Food Mkt. Merch., Inc. v. Scottsdale Indem. Co.

196 F.Supp.3d 1004

FOOD MARKET MERCHANDISING, INC., Plaintiff,

v.SCOTTSDALE INDEMNITY COMPANY, Defendant.

Civ. No. 15-2874 (RHK/FLN)

United States District Court, D. Minnesota.

Signed July 22, 2016

Alexander M. Jadin, Timothy D. Johnson, Roeder Smith Jadin, PLLC, Bloomington, Minnesota, for Plaintiff.

Tiffany M. Brown, Bradley M. Jones, Matthew P. Lawlyes, Meagher & Geer, PLLP, Minneapolis, Minnesota, for Defendant.

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, United States District Judge

In this action, Plaintiff Food Market Merchandising, Inc. ("FMM") alleges that its insurer, Defendant Scottsdale Indemnity Company ("Scottsdale"), breached its insurance policy by (1) failing to defend it from a lawsuit brought by a former employee and (2) failing to indemnify it in the settlement of that lawsuit. Presently before the Court are the parties' Cross-Motions for Summary Judgment. For the reasons that follow, the Court will grant Scottsdale's Motion and deny FMM's Motion.

BACKGROUND

FMM is a food marketing and distribution company. It purchased a Business and Management Indemnity Policy (the "Policy") from Scottsdale insuring FMM for the period November 2013 to November 2014, which was later extended to March 2015. (Jadin Decl. Ex. 1.) The Insuring Clause of the Policy provided:

Insurer shall pay the Loss of the Insureds¹ which the Insureds have become legally obligated to pay by reason of an Employment Practices Claim first made against the Insureds during the Policy Period ... and reported to the Insurer pursuant to Section E.1[ ] herein, for an Employment Practices Wrongful Act taking place prior to the end of the Policy Period.

(Id. at 11.) Section E.1 of the Policy—the notice provision—provided:

The Insureds shall, as a condition precedent to their rights to payment ... give Insurer written notice of any Claim as soon as practicable , but in no event later than sixty days after the end of the Policy Period.

(Brown Decl. Ex. A (emphases added).)

At issue here is the Policy's application to a dispute between FMM and its former employee, Robert Spinner. FMM hired Spinner in 1999 to sell its products in exchange for commissions on his sales. (Id. Ex. B, ¶ 6.) In 2009, Spinner began selling FMM's "milk straws"² to retailers. (Id.¶ 7.) He sold roughly $16 million worth of milk straws by 2012. (Id.¶ 8.) However, shortly thereafter, his employment relationship with FMM began to disintegrate. According to Spinner, FMM promised to pay him a draw against his commissions throughout 2013. (Id.) But before Spinner's first 2013 paycheck, FMM advised that it would not pay him any 2013 commissions until the last payday of the year. (Id.) Then, in late December 2013, FMM outright refused to pay Spinner. (Id. ¶ 12.) FMM took the position that Spinner had "failed to fulfill his employment responsibilities" (id. Ex. 3, ¶ 10), although the reason for this assertion is unclear from the record. Regardless, Spinner viewed FMM's non-payment as a constructive termination and halted his work. (Id.)

On January 13, 2014, Spinner sued FMM in the Hennepin County District Court (the "Spinner Litigation") for breach of contract, unjust enrichment, and violation of various Minnesota labor laws. (See Jadin Decl. Ex. 2.) FMM obtained counsel and litigated the matter for several months. On June 27, 2014, Spinner prevailed on his motion for partial summary judgment and was awarded nearly $500,000 in damages.³ In the shadow of this award, FMM then attempted to negotiate a settlement with Spinner. (See id. Exs. 4, 5.)

On August 22, 2014—almost two months after the adverse summary-judgment ruling and almost seven months after the Spinner Litigation began—FMM tendered the matter to Scottsdale for defense and indemnification. (Brown Decl. Ex. C, Interrog. 7.) Scottsdale responded on September 30, 2014, with a tentative denial of coverage, and it unequivocally denied coverage by letter dated June 17, 2015. (See Jadin Decl. Ex. 6.) The insurer took the positon that the Policy did not cover the Spinner Litigation, and, in any event, FMM's failure to provide timely notice precluded coverage. (Id.)

On June 10, 2015, FMM commenced this action in the Hennepin County District Court, alleging that Scottsdale had breached the Policy by denying coverage or, alternatively, breached the implied covenant of good faith and fair dealing. FMM also sought a declaration that the Policy covers the Spinner Litigation. Scottsdale timely removed the action to this Court, and, with discovery complete, both parties now move for summary judgment. The Motions have been fully briefed, and the Court heard argument on June 21, 2016; the Motions are now ripe for disposition.

