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

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1784

 

Farm Bureau Mutual Insurance Company,

Appellant,

 

vs.

 

North Star Mutual Insurance Company,

Respondent.

 

Filed July 13, 2004

Reversed and remanded

Gordon W. Shumaker, Judge

 

Red Lake County District Court

File No. C3-03-81

 

 

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

 

Steven L. Marquart, Cahill & Marquart, P.A., 403 Center Avenue, Suite 200, P.O. Box 1238, Moorhead, MN 56561-1238 (for respondent)

 

            Considered and decided by Peterson, Presiding Judge; Shumaker, Judge; and Anderson, Judge.

U N P U B L I S H E D   O P I N I O N

 

GORDON W. SHUMAKER, Judge

 

Appellant Farm Bureau Mutual Insurance Company argues that the district court erred in granting summary judgment in favor of respondent North Star Mutual Insurance Company when it applied collateral estoppel to this case and concluded that respondent did not have a legal duty to defend a third party.  Because the district court erred in ruling that appellant was estopped and because there are genuine issues of material fact as to the duty to defend, we reverse and remand.

FACTS

After his father died, Oak Park Lutheran Church parishioner Darrow Lundeen decided to donate a steeple to the church in his father's memory.  Upon the congregation's approval, Lundeen coordinated the selection, purchase, and erection of the steeple. 

Lundeen hired Lloyd Lund to supply a crane to lift the steeple onto the church roof.  Lundwas paid$300.  Lund hired Irvin Hamm to help.  Lundeen recruited Brad Nelson, a general contractor and church member, and others to volunteer their services. 

On the day the work was being performed, Nelson was on the church roof; Lund was operating the crane; and Hamm was on the ground holding a hook attached to the crane's cable.  Lund inadvertently contacted high-tension electrical wires with the crane boom and Hamm suffered an electrical injury.

Hamm sued the church, Lund, and Nelson.  As to Nelson, Hamm alleged that he "was employed as a general contractor and/or contractor at the building/construction project located at or near" the church and that his negligence caused Hamm's injury.

Respondent North Star Mutual Insurance Company was the church's insurer under a commercial general liability policy.  Appellant Farm Bureau Mutual Insurance Company provided farm/ranch/homeowners' insurance coverage to Nelson.  Nelson delivered the summons and complaint to Farm Bureau.  Farm Bureau accepted the defense of Nelson under a reservation of rights.  

The church delivered its copies of the summons and complaint to North Star, and that insurer answered on behalf of the church but not on Nelson's behalf.  Because North Star's policy covered church volunteers, on February 27, 2001, Nelson tendered the defense of the action against him to North Star.  North Star declined to defendNelson.  Farm Bureau continued its defense under a reservation of rights and later brought this declaratory judgment action seeking reimbursement for defense fees and costs and fees and costs incurred in defending the action. 

North Star admitted in its answer that Nelson was a member of the church and was a volunteer on the steeple project but denied that he was acting at the direction, or on behalf, of the church when Hamm was injured.

In Hamm's lawsuit, the district court granted summary judgment in Nelson's favor, ruling that there was no genuine fact issue as to Nelson's liability.  The court stated: "Defendant Nelson was simply a volunteer, who happened to be a building contractor" but who did not exercise any direction or control over the project or any of the other workers.  The court of appeals affirmed this ruling.  Hamm v. Oak Park Lutheran Church, No. CX-02-354 (Minn. App. Oct. 1, 2002), review denied (Minn. Dec. 30, 2002).

North Star moved for summary judgment in the declaratory-judgment action, claiming that Farm Bureau is collaterally estopped from disputing the district court's prior ruling that Nelson had no liability for Hamm's injury.  The district court agreed, holding that, although the legal issues in the two cases were different, the facts were identical and it was on those facts that Farm Bureau must base its proof that North Star afforded insurance coverage to Nelson.  Farm Bureau appeals from the summary judgment in North Star's favor.

D E C I S I O N

This is an appeal from a summary judgment in a declaratory-judgment action.  On review, we determine whether there are any genuine issues of material fact and whether the district court erred in its application of law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  Appellant Farm Bureau Mutual Insurance Company argues that the district court erred as a matter of law by applying collateral estoppel and in granting summary judgment in favor of respondent.

Duty to Defend

The question before us is whether there exists a genuine fact issue as to North Star's duty to defend Nelson.  We first note that an insurer's duty to defend does not depend on the merits of the underlying claim against the insured.  Truchinski v. Cashman, 257 N.W.2d 286, 287 (Minn. 1977).  Thus, the district court's correct determination in the Hamm lawsuit that Nelson had no liability for Hamm's injury does not control or resolve the issue of duty to defend.

