Opinion
No. A04-538.
Filed November 23, 2004.
Appeal from the District Court, Hennepin County, File No. Ct 02-14616.
David F. Herr, Laurie A. Kindel, Kai H. Richter, Maslon Edelman Borman Brand, Llp, (for appellant)
William W. Bradt, Hansen, Dordell, Bradt, Odlaug Bradt, P.L.L.P., (for respondent).
Considered and decided by Randall, Presiding Judge; Stoneburner, Judge; and Huspeni, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant challenges the summary judgment dismissing its claims against respondent insurer for a duty to indemnify and a duty to defend. Because respondent's policy covers appellant as an additional insured only for operations that are ongoing and incomplete, and because operations were complete at the time of the injury, we affirm.
FACTS
In January 1999, appellant KBL Cable Systems of the Southwest, Inc. (KBL), a subsidiary of Time Warner Cable, entered into a contract with Muller-Pribyl Utilities, Inc. (MP), under which MP agreed to work as a contractor and perform construction and maintenance work for KBL. This contract required MP to obtain insurance covering KBL for liability arising out of MP's work for KBL. The policy MP obtained from respondent Liberty Mutual Fire Insurance Company (Liberty) listed KBL as an additional insured "only with respect to liability arising out of your ongoing operations performed for that insured. A person's or organization's status as an insured under this endorsement ends when your operations for that insured are completed." Under its contract with KBL, MP also assumed certain duties related to minimizing risks of bodily harm and taking proper safety precautions at worksites where MP was working. That contract also required MP to have adequate staffing to perform jobs assigned to it by KBL, but, significantly, did not require KBL to use MP as its sole contractor.
In late January 1999, KBL sent MP to repair a damaged underground power cable in Eden Prairie. Because the ground was frozen, MP was unable to rebury the cable and instead performed a temporary repair. This repair consisted of running the cable through an orange interduct and covering the cable and interduct with bags of Sakrete. The use of an interduct to lay the cable above ground was mutually agreed on by KBL and MP. The temporary repair site was then marked with orange cones. Both KBL and MP understood that this was a temporary repair and that the cable would be buried and the repair finished after the ground thawed. Testimony from representatives of both KBL and MP indicates an expectation that MP would be called back to finish the job. The testimony also established, however, that representatives from both companies understood that MP would not return to the site to perform the permanent repair until contacted by KBL and given an additional work order to do so. In September 1999, pursuant to additional contractual agreement, MP did return to the site at the request of KBL, and performed the permanent repair, burying the cable.
An interduct is a flexible tube or pipe through which cables or power lines are run. Sakrete is a ready-mix cement product that turns into concrete when mixed with water.
On July 11, 1999, Benjamin Bengston was riding his bicycle in the area of the repair when he ran into the hardened Sakrete bags and fell off of his bike causing a head injury. At this time there were no cones remaining at the repair site. Bengston brought a negligence action against KBL for medical expenses and other damages resulting from the accident. This action was submitted to arbitration and in March 2003 resulted in an award against KBL for a total of $1,035,884.32.
In September 2001, KBL tendered a request for indemnity and defense in the Bengston case to Liberty. Gayle Manion, a claims specialist at Liberty, conducted an investigation into the nature of the working relationship between KBL and MP. A copy of the contract between KBL and MP was reviewed by Manion, who met with representatives of both contracting parties. Manion's investigation verified that under the contractual arrangement between KBL and MP, KBL issued an order, MP performed the work, and MP had no reason to return to the site without an additional request from KBL.
Liberty denied an obligation to defend or indemnify KBL. KBL subsequently sought a declaratory judgment (1) that Liberty had a duty to indemnify and defend KBL in the Bengston case and (2) for attorney fees incurred in pursuing the declaratory judgment. On cross motions for summary judgment, the district court declared that Liberty had no duty to defend or indemnify KBL and awarded summary judgment to Liberty. KBL appeals.
DECISION
When reviewing a summary judgment award, this court must determine whether there are any genuine issues of material fact and whether the district court was correct in its application of the law. St. Paul Fire Marine Ins. Co. v. Nat'l Chiropractic Mut. Ins. Co., 496 N.W.2d 411, 415 (Minn.App. 1993), review denied (Minn. Apr. 29, 1993). On review of a grant of summary judgment, this court views the evidence in the light most favorable to the party against whom summary judgment was granted. Andrew L. Youngquist, Inc. v. Cincinnati Ins. Co., 625 N.W.2d. 178, 183 (Minn.App. 2001). "[T]he party resisting summary judgment must do more than rest on mere averments." DLH Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).