STANDARD OF DECISION

Summary judgment is proper if, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. Id. at 322, 106 S.Ct. 2548 ; Whisenhunt v. Sw. Bell Tel., 573 F.3d 565, 568 (8th Cir.2009). The Court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. Weitz Co., LLC v. Lloyd's of London, 574 F.3d 885, 892 (8th Cir.2009) ; Carraher v. Target Corp., 503 F.3d 714, 716 (8th Cir.2007). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Wingate v. Gage Cnty. Sch. Dist., No. 34, 528 F.3d 1074, 1078–79 (8th Cir.2008).

Where, as here, the Court confronts cross-motions for summary judgment, this approach is only slightly modified. When considering FMM's Motion, the Court views the record in the light most favorable to Scottsdale, and, when considering Scottsdale's Motion, the Court views the record in the light most favorable to FMM. "Either way, summary judgment is proper if the record demonstrates that there is no genuine issue as to any material fact." Seaworth v. Messerli, Civ. No. 09–3437, 2010 WL 3613821, at *3 (D.Minn. Sept. 7, 2010) (Kyle, J.), aff'd, 414 Fed.Appx. 882 (8th Cir.2011).

ANALYSIS

I. Duty to defend/indemnify

In Minnesota⁴ , an insurer has both a duty to defend and a duty to indemnify its insured. Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411, 415 (Minn.1997). The duty to defend is broader than the duty to indemnify. Id. An insurer must defend its insured against any cause of action arguably within the scope of the policy. Id. To determine whether this obligation has been triggered, a court compares the allegations in the underlying complaint with the relevant policy language. Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 390 (Minn.1979). The insurer bears the burden of showing all claims are clearly outside the policy's coverage to avoid defending the insured. Id. By contrast, an insurer must indemnify its insured only "when it is established that the insured's liability ... is within the scope of the insurance policy." Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602, 616 (Minn.2012). "The insured bears the initial burden of proving prima facie coverage of a third-party claim under a liability insurance policy." Id. Again, the language of the particular insurance policy controls. Id.

II. Notice

Here, Scottsdale argues that FMM was entitled to neither defense nor indemnification because FMM failed to timely notify it of the Spinner Litigation. As set forth above, the Policy required FMM, "as a condition precedent to coverage," to notify Scottsdale it had been sued "as soon as practicable, but in no event later than sixty days after the end of the Policy Period." The Court finds this language unambiguous.⁵ "As soon as practicable" means as soon as performable or feasible under the circumstances. Cargill, Inc. v. Evanston Ins. Co., 642 N.W.2d 80, 86 (Minn.Ct.App.2002) ; Black's Law Dictionary (6th ed. 1990) (defining "practicable" to mean performable, feasible, or possible).

FMM contends that the phrase "as soon as practicable" is ambiguous, asserting that the Policy's end date for valid notice—sixty days after the end of the Policy Period—defined the phrase "as soon as practicable." In other words, FMM argues that the notice it provided was sufficient because it occurred before the end date. In the Court's view, this is an unreasonable interpretation of the Policy. First, FMM's reading is contrary to the grammatical structure of the notice provision. The end date is set apart from the phrase "as soon as practicable" by a comma and begins with the disjunctive, "but in no event [after the end date]" (emphasis added). This denotes two independent clauses, with the end date modifying the phrase "as soon as practicable," not defining it. Cf. Mumid v. Abraham Lincoln High Sch., Civ. No. 05–2176, 2008 WL 2811214, at *11 (D.Minn. July 16, 2008) (Schlitz, J.) ("[A] comma ... is the conventional way of marking a [ ] clause as nonrestrictive."), aff'd, 618 F.3d 789 (8th Cir.2010). Second, FMM's construction of the Policy would render the phrase "as soon as practicable" meaningless; if notice were sufficient at any time prior to sixty days after the Policy lapsed, there would have been no reason to include the phrase "as soon as practicable." In essence, FMM asks the Court to strike "as soon as practicable" from the Policy, but the Court must interpret the Policy "in a way that gives all of its provisions meaning." Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530 N.W.2d 539, 543 (Minn.1995). Third, expressly defined terms abound throughout the Policy, carefully delineated with boldface and capital letters. (See Jadin Decl. Ex. 1.) If the Policy had intended to...