THE IOWA NATIONAL RULE AFTER CARGILL V. ACE AMERICAN ET AL G. John Veith, Esq. Brown & Carlson, P.A. Twin Cities Claims Association Luncheon Seminar September 8, 2009

Iowa National Rule The duty is contractual The duty is contractual The duty separate and distinct to each insurer on a mutual risk The duty separate and distinct to each insurer on a mutual risk The duty is triggered by any arguably covered claim The duty is triggered by any arguably covered claim The duty is broad: once triggered, all claims must be defended The duty is broad: once triggered, all claims must be defended Duty to Defend Explained:

Iowa National Rule Iowa Natl Ins. v Universal Underwriters Ins., 150 N.W.2d 233 (1967). Iowa Natl Ins. v Universal Underwriters Ins., 150 N.W.2d 233 (1967). Multiple insurers on same risk cannot seek contribution from each other in the absence of a loan receipt agreement Multiple insurers on same risk cannot seek contribution from each other in the absence of a loan receipt agreement Loan receipt: an insureds assignment of right to pursue other insurers for contribution toward defense costs and indemnity obligations Loan receipt: an insureds assignment of right to pursue other insurers for contribution toward defense costs and indemnity obligations The Iowa National Rule:

Iowa National Rule Jostens, Inc. v. Mission Insurance Co., 387 N.W.2d 161, 167 (1986) Jostens, Inc. v. Mission Insurance Co., 387 N.W.2d 161, 167 (1986) If neither [insurer] undertakes the defense and the insured defends himself, then the insured, as Jostens has done here, may bring an action and recover his costs in defending the claim from either or both insurers. If it is established that both insurers arguably had coverage at the time of the rejected defense tender, the insurers, as between them, shall be equally liable for the insured's defense costs… Iowa National Rule - Milestones

Iowa National Rule Domtar, Inc. v. Niagara Fire Insurance Co., 563 N.W.2d 724 (1997) Domtar, Inc. v. Niagara Fire Insurance Co., 563 N.W.2d 724 (1997) Jostens clearly states that an insured may * * * recover his costs * * * from either or both insurers and that only as between them are insurers equally liable for such costs. Id. (emphasis added). Continental's remedy, if any, is to seek contribution from Canadian General. Wooddale Builders Inc. v. Maryland Casualty Co., 722 N.W.2d 283 (2001) Wooddale Builders Inc. v. Maryland Casualty Co., 722 N.W.2d 283 (2001) [W]e conclude that when the pro-rata-by-time-on-the-risk method applies to allocation of liability, and insurers participate in providing a defense to a common insured-but recovery of defense costs is not barred by the Iowa National rule-defense costs are apportioned equally among insurers whose policies are triggered. Iowa National Rule - Milestones

Iowa National Rule Cargill had complex risk management scheme: Cargill had complex risk management scheme: Multiple primary insurers Multiple primary insurers Self-insurance for lowest level risks Self-insurance for lowest level risks Fronted policies and captive insurance companies Fronted policies and captive insurance companies Risk period: 1960 – 2006 Risk period: 1960 – 2006 Tried to target Liberty Mutual Tried to target Liberty Mutual Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).

Iowa National Rule What the District Court Wanted What the District Court Wanted Equity (despite existence of written contract) Equity (despite existence of written contract) Flexibility is frequently the cornerstone of equity, which should also apply to responsibility for costs of defense. Equality (among primary insurers) Equality (among primary insurers) Avoid the Iowa National rule Avoid the Iowa National rule Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).

Iowa National Rule What the District Court DID: What the District Court DID: Ordered equitable contribution by Cargills primary level carriers Ordered equitable contribution by Cargills primary level carriers Proposed alternative: Court-imposed constructive loan receipt Proposed alternative: Court-imposed constructive loan receipt Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).

Iowa National Rule Court of Appeals Ruling: Court of Appeals Ruling: Iowa National Rule applies Iowa National Rule applies Implied covenant of good faith & fair dealing requires insured to sign neutral loan receipt Implied covenant of good faith & fair dealing requires insured to sign neutral loan receipt District Courts given right to impose constructive loan receipt District Courts given right to impose constructive loan receipt Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).

Iowa National Rule Effect on Iowa National? Effect on Iowa National? fact specific vs. broad application fact specific vs. broad application Same insured - same risk scenarios Same insured - same risk scenarios No defined limits (set on a courts ability to impose a construction loan receipt) No defined limits (set on a courts ability to impose a construction loan receipt) Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).

Contractual Indemnity Clcuses Subcontractor could indemnify General Contractor for General Contractors own negligence if clear and unequivocal intent expressed in the subcontract. Subcontractor could indemnify General Contractor for General Contractors own negligence if clear and unequivocal intent expressed in the subcontract. Generally, indemnity clauses disfavored Generally, indemnity clauses disfavored Indemnity Agreements Pre-1984:

Contractual Indemnity Clcuses Prohibited indemnity agreements where subcontractor agrees to indemnify general contractor for the general contractors own negligence. Prohibited indemnity agreements where subcontractor agrees to indemnify general contractor for the general contractors own negligence. Minn. Stat. § (1984)

Contractual Indemnity Clcuses Contractor can agree to indemnify landowner for access to construction site Contractor can agree to indemnify landowner for access to construction site Insurance contracts (e.g., insurance policies and surety agreements) Insurance contracts (e.g., insurance policies and surety agreements) Promises to purchase specific insurance coverage for benefit of another (Minn. Stat. § , subd. 1). Promises to purchase specific insurance coverage for benefit of another (Minn. Stat. § , subd. 1). Exceptions to Anti-Indemnity Rule:

Contractual Indemnity Clauses Generally Carrier is off the hook because coverage is not triggered Generally Carrier is off the hook because coverage is not triggered However, Sub pays to full extent of promised insurance However, Sub pays to full extent of promised insurance What happens where Subcontractor fails to buy the specific insurance?

Contractual Indemnity Clcuses Does the agreement specify the types and limits of the coverage to be purchased? Does the agreement specify the types and limits of the coverage to be purchased? Do the damages claimed fall within the scope of the specified insurance? Do the damages claimed fall within the scope of the specified insurance? Is there a temporal, geographic, or causal nexus between the Subs work and the claimed damages? Is there a temporal, geographic, or causal nexus between the Subs work and the claimed damages? Breach of Promise to Insure

Contractual Indemnity Clauses Impossibility – coverage not reasonably available in the marketplace? Impossibility – coverage not reasonably available in the marketplace? Waiver – very difficult to prove Waiver – very difficult to prove Any defense to contract formation Any defense to contract formation Potential Defenses:

Contractual Indemnity Clauses Subcontract: Subcontractor agrees to obtain, maintain and pay for such general liability insurance coverage as will insure the indemnity obligation Subcontract: Subcontractor agrees to obtain, maintain and pay for such general liability insurance coverage as will insure the indemnity obligation Damages occurred more than a year after the construction was complete Damages occurred more than a year after the construction was complete Seward Housing Corp. v. Conroy Brothers Co., 573 N.W.2d 364 (1998)

Contractual Indemnity Clauses Subcontract: Subcontractor agrees to obtain, maintain and pay for such general liability insurance coverage and such endorsements as will insure the indemnity obligation Subcontract: Subcontractor agrees to obtain, maintain and pay for such general liability insurance coverage and such endorsements as will insure the indemnity obligation General contractor argued – Seward case failed to account for 1986 modifications to standard form CGL policies General contractor argued – Seward case failed to account for 1986 modifications to standard form CGL policies

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