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Insurance Law

SNR Denton on Cargill, Inc. v. Ace American Insurance Co.: Contribution Among Insurers on Defense Costs

   By William T. Barker, Robert C. Johnson & M. Keith Moskowitz, Partners, SNR Denton

Minnesota formerly adhered to a minority rule that an insurer that has performed its own duty to defend an insured has no right to contribution from other insurers who were equally obligated to defend that insured.  In Cargill, Inc. v. Ace American Insurance Co., the Minnesota Supreme Court overruled that rule.  This commentary explains that this decision accords with modern unjust enrichment law and discusses its implications for larger issues regarding allocation of insurance coverage.

The commentary first explains the old Minnesota rule, adopted in Iowa National Mutual Insurance Co. v. Universal Underwriters Insurance Co. and elaborated with certain exceptions in later cases.  Under that rule, a defending insurer could sue a nondefending insurer only if the insured gave a loan receipt authorizing it to do so.

The facts in Cargill were these:

Cargill was sued for environmental contamination and requested 50 of its insurers over many years to defend.  Several of the insurers, including Liberty Mutual, offered to pay Cargill’s reasonable defense costs if it would execute a loan receipt agreement authorizing them to sue the others.  Cargill refused to do so, because some of its policies were “fronting” policies which supported excess and umbrella policies but themselves provided no risk transfer.  Cargill offered a loan receipt that would protect it from any claims on the fronting policies and Liberty Mutual refused.

The district court held that it could impose a “constructive loan receipt,” the court of appeals affirmed and the supreme court granted discretionary review and largely affirmed, but on different grounds.  The court concluded that Iowa National could not readily be reconciled with the decision below, nor could the existing exceptions support that result.  But it reconsidered Iowa National.  It concluded that allowing a contribution right to co-primary insurers was “supported by public policy and is the better reasoned position.”  So Iowa National was overruled.  The court reaffirmed Minnesota’s rule that, while liability for injuries continuing across policy periods is apportioned by time on the risk, defense costs are apportioned equally among insurers whose policies are triggered.

The commentary explains that the Iowa National decision was a product of then poorly developed law on unjust enrichment:

Iowa National was, of course, right that a defending insurer typically has no contractual relationship with a nondefending insurer, so it has no contractual right to reimbursement.  But that left the question of whether a reimbursement right could be found in the law of unjust enrichment.  Unfortunately, there was at the time no unified theory of the law of unjust enrichment to which a court might look for guidance in resolving that question.  Even the most scholarly treatments tended to describe only a variety of specific rules for particular situations, without clear connection from one body of rules to another.  Moreover, even these treatments were relatively little known to most practitioners and courts.  Accordingly, most courts groped their way, as the Iowa National court did, based on whatever precedent they could find and their own intuitions about unjust enrichment.  Sometimes, as in Cargill, those might be reconsidered in light of precedent elsewhere.

Fortunately, there are now better resources for courts and practitioners to consult.  The commentary shows that these support the rule adopted in Cargill.

The commentary also discusses the court’s implicit ruling on the role of fronting policies in insurance allocation.

_____________________________ subscribers can access the complete commentary, SNR Denton on Cargill, Inc. v. Ace American Insurance Co.: Contribution Among Insurers on Defense Costs. Additional fees may be incurred. (approx. 9 pages)

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William Barker is the co-author of New Appleman Insurance Bad Faith Litigation, Second Edition.

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