Talen v. Emplrs. Mut. Cas. Co.

Talen v. Emplrs. Mut. Cas. Co.

Opinion

 [*399] CARTER, Justice.

Employers Mutual Casualty Company (Employers) and Minnesota Fire and Casualty Company (Minnesota Fire), defendants in the district court, each appeal from a judgment following a bench trial in which the court found that both of these insurers insured plaintiff, William Talen, and that Employers also insured Farmers Savings Bank and Trust of [**2]  Vinton (Vinton bank) against the costs of defense and resulting settlement of legal liability growing out of litigation commenced by a former employee of the Vinton bank, Duane Pearson. The district court further found that both insurers were guilty of bad faith in not defending against the Pearson claims. As a result of these findings, the district court awarded Talen and the Vinton bank damages for costs of defense not assumed by other insurers, amounts expended to settle the legal liability in the Pearson litigation, and costs and attorney fees in the present action.

After reviewing the record and considering the arguments presented, we conclude that Employers did not act in bad faith in refusing to defend these claims. As a result of policy exclusions, it did not insure either Talen or the Vinton bank against liability or costs of defense in the Pearson litigation and was not liable for the sums awarded against it by the district court. We conclude that the Minnesota Fire policy did insure Talen against at least one of the claims in the Pearson litigation. The attorney fees incurred in defending the Pearson litigation that were not paid by other insurers were paid by the Vinton [**3]  bank, a party not insured by Minnesota Fire. Consequently, those fees are not recoverable in the present litigation. We conclude that Minnesota Fire, although obligated to defend Talen, did not act in bad faith in declining coverage. However, under Minnesota law, which is determinative of the issue, Talen is entitled to recover from Minnesota Fire the amount of the actual attorney fees he has incurred in the present litigation. The judgment of the district court is affirmed in part, reversed in part, and remanded to the district court for further proceedings consistent with this opinion.

Talen, a resident of Minnesota, controls the holding company that owns the Vinton bank and a bank in Traer. He is the chairman of the board, president, and CEO of the Vinton bank. On April 10, 1996, Pearson commenced an action against Talen and the Vinton bank. The petition alleged that Pearson had resigned his employment at the Vinton bank pursuant to a written termination agreement that provided as follows:

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