Farm Bureau Mutual Insurance Company, Appellant, vs. North Star Mutual Insurance Company, Respondent.

Farm Bureau Mutual Insurance Company, Appellant, vs. North Star Mutual Insurance Company, Respondent. A05-851, Court of Appeals Unpublished, November 22, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-851

 

Farm Bureau Mutual Insurance Company,

Appellant,

 

vs.

 

North Star Mutual Insurance Company,

Respondent.

 

Filed November 22, 2005

Affirmed; motion granted
Klaphake, Judge

 

Red Lake County District Court

File No. C3-03-81

 

Richard C. Mollin, 118 North Johnson Avenue, Fosston, MN  56542 (for appellant)

 

Steven J. Cahill, 403 Center Avenue, Suite 200, Post Office Box 1238, Moorhead, MN  56561-1238 (for respondent)

 

            Considered and decided by Hudson, Presiding Judge, Klaphake, Judge, and Wright, Judge.

U N P U B L I S H E D   O P I N I O N

KLAPHAKE, Judge

            Appellant Farm Bureau Mutual Insurance Company challenges the district court's order (1) denying its request for attorney fees and costs incurred in this declaratory judgment action and in the underlying lawsuit; and (2) awarding respondent North Star Mutual Insurance Company statutory costs and court fees of $405.

            Because there is no contractual obligation between the insurers that would make one accountable to the other for breach of its independent obligation to an insured, and because the district court did not abuse its discretion by determining that respondent was the prevailing party and therefore entitled to statutory and court costs, we affirm.

FACTS

            Appellant brought a declaratory judgment action against respondent, seeking to determine respondent's coverage obligations to Brad Nelson.  Nelson, who was insured by appellant with a farm owner's policy, was sued by a party injured during installation of a steeple on Oak Park Church; Nelson was a church member who volunteered to assist in the installation.  Respondent insured Oak Park Church, whose policy included coverage for volunteers acting under the direction of the church. 

            Appellant undertook Nelson's defense under a reservation of rights and made a formal tender of defense to respondent, who declined to represent Nelson.  After Nelson was dismissed from the lawsuit, appellant brought this declaratory judgment action, seeking a determination that respondent had a duty to defend Nelson and requesting an award of attorney fees and costs for both its defense of Nelson and the declaratory judgment action. 

            Initially, the district court granted summary judgment to respondent, concluding that appellant was collaterally estopped from raising the issue of duty to defend.  On appeal, this court reversed and remanded.  Farm Bureau Mut. Ins. Co. v. North Star Mut. Ins. Co., 2004 WL 1557899 (Minn. App. July 13, 2004).  On remand, the district court concluded that respondent had a duty to defend Nelson, but denied appellant attorney fees and costs, and awarded respondent statutory costs and court fees of $405. 

D E C I S I O N

            1.         Denial of Attorney Fees and Costs

            In a declaratory judgment action, the district court's findings of fact are reviewed for clear error, but its determination on questions of law is subject to de novo review.  Rice Lake Contr. Corp. v. Rust Env't & Infrastructure, Inc., 549 N.W.2d 96, 98-99 (Minn. App. 1996), review denied (Minn. Aug. 20, 1996).  Although an award of attorney fees is within the district court's discretion, whether a party is entitled to fees is a question of law.  See Becker v. Alloy Hardfacing & Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987); In re L-tryptophan Cases, 518 N.W.2d 616, 619 (Minn. App. 1994).

            When an insurer wrongfully refuses to defend, its insured may recover attorney fees from his or her insurer based on breach of contract.  Am. Standard Ins. Co. v. Le, 551 N.W.2d 923, 927 (Minn. 1996).  This principle does not provide a basis for recovery by one insurer from another insurer when they share a mutual obligation to an insured.  See Nordby v. Atl. Mut. Ins. Co., 329 N.W.2d 820, 824 (Minn. 1983).  In denying the primary insurer reimbursement of its costs from the co-insurer, the supreme court stated:

Each insurer's obligation to defend is separate and distinct from its duty to provide coverage and pay a judgment, irrespective of other insurance and irrespective of whether it provides primary or excess coverage.  An insurer has no right of action against another insurer to recover the cost of defending the insured, since there is no contractual obligation between insurers.

