United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 15-1465
                         ___________________________

                 American Family Mutual Insurance Company

                         lllllllllllllllllllll Plaintiff - Appellee

                                            v.

                               John Martin Donaldson

                       lllllllllllllllllllll Defendant - Appellant

                      Todd Richard Patton; Jacob Todd Patton

                             lllllllllllllllllllll Defendants
                                     ____________

                    Appeal from United States District Court
                   for the District of Minnesota - Minneapolis
                                  ____________

                            Submitted: October 22, 2015
                               Filed: April 26, 2016
                                  ____________

Before WOLLMAN, BYE, and GRUENDER, Circuit Judges.
                          ____________

BYE, Circuit Judge.

      American Family Mutual Insurance Company (American Family) brought this
declaratory judgment action to determine whether an umbrella insurance policy it
issued to Todd Patton provided any coverage for an automobile accident in which a
passenger in a vehicle driven by Todd's son, Jacob Patton, was seriously injured. The
district court1 granted summary judgment in favor of American Family after
concluding the umbrella policy did not provide coverage. We affirm.

                                            I

       In April 2011, Jacob Patton obtained his driver's license. He was eighteen years
old at the time. About one week later, Jacob decided to drive his father's Chevrolet
minivan after he had been drinking. Jacob's friend, John Donaldson, was a passenger
in the vehicle. A pedestrian observed Jacob driving erratically and called 911. When
a police officer responded to the 911 call, saw the vehicle and turned on his siren,
Jacob panicked and tried to flee. Shortly thereafter, but not before reaching speeds
exceeding at least sixty miles per hour, Jacob lost control of the minivan and collided
into a tree. Donaldson suffered serious injuries in the accident and was hospitalized
for almost a month following multiple surgeries. Jacob was also taken to the hospital
and had his blood drawn for analysis, which revealed a blood alcohol concentration
of .20.

      At the time of the accident, American Family insured the Pattons' vehicle under
an automobile policy providing $100,000 in coverage. Jacob's father, Todd, had also
purchased an umbrella policy from American Family with policy limits of $1,000,000.
Within just months of the accident, American Family negotiated the terms of a Drake-
Ryan settlement2 with Donaldson in which American Family agreed the automobile

      1
      The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota.
      2
       A Drake-Ryan settlement is named after the Minnesota Supreme Court's
decision in Drake v. Ryan, 

(Minn. 1994). Generally, this type of
settlement permits an insurer closest to the risk, i.e., a primary carrier, to settle with
a plaintiff in exchange for a complete release of any claims against an insured

                                           -2-
policy provided primary coverage to Donaldson for the injuries arising out of the
accident and further agreed to pay the full policy limits of the automobile policy.
American Family did not, however, agree that its umbrella policy provided coverage
but left Donaldson free to pursue a claim against the excess policy. Significantly, a
Drake-Ryan settlement protects an insured defendant from any further personal
liability, except to the extent a plaintiff may successfully pursue a claim against the
policy limits of an excess carrier. The settlement in this case specifically provided
that, by accepting the full policy limits of the automobile policy and preserving the
right to pursue coverage under the umbrella policy, Donaldson would "refrain from
collecting or attempting to collect any unsatisfied portion of such judgments from the
personal assets of Todd Patton and Jacob Patton." Appellee's App. at 129.

       After settling for the policy limits of the primary automobile policy, Donaldson
brought suit in Minnesota state district court against both Jacob and Todd Patton for
the injuries arising out of the accident. For its part, American Family filed this
declaratory judgment action against both the Pattons and Donaldson alleging that it
had no duty to defend or indemnify the Pattons under the umbrella policy. American
Family had, however, been providing a defense to the Pattons in the state district court
action, while still reserving its right to litigate coverage issues under the umbrella
policy.

