934 F.3d 799
8th Cir.2019Background
- Insured Directors (Brand, Juhl, Mitola, Bendel), executives of Juhl Energy, were covered under a D&O policy issued by National Union for June 24, 2013–July 1, 2014, with $3M limit and $100K deductible.
- Unison sued JEDI (a Juhl subsidiary) in federal court asserting 17 claims; four Insured Directors were named on three claims; many claims targeted non‑insured entities (JEDI/WCW).
- JEDI/WCW prosecuted arbitration against Unison for defective turbines; Unison later asserted the federal 17 counts as arbitration counterclaims and added one claim on Oct. 23, 2015.
- National Union offered partial coverage allocations (initially 20%, later 40% for federal suit and 10% for post‑Oct.23 arbitration costs) and denied coverage for affirmative arbitration claims before they were counterclaimed.
- Insured Directors sued for a declaratory judgment seeking 100% coverage of their defense costs for both the federal suit and arbitration (alternatively argued 82% or 40% allocations later in briefing); district court granted summary judgment to National Union. Appellate issue: whether insureds met burden to show a different allocation and whether pleadings should have been conformed to alternative allocations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Insureds proved entitlement to 100% advancement of defense costs | Insureds: 100% of fees/costs (arbitration defensive and inextricably intertwined with federal suit) | National Union: allocation not 100%; only directors covered; affirmative arbitration claims not covered pre‑counterclaim | Court: Insureds failed to meet burden to justify 100% allocation; summary judgment for National Union affirmed |
| Whether district court should have treated alternative allocations (82% or 40%) as pleaded issues under Rule 15(b) | Insureds: trial evidence and briefing implied consent to consider alternative allocations; argued for amendment on appeal | National Union: alternatives raised late (in reply); no implied consent or adequate notice; district court not obliged to amend sua sponte | Court: No implied consent or adequate opportunity to address new allocations; district court not required to amend pleadings sua sponte |
| Burden of proof for allocation when no duty to defend in policy | Insureds: (implicit) allocation argued based on interrelated claims and defenses | National Union: burden rests on insured to prove allocation under Minnesota law | Court: Affirmed that insured bears burden to prove allocation when no duty to defend; insured failed to carry it |
| Whether arbitration fees before Oct. 23, 2015 were defense costs under policy | Insureds: affirmative arbitration claims were defensive/necessary to federal defense | National Union: affirmative arbitration claims are not defense costs until Unison counterclaimed | Court: National Union permissibly declined to cover arbitration fees prior to Unison’s counterclaim; offered limited post‑counterclaim allocation |
Key Cases Cited
- Unison Co. v. Juhl Energy Dev., Inc., 789 F.3d 816 (8th Cir. 2015) (compelling arbitration of directors’ motion)
- Hannoon v. Fawn Eng’g Corp., 324 F.3d 1041 (8th Cir. 2003) (summary judgment standard review)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (Supreme Court) (genuine dispute / reasonable jury standard at summary judgment)
- Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628 (Minn. 2013) (policy interpretation and duty to defend are questions of law)
- Cook v. City of Bella Villa, 582 F.3d 840 (8th Cir. 2009) (Rule 15(b) implied‑consent amendments at summary judgment)