

several months, the clients made repeated demands for IPM to return the funds and

were assured the money would be returned. After numerous unsuccessful attempts

to retrieve their deposits, the clients filed suit alleging 1) breach of implied duty of

good faith and fair dealing, 2) consumer fraud, 3) rescission based on fraud in the

inducement/intentional misrepresentation, 4) negligent misrepresentation, 5) deceptive

trade practices, 6) breach of fiduciary duty, 7) promissory estoppel, and 8) false

advertising.

Murray and Dennis tendered defense of the lawsuit to Greenwich. After

reviewing the complaint, Greenwich refused to defend claiming coverage was

excluded under Exclusions D(1) and D(3). Exclusion D excludes coverage for claims:
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D. based on or arising out of:

1. the conversion, commingling, defalcation,

misappropriation or improper use of funds or

other property; [or]

. . . 

3. the inability or failure to pay, collect or

safeguard funds held for others. 

Greenwich also denied coverage claiming the policy only provided coverage

for acts taken in Murray's and Dennis's capacities as real estate agents, not as

promoters of a Florida real estate investment scheme.

Murray and Dennis filed this declaratory judgment action asking the court to

determine the rights and obligations of the parties under the insurance contract. The

parties filed cross-motions for summary judgment and the district court determined

the claim for negligent misrepresentation fell within the terms of the policy's coverage,

thereby triggering Greenwich's duty to defend. According to the district court, the

negligent misrepresentation claim alleged wrongful conduct separate and distinct from

the failure to return or safeguard the deposits, and therefore, Exclusion D did not

obviate coverage. The court further concluded Murray and Dennis were acting within

their capacities as real estate agents when they solicited the clients' investments.

Greenwich appeals the grant of summary judgment arguing coverage is

excluded under Exclusion D because, irrespective of how the funds were obtained, all

of the claims asserted are "based on or aris[e] out of" the improper use of funds or the

inability or failure to pay safeguarded funds held for others. Greenwich further argues

there is no coverage because Murray and Dennis were not acting as real estate agents

when they solicited the clients.
1

The parties agree Minnesota law controls this dispute.

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II

We review a grant of summary judgment de novo, applying the same standard

as the district court. Jaurequi v. Carter Mfg. Co., 173 F.3d 1076, 1085 (8th Cir. 1999).

Summary judgment is proper if there exists no genuine issue as to any material fact

and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

When ruling on a summary judgment motion, a court must view the evidence "in the

light most favorable to the nonmoving party." Dush v. Appleton Elec. Co., 124 F.3d

957, 962-63 (8th Cir. 1997). However, a "nonmovant must present more than a

scintilla of evidence and must advance specific facts to create a genuine issue of

material fact for trial." F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997). This is a

diversity action and is governed by state substantive law. Erie R.R. v. Tompkins, 304

U.S. 64, 78 (1938).1

Absent statutory laws to the contrary, an insurance contract is subject to general

principles of contract law. Waseca Mut. Ins. Co. v. Noska, 331 N.W.2d 917, 926

(Minn. 1983). Coverage issues and the construction and interpretation of a policy are

questions of law. Jenoff, Inc. v. N.H. Ins. Co., 558 N.W.2d 260, 262 (Minn. 1997).

If there is no dispute of material fact, we independently review the district court's

interpretation of the insurance contract. Nat'l City Bank v. St. Paul Fire & Marine Ins.

Co., 447 N.W.2d 171, 175 (Minn. 1989). When examining an insurance policy, a

court's function is to "determine what the agreement was and enforce it." Fillmore

v. Iowa Nat'l Mut. Ins. Co., 344 N.W.2d 875, 877 (Minn. Ct. App. 1984).

"An insurer's duty to defend an insured is contractual." Meadowbrook, Inc. v.

Tower Ins. Co., 559 N.W.2d 411, 415 (Minn. 1997) (citation omitted). The duty to

defend is different from and broader than an insurer's duty to indemnify. SCSC Corp.

v. Allied Mut. Ins. Co., 536 N.W.2d 305, 316 (Minn. 1995). "If any claim is arguably
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covered under a policy, the insurer must defend and reserve any arguments regarding

coverage." Id. (citation omitted). A court must compare the allegations in the

complaint of the underlying cause of action with the terms of the insurance policy to

determine the existence of a duty to defend. Meadowbrook, 559 N.W.2d at 415.

Whether an insurer has a duty to defend is a question of law. Auto-Owners Ins.

Co. v. Todd, 547 N.W.2d 696, 698 (Minn. 1996). An insurer has a duty to defend

claims "arguably" covered by a policy. Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d

161, 165 (Minn. 1986) (quotation omitted). The insurer claiming it has no duty to

defend has the burden of showing each claim asserted in the lawsuit clearly falls

outside the policy. Id. at 165-66. If the complaint alleges several causes of action,

and one of the claims, if established, would require the insurer to indemnify, the

insurer must provide a defense against all claims. Lanoue v. Fireman's Fund Am. Ins.

Cos., 278 N.W.2d 49, 53 (Minn. 1979), overruled on other grounds by Am. Standard

Ins. Co. v. Le, 551 N.W.2d 923, 927 (Minn. 1996). Doubts as to coverage must be

resolved against the insurer issuing the policy in favor of coverage, and the burden

rests with the insurer to prove the claim is not covered. Prahm v. Rupp Constr. Co.,

277 N.W.2d 389, 390 (Minn. 1979).

The obligation to defend is generally determined by comparing the allegations

in the complaint to the coverage afforded by the policy. Meadowbrook, 559 N.W.2d

at 415. Once the insured presents facts that arguably demonstrate coverage or the

insurer becomes aware of such facts, the insurer has the "heavy burden" of proving

no duty to defend exists. In re Liquidation of Excalibur Ins. Co., 519 N.W.2d 494,

497 (Minn. Ct. App. 1994) (citation omitted).

