Church Mutual Insurance Company, Appellant, vs. Redeemer Lutheran Church, et al., Respondents.

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C0-97-2002

Church Mutual Insurance Company,

Appellant,

vs.

Redeemer Lutheran Church, et al.,

Respondents.

Filed April 28, 1998

Affirmed

Peterson, Judge

St. Louis County District Court

File No. C993600833

Thomas E. McEllistrem, Patrick T. Tierney, Collins, Buckley, Sauntry & Haugh, P.L.L.P., W-1100 First National Bank Building, 332 Minnesota Street, St. Paul, MN 55101-1379 (for appellant)

Steven L. Reyelts, Aaron R. Bransky, Halverson Watters Downs Reyelts & Bateman, Ltd., 700 Providence Building, Duluth, MN 55802-1801 (for respondents Minnesota North District of the Lutheran Church-Missouri Synod and The Lutheran Church-Missouri Synod)

Considered and decided by Crippen, Presiding Judge, Peterson, Judge, and Mansur, Judge.*

*Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

U N P U B L I S H E D O P I N I O N

This appeal is from a judgment awarding respondent Minnesota North District of the Lutheran Church - Missouri Synod (North District) attorney fees incurred in a declaratory judgment action brought by appellant Church Mutual Insurance Company to determine whether Church Mutual was obligated to defend and indemnify the North District and several other defendants against sexual abuse actions.[1] We affirm. FACTS

Several individuals, including John W. Doe and John E.E. Doe, brought actions against respondent Daniel Reeb, seeking damages for sexual abuse allegedly committed by Reeb during the 1960s and early 1970s, while he was pastor of respondent Redeemer Lutheran Church. Redeemer was a member of the North District. John W. Doe and John E.E. Doe also sued Redeemer, the North District, and the Missouri Synod, alleging that they were negligent in the hiring, supervision, and retention of Reeb.

Appellant Church Mutual Insurance Company brought this declaratory judgment action to determine its obligation to defend and indemnify the North District and the other defendants against the sexual abuse allegations. Church Mutual sought a declaration that it provided liability coverage to the North District no earlier than September 15, 1968 and to Redeemer no earlier than January 21, 1964. Church Mutual also sought a declaration that policy exclusions precluded coverage for the sexual abuse actions.

In early 1994, Church Mutual moved for summary judgment in the declaratory judgment action. The district court continued the motion until the outcome of the John W. Doe trial. In early 1994, a jury awarded John W. Doe damages against Reeb and Redeemer but found the North District and the Synod not liable. The John W. Doe verdict was appealed, and the case was not resolved until after the supreme court issued a decision in 1997. The John E.E. Doe case was settled in September 1994. Church Mutual provided a defense and indemnity against both claims.

In February 1997, the district court issued an order denying Church Mutual's summary judgment motion as to Redeemer and Reeb. The court found that Church Mutual was obligated to provide coverage to John W. Doe under two policies covering Redeemer. The court did not make a finding regarding coverage for the North District.

In April 1997, the North District renewed a prior motion for attorney fees in the declaratory judgment action. The district court found that Church Mutual was liable for attorney fees incurred by the North District in the declaratory judgment action under a supplementary payments clause in the policies issued to the North District. The clause provided that Church Mutual would pay the applicable limit of liability plus

[e]xpenses incurred by the insured for first aid to others at the time of an accident, for bodily injury to which this policy applies, * * * [and]

[r]easonable expenses incurred by the insured at the Company's request, including actual loss of wages or salary (but not loss of other income) not to exceed $25 per day because of his attendance at hearings or trials at such request.

(Emphasis added.) For expediency reasons, Church Mutual concedes that the above-quoted supplementary payments clause applied to the underlying sexual abuse actions.

The district court awarded the North District $29,514.84 for attorney fees incurred in the declaratory judgment action. The district court found the amount was

reasonable in light of the difficult and unusual issues involved in these proceedings, including the age of the insurance policies involved and the apparent difficulties the parties had in retrieving the policies.

D E C I S I O N

I.

Church Mutual first argues that the district court erred in concluding that the supplementary payments clause established a contractual obligation for it to pay the North District's attorney fees in the declaratory judgment action. Interpretation of an insurance policy is a question of law subject to de novo review. Garrick v. Northland Ins. Co., 469 N.W.2d 709, 711 (Minn. 1991).

In Security Mut. Cas. Co. v. Luthi, 303 Minn. 161, 165, 226 N.W.2d 878, 881 (1975), the insurance policy provided that the insurance company shall

pay all expenses incurred by the Company for investigation, adjustment and defense, and reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request.

The supreme court construed "expenses incurred at the Company's request" as including attorney fees and held that under the clause, the insured was entitled to recover attorney fees incurred in defending a declaratory judgment action to determine coverage. Id. at 169-171, 226 N.W.2d at 883-85; see also Atlantic Mut. Ins. Co. v. Judd Co., 380 N.W.2d 122, 126 (Minn. 1986) (following Luthi); Ohio Cas. Ins. Co. v. Terrace Enters., Inc., 260 N.W.2d 450, 455-56 (Minn. 1977) (same).