 

. . . .

 

"[N]o contractual obligation [exists] to make one insurer accountable to the other for a breach of its independent obligation to the insured.  The obligation of defending an insured and paying for the defense is a separate obligation existing exclusively between the insurer and the insured."

 

Id. at 824 (quoting St. Paul Sch. Dist. No. 625 v. Columbia Transit Corp., 321 N.W.2d 41, 48 (Minn. 1982)).  The supreme court further noted that the insured, like Nelson in this matter, incurred no costs or fees that would have made him the real party in interest in the action to recover costs and fees.  Id.  Thus, absent a statutory or contractual basis for recovery of fees, respondent has no obligation to reimburse appellant for its fees and costs.

            Appellant states that it undertook representation of Nelson under a reservation of rights and that no court has determined that it had a duty to defend Nelson, whereas the district court found that respondent had a duty to defend Nelson and breached that duty.  Because no court has determined that appellant had a duty to defend, appellant reasons that it should not be responsible for the costs of defense.  Appellant, however, neither denied coverage nor brought a declaratory judgment action to determine the extent of its duty, despite its reservation of rights.   

            Because there was no contractual obligation between the parties, we conclude that the district court did not abuse its discretion by denying appellant's request for attorney fees and costs.

            2.         Prevailing Party

            The district court's determination of who is the prevailing party in an action will not be reversed absent an abuse of discretion.  Bachovchin v. Stingley, 504 N.W.2d 288, 290 (Minn. App. 1993).  The district court must consider the overall result and decide who, in the eyes of the law, has succeeded in the action.  Borchert v. Maloney, 581 N.W.2d 838, 840 (Minn. 1998).  A party who prevails on the merits, but fails to prove damages, may not be the prevailing party when the results are considered as a whole.  Luna v. Zeeb, 633 N.W.2d 540, 543-44 (Minn. App. 2001). 

            In this declaratory judgment action, appellant sought two things: (1) a determination that respondent had a duty to defend Nelson; and (2) recovery of its costs and fees incurred in the underlying action and the declaratory judgment action.  The district court concluded that respondent had a duty to defend Nelson, but this action was not brought until after Nelson had been dismissed from the underlying action, and that dismissal had been affirmed by this court and the supreme court had denied review.  See Hamm v. Oak Park Lutheran Church, 2002 WL 31171760 (Minn. App. Oct. 1, 2002), review denied (Minn. Dec. 30, 2002).  Respondent's duty to defend was a moot point, except as it related to appellant's attempt to recover fees and costs.  The district court denied appellant's request to recover fees and costs; when viewed as a whole, although appellant prevailed on the merits, the final result is that appellant did not recover what it soughtreimbursement for fees and costs. 

            The district court's conclusion that respondent was the prevailing party is supported by the record and is therefore not an abuse of discretion.

            3.         Motion to Strike

            Respondent moves to strike portions of appellant's appendix that contain an e-mailed offer of settlement and reply, and any argument based on these e-mails.  Respondent's motion was deferred to this panel.

            Offers to compromise or for settlement are not admissible to prove "liability for or invalidity of the claim or its amount."  Minn. R. Evid. 408.  Rule 408 is considered to be a rule of exclusion, which means that the district court does not have discretion to admit a statement that violates the rule.  C.J. Duffey Paper Co. v. Reger, 588 NW.2d 519, 524 (Minn. App. 1999), review denied (Minn. Apr. 28, 1999).  Evidence must be excluded if (1) it is an offer to compromise a claim disputed as to either validity or amount; (2) if it is offered to prove liability or invalidity of a claim or its amount; and (3) there is no other legitimate purpose for the offered evidence.  Id.  In Minnesota, settlement proposals are admissible if they predate the disagreement or dispute between the parties, but not if there is an actual controversy in existence at the time of the alleged offer.  Id.

            Appellant's use of the e-mails falls squarely within the prohibitions of rule 408; the e-mails are stricken on that basis. 

            Affirmed; motion granted.