In the district court, Greenwich argued Exclusion D applied because all of the

claims alleged against Murray and Dennis were based on or arose from their failure

to return the clients' deposit. According to Greenwich, irrespective of how the various

claims were characterized, each was contingent upon the failure of Murray and Dennis
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to return the deposited funds. The district court determined all of the claims, with the

exception of the negligent misrepresentation claim, were based on or arose out of the

improper use or failure to safeguard the deposits. It concluded the negligent

misrepresentation claim alleged conduct separate from the improper use or failure to

safeguard funds, i.e., the clients were wrongfully induced to deposit funds which were

then mishandled. Thus, according to the district court, the negligent misrepresentation

claim was based on and arose out of conduct separate from the conduct anticipated by

Exclusion D. We disagree.

The phrase "arising out of" has been given broad meaning by Minnesota courts.

In Faber v. Roelofs, 250 N.W.2d 817 (Minn. 1977), a school bus owned by Roelofs

and hired by the school district struck a student. Id. at 819. The school district was

listed as an additional insured under Roelofs's auto-liability policy. Id. at 819. The

pertinent language of the insurance contract stated the policy covered damages

"arising out of the ownership, maintenance or use of the [school bus]." Id. at 822. In

the underlying negligence action, the driver and Roelofs were both absolved of

negligence, but the school district was found negligent based on its established bus

routes and bus-loading procedures. Id. The insurer argued that since neither the

driver nor Roelofs were negligent, and since the school district was found

independently negligent, the student's injuries did not "arise out of the use" of the

school bus. Id. The Minnesota Supreme Court disagreed, holding a "'[b]ut for'

causation, i.e., a cause and result relationship, is enough to satisfy the provision of the

policy." Id. (quotation omitted). The court construed the phrase "arising out of" as

"comprehensive and broad in service," extending to a causal connection with the use

or maintenance of the insured vehicle. Id. (quotation omitted). Consequently, even

though the complaint alleged acts of negligence against the school district which were

independent from the use of the bus, the school was covered because the claim arose

out of the use of the bus. Id. at 823.
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In Hormel Foods Corporation v. Northbrook Property & Casualty Insurance

Company, 938 F. Supp. 555, 556 (D. Minn. 1996), aff'd, 131 F.3d 143 (8th Cir. 1997),

Hormel leased a hog-processing facility to Quality Pork Products (QPP). The lease

required QPP to include Hormel as an additional insured on QPP's liability policy with

Northbrook. Id. QPP's liability policy covered losses "'arising out of the ownership,

maintenance or use' of the leased premises." Id. A QPP employee was fatally injured

by a machine on the leased premises and a wrongful-death action was brought against

Hormel alleging the machine was negligently designed. Id. Northbrook argued the

underlying suit did not arise out of Hormel's ownership, maintenance, or use of the

premises, and the additional-insured provision only protected Hormel from the

negligence of QPP, an issue not contemplated in the products liability action. Id. The

court, however, held Northbrook's policy covered Hormel's liability for negligent

design. Id. at 558.

This standard is not one of proximate causation. Rather, "but for"

causation satisfies the requirements of an insurance policy which

specifies that only liabilities "arising out of the use" are covered.

Therefore, if there is a causal relationship between the place covered by

insurance and the acts giving rise to legal liability, the liability is covered

also.

Id. at 557 (citations omitted).

The phrase "arising out of" has also been held to mean originating from, or

having its origin in, growing out of, or flowing from, see, e.g., Associated Indep.

Dealers, Inc. v. Mut. Serv. Ins. Cos., 229 N.W.2d 516, 518 (Minn. 1975) (citation

omitted) (dicta), and has been accorded an equally broad reading when used in an

exclusion to limit coverage.

In Kabanuk Diversified Investments Incorporated v. Credit General Insurance

Company, 553 N.W.2d 65 (Minn. Ct. App. 1996), an insured argued its insurance
2

Because Exclusion D applies to defeat the duty to defend claim, Greenwich's

remaining issues need not be addressed.

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carrier had a duty to defend against a personal injury suit brought by a patron who had

been assaulted at its nightclub. Id. at 68. The carrier argued the policy excluded any

coverage for injuries arising out of an assault and battery. Id. The court of appeals

held the policy's assault and battery exclusion unambiguously excluded coverage for

the injuries. Id. at 72. Nonetheless, the insured argued the insurer had a duty to

defend because one of the claims alleged the insured had been negligent in connection

with the assault. Id. The court rejected the argument, noting: "The term 'arising out

of' requires only a causal connection; it does not require proximate cause. Had

[plaintiff] not been assaulted by [the tortfeasor], he would have no claim for negligent

infliction of emotional distress. [Plaintiff's] claim for negligent infliction of emotional

distress arises out of [the tortfeasor's] assault." Id. (internal quotations and citation

omitted).

Each of the claims asserted within the underlying complaint, either directly or

by incorporation, allege an injury originating from, or having its origin in, growing

out of, or flowing from the failure to return the deposited funds. See Associated

Indep. Dealers, Inc., 229 N.W.2d at 518. "But for" the failure to refund those deposits

as promised, there would have been no claims. In other words, had the funds not been

mishandled the claims alleged in the complaint would not have arisen. Thus, each of

the claims is causally connected to and arose out of the failure to return the entrusted

deposits. Accordingly, we conclude the exclusion applies and Greenwich has no duty

to defend.

III

The judgment of the district court is reversed and we remand for further

proceedings consistent with this opinion.2

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