Charles E. Bethel, II v. Darwin Select Insurance Co.
2013 U.S. App. LEXIS 23183
| 8th Cir. | 2013Background
- Bethel and Frantz appeal a district court grant of summary judgment for Darwin on declaratory relief, breach of contract, and breach of implied duties of good faith and fair dealing.
- Zen Title, LLC engaged in handling funds for UGT, including escrowed customer funds and recording fees.
- Darwin issued a professional liability policy to Zen Title; it excluded coverage for claims involving loss or misuses of customer funds.
- UGT filed a six-count, then eight-count, complaint alleging a scheme to misappropriate escrowed funds by delaying recordings and misusing funds.
- UGT’s allegations linked the failure to record mortgage instruments to the broader misappropriation scheme; Darwin refused to defend under the Customer Funds Exclusion; settlement forced a declaratory judgment action, which Bethel and Frantz then pursued in federal court.
- The district court held the entire UGT complaint fell within the Customer Funds Exclusion, and granted Darwin summary judgment; Bethel and Frantz appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether any portion of UGT’s complaint falls outside the Customer Funds Exclusion. | Bethel/Frantz urge some claims lie outside exclusion. | Darwin contends all claims arise from loss/misuse of funds. | No; entire complaint falls within exclusion. |
| Whether the illusory coverage doctrine forbids the broad reading of ‘arising out of.’ | Bethel/Frantz argue broad reading defeats coverage. | Darwin argues exclusion clearly limits coverage. | Doctrine not violated; interpretation reasonable. |
| Whether the reasonable expectations doctrine requires defense despite exclusion. | Bethel/Frantz claim ambiguity warrants defense. | Policy exclusion is clear and not ambiguous. | Doctrine does not apply. |
| Whether the innocent insured doctrine precludes denial of coverage based on Jonas/Zen Title conduct. | Bethel/Frantz claim innocence shielded them. | Exclusion applies regardless of specific insured’s conduct. | Innocent insured doctrine does not apply. |
Key Cases Cited
- Murray v. Greenwich Ins. Co., 533 F.3d 644 (8th Cir. 2008) (broad meaning of ‘arising out of’ in insurance.)
- Wozniak Travel, Inc. v. General Cas. Co., 762 N.W.2d 572 (Minn. 2009) (‘arising out of’ meaning causally connected; broadened scope.)
- Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411 (Minn. 1997) (‘arising out of’ as causally connected concept.)
- Progressive Cas. Ins. Co. v. Brockway, 411 N.W.2d 13 (Minn. Ct. App. 1987) (‘but for’ causation suffices for ‘arising out of.’)
- Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116 (Minn. Ct. App. 1995) (illusory coverage concerns in broad exclusions.)
- Hogs Unlimited v. Farm Bureau Mut. Ins. Co., 401 N.W.2d 381 (Minn. 1987) (innocent insured doctrine contrasted; applicability depends on policy language.)
- Watson v. United Servs. Auto. Ass’n, 566 N.W.2d 683 (Minn. 1997) (innocent insured doctrine limitations based on policy language.)
- Wolters v. Land O’Lakes, Inc., 831 N.W.2d 628 (Minn. 2013) (reasonable expectations doctrine not triggered by plain exclusions.)
- Carlson v. Allstate Ins. Co., 749 N.W.2d 41 (Minn. 2008) (reasonableness and ambiguity considerations in exclusions.)
- Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411 (Minn. 1997) (reiterated interpretation of exclusion scope.)