Court Opinion

ID: 3016128
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:15:10.792268+00
Date Added: 2024-06-11T12:12:47.276759
License: Public Domain

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.
     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

                               -3-
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.

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