JOHN R. TUNHEIM, District Judge.
Plaintiff State Farm Fire and Casualty Company ("State Farm") brings this declaratory judgment action against its insureds, ARC Manufacturing, Inc. ("ARC"), Ronald Lammert, and Great West Mechanical, Inc. ("Great West"). The underlying facts giving rise to this action involve a fatal truck accident. James J. De Vaan was killed after a truck and trailer driven by Lammert collided with his vehicle. Lammert is the vice president of ARC, and at the time of the accident was returning home from a job site where ARC had been retained as a subcontractor by Great West to perform certain construction work. Valerious A. Young and Mary De Vaan as co-trustees for the heirs and next of kin of James J. De Vaan (collectively, "Co-Trustees") brought a wrongful death action in Minnesota state court against Lammert, ARC, and Great West.
State Farm then brought the present declaratory judgment action seeking a declaration that its contractor insurance policy issued to ARC does not provide coverage for damages arising out of the accident. Specifically, State Farm argues that coverage for the accident is barred by an exclusion in the policy for liability arising out of the use of a non-owned auto in ARC's business. State Farm moves for summary judgment with respect to all Defendants. Because the Court concludes that no issue of material fact remains such that a reasonable jury could find that the accident is covered under the policy, the Court will grant State Farm's motion for summary judgment.
Lammert is the vice president of ARC, a company that performs plumbing, heating, ventilation, and air conditioning work. (Aff. of Matthew R. Smith, Ex. 7 (Dep. of Ronald Walter Lammert ("Lammert Dep.") 8:9-20), July 19, 2013, Docket Nos.
On October 4, 2010, Lammert traveled to Great West's office facility in Big Lake, Minnesota, to pick up vent hoods to bring to the Aberdeen job site. (Lammert Dep. 17:11-13, 36:21-25, 43:3-44:14.) Lammert loaded the hoods onto a trailer ("the Trailer") attached to a 2007 Ford truck ("the Truck") and hauled the hoods to Aberdeen. (Lammert Dep. 11:9-10.)
No written agreement governed the relationship between ARC and Great West regarding ARC's work at the Aberdeen job site. (Snare Dep. 36:9-14; Lammert Dep. 10:10-21.) Great West paid an hourly rate for time Lammert spent driving the Truck and Trailer to and from the site. (Snare Dep. 22:8-24.) Great West also paid an hourly wage for Lammert's work on the site. (Id. 23:6-15.) Additionally, Great West paid approximately $800 per month for the use of the Truck. (Lammert Dep. 49:13-51:23.) Snare testified that he was not sure, but assumed that Lammert did not receive compensation directly from Great West, but rather that Great West would have paid ARC, who in turn would have paid Lammert. (Snare Dep. 7:9-11, 35:2-36:8, 48:13-19.) Lammert testified that he did not receive individual payments for any of the work performed at the Aberdeen jobsite and that Great West paid ARC. (Lammert Dep. 18:6-20, 56:10-18.) Great West did, however, pay Lammert individually $100 for using the Trailer to transport the hoods to the Aberdeen job site. (Snare Dep. 41:15-23; Lammert Dep. 19:20-20:19.)
Lammert was the registered owner of both the Truck and Trailer involved in the accident. (Lammert Dep. 11:5-16, 17:19-18:5.) ARC, however, purchased the Truck, making an $8,000 down payment and making all payments on the loans financing the Truck. (Id. 23:11-14, Smith Aff., Ex. 6 at 35.) ARC also paid for the Truck's license and registration fees, maintenance, fuel, and insurance.
On October 7, 2010, Lammert was driving home from the Aberdeen job site in the Truck, pulling the Trailer behind him. (Lammert Dep. 9:2-12.) During this trip, Lammert collided with a vehicle driven by
The present dispute focuses on a contractor's insurance policy that ARC obtained from State Farm that was effective from February 4, 2010, through February 4, 2011. (Smith Aff., Ex. 1 at 2.) ARC is the name insured on the Policy. The Policy specifies that "[t]hroughout this policy, the words `you' and `your' refer to the Named Insured shown in the Declarations." (Id., Ex. 1 at 6.)