A duty to defend arises if any part of a cause of action against an insured arguably falls within the scope of insurance coverage, either on the face of the complaint or from facts known to the insurer.  Id.  But an insurer has no duty to defend if facts outside a complaint show that coverage is excluded.  Lanoue v. Fireman's Fund Am. Ins. Cos., 278 N.W.2d 49, 52 (Minn. 1979).

North Star's policy provides coverage for

1.         Any of [the church's] members, but only with respect to their liability for [the church's] activities or activities they perform on [the church's] behalf.

           

 . . . .

 

3.         Any person(s) who are volunteer worker(s) for [the church], but only while acting at your direction and within the scope of their duties.

 

Ambiguities as to coverage are to be resolved in favor of the insured, and the burden is on the insurer to prove that the claim falls outside the coverage provided by the insurance policy.  Prahm v. Rupp Const. Co., 277 N.W.2d 389, 390 (Minn. 1979).  The initial burden is on the insured to show prima facie coverage.  SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d. 305, 311 (Minn. 1995).

Even though Hamm's complaint seemed to cast Nelson in the role of a commercial contractor whom the church hiredwhich would place Nelson outside coverage under North Star's policyfacts uncovered during investigation and formal discovery revealed Nelson to have been a volunteer and a church member, arguably performing an activity on behalf of the church.  Inthis role, arguably there was coverage for Nelson.  There are genuine fact issues as to precisely what Nelson's role was, whether he was acting at the direction or on behalf of the church and when information that would arguably trigger coverage was discovered by North Star.  Because of such fact issues, summary judgment was inappropriate.

Collateral Estoppel

The district court determined that Farm Bureau is collaterally estopped from litigating the coverage issue because of the final decision on the merits in the Hamm lawsuit.  Whether a party is estopped from litigating an issue is a question of law subject to de novo review.  Hennepin County v. Hanneman, 472 N.W.2d 149, 152 (Minn. App. 1991), review denied (Minn. Aug. 29, 1991).  "Collateral estoppel bars the relitigation of issues which are both identical to those issues already litigated by the parties in a prior action and necessary and essential to the resulting judgment."  Clapper v. Budget Oil Co., 437 N.W.2d 722, 725 (Minn. App. 1989), review denied (Minn. June 9, 1989).  Collateral estoppel is applicable when "(1) the issue [is] identical to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the estopped party was a party or in privity with a party to the prior adjudication; and (4) the estopped party was given a fulland fair opportunity to be heard on the adjudicated issue."  Schlichte v. Kielan, 599 N.W.2d 185, 187-88 (Minn. App. 1999), review denied (Minn. Nov. 17, 1999).

The district court acknowledged that the issue in the Hamm lawsuit was whether Nelson was liable for Hamm's damages and that the issue here is different, namely, whether there was arguably insurance coverage for Nelson that would trigger a duty to defend.  But the court stated: "Although the issue to be decided is different, the facts needed to prove the issue are identical to the facts decided in the summary judgment motion inHamm v. Oak Park, et al."

            We disagree that the facts needed to prove both issues are identical.  Although both issues arise out of the same facts, in order to trigger a duty to defend, Nelson only had to show arguable coverage, even if the allegations supporting ostensible coverage later prove to be groundless.  See Denike v. Western Nat'l Mut. Ins. Co., 473 N.W.2d 370 (Minn. App. 1991).  Thus, the legal and fact issues of liability and duty to defend are not identical, as is required for a proper application of collateral estoppel. 

We also disagree that Farm Bureau had a full and fair opportunity to be heard on the duty-to-defend issue in the Hamm lawsuit.  The district court applied the principle of privity to conclude that "issues necessarily decided in the ensuing trial are conclusively established against the indemnitor."  This principle means only that Farm Bureau, or any other insurer owing coverage, is bound by the liability and damages determinations in the Hamm lawsuit.  Coverage and duty to defend were not issues necessarily decided in that action.  In fact, they were not issues that were raised, or that could have been raised, without the formal joinder of both Farm Bureau and North Star and without the formal assertion of a coverage claim.  Farm Bureau had no opportunity in the Hamm lawsuit to litigate duty to defend or coverage, both issues being irrelevant to the liability and damages claims that were the sole focus of that action.  We conclude that the district court erred in its application of collateral estoppel to preclude Farm Bureau from litigating the issues of duty to defend and coverage.

Reversed and remanded.