The language in the clause at issue in this case, "reasonable expenses incurred by the insured at the Company's request," is essentially identical to the language construed in Luthi. Church Mutual argues that this case is distinguishable from Luthi because Church Mutual did not breach its duty to defend and indemnify the North District. But the Luthi holding was based on the supreme court's construction of the insurance policy, not on the insurer's breach of a contractual duty owed to the insured. See Luthi, 303 Minn. at 169-171, 226 N.W.2d at 883-85 (insured entitled to recover attorney fees under clause providing for payment of "expenses * * * incurred at the Company's request" because attorney fees were "expenses incurred at the Company's request"); see also Judd, 380 N.W.2d at 126 (citing Luthi, 303 Minn. at 169-71, 226 N.W.2d at 883-85); St. Paul Sch. Dist. No. 625 v. Columbia Transit Corp., 321 N.W.2d 41, 48 (Minn. 1982) (Luthi "was decided on the basis of the particular wording of the insurance policy at issue"); Grain Dealers Mut. Ins. Co. v. Cady, 318 N.W.2d 247, 251 n.10 (1982) (explaining Luthi).

We also note that in Judd, the insurer provided its insured with an attorney and reserved the right to contest coverage. Atlantic Mut. Ins. Co. v. Judd Co., 367 N.W.2d 604, 606 (Minn. App. 1985), aff'd, 380 N.W.2d 122 (Minn. 1986). Neither the supreme court's opinion nor this court's opinion indicate that the insurer in Judd breached a contractual duty owed to the insured. See id., see also Cady, 318 N.W.2d at 251 n.10 (insurer retained attorney to defend insured against underlying claim; in declaratory judgment action, supreme court remanded for determination whether policy contained language that would permit attorney fee award).

Church Mutual next contends that an award of attorney fees under the supplementary payments clause is inconsistent with American Standard Ins. Co. v. Le, 551 N.W.2d 923 (Minn. 1996). In Morrison v. Swenson, 274 Minn. 127, 142 N.W.2d 640 (1966), the supreme court created an exception to the general rule that attorney fees are not recoverable in a declaratory judgment action absent statutory authority for an attorney fee award. The Morrison court held that attorney fees could be awarded in a declaratory judgment action under a breach of contract theory when the insurer breached its duty to defend and the insured brought a declaratory judgment action to compel the insurer to provide a defense. Id. at 137-38, 142 N.W.2d at 647. In Le, the supreme court followed Morrison and reiterated

that attorney fees are recoverable in a declaratory judgment action only if there is a breach of a contractual duty or statutory authority exists to support such an award.

Le, 551 N.W.2d at 927.

Le, however, did not involve a claim that a provision in the insurance contract authorized an attorney fee award. In deciding whether the insurance contract authorized an attorney fee award, the Luthi court stated:

The issue presented is one of first impression in this court. We have considered the question of attorneys fees in declaratory judgment actions on four occasions in recent years, but in none of the cases was an insurance policy provision involved in the decision.

Luthi, 303 Minn. at 169, 226 N.W.2d at 883-84 (footnote omitted). Morrison was one of the four recent cases referred to by the Luthi court. Id. at 171 n.4, 226 N.W.2d at 883 n.4. The Luthi court, thus, expressly distinguished between awarding attorney fees pursuant to policy language and under a breach of contract theory. We, therefore, conclude that an attorney fee award under the supplementary payments clause is consistent with Le and the Morrison line of cases. The district court properly determined that under the supplementary payments clause, Church Mutual was obligated to pay attorney fees incurred by the North District in defending this declaratory judgment action.[2]

II.

Church Mutual argues that it should not be liable for attorney fees incurred by the North District after September 9, 1994, the date the John E.E. Doe case was settled. The John E.E. Doe case was settled after the jury rendered its verdict in the John W. Doe case.[3] See Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411, 420 (Minn. 1997) (insurer not liable for fees incurred in declaratory judgment action after date underlying action was settled because no contractual duty was breached after that date).

Here, attorney fees were awarded under the supplementary payments clause, not under a breach of contract theory. A continuing breach of contract, therefore, was not required to support the attorney fee award. The relevant issue is whether the attorney fees were "reasonable expenses incurred by the insured at the Company's request."

Under Luthi, attorney fees incurred in defending a declaratory judgment action to determine coverage are "expenses incurred by the insured at the Company's request," so the only question is whether the attorney fees incurred by the North District were reasonable. See Luthi, 303 Minn. at 165, 226 N.W.2d at 881. The district court has discretion to determine the amount of an attorney fee award. Cox v. Crown Coco, Inc., 544 N.W.2d 490, 500 (Minn. App. 1996). The district court found the $29,514.84 claimed for attorney fees by the North District was

reasonable in light of the difficult and unusual issues involved in these proceedings, including the age of the insurance policies involved and the apparent difficulties the parties had in retrieving the policies.

Church Mutual does not argue that this finding is unsupported by the record. Church Mutual does not cite evidence showing that any attorney fees incurred by the North District were incurred as a result of improper or unreasonable conduct by the North District. The district court did not err in determining the amount of the attorney fee award.

In the appendix to its reply brief, Church Mutual included excerpts from insurance policies that were not part of the district court record. We strike those materials and all references to them. See Minn. R. Civ. App. P. 110.01 ("The papers filed in the [district] court, the exhibits, and the transcript of the proceedings, if any, shall constitute the record on appeal in all cases.").

Affirmed.

[1] The North District is the only respondent that the district court awarded attorney fees and the only respondent that submitted a brief on appeal. The other respondents did not seek attorney fees.

[2] Because Church Mutual conceded that the supplementary payments clause applied to the sexual abuse actions, we need not consider the North District's claim that it was entitled to attorney fees regardless of Church Mutual's obligation to provide coverage against the sexual abuse claims.

[3] We do not address the issue whether the jury verdict was a final determination of the North District's liability to John W. Doe.