The construction of an insurance policy is a question of law, subject to de novo review. Iowa Kemper Ins. Co. v. Stone, 269 N.W.2d 885, 886-87 (Minn. 1978). The legal principles governing the interpretation of an insurance policy are straightforward. If a policy is unambiguous, the court must give the language its ordinary and usual meaning and not redraft the contract. Simon v. Milwaukee Auto. Mut. Ins. Co., 262 Minn. 378, 385, 115 N.W.2d 40, 45 (1962). If the court concludes the policy language is ambiguous, the ambiguity must be resolved in the insured's favor. Columbia Heights Motors, Inc. v. Allstate Ins. Co., 275 N.W.2d 32, 36 (Minn. 1979).
I.
KBL contends that the district court erred in granting summary judgment for Liberty on the issue of Liberty's duty to indemnify KBL as an additional insured in the Bengston suit. There is no dispute that the Liberty policy only provides coverage to an additional insured for MP's ongoing operations that have not been completed. The parties' dispute regarding indemnification centers on whether MP's operations were, in fact, ongoing or complete when Bengston was injured in July 1999.
KBL urges that the ordinary and usual meaning of "complete" and "ongoing" is such that MP's work on the cable repair was an incomplete and ongoing operation between January and September 1999. Because it was understood that the repair was temporary and that MP would perform a permanent repair later, MP's operations were not complete until that permanent repair was performed.
KBL argues further that the fact that MP actually returned and performed the final repair shows that this was an ongoing project. The contract between KBL and MP, however, permits but one interpretation. Operations were not ongoing at the time of the injury to Bengston in July 1999. MP was given a work order for each project it was requested to complete. While the fact that a permanent repair would need to be done was known to MP before the temporary fix, the only project MP contracted for in January 1999 was the temporary fix, at the completion of which the cable was left above ground in an interduct. Representatives from both KBL and MP agreed on the method of leaving the interduct above ground. There is nothing in the record to indicate that at the completion of work in January 1999 there was any understanding of when MP would return to the worksite or certainty of whether they would return at all. The contractual obligation was completed when the temporary fix was completed. KBL and MP both understood that KBL would initiate another work request when the final repair was to be performed. Significantly, the contract between the two companies allowed KBL to use contractors other than MP. Clearly, it was possible that MP would never be called back to do the final repair. The initiation of the final repair was entirely under the control of KBL. Two distinct operations were to be undertaken — a temporary fix and a final repair operation. To construe the relationship between KBL and MP as one ongoing contract would entail a duty on the part of MP to monitor a worksite for an indefinite period of time — institution of the final repair was solely at the discretion of KBL — with no remuneration and without any assurance that MP would, in fact, be asked to perform that final repair.
The dictionary definitions of "ongoing" are "currently taking place" and "in progress or evolving." The American Heritage Dictionary of the English Language 1265 (3d ed. 1992). The definitions of "complete" are "to bring to a finish or an end" and "to make whole, with all necessary elements or parts." Id. at 386. Because the January repair was only temporary and a final repair was assumed, the overall project was in progress, had not been brought to an end, and had not been made whole. The contract between MP and KBL is another matter entirely. Under the contract, when the temporary fix was completed, MP had no other duties or work to do until KBL again contacted it, if ever. The work to be performed under the contract was brought to a finish or an end; it had been made whole, with all necessary elements or parts.
KBL next urges that caselaw construing language similar to that found in the Liberty policy supports a finding of coverage. We cannot agree. Courts addressing the meaning of "complete" in the context of a statute limiting actions in construction cases have observed that defects in construction indicate that the construction is not complete. Guaranteed Gravel Sand Co. v. Aetna Cas. Sur. Co., 219 N.W. 546, 547-48 (Minn. 1928). These cases do not compel the conclusion, however, that MP's operations were not complete when Bengston was injured. Unlike the situation in the cases cited, MP had completed exactly the work requested by KBL. There is no allegation that MP's work was defective.
