THE IOWA NATIONAL RULE AFTER CARGILL V. ACE AMERICAN ET AL G. John Veith, Esq. Brown & Carlson, P.A....

THE THE IOWA NATIONALIOWA NATIONAL RULE AFTER RULE AFTER CARGILL V. ACE AMERICAN ET ALCARGILL V. ACE AMERICAN ET AL

G. John Veith, Esq.G. John Veith, Esq.Brown & Carlson, P.A.Brown & Carlson, P.A.

Twin Cities Claims Association Luncheon SeminarTwin Cities Claims Association Luncheon Seminar

September 8, 2009September 8, 2009

Iowa National RuleIowa National Rule

The duty is contractualThe duty is contractual The duty “separate and distinct” to each insurer on The duty “separate and distinct” to each insurer on

a mutual riska mutual risk The duty is triggered by any “arguably covered” The duty is triggered by any “arguably covered”

claimclaim The duty is broad: once triggered, all claims must The duty is broad: once triggered, all claims must

be defendedbe defended

Duty to Defend Explained:


Iowa Nat’l Ins. v Universal Underwriters Ins., Iowa Nat’l Ins. v Universal Underwriters Ins., 150 N.W.2d 150 N.W.2d 233 (1967).233 (1967).

Multiple insurers on same risk Multiple insurers on same risk cannot seek contribution cannot seek contribution from each otherfrom each other in the absence of a loan receipt agreement in the absence of a loan receipt agreement

Loan receipt: an insured’s assignment of right to pursue Loan receipt: an insured’s assignment of right to pursue other insurers for contribution toward defense costs and other insurers for contribution toward defense costs and indemnity obligationsindemnity obligations

The “Iowa National” Rule:


Jostens, Inc. v. Mission Insurance Co., Jostens, Inc. v. Mission Insurance Co., 387 N.W.2d 161, 167387 N.W.2d 161, 167 (1986)(1986)

If neither [insurer] undertakes the defense and the insured defends If neither [insurer] undertakes the defense and the insured defends himself, then the insured, as Jostens has done here, may bring an action 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 and recover his costs in defending the claim from either or both insurers. If it is established that both insurers arguably had coverage at insurers. If it is established that both insurers arguably had coverage at the time of the rejected defense tender, the time of the rejected defense tender, the insurers, the insurers, as between themas between them, , shall be equally liable for the insured's defense costs…shall be equally liable for the insured's defense costs…

Iowa National Rule - Milestones


Domtar, Inc. v. Niagara Fire Insurance Co., Domtar, Inc. v. Niagara Fire Insurance Co., 563 N.W.2d 724563 N.W.2d 724 (1997)(1997)““JostensJostens clearly states that an insured “may * * * recover his costs * * clearly states that an insured “may * * * recover his costs * * * from * from either or botheither or both insurers” and that only “ insurers” and that only “as between themas between them ” are ” are insurers equally liable for such costs. insurers equally liable for such costs. Id.Id. (emphasis added). (emphasis added). Continental's remedy, if any, is to seek contribution from Canadian Continental's remedy, if any, is to seek contribution from Canadian GeneralGeneral.”.”

Wooddale Builders Inc. v. Maryland Casualty Co., Wooddale Builders Inc. v. Maryland Casualty Co., 722 N.W.2d 283 722 N.W.2d 283 (2001)(2001)

““[W]e conclude that when the pro-rata-by-time-on-the-risk method [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 applies to allocation of liability, and insurers participate in providing a defense to a common insured-but recovery of defense costs is not defense to a common insured-but recovery of defense costs is not barred by the barred by the Iowa NationalIowa National rule-defense costs are apportioned equally rule-defense costs are apportioned equally among insurers whose policies are triggered.”among insurers whose policies are triggered.”

Iowa National Rule - Milestones


Cargill had complex risk management scheme:Cargill had complex risk management scheme: Multiple primary insurersMultiple primary insurers Self-insurance for lowest level risksSelf-insurance for lowest level risks ““Fronted” policies and captive insurance companiesFronted” policies and captive insurance companies

Risk period: 1960 – 2006Risk period: 1960 – 2006 Tried to “target” Liberty MutualTried to “target” Liberty Mutual

Cargill v. Ace American Insurance Company, 766 N.W.2d 58 (Minn. Ct. App. 2009).


What the District Court WantedWhat 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 Flexibility is frequently the cornerstone of equity, which should also apply to responsibility for costs of defense.”responsibility for costs of defense.”

