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Source: Murnane Brandt Insurance Litigation Bulletin - Summer 2009
In Cargill, Inc. v. Ace American Ins. Co., et al., 766 N.W.2d 58, (Minn. Ct. App. 2009), the Minnesota Court of Appeals rejected the targeted tender doctrine.
Cargill was the subject of a series of lawsuits in 2005 for damages arising out of Cargill’s waste disposal practices at poultry operations and related pollution claims. Cargill tendered its defense to its primary and umbrella-level insurers and Liberty Mutual Insurance agreed to defend as long as Cargill executed a customary and neutral loan receipt agreement allowing Liberty Mutual to recover its defense costs from the 50-plus other insurers.
Cargill then sought a declaratory judgment against the other insurers who allegedly had an obligation to defend and indemnify Cargill in the underlying lawsuits, asking the court to declare that each insurer had an individual duty to defend and indemnify. Liberty Mutual filed cross claims against several insurers seeking a declaration that it would have a right to subrogation or contribution from them if Liberty Mutual solely incurred Cargill’s defense costs. The district court found that it would be inequitable to require Liberty Mutual to assume the multi-million dollar defense without any right to contribution.
The case went to the Court of Appeals for resolution of two issues. The first was whether a loan receipt agreement is presumptively necessary to equally apportion defense costs among the insurers. Relying on a previous decision, the Court ruled “no” because no privity of contract or joint liability exists between insurers. See Iowa Nat’l Mut. Ins. Co. v. Universal Underwriters Ins. Co., 150 N.W.2d 233 (Minn. 1967). Thus, Liberty Mutual had no right to contribution absent a loan receipt agreement.
The second issued addressed by the Court of Appeals was whether a primary insurer with a duty to defend can condition its tender of defense on the insured’s execution of a neutral loan receipt agreement. This time, the answer was yes. The Court found that even though each insurer has a separate and distinct duty to defend, when multiple primary insurers have offered to tender a defense in exchange for a loan receipt agreement, the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate by entering into a neutral loan receipt agreement that equitably apportions liability between primary insurers. When an insured is unwilling to enter such an agreement, Minnesota courts may protect an insurer by imposing a constructive loan agreement.
This past June, Cargill petitioned the Minnesota Supreme Court for review of this decision.
This Insurance Litigation Bulletin is designed to keep our clients generally informed about developments in the law relating to this firm’s practice and should not be construed as legal advice or a legal opinion concerning any factual situation. Specific facts may alter any legal result. Nor is this Bulletin intended to create an attorney-client relationship.
If you have any questions, or would like more information, please contact your Murnane Brandt attorney or any of the following individuals:
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