KBL also refers the court to a series of cases in which the insured had left the worksite, but was still covered because the insured's operations were not considered complete. In these cases, the party covered by the policy had performed certain duties under the contract, but had an obligation to return to the worksite, either to perform continuing routine services or to meet all of their contractual obligations. Bituminous Cas. Corp. v. RO Elevator Co., 293 F.2d 179, 181, 184 (8th Cir. 1961); Gen. Cas. Co. of Wis. v. Larson, 196 F.2d 170, 172-73 (8th Cir. 1952); Whitten Oil, Inc. v. Fireman's Fund Ins. Co., 293 A.2d 757, 758-59 (N.H. 1972). These cases are distinguishable from the circumstances here. Although more work needed to be done at the site after M P left, the temporary repair was complete, MP had no duty to return to the site, and had no idea when, or even if, it might be called back to perform the permanent repair.
KBL next argues that in construing policy language that limits liability to that "arising out of ongoing operations," courts have given broad meaning to that term, holding that the standard is "but for" causation rather than proximate cause. See Andrew L. Youngquist, 625 N.W.2d at 183-84. KBL urges that an equally broad interpretation should be given to the phrase "ongoing operations" in the policy at issue here. We recognize that ambiguities in policy language should be construed against the insurer. See id. at 183. The fact that MP had no duty to return and no control over when, if ever, it would return to do the permanent repair, however, convinces us that even a broad interpretation of "ongoing operations" would not invoke coverage in the present case.
Finally, KBL argues that language in the contract giving MP responsibility for restoring sites with underground installations to their original condition and taking safety precautions at worksites shows that MP had an ongoing duty to monitor the site and had continuing responsibility for the condition of and the safety precautions on the site until the permanent repair was performed. Again, however, the contract also states that KBL is not obligated to use only MP for service work and that MP shall perform only those services specified in the work order, with KBL not obligated to pay for additional work performed unless an additional work order is executed. The combination of these provisions compels a conclusion that the duties of MP to take safety precautions at the worksite only extend to the period of time during which it is performing services pursuant to a work order. As noted earlier, if MP had a duty to continue to monitor and take safety precautions after completion of work it would be essentially required to perform services without compensation for an indefinite period of time with no guarantee that KBL would ever require its services again.
II.
As an alternative basis for imposing a duty to indemnify, KBL contends that even if it is not covered as an additional insured, coverage should be provided because KBL had an "insured contract" with MP. If a party has an insured contract, that party is in the same position as the insured for coverage purposes. Marlin v. Wetzel County Bd. Of Educ., 569 S.E.2d. 462, 468-69 (W.Va. 2002). "Agreements seeking to indemnify a party for losses resulting from that party's own negligent acts are not favored in the law and are not construed in favor of indemnification, unless such intention is expressed in clear and unequivocal terms." Oster v. Medtronic, Inc., 428 N.W.2d 116, 118 (Minn.App. 1988) (citing Johnson v. McGough Constr. Co., 294 N.W.2d 286, 288 (Minn. 1980), superceded by statute as recognized in Katzner v. Kelleher Constr., 545 N.W.2d 378, 381 (Minn. 1996)).
The definition of an insured contract under the policy is the part of a contract "under which you assume the tort liability of another party to pay for `bodily injury' or `property damage' to a third person or organization." The only section of the contract between KBL and MP that could give rise to a duty to indemnify is a section in which MP agrees to indemnify KBL for any claims arising from the violation of any safety statutes. There is no claim of any violation of safety statutes in this case; thus, KBL is not covered under an insured contract.
Where courts have found an insured contract, the language expressed a clear intent to indemnify the other party for all tort liability. See, e.g., Johnson, 294 N.W.2d at 288 (concluding the contract indemnified the indemnittee when "[t]he provision states that the subcontractor will `assume entire responsibility and liability for all damages' and will `indemnify and save harmless the Contractor . . . from all such claims including, without limiting the generality of the foregoing, claims for which the Contractor may be, or may be claimed to be, liable.'" (emphasis omitted)). There is no such clear intent expressed in the contract between KBL and MP.
III.
KBL also argues that if the court concludes the policy language is ambiguous, that ambiguity must be resolved in the insured's favor. Columbia Heights Motors, 275 N.W.2d at 36. KBL claims that the district court improperly construed ambiguities in the policy at issue here against KBL. We do not agree, and conclude that not only is there no ambiguity in the language of the policy, but that the ambiguity referred to by the district court in a footnote was, instead, a perceived ambiguity in the contract between KBL and MP. That perceived ambiguity was properly construed against KBL, the drafter. The district court's construction of the contract between KBL and MP arguably supports the conclusion already reached by that court that Liberty had no duty to indemnify KBL.
