Scottsdale Insurance v. Riverbank, 815 F. Supp. 2d 1074

5–6 legally material facts summarized from underlying dispute and policy: RiverBank sued SAS, SCS, Cynthia Strand and Steven Strand in state court for negligence, contract, fraud, and related claims arising from a $600,000 loan; Cynthia Strand admitted guilt in a criminal case tied to the same loan; the Minnesota Commerce Department revoked licensed tied to Strand; RiverBank obtained a civil judgment against SCS and Steven Strand; Scottsdale insured SCS under a policy with criminal/intentional acts exclusions and an Innocent Insureds provision; the district court later granted Scottsdale’s summary judgment and denied RiverBank’s motion.
The underlying judgment against SCS and Steven Strand was based on negligence and contract claims tied to the Strand defendants’ conduct in the RiverBank loan transaction.
Scottsdale defended the Strand defendants and sought a declaratory judgment that it had no duty to indemnify or pay the judgment.
The court interpreted Minnesota law on contract interpretation and insurance coverage, focusing on the policy’s exclusions for dishonest, fraudulent or criminal acts and the Innocent Insureds provision.
The court held that the general exclusion for criminal/intentional acts defeats coverage for the underlying judgment, and Scottsdale has no duty to indemnify.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the policy’s general exclusion bar coverage for the RiverBank judgment?	Scottsdale argues exclusion applies because conduct was criminal/fraudulent.	RiverBank argues negligence suffices and exclusion should not apply.	Yes; exclusion applies and no coverage exists.
Does the Innocent Insureds provision immunize SCS/SAS from the exclusion based on Cynthia Strand’s knowledge?	Innocent insureds provision limits imputation of Strand’s acts to insurer.	Knowledge of CEO/CFO imputed to company; Strand’s acts remain imputable.	Knowledge imputed to SCS/SAS; exclusion still applies.
Does the policy provide coverage for a judgment arising from negligent conduct when an independent criminal actor is involved?	Coverage for loss if not explicitly criminal; negligence can be covered.	Criminal acts exclude coverage regardless of negligence.	No coverage; criminal/intentional acts exclusion defeats indemnity.
Are public policy or illusory coverage doctrines applicable to create coverage where contract language excludes it?	Public policy supports coverage for victim; illusory coverage argues coverage was intended.	Policy language and authorities support exclusion; illusory coverage not applicable.	Public policy/illusory coverage do not create coverage here.

Haarstad v. Graff, 517 N.W.2d 582 (Minn. 1998) (duty to defend when underlying conduct is arguably covered depends on policy language)
Ross v. City of Minneapolis, 408 N.W.2d 910 (Minn. 1987) (assault/battery exclusion upheld for coverage where conduct is intentional)
Kabanuk Diversified Investments, Inc. v. Credit General Ins. Co., 553 N.W.2d 65 (Minn. Ct. App. 1996) (assault/battery exclusion bars coverage for third-party attacker claims)
Roloff v. Taste of Minnesota Festival, 488 N.W.2d 325 (Minn. Ct. App. 1992) (insurance exclusion for assault and battery; supplemental claims barred)
SECURA Supreme Ins. Co. v. M.S.M., 755 N.W.2d 320 (Minn. Ct. App. 2008) (negligence vs. criminal acts; exclusions control coverage)
State Farm Fire & Cas. Co. v. Schwich, 749 N.W.2d 108 (Minn. Ct. App. 2008) (public policy against insuring intentional unlawful acts)
Nat’l Union Fire Ins. Co. of Pittsburgh v. Gates, 530 N.W.2d 223 (Minn. Ct. App. 1995) (denying coverage for criminal acts on public policy grounds)
Burton v. Stewart, 549 U.S. 147 (1997) (final judgment for purposes of policy exclusions equals sentence in criminal case)
Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116 (Minn. Ct. App. 1995) (illusory coverage doctrine discussed)