Section II of the Policy is entitled "Designation of Insured" and contains a section "Who is an Insured." (Id., Ex. 1 at 30.) This section defines who, other than ARC, is an insured, and provides that its "executive officers, directors and trustees" are also insureds "but only with respect to their duties as ... officers, director or trustees." (Id.) Additionally, the Policy provides that ARC's employees are insureds "but only for acts within the scope of their employment." (Id.)
The Policy provides comprehensive business liability insurance. (Id., Ex. 1 at 23.) But this coverage contains an exclusion ("the Auto Exclusion") for "bodily injury or property damage arising out of the ownership, maintenance, use or entrustment to others of any aircraft, auto or watercraft owned or operated by or rented or loaned to any insured." (Id., Ex. 1 at 24-25.) The exclusion does not apply, however to "bodily injury or property damage arising out of the use of any non-owned auto in your [ARC's] business by any person other than you [ARC]." (Id., Ex. 1 at 25.) A non-owned auto is defined as "any auto [ARC] do[es] not own, lease, hire or borrow which is used in connection with [ARC's] business." (Id., Ex. 1 at 34.)
Finally, with respect to coverage for Great West, the Policy contains an Additional Insured Endorsement ("the Endorsement"). (Id., Ex. 1 at 39.) The Endorsement lists ARC as the named insured. (Id.) The Endorsement provides that "WHO IS AN INSURED, under SECTION II DESIGNATION OF INSURED, is amended to include as an insured the person or organization shown above, but only with respect to liability arising out of your work for that insured by or for you." (Id.) The only person or organization listed above on the Endorsement is "Greatwest Mechanical, Inc." (Id.)
In December 2012, the Co-Trustees brought a wrongful death action in Swift County, Minnesota, against Lammert, ARC, and Great West, on behalf of the heirs and next of kin of James De Vaan. (Smith Aff., Ex. 2.) The lawsuit alleged that Lammert was negligent in causing the accident, and was acting as an agent of and engaged in a joint venture with ARC and Great West at the time of the accident. (Id.)
In March 2012, State Farm filed the present declaratory judgment action
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party can demonstrate that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A fact is material if it might affect the outcome of the suit, and a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A court considering a motion for summary judgment must view the facts in the light most favorable to the non-moving party and give that party the benefit of all reasonable inferences to be drawn from those facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The interpretation of an insurance policy is a matter of law which the Court can determine on summary judgment. See Iowa Kemper Ins. Co. v. Stone, 269 N.W.2d 885, 886-87 (Minn.1978).
The Court applies "general principles of contract interpretation" in determining whether coverage exists. Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn.1998). The goal of insurance policy interpretation is to give effect to the parties' intent. Eng'g & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 704 (Minn.2013). The Court must construe the terms of the policy as a whole "according to what a reasonable person in the position of the insured would have understood the words to mean." Canadian Universal Ins. Co. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn.1977). Unambiguous language must be given its plain and ordinary meaning. Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628, 636 (Minn.2013). A policy is ambiguous if its language "is susceptible to two or more reasonable interpretations," Carlson v. Allstate Ins. Co., 749 N.W.2d 41, 45 (Minn.2008), and ambiguous language is construed in favor of the insured, see Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 390 (Minn.1979). Whether an insurance policy is ambiguous is a question of law for the Court. Columbia Heights Motors, Inc. v. Allstate Ins. Co., 275 N.W.2d 32, 34 (Minn.1979).
Under Minnesota law the initial burden of establishing a prima facie case of coverage rests with the insured. Midwest Family Mut. Ins. Co., 831 N.W.2d at 636. If the insured establishes coverage, the burden shifts to the insurer to prove that an exclusion applies. Id. Policy exclusions are "construed narrowly and strictly against the insurer." Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn.2006). It is also the insured's burden to prove that an exception to an exclusion which restores coverage applies. SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 314 (Minn. 1995), overruled on other grounds by Bahr v. Boise Cascade Corp., 766 N.W.2d 910, 919 (Minn.2009).
