C.H. ROBINSON COMPANY v. ZURICH AMERICAN INSURANCE COMPANY

PAUL MAGNUSON, Senior District Judge

This matter is before the Court on Plaintiffs Motion for Summary Judgment on Defendant U.S. Fire Insurance Company's counterclaims. BACKGROUND

This case involves insurance coverage for the settlement of a lawsuit arising out of a tractor-trailer accident. Plaintiff C.H. Robinson Company ("CHR") is a freight broker headquartered in Eden Prairie, Minnesota. A tractor-trailer carrying freight brokered by CHR caused a 16-car pileup on the freeway outside of St. Louis, Missouri, killing three people. The driver of the tractor-trailer eventually pled guilty to manslaughter and served time in jail. At issue in this matter is a lawsuit brought in Madison County, Illinois, by the survivors of a young woman killed when her car was engulfed in flames during the accident.

CHR was a named defendant in three wrongful death lawsuits, which the parties refer to by the respective plaintiff's name: Hylla. Trout, and Ficke. CHR's settlement of the Hylla matter is the gravamen of the instant case. CHR timely tendered the complaints in these matters to its insurers. Defendant Zurich American Insurance Company ("Zurich") insured CHR for the first $1 million per occurrence and provided the initial defense of the matter in the form of an attorney named Mark Cero. Defendant United States Fire Insurance Company ("US Fire") insured the next $25 million in liability. Presumably because the company was on the hook for the majority of any potential verdict, US Fire eventually took over the defense. US Fire's choice was an attorney named Patrick Gloor. However, it appears that Michael Mullen, a US Fire in-house attorney, actually directed the defense.

That defense proceeded anything but smoothly. In pre-trial rulings, the judges in the three cases ruled that CHR was engaged in a joint venture with the truck driver, the owner of the truck, the company that employed the driver, the owner of the trailer, and the shipper. Thus, to the extent a jury were to find any of these defendants liable, CHR would also be liable. According to CHR, a finding of liability was "virtually certain" given that the driver had pled guilty to manslaughter charges. CHR also contends that contributions from other defendants was unlikely because at least two of the defendants were in bankruptcy. After the joint venture rulings, plaintiffs amended their respective complaints to include claims for punitive damages against CHR

CHR characterizes the courts of Madison County as "notoriously pro-plaintiff." Thus, CHR was concerned about the possibility of a huge verdict in each of the cases. The parties unsuccessfully attempted to settled the cases several times. In late August 2002, with a December 2002 trial date approaching, the demand in Hylla was $30 million. CHR eventually asked Zurich and US Fire to settle the case for CHR's policy limits, but the insurers refused to do so. In late September, the insurers agreed to allow CHR to choose its own counsel, and Thomas Mulroy and Thomas Marrinson were appointed to represent CHR. The lawyers, including Cero and Mullen, continued to try to settle all three of the cases. Cero was convinced that the probability of an adverse verdict was 100%, and estimated that the damages in Hylla could be as high as $18 million.

The parties disagree about the conduct of settlement negotiations. CHR describes the insurers' conduct as "dithering," contending that the insurers repeatedly promised to make final offers but continually reneged on those promises. US Fire asserts that CHR engaged in secret negotiations with counsel for the Hylla plaintiffs without informing US Fire. Trial began with no resolution and a demand of $12 million On the third day of trial, just prior to opening arguments, CHR settled the matter for $9.25 million. The insurers refused to pay more than $5 million, leaving CHR to pay the remaining $4.25 million. It is this money that CHR is attempting to recover in this lawsuit.

The settlement agreement specified that the amount paid to the plaintiff was for compensatory damages only. One of US Fire's arguments opposing CHR's summary judgment motion is that this characterization is fraudulent and was made solely for the purpose of avoiding the insurance policy's exclusion of coverage for punitive damages.

CHR instituted this lawsuit seeking a declaration that US Fire and Zurich are obligated to reimburse CHR the $4.25 million CHR paid to theHylla plaintiffs. US Fire counterclaimed, contending that CHR breached the insurance policy's "cooperation," "no voluntary payment," and "no assumption of liability" clauses in settling the Hylla lawsuit, thus vitiating US Fire's obligation to pay. The parties agree that the question whether CHR breached the insurance policy depends on whether US Fire's August 29, 2002, letter to CHR constituted a fall and complete reservation of US Fire's right to deny coverage.

The other two wrongful death lawsuits against CHR, Trout andFicke. have now also settled. Trout was settled for $8 million, Ficke for $9.5 million It is notable that US Fire settled both of these matters without any contribution from CHR. However, as CHR points out, the Trout matter settled only after CHR filed a Motion with this Court seeking authorization to settle the matter without US Fire's consent.