Equality (among primary insurers)Equality (among primary insurers)

Avoid the Avoid the Iowa NationalIowa National rule rule



What the District Court DID:What the District Court DID: Ordered equitable contribution by Cargill’s Ordered equitable contribution by Cargill’s

primary level carriersprimary level carriers Proposed alternative: Court-imposed Proposed alternative: Court-imposed

constructive loan receiptconstructive loan receipt



Court of Appeals Ruling:Court of Appeals Ruling: Iowa National Iowa National Rule appliesRule applies Implied covenant of good faith & fair dealing Implied covenant of good faith & fair dealing

requires insured to sign neutral loan receiptrequires insured to sign neutral loan receipt District Courts given right to impose “constructive” District Courts given right to impose “constructive”

loan receiptloan receipt



Effect on Effect on Iowa NationalIowa National?? fact specific vs. broad applicationfact specific vs. broad application Same insured - same risk scenariosSame insured - same risk scenarios No defined limits (set on a court’s ability to No defined limits (set on a court’s ability to

impose a construction loan receipt)impose a construction loan receipt)


Contractual Indemnity ClcusesContractual Indemnity Clcuses

Subcontractor could indemnify General Subcontractor could indemnify General Contractor for General Contractor’s own Contractor for General Contractor’s own negligence if “clear and unequivocal intent” negligence if “clear and unequivocal intent” expressed in the subcontract.expressed in the subcontract.

Generally, indemnity clauses disfavoredGenerally, indemnity clauses disfavored

Indemnity Agreements Pre-1984:


Prohibited indemnity agreements where Prohibited indemnity agreements where subcontractor agrees to indemnify general subcontractor agrees to indemnify general contractor for contractor for the general contractors own the general contractors own negligence.negligence.

Minn. Stat. § 337.02 (1984)


Contractor can agree to indemnify landowner for Contractor can agree to indemnify landowner for access to construction siteaccess to construction site

Insurance contracts (e.g., insurance policies and Insurance contracts (e.g., insurance policies and surety agreements)surety agreements)

Promises to purchase specific insurance coverage Promises to purchase specific insurance coverage for benefit of another for benefit of another (Minn. Stat. § 337.05, subd. 1).(Minn. Stat. § 337.05, subd. 1).

Exceptions to Anti-Indemnity Rule:

Contractual Indemnity ClausesContractual Indemnity Clauses

Generally Generally Carrier is off the hook because Carrier is off the hook because coverage is not triggeredcoverage is not triggered

However, Sub pays to full extent of promised However, Sub pays to full extent of promised insuranceinsurance

What happens where Subcontractor fails to buy the specific insurance?


Does the agreement specify the “types and limits” Does the agreement specify the “types and limits” of the coverage to be purchased?of the coverage to be purchased?

Do the damages claimed fall within the scope of Do the damages claimed fall within the scope of the specified insurance?the specified insurance?

Is there a “temporal, geographic, or causal nexus” Is there a “temporal, geographic, or causal nexus” between the Sub’s work and the claimed damages?between the Sub’s work and the claimed damages?

Breach of Promise to Insure


Impossibility – coverage not “reasonably Impossibility – coverage not “reasonably available in the marketplace?”available in the marketplace?”

Waiver – very difficult to proveWaiver – very difficult to prove Any defense to contract formationAny defense to contract formation

Potential Defenses:


Subcontract: “Subcontractor agrees to obtain, Subcontract: “Subcontractor agrees to obtain, maintain and pay for such general liability maintain and pay for such general liability insurance coverage as will insure” the insurance coverage as will insure” the indemnity obligationindemnity obligation

Damages occurred more than a year Damages occurred more than a year afterafter the the construction was completeconstruction was complete

Seward Housing Corp. v. Conroy Brothers Co., 573 N.W.2d 364 (1998)


Subcontract: “Subcontractor agrees to obtain, Subcontract: “Subcontractor agrees to obtain, maintain and pay for such general liability maintain and pay for such general liability insurance coverage insurance coverage and such endorsements and such endorsements as as will insure” the indemnity obligationwill insure” the indemnity obligation

General contractor argued – Seward case General contractor argued – Seward case failed to account for 1986 modifications to failed to account for 1986 modifications to standard form CGL policiesstandard form CGL policies

G. John VeithG. John VeithBrown & Carlson PABrown & Carlson PA5411 Circle Down Avenue5411 Circle Down AvenueSuite 100Suite 100Minneapolis, MN 55416Minneapolis, MN 55416(763) 591--9950(763) 591--9950

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THE IOWA NATIONAL RULE AFTER CARGILL V. ACE AMERICAN ET AL G. John Veith, Esq. Brown & Carlson, P.A....

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