Capella University, Inc. v. EXECUTIVE RISK SPECIALTY INSURANCE COMPANY

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
________________

Nos. 08-2382, 08-3673, 08-3675, 09-1121
________________

Capella University, Inc., *
*
Appellee/ Cross - *
Appellant, *
*
v. *
*
Executive Risk Specialty *
Insurance Company, * Appeals from the United States
* District Court for the
Appellant/ Cross - * District of Minnesota.
Appellee, *
* [PUBLISHED]
Arthur J. Gallagher and Co.; *
Arthur J. Gallagher Risk *
Management Services, Inc., *
*
Appellees/ Cross - *
Appellants. *

________________

Submitted: October 22, 2009
Filed: August 20, 2010
________________

Before LOKEN, Chief Judge,1 HANSEN and MELLOY, Circuit Judges.
________________

1
The Honorable James B. Loken stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on March 31,
2010. He has been succeeded by the Honorable William Jay Riley.
HANSEN, Circuit Judge.

Executive Risk Specialty Insurance Company (ERSIC) appeals the district
court's ruling, resolving cross-motions for summary judgment and declaring that
ERSIC owed a duty to defend its insured, Capella University (Capella), against a
federal lawsuit brought by one of Capella's former students. ERSIC appeals both the
coverage determination and the amount of damages awarded. Capella cross-appeals,
arguing the district court should have awarded prejudgment and postjudgment interest.
We affirm the district court's holdings regarding coverage and damages, reverse its
holding regarding interest, and remand for a judgment to be entered providing for
prejudgment and postjudgment interest.

I.

Capella is an internet-based educational institution, to which Jeffrey La Marca
matriculated in early 2004. Capella modified its on-line platform in April 2004, and
La Marca complained that the change discriminated against students with learning
disabilities, like himself. When Capella refused to grant all of La Marca's requested
accommodations, La Marca posted comments in on-line course discussion rooms that
Capella considered to be inappropriate. The disagreement eventually resulted in
Capella suspending La Marca from course work and La Marca filing three complaints
against Capella with the United States Department of Education (Department), Office
of Civil Rights (OCR).

The OCR is an enforcement agency within the Department and is charged with
ensuring that educational institutions receiving federal assistance do not engage in
discrimination. See 20 U.S.C. § 3413; 34 C.F.R. § 100.1. The OCR receives and
investigates complaints from aggrieved individuals. 34 C.F.R. § 100.7. As will be
discussed in detail below, the OCR initially undertakes a limited preliminary
investigation. See id. § 100.6.-.7. The OCR is not required by administrative

-2-
regulation to notify the recipient2 (in this case Capella) about a complaint or an
associated preliminary investigation. See id. § 100.7. If the preliminary investigation
indicates a failure to comply with the administrative regulations governing educational
institutions, the OCR "will so inform the recipient and the matter will be resolved by
informal means whenever possible." Id. § 100.7(d)(1). If the noncompliance cannot
be resolved by informal means, the OCR may effect compliance by refusing or
suspending federal financial assistance, by referring the matter to the Department of
Justice, or by pursuing any applicable remedy under state or local law. Id. § 100.8.
Before the OCR is empowered to effect compliance by any of these more formal
means, however, the OCR must notify the recipient of the noncompliance, attempt to
secure compliance through voluntary means, and make "an express finding on the
record, after opportunity for hearing," of the noncompliance. Id. § 100.8(c). Such
hearings are governed by extensive administrative regulation. See id. § 101.1-.131.

Only the second of La Marca's three complaints figures prominently in our
analysis. On July 9, 2004, La Marca filed a complaint with the OCR alleging that,
inter alia, Capella had retaliated against La Marca for filing an earlier OCR complaint.
On September 28, 2004, the OCR notified Capella of the allegation and requested that
the university provide it with information to evaluate the complaint. Capella provided
the requested information, and the OCR eventually concluded there was insufficient
evidence that Capella had retaliated against La Marca. La Marca filed administrative
appeals of the adverse OCR decisions on his second complaint on two subsequent
occasions. Similarly, La Marca administratively appealed the OCR's rejection of his
first claim, and La Marca also filed a third claim. All three claims were eventually
dismissed administratively when La Marca filed a lawsuit against Capella in July
2005, in federal court in California.

2
A "recipient" under the regulations includes any public or private entity "to
whom Federal financial assistance is extended." 34 C.F.R. § 100.13(i).

-3-
 The federal court civil complaint was based on the same historical facts as the
OCR complaints. Capella denied La Marca's allegations and counterclaimed for
defamation, trade libel, and intentional interference with prospective economic
relations.

Capella believed the July 2005 La Marca lawsuit to be covered by an educators'
professional liability policy issued by ERSIC, with a policy period of May 9, 2005,
through May 9, 2006. The policy provided:

The Company shall pay on behalf of an Insured all Loss which such
Insured becomes legally obligated to pay on account of any Claim first
made against such Insured during or after the Policy Period . . . for:
(a) Wrongful Act;
(b) Educator's Errors or Omissions; or
(c) Employment Practices
committed, attempted, or allegedly committed or attempted, by such
Insured before or during the Policy Period.

(Confidential Appendix of ERSIC (C.A.) at 53.) The policy defines a Claim as:

(i) a written demand for monetary damages;
(ii) a civil proceeding commenced by the service of a complaint or
similar pleading;
(iii) a criminal proceeding commenced by the return of an indictment; or
(iv) a formal administrative or regulatory proceeding commenced by the
filing of a notice of charges, formal investigative order or similar
document,