John Brand; Daniel Juhl; John Mitola; Jeff Bendel Plaintiffs - Appellants
National Union Fire Insurance Company of Pittsburgh, PA Defendant-Appellee
Submitted: March 14, 2019
from United States District Court for the District of
Minnesota - Minneapolis
SHEPHERD, ERICKSON, and KOBES, Circuit Judges.
ERICKSON, Circuit Judge.
Brand, Daniel Juhl, John Mitola, and Jeff Bendel
(collectively, "Insured Directors"), plaintiffs in
this declaratory judgment action seeking to allocate defense
costs among insured and uninsured parties, appeal the
district court's adverse grant of summary judgment in favor
of defendant-appellee National Union Fire Insurance Company
of Pittsburgh, Pennsylvania ("National Union"). The
Insured Directors contend that the district court erred in
two particulars: first, in holding that they failed to meet
their burden to show that National Union's allocation was
improper, and, second, in failing to conform the pleadings to
the facts. We affirm.
Insured Directors are executives of Juhl Energy, Inc., a
Minnesota-based energy company. National Union wrote a
Directors and Officers ("D & O") insurance
policy covering Juhl Energy's directors and officers for
the coverage period of June 24, 2013, to July 1, 2014. The
policy provides personal liability coverage for the directors
and officers of Juhl Energy and its subsidiaries for up to $3
million, with a $100, 000 deductible.
Energy's subsidiary, Juhl Energy Development, Inc.
("JEDI"), contracted with Unison Co. Ltd.
("Unison"), a South Korean wind turbine
manufacturer, to purchase two wind turbine generators for a
community wind farm developed and owned by Winona County
Wind, LLC ("WCW"). JEDI secured a financing loan
from Unison for this purchase in the amount of $2, 574, 900.
At the time the turbines were purchased, WCW was a subsidiary
of the Winona County Economic Development Authority, however,
JEDI purchased WCW after executing the contract with Unison.
Following this purchase, Unison sued JEDI in the District of
Minnesota, claiming that JEDI's acquisition of WCW was in
breach of the financing agreement. An amended complaint was
filed in December 2013, alleging 17 separate causes of
action. The Insured Directors were named as defendants in
three of these claims; the remaining 14 counts were asserted
against various non-insured entities, many of which included
Juhl Energy and its subsidiary companies.
January 2014, the Insured Directors filed a motion seeking to
compel arbitration. The district court denied their motion,
and the Insured Directors appealed. While the appeal was
pending in this court, non-insureds JEDI and WCW commenced
arbitration against Unison, alleging breach of contractual
warranties by selling JEDI defective turbines. JEDI claimed
that the turbines worked only sporadically, and design
defects (caused by Unison's failure to account for
Minnesota's cold climate) rendered the turbines useless
during winter months. In May 2015, this court reversed the
district court's denial of the Insured Directors'
motion to compel arbitration. Unison Co. v. Juhl Energy
Dev., Inc., 789 F.3d 816 (8th Cir. 2015). On remand, the
district court stayed Unison's suit until arbitration was
completed. On October 23, 2015, Unison asserted the 17 claims
as counterclaims in the arbitration, plus one additional
claim against JEDI for legal fees and expenses.
notice of the Unison lawsuit, National Union (via claims
analyst, AIG Claims, Inc.) sent a letter to Brand stating
that potential coverage was available but only for the
Insured Directors. National Union subsequently sent Brand an
email proposing the coverage allocation to be 20%, basing its
estimate on the percentage of covered claims in the suit.
National Union also informed Brand that there was no coverage
for JEDI/WCW's arbitration claims against Unison and
requested that the law firm representing these parties bill
separately for them. In a separate email, National Union
notified Stuart Turner, broker for the insured parties, that
JEDI/WCW's prosecution of affirmative claims against
Unison were not defense costs under the policy and therefore
would not be covered. Turner responded that the Insured
Directors strongly disagreed with AIG's 20% allocation,
asserting that the affirmative arbitration claims were
"inextricably intertwined" with the federal lawsuit
against the directors and "necessary to the defense of
the litigation as a strategic matter" because JEDI's
breach of warranty claims constituted its principal defense
to Unison's claims in the federal lawsuit. JEDI claimed
that under these facts the arbitration was defensive in
Union disagreed with this analysis and took the position that
40% of the expenses and costs of the federal lawsuit was an
appropriate allocation, because the Insured Directors
constituted four out of the ten defendants. National Union
declined to reimburse any fees associated with the
arbitration prior to October 23, 2015, when Unison filed its
counterclaim. National Union offered to allocate 10% of the
arbitration fees and costs incurred after that date because
the arbitration primarily involved JEDI/WCW's product
defect/warranty claims against Unison, and only three of the
18 claims involved the Insured Directors. The Insured
Directors rejected this proposal.
the parties were unable to reach agreement, the Insured
Directors sued National Union in Minnesota district court,
seeking a declaratory judgment declaring that the Insured
Directors were entitled to an allocation of 100% of the fees,
costs, disbursements, and expenses incurred by the Insured
Directors in both the district court action and the
arbitration. Additionally, the Insured Directors requested
that National Union reimburse the costs of JEDI/WCW's
arbitration against Unison, asserting that it was defensive
in nature. Both parties moved for summary judgment, and the
district court granted summary judgment for National Union.
The Insured Directors filed this appeal.