In order for ARC and Lammert to be entitled to coverage, a reasonable jury
As an initial matter, the parties agree that ARC is the named insured under the Policy. The parties also do not dispute that Lammert is an insured for purposes of the accident under the Policy's designation of who is an insured, either because the accident occurred during the scope of his duties as ARC's vice president, or because it occurred within the scope of his employment with ARC. See Kaplan v. Alpha Epsilon Phi Sorority, 230 Minn. 547, 42 N.W.2d 342, 345-46 (1950) (holding that returning from a trip necessitated by an individual's employment falls within the scope of that employment). Additionally, all parties agree that the Auto Exclusion, in isolation, would operate to bar coverage in this case. Specifically, the parties agree that Mr. De Vaan's death arose out of the "ownership, maintenance, use or entrustment of any ... auto." (Smith Aff. Ex. 1 at 24-25.) Furthermore, the parties agree that said auto, the Truck, was "owned or operated by" Lammert — who qualifies as "any insured" under the Policy. (Id.)
State Farm's summary judgment motion on coverage therefore involves only the application of the exception to the Auto Exclusion, which provides that coverage
The terms "hire" and "borrow" are not defined in the Policy. "When an insurer fails to define a coverage term, it is not entitled to a strict or limited definition that differs from the ordinary definition in order to avoid providing coverage." Kresse v. Home Ins. Co., 765 F.2d 753, 755 (8th Cir.1985); see also Smith v. St. Paul Fire & Marine Ins. Co., 353 N.W.2d 130, 132 (Minn.1984). The common definition of hire involves payment for services or use. Hire means "[t]o procure the temporary use of property, [usually] at a set price," Black's Law Dictionary 799 (9th ed.2009), or "to engage the temporary use of for a fixed sum," Webster's Third New International Dictionary 1072 (1993). With respect to whether a
Defendants argue that ARC did not hire the Truck because, although it paid all expenses related to the Truck, it did not pay Lammert specifically for use of the Truck beyond his general compensation as an employee. See Metzger v. Country Mut. Ins. Co., 369 Ill.Dec. 443, 986 N.E.2d 756, 762-63 (2013) (finding that a company's payments for repairs, gas, insurance, and the loan payments on a truck owned by an employee did not constitute "a lease or hire" because "there is no evidence that [the company] paid or promised consideration for its use of the [truck]"). The Court will assume for purposes of this motion that a reasonable jury could conclude that none of ARC's payments to Lammert specifically compensated him for ARC's use of the Truck. Even if a jury agreed with Defendants, however, that ARC did not make any payments to Lammert that were specifically tied to its use of the Truck, having made that determination, the only reasonable conclusion that jury could reach is that ARC borrowed the Truck.
In Metzger, based on almost identical facts to those presented here, the court found that the company in question borrowed the truck from its employee.
Id. at 764.
Similarly, here (assuming that ARC made no payments to Lammert specifically for use of the Truck) the undisputed facts demonstrate that ARC was borrowing the Truck from Lammert. Although Lammert retained title to the Truck, ARC consistently received use of that Truck on loan, with the understanding that after it was done being used for the business the Truck would be returned to Lammert's personal possession. This was a borrowing relationship. That this was a borrowing relationship is not altered by the fact that ARC and Lammert never formally agreed that ARC was "borrowing" the Truck. See Nat'l Interstate Ins. Co. v. Morgan & Sons Weekend Tours, Inc., Civ. No. 11-1074, 2013 WL 5430414, at *6 (M.D.N.C. Sept. 27, 2013) (finding that a lack of communication, permission or intention regarding whether a vehicle was borrowed did not preclude the court from finding that the vehicle was borrowed within the meaning of an insurance policy).