IV.
As a final argument, KBL contends that even if Liberty did not have a duty to indemnify KBL, it did have a duty to defend KBL in the Bengston action because it was at least arguable that MP's operations were ongoing and incomplete. The duty to defend an insured is broader than the duty to indemnify. St. Paul Fire Marine Ins. Co. v. Nat'l Computer Sys., Inc., 490 N.W.2d 626, 631 (Minn.App. 1992), review denied (Minn. Nov. 17, 1992). The duty to defend a claim against an insured arises when any part of the claim is arguably within the scope of the policy's coverage. Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 165 (Minn. 1986). An insurer who seeks to avoid that duty has the burden of showing that all parts of the cause of action fall clearly outside the scope of coverage. Id. at 165-66. The duty to defend is generally determined at the time the insured tenders the suit to the insurer. See id. at 166. The insurer may rely on facts outside of the complaint, however, to determine whether it has an obligation to defend. St. Paul Fire Marine Ins., 490 N.W.2d at 632. Even if there is a subsequent determination that there was no duty to indemnify under the policy, the insurer's duty to defend is not extinguished if the claim was arguably within the scope of the coverage. Id.
In most cases in which a duty to defend is found, there are factual questions in the underlying case that determine whether coverage exists. See, e.g., Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 390-91 (Minn. 1979); Reinsurance Ass'n of Minn. v. Timmer, 641 N.W.2d 302, 312-313, 315 (Minn.App. 2002), review denied (Minn. May 14, 2002). Where the question is purely one of interpreting the extent of the coverage when the facts are not at issue, the court cases are less clear.
In St. Paul Fire Marine Ins., the insurer was found to have a duty to defend under claims against its insured for damage to tangible property. 490 N.W.2d at 630. Prior caselaw was unclear regarding whether information or data stored on a tangible object, such as a binder, was tangible property. Id. at 630-31. The insurer was liable to defend in those circumstances, because theft of the information was arguably covered by the policy. Id. at 632.
In Grossman v. Am. Family Mut. Ins. Co., 461 N.W.2d 489, 494-95 (Minn.App. 1990), review denied (Minn. Dec. 20, 1990), no duty to defend was found. The action arose out of an intra-partnership dispute, and the court found that the ordinary and usual meaning of claims brought by others does not include claims brought by another partner, and that an internal legal dispute does not arise out of the conduct of the business. Id. at 493-94.
To the extent that existing caselaw informs our decision in this case, we note that even though a duty to defend was declared in St. Paul Fire Marine Ins., that decision arguably rests uniquely on the questionable definition of "tangible property." In the case now before us, there is no questionable definition. Both KBL and MP understood that additional communication and agreement would be needed before any work was done by MP after January 1999. While we recognize both that MP was required to have adequate staffing to perform work for KBL during the entire period, and that courts have interpreted the phrase "arising out of ongoing operations" broadly, we conclude nonetheless that St. Paul Fire Marine Ins. does not compel a finding of a duty to defend under the facts of this case.
In contrast to the analysis set forth in St. Paul Fire Marine Ins., the court in Grossman focused on whether the insureds reasonably expected that the policy provided coverage. The court found no reasonable expectation. Grossman, 461 N.W.2d at 494. The same conclusion is appropriate here. KBL and MP could have entered a contract that would have addressed ongoing operations or otherwise met policy requirements. A policy providing broader coverage could have been sought, and would almost certainly have involved higher premiums. In contrast, the facts of this case demonstrate that Liberty reasonably concluded that ongoing operations were not present — that MP had no duty to return to the site until requested by KBL. Under Grossman, the reasonable expectations of KBL and MP were that there could be no coverage under Liberty's policy between the conclusion of the temporary fix and a later agreement between KBL and MP that would cause MP to return to the work site and effect the final installation.
We conclude that where, as here, the insurer possesses information such as that obtained by the investigation of Gayle Manion, and that existence of coverage does not rely on unknown facts, the insurer should not be required to defend a lawsuit merely because the insured sets forth a rhetorical argument that coverage should exist. Liberty's investigation of the working relationship between MP and KBL showed that MP had no duty to return to the site until requested by KBL. There was no ongoing operation at the time of Bengston's injury.
The district court did not err in awarding summary judgment to Liberty on the basis that Liberty had neither a duty to indemnify nor a duty to defend KBL in the action brought against KBL by Bengston.