       In response to the declaratory judgment action, the Pattons obtained a new
attorney in the state district court action. The new attorney then entered into a Miller-
Shugart settlement3 with Donaldson which admitted liability and provided for a

defendant, but also preserves the plaintiff's right to pursue a claim against a secondary,
or excess, carrier up to the limits of the excess carrier's policy. The added wrinkle in
this case is that the primary and excess carriers just happen to be the same insurance
company, American Family.
      3
       A Miller-Shugart agreement is named after the Minnesota Supreme Court's
decision in Miller v. Shugart, 

(Minn. 1982). Generally, this type of

                                           -3-
binding arbitration to set the amount of damages. The Pattons' new attorney notified
American Family of the binding arbitration and gave American Family the
opportunity to appear and participate at the hearing, but American Family chose not
to appear, instead advising the Pattons that it believed the Miller-Shugart settlement
violated the umbrella policy's cooperation clause. The arbitrator ultimately set the
amount of damages at $1,250,000. The arbitration award was filed with the state
district court, and a final judgment was entered pursuant to the award.

       In this separate declaratory judgment action, American Family filed a motion
for summary judgment primarily contending that Jacob Patton's conduct at the time
of the accident fell within the umbrella policy's intentional act exclusion.4 The district
court granted the motion for summary judgment on the grounds that Jacob's conduct
fell within the intentional act exclusion.



settlement occurs when an insurer has abandoned its insured by denying both the
duties to defend and indemnify an insured under the terms of a policy. The abandoned
insured then consents to having a judgment entered against him in exchange for the
plaintiff's agreement to release the insured from any personal liability and to satisfy
any judgment only out of the contested insurance proceeds. Although American
Family was defending the Pattons in the underlying state court action, the Pattons
nevertheless contend American Family had effectively abandoned them by filing the
declaratory judgment action and not adequately preparing for trial in the state court
action.
      4
       The umbrella policy's intentional act exclusion provides as follows:

      We will not cover injury caused by or at the direction of any insured
      even if the actual injury is different from that which was expected or
      intended from the standpoint of any insured. This exclusion does not
      apply to personal injury when your actions are not fraudulent, criminal,
      or malicious.

Appellee's App. at 121.

                                           -4-
       Donaldson filed an appeal in our Court challenging the district court's
determination that the umbrella policy's intentional act exclusion barred coverage.
While the appeal was pending, Jacob Patton was convicted of felony criminal
vehicular operation of a motor vehicle as a result of his conduct in the accident which
injured Donaldson. Because Jacob's conviction potentially triggered a second policy
exclusion for violations of law,5 we declined to exercise jurisdiction over the appeal
and sent this case back to the district court to consider in the first instance whether the
violation-of-law exclusion was an additional or alternative ground for granting
American Family summary judgment.

       On remand, Donaldson asserted the umbrella policy's severability clause6
triggered separate coverage for Todd Patton even assuming one or both of the
contested exclusions for intentional acts and violations of law might bar coverage for
Jacob Patton. See Am. Nat'l Fire Ins. v. Estate of Fournelle, 

, 294
(Minn. 1991) ("The intent of a severability clause is to provide each insured with
separate coverage, as if each were separately insured with a distinct policy, subject to
the liability limits of the policy. Thus, severability demands that policy exclusions be


      5
       The umbrella policy's violation-of-law exclusion provides as follows:

      We will not cover injury arising out of violation of a penal law or
      ordinance by or with the knowledge or consent of an insured when an
      insured is convicted of such violation.

Appellee's App. at 121.
      6
       The umbrella policy's severability clause provides as follows:

      Severability of Insurance. This insurance applies separately to each
      insured. This condition will not increase our limit for any one
      occurrence.

Appellant's App. at 167.

                                           -5-
construed only with reference to the particular insured seeking coverage. . . . A
reasonable interpretation of [the severability clause] leads to the obvious and
singularly correct conclusion that each insured must be treated as if each were insured
separately, applying exclusions individually to the insured for whom coverage is
sought.") (internal citations omitted).

       The district court rejected the Pattons' argument regarding the severability
clause and again granted summary judgment to American Family, concluding the
violation-of-law exclusion also barred coverage as to both Jacob and his father, Todd.
Donaldson filed a timely appeal. In this second appeal, Donaldson contends neither
of the contested exclusions bars coverage for Jacob. Donaldson further contends the
policy's severability clause triggers separate coverage for Todd Patton under Fournelle
even if both of the contested exclusions apply to Jacob's conduct.

