Court Opinion

ID: 9845906
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:30:49.11099+00
Date Added: 2024-06-11T09:16:25.694827
License: Public Domain

BYE, Circuit Judge,
dissenting.
Contrary to the Court’s conclusion, Shayna Fayette is not an insured under Westchester’s policy for the claims she brought against Douglas Wallerich, Par-tick Lowther, and Sharon O’Reilly (the Insureds). I therefore respectfully dissent.
I
The Court concludes Shayna Fayette is an insured under the policy — triggering the policy’s insured vs. insured exclusion— by misinterpreting and misapplying the “Estates, Legal Representative, and Spouses” provision found in the General *721Terms and Conditions section of the policy. That provision, in relevant part, provides as follows:
The ... spouses ... of natural persons who are Insureds shall be considered Insureds under this Policy; provided, however, coverage is afforded to such ... spouses only for a Claim arising solely out of their status as such and, in the case of a spouse ... where the Claim seeks damages from marital community property, jointly held property or property transferred from the natural person who is an Insured to the spouse[.]
Addendum 18.
The purpose of this clause is to consider a spouse of an insured as an insured only in the limited instances set forth in the modifying phrase which follows the semicolon. Thus, Shayna Fayette is considered an insured under the policy only when two conditions are met: 1) a claim is brought against her arising solely out of her status as Mark Fayette’s spouse; and 2) the claim seeks damages from marital community property, jointly held property or property transferred from her husband to herself. For example, there may be instances where an insured tries to shield assets from potential claimants by transferring them to a spouse, and a claimant sues both the insured and the spouse attempting to reach the transferred assets. In such a situation, the above provision of the policy provides that the spouse shall be considered an insured under the policy.
The limited situation which triggers this provision is not involved in this case. First, the provision comes into play only when a claim is brought against a spouse, not where a spouse brings a claim. The provision is a limited grant of coverage, not a policy exclusion; it provides coverage to spouses for claims brought against them. Contrary to the Court’s interpretation of the provision, it cannot be used to expand the application of an exclusion (the insured vs. insured exclusion) found elsewhere in the policy, in order to exclude coverage for a claim brought by a spouse. Cf. Atwater Creamery Co. v. Western Nat’l Mut. Ins. Co., 366 N.W.2d 271, 278 (Minn.1985) (holding the reasonable expectations doctrine prevents application of an exclusion “hidden” within the definitions section of a policy).
Second, and more fundamentally, even assuming the provision also applies to claims brought by a spouse, Shayna Fayette’s claims arise out of her status as an investor in the partnership; they do not arise in any way out of her status as the spouse of Mark Fayette, let alone solely out of that status. Nor does her claim seek damages from marital community property, jointly held property, or property transferred from a named insured to a spouse. Thus, the provision is simply not relevant to determining whether Shayna is an insured for purposes of the claims she brought against the Insureds.
It is incongruous to construe the phrase “[t]he ... spouses ... of natural persons who are Insureds shall be considered Insureds under this Policy” independent of the limited grant of coverage which immediately follows it. Yet that is exactly what the Court does. The Court’s interpretation of the spouse provision does not comport with general principles of insurance law, which require us to give effect to all provisions in a policy. E.g., Carlson v. Allstate Ins. Co., 734 N.W.2d 695, 699 (Minn.Ct.App.2007). By considering Shayna Fayette an insured for a claim arising out of her status as an investor in the partnership, the Court nullifies the limiting phrase “provided, however, coverage is afforded to such ... spouses ... only for a Claim arising solely out their status as such” and extends the limited application of the provision beyond its intended pur*722pose. See Canadian Universal Ins. Co. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn.1977) (indicating a court’s task is to construe an insurance policy with the purpose of effectuating the parties’ intent).
II
Because the Court erroneously concluded Shayna Fayette’s claims were excluded by the insured vs. insured exclusion, it did not address whether that exclusion applies when a lawsuit involves the presence of both an insured plaintiff and a non-insured plaintiff (i.e., covered and non-covered claims). I would reach that question, the answer to which is clear. Minnesota law requires an insurance company to defend its insureds in mixed-claim suits:
It is axiomatic that the duty to defend is broader than the duty to indemnify. The duty to defend is broader than the duty to indemnify in three ways: (1) the duty to defend extends to every claim that “arguably” falls within the scope of coverage; (2) the duty to defend one claim creates a duty to defend all claims; and (3) the duty to defend exists regardless of the merits of the underlying claims.
Wooddale Builders, Inc. v. Md. Cas. Co., 722 N.W.2d 283, 302 (Minn.2006) (internal citations omitted) (emphasis added); see also Pac. Ins. Co. v. Burnet Title, Inc., 380 F.3d 1061, 1064 (8th Cir.2004) (applying Minnesota law and recognizing this principle). Because Shayna Fayette’s claims were covered by the policy, even though Mark Fayette’s were not, Westchester had a duty to defend the Insureds in the Fayette lawsuit. In reaching a conclusion to the contrary, the district court relied on eases which are contrary to the law in Minnesota, and therefore do not merit discussion.
My disagreement with the Court’s conclusion that Shayna Fayette is an insured under the policy also leads me in a different direction with respect to the question whether Westchester is entitled to reimbursement of the defense costs expended in the Fayette suit. Because Westchester had a duty to defend the Insureds in the Fayette lawsuit, it is not entitled to reimbursement of its defense costs, and the question whether it would be entitled to reimbursement assuming it had no duty to defend is moot. For the same reason, I disagree with the Court’s conclusion that the Insureds are not entitled to coverage fees.
Ill
For the reasons stated, I respectfully dissent. I would affirm the district court on the issue whether Shayna Fayette is an insured under the policy, but reverse with respect to the determination that Westchester did not have a duty to defend the Insureds in the Fayette lawsuit, and remand this matter to the district court for entry of judgment in favor of the Insureds with respect to all issues raised in this appeal.