933 F.3d 960
8th Cir.2019Background
- New Horizon Kids Quest operated a daycare at Grand Casino; a guardian sued after a three-year-old (J.K.) was physically and sexually assaulted by a nine-year-old while both were in New Horizon’s care.
- Travelers (primary insurer) defended New Horizon under a reservation of rights and paid its $3,000,000 limits after trial; RSUI issued an $8,000,000 excess policy that contained a Sexual Abuse or Molestation exclusion.
- After two trials (New Horizon conceded liability but contested damages), a jury awarded $6,032,585 in the second trial; the verdict was unallocated and did not specify whether awards were for sexual or physical assault.
- New Horizon paid the unpaid share and sought indemnity from RSUI; RSUI filed for declaratory judgment asserting the exclusion barred coverage for any portion of the award attributable to sexual abuse.
- The district court granted summary judgment for New Horizon, holding RSUI could not prove any portion of the unallocated award was for excluded sexual abuse. RSUI appealed.
Issues
| Issue | Plaintiff's Argument (RSUI) | Defendant's Argument (New Horizon) | Held |
|---|---|---|---|
| Whether RSUI may litigate in a post-award coverage action whether the unallocated jury award included damages for excluded sexual abuse | RSUI argued it is entitled to litigate whether the verdict included uncovered sexual-abuse damages and thus avoid indemnifying those portions | New Horizon argued RSUI cannot show the jury awarded any amount for sexual abuse and thus must indemnify the unpaid judgment | Court: RSUI may litigate in a post-award coverage action whether the jury award included uncovered sexual-abuse claims |
| Who bears the burden to prove applicability of an exclusion once insured shows prima facie coverage | RSUI: as insurer, it bears burden to prove its exclusion applies to part of the award | New Horizon: contended absence of allocation means insurer cannot show excluded portion | Court: Insured bears prima facie burden for coverage; insurer must prove applicability of exclusion to part of the award in post-award action |
| Whether the court may allocate an unallocated jury award between covered and uncovered claims in a coverage action | RSUI: court should be allowed to review trial record and allocate as best it can | New Horizon: district court refused to allocate, citing difficulty and lack of precedent for jury awards | Court: District court must, if insurer proves some damages were for excluded claims, allocate the unallocated award "as best it can" between covered and uncovered portions |
| Whether the Remodeling allocation framework is limited to arbitration awards or applies to jury verdicts and excess insurers | RSUI: Remodeling's allocation approach applies broadly, including jury awards and excess insurers | New Horizon: argued Remodeling applies only to arbitration awards and primary-insurer-controlled defenses | Court: Remodeling’s allocation analysis applies; the Minnesota Supreme Court would require post-award allocation where appropriate, even for jury awards and excess insurers |
Key Cases Cited
- Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602 (Minn. 2012) (framework for allocation of unallocated award and shifting of allocation burden in coverage disputes)
- Jerry’s Enters., Inc. v. U.S. Specialty Ins. Co., 845 F.3d 883 (8th Cir.) (choice-of-law and standard of review in diversity insurance actions)
- Duke v. Hoch, 468 F.2d 973 (5th Cir. 1972) (instructing trial-court allocation of unallocated jury award using trial transcript evidence)
- UnitedHealth Group Inc. v. Columbia Cas. Co., 941 F. Supp.2d 1029 (D. Minn. 2013) (post-award allocation principles in coverage actions)
- Brown v. State Auto. & Cas. Underwriters, 293 N.W.2d 822 (Minn. 1980) (insurer entitled to litigate coverage issues in post-award proceedings)
- Houg v. State Farm Fire & Cas. Co., 509 N.W.2d 590 (Minn. Ct. App. 1993) (examining underlying-trial evidence to resolve indemnification issues)