       American Family urges us to affirm the district court and conclude both of the
umbrella policy's contested exclusions bar coverage for Jacob and Todd Patton.
American Family further urges us to consider two additional grounds it raised that
were not addressed by the district court. First, American Family contends the Pattons
violated the umbrella policy's cooperation clause7 and thereby voided all coverage by
entering into a Miller-Shugart agreement with Donaldson and admitting liability when
American Family had already protected the Pattons from any personal exposure in the
earlier Drake-Ryan settlement. Second, American Family argues the amount of
damages determined in the binding arbitration under the Miller-Shugart agreement
was unreasonable as a matter of law.



      7
       The umbrella policy's cooperation clause provided that the Pattons "must
cooperate with us in performing all acts required by this policy." Appellee's App. at
123. The policy further provided that the Pattons were required to assist American
Family, at its request, in "[a]ny matter relating to a claim or suit" including "[m]aking
settlement." 

                                          -6-
                                           II

       We review the district court's grant of summary judgment de novo. Occidental
Fire & Cas. Co. v. Soczynski, 

, 935 (8th Cir. 2014). "[W]e can affirm
on any ground supported by the record." MSK EyEs Ltd. v. Wells Fargo Bank, Nat.
Ass'n, 

, 540 (8th Cir. 2008) (citing Gamradt v. Fed. Labs., Inc., 

, 419 (8th Cir. 2004)).

       Although the parties and the district court devote most of their attention to the
umbrella policy's exclusions, with Donaldson also emphasizing the policy's
severability clause in this second appeal, we believe it is prudent to first address the
more fundamental question whether the Pattons violated the policy's cooperation
clause. For if that was the case, and the violation was material and prejudicial, any
coverage under the umbrella policy is voided without having to address the import of
any other policy provisions. See, e.g., Steen v. Those Underwriters at Lloyds, London
Signatory to Policy No. E0100191, 

, 162 (Minn. Ct. App. 1989)
(citing Juvland v. Plaisance, 

, 541-42 (Minn. 1959)).

        American Family argues the Pattons violated the policy's cooperation clause by
entering into a Miller-Shugart settlement after American Family had already protected
them from any personal liability in the Drake-Ryan settlement. American Family
further contends this violation of the cooperation clause was prejudicial because the
admission of liability in the Miller-Shugart agreement robbed American Family of
liability defenses that could have been asserted in the underlying suit in state district
court. We agree.

        No Minnesota court appears to have addressed the propriety of an insured
entering into a Miller-Shugart settlement after already enjoying full protection from
personal liability under a Drake-Ryan settlement; we believe the dearth of cases on
this issue is explained by the transparent incongruity of doing so. We also believe the

                                          -7-
Minnesota courts would conclude such conduct results in a material and prejudicial
breach of an insured's duty to cooperate.

       Under Minnesota law, the only reason for permitting an insured to compromise
an insurer's ability to contest liability by entering into a Miller-Shugart agreement is
to avoid the potential of the insured's personal exposure where the insurance company
has denied the existence of coverage for an underlying claim. Stated differently, the
only time an insured is permitted to disregard the obligation to cooperate with the
insurer is when there is a risk of personal exposure for the entire amount of any
damage award due to the insurer's denial of the existence of coverage. Indeed, in the
seminal case of Miller v. Shugart, the "threshold issue" the Minnesota Supreme Court
addressed was whether insureds breached their duty to cooperate by entering into a
settlement which confessed liability in exchange for a release of personal liability.

, 733 (Minn. 1982). The court balanced the insurer's "duty to defend
and indemnify its insureds" with the insureds' "reciprocal duty to cooperate with their
insurer in the management of the claim." 

observed that "[w]hile the
defendant insureds have a duty to cooperate with the insurer, they also have a right to
protect themselves against [a] plaintiff's claim" because of the risk of personal liability
"when their insurance coverage is in doubt." 

For this reason, the court
held the insureds "did not breach their duty to cooperate with the insurer, which was
then contesting coverage, by settling directly with the plaintiff." 