Finally Defendants argue that ARC could not have been borrowing the Truck at the time of the accident because ARC used the Truck for all of its business needs, and the relationship between ARC and Lammert with respect to the Truck was not temporary. (See Defs. ARC & Lammert's Mem. in Opp'n to Mot. for Summ. J. at 4, Aug. 9, 2013, Docket No. 37 (explaining that use of the Truck does not meet the definition of borrow as "took it `for temporary use'" because "there was nothing `temporary' or special about his use of the truck in Aberdeen. Lammert and ARC had an arrangement whereby Lammert used the truck in all ARC business....").) But courts considering the scope of similar insurance provisions have concluded that the frequency or duration of an arrangement is irrelevant to whether a vehicle has been borrowed. See Am. Indem. Ins. Co. v. Code Elec. Corp., 157 Ariz. 571, 760 P.2d 571, 574 (Ariz.Ct.App. 1988) ("[W]e hold that `borrowing' does not require an agreement to return the property at a fixed or certain time. A `borrowing' may be for an indefinite period and may last until either the borrower decides to return the property or the lender requests its return." (citing Miller v. Nat'l Farmers Union Prop. & Cas. Co., 470 F.2d 700, 705 (8th Cir.1972))); Metzger, 986 N.E.2d at 764 ("[F]requency of use is not determinative — or even pertinent in determining whether a vehicle has been borrowed." (emphasis and internal quotation marks omitted)). The temporary nature of borrowing referred to in the dictionary definitions of "borrow" does not, as Defendants argue, require that borrowing be a special event or one that occurs only infrequently. Instead, the temporal nature of borrowing as it relates to the present case refers to the fact that there is no permanent change in ownership of the Truck in question. ARC could "borrow" the Truck for five years, or once a day, every day, or one time for a period of hours. All of these scenarios describe a temporary state, because at the end of ARC's use, the Truck would return to Lammert's possession. Therefore, the use of "temporary" in defining borrow merely describes a lack of permanence, and does not suggest that borrowing, as characterized by use without ownership, can only be for a short period of time or occur with limited frequency.
All of the possible disputed issues of fact identified by Defendants create an issue as to whether the Truck may have been either hired or borrowed, but they create no issue as to whether ARC's use of the Truck falls outside the scope of those definitions. For example, Defendants argue that the Truck was not hired because the compensation paid to Lammert was general compensation for his employment and not related specifically to the Truck. As explained above, if Lammert received no specific compensation for ARC's use of the Truck, those facts would indicate that the Truck was borrowed. Therefore, even if the facts suggest some disagreement about which particular category the Truck falls into — hired or borrowed — the Court concludes that the Truck falls into at least
Great West argues that, if it is liable for the injuries to De Vaan, it is entitled to insurance coverage under the Policy as an additional insured. Great West admits that its coverage as an additional insured would be barred by the Auto Exclusion, and that coverage is therefore only available to it if the non-owned auto exception applies. As explained above, the non-owned auto exception does not apply to the circumstances of the accident because the Truck was hired or borrowed by ARC. Great West concedes that if the non-owned auto exception is interpreted in the manner explained above that it is not entitled to coverage. In making the argument that it is entitled to coverage, therefore, Great West contends that the Auto Exclusion is rewritten when coverage for additional insureds is implicated. Specifically Great West argues that "you" or "your" throughout the Policy refers not just to the named insured — ARC — but also to Great West, which is listed as an additional insured in the Endorsement. Proceeding on this assumption, Great West argues that the non-owned auto exception actually provides coverage for
when determining whether Great West is entitled to coverage, rather than
Similarly, Great West's assumption would cause the definition of non-owned auto to read "any auto [Great West] does not own, lease, hire or borrow which is used in connection with [Great West's] business." Tying it all together, Great West argues that the Policy provides it with coverage because the accident arose out of the use of the Truck which Great West did not own, lease, hire or borrow, and at the time of the accident the Truck was being used in Great West's business.
Because "you" and "your" as used in the Policy refer only to the named insured, the Auto Exclusion is appropriately read as providing coverage for
As explained above, no such coverage exists with respect to the accident, and therefore Great West, as an additional insured is similarly entitled to no coverage. See Eng'g & Constr. Innovations, Inc., 825 N.W.2d at 709 ("Additional insured clauses do not enlarge the insurance coverage as defined in the policy, but merely cause the insurance to cover persons other than the named insured within the limits of the policy coverage." (alterations and internal quotation marks omitted)). Therefore, the Court will grant State Farm's motion for summary judgment with respect to Great West.
Based on the foregoing, and all the files, records, and proceedings herein,