DISCUSSION

A. Standard of Review

The parties move for summary judgment pursuant to Rule 56(c), which provides that such a motion shall be granted only if "there is 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 considering a motion for summary judgment, the Court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the non-moving party. Enter. Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996). The burden of demonstrating that there are no genuine issues of material fact rests on the moving party. Celotex Corp. v. Catrett. 477 U.S. 317, 323 (1986). If the moving party has carried its burden, the non-moving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 256 (1986); Krenik v. County of LeSueur. 47 F.3d 953, 957 (8th Cir. 1995).

B. Merits

There is no dispute that the insurance policy between US Fire and CHR contained clauses requiring CHR to "cooperate with [US Fire] in the investigation, settlement or defense of any `Claim' or `Suit', "(US Fire Ex. B at 38, ¶¶ G.3.c. (US Fire Policy No. 553 067481 6)), and prohibiting CHR from `Voluntarily mak[ing] a payment, assum[ing] any obligation or incur[ring] any expense, other than first aid, without [US Fire's] consent" (id. at ¶¶ G.4.). There is also no dispute that US Fire sent CHR a letter on August 29, 2002, in which US Fire purported to reserve some or all of its rights under the policy. The question to be decided in this Motion is whether that letter vitiated CHR's obligations under the policy and, pursuant to Miller v. Shugart. 316 N.W.2d 729 (Minn. 1982), allowed CHR to unilaterally settle the Hylla lawsuit.

In Miller v. Shugart the Minnesota Supreme Court determined that an insured subject to nearly identical "cooperation," "no voluntary payment," and "no assumption of liability" clauses as those contained in the US Fire policy, did not breach those clauses by settling a lawsuit without the insurer's consent. The insurer in Miller had denied coverage for the accident. The insured then settled the case without the insurer's involvement. The settlement provided that the plaintiffs could recover the settlement amount only from insurance proceeds and that the insured would incur no personal liability for the settlement amount. Thus, the plaintiffs would be paid only if they pursued the insurer, essentially substituting themselves for the insured in a coverage action. The insurer claimed that the settlement was not binding on the insurer because the insured breached its obligations under the above-mentioned clauses in the policy. The supreme court found that, when an insurer disputes coverage, the insured has a right to protect itself against a claim by settling that claim. Miller. 316 N.W.2d at 733-34. A settlement entered into in this situation is binding on the insurer as long as the settlement is reasonable and prudent and not the product of fraud or collusion. Id. at 732-33.

Assuming that the settlement otherwise meets the requirements ofMiller v. Shugart. the only dispute is whether US Fire's reservation of rights constituted a complete reservation of rights. Taking the facts in the light most favorable to US Fire, there is a genuine issue as to whether the letter constituted a complete reservation of rights that gave CHR permission to unilaterally settle theHylla matter. Thus, summary judgment is not appropriate.

CHR quotes very selectively from the letter. When read as a whole, it is not clear that US Fire intended the letter to completely reserve its right to deny coverage. The letter begins with a partial reservation of rights: "This is to advise you that the commercial umbrella policy . . . issued by [US Fire], will not cover nor pay any damages awarded as punitive damages on behalf of the Plaintiff and against [CHR]." (US Fire Ex. F at 1.) Next, the letter reminds CHR that US Fire will not pay any damages in excess of the policy limits. (Id. at 2.) The letter then states that US Fire will not cover any damages that arise out of CHR's conduct to the extent that the conduct "occurred with the knowledge that there was a substantial probability that the conduct would cause injury to the Plaintiff." Jd. at 3.) The letter closes with this statement: "This letter is written under a strict and complete reservation of rights by U.S. Fire of all rights previously reserved and nothing herein shall be construed as a waiver of any such reservation or right." (Id. at 4.) It is this final sentence that CHR quotes in support of its claim that US Fire completely reserved its right to deny coverage for the accident. The Court cannot determine as a matter of law that the letter, taken as a whole, was a complete reservation of rights. Reading the letter in the light most favorable to US Fire, a reasonable jury could find that the letter reserves US Fire's right to deny coverage for certain situations but does not completely deny coverage for the accident. Indeed, the final sentence merely states that it is a complete reservation "of all rights previously reserved."

If the factfinder ultimately determines that the letter did not constitute a complete reservation of rights, then CHR did not have the right to unilaterally settle the Hylla lawsuit. Thus, CHR is not entitled to summary judgment on US Fire's counterclaims. Because the Court concludes that questions of fact exist as to whether CHR had the authority to settle the Hylla matter without US Fire's consent, there is no need to reach the equitable issues of whether the settlement was reasonable and prudent and whether the settlement constituted payment for punitive damages.

CONCLUSION

Accordingly, IT IS HEREBY ORDERED that Plaintiffs Motion for Summary Judgment on Defendant's Counterclaims (Clerk Doc. No. 68) is DENIED.