       Subsequent Minnesota cases have explained this balancing of an insured's duty
to cooperate with an insurer's duty to defend and indemnify, focusing on the insured's
potential personal exposure as a primary reason he may ignore his reciprocal duty to
cooperate by entering into a Miller-Shugart agreement during periods when coverage
is in doubt:

      Only the insurer's denial of the existence of any coverage for the claim
      and the resultant exposure of the insured to liability for the entire amount


                                           -8-
      of any damage award provide a basis for requiring the insurer's right to
      the insured's cooperation to yield to the insured's need to extricate
      himself or herself without the insurer's agreement.

Buysse v. Baumann-Furrie & Co., 

, 872 (Minn. 1989) (Buysse I)
(citing Miller v. 

; Clemons v. Wilcox, 

, 867 (Minn. 1986)).

       We thus read Buysse I as setting forth two prerequisites that must be satisfied
before an insured's decision to enter into a Miller-Shugart settlement overrides the
duty to cooperate: 1) the insurer must be denying the existence of any coverage for
the underlying claim; and 2) the insured must be risking liability for the amount of any
damage award from the underlying claim. In other words, a Miller-Shugart settlement
does not "fit," and an insured violates his duty to cooperate, unless those two
conditions are present. See Buysse v. Bauman-Furrie & Co., 

, 29
(Minn. 1992) (Buysse II) ("The danger of using a Miller-Shugart settlement when it
does not fit is that it exposes the insured to a claim that it has breached the cooperation
clause in its policy. If that happens, then the entire policy coverage is voided.").

        In this case, American Family admitted the existence of coverage as the primary
carrier on the automobile policy, but denied coverage as the excess carrier under the
umbrella policy, complicating the question whether the first Buysse I condition is
present here. There is no need to resolve that complication, however, because the
second Buysse I condition is clearly absent – the Pattons did not risk liability for the
entire amount of any damage award when they entered the Miller-Shugart settlement
because American Family had already provided them full protection from personal
liability under the earlier Drake-Ryan settlement. Entering into the subsequent Miller-
Shugart settlement therefore did not "fit" the circumstances of this case, and exposed
the Pattons to a claim that they breached the umbrella policy's cooperation clause.




                                           -9-
        We also agree with American Family that the breach of the cooperation clause
was material and prejudicial under the circumstances of this case. First, "[t]he breach
here was material since [the Miller-Shugart] settlement foreclosed the possibility of
a later settlement in which the insurer could participate." 

.
Second, the breach was prejudicial because it compromised the rights American
Family enjoyed prior to the settlement to contest liability and the amount of damages.
To avoid paying a money judgment following a Miller-Shugart settlement, the insurer
must show there was fraud or collusion between the settling parties, or successfully
challenge in a subsequent garnishment action the plaintiff's claim that the amount of
damages are "what a reasonably prudent person in the position of the defendant would
have settled for on the merits of the plaintiff's claim." Miller v. 

, 735. In addition to being limited to this "relaxed standard" of what a
reasonably prudent person may do, the insured may also lose the right to a jury trial.

. Finally, in this particular case, the Pattons agreed to an
entry of judgment against Todd and Jacob jointly and severally, making no allowance
for the possibility that Todd may not be negligent or that Donaldson's comparative
fault (if any) may reduce part of the judgment, robbing American Family of an attempt
to raise legitimate defenses to liability claims. Cf. Innsbruck Village Ass'n v. Stock
Roofing, Inc., No. A06-95, 

at *2-3 (Minn. Ct. App. Dec. 26, 2006)
(concluding a Miller-Shugart settlement "prejudices the insurer's attempts to raise
legitimate defenses to liability claims . . . by stipulating that the basis for all damages
was negligence covered under the policies" and because the insurer has to defend
against the settlement in the ensuing garnishment under the relaxed reasonably
prudent person standard and may not have the right to a jury trial).

        We conclude the Pattons breached the umbrella policy's cooperation clause by
entering into a Miller-Shugart agreement after already being protected from personal
liability in the Drake-Ryan settlement, and that such breach was material and
prejudicial. It is therefore unnecessary to address the other coverage issues raised by
the parties in this appeal.

                                           -10-
                                   III

For the reasons stated, we affirm the judgment of the district court.
                 ______________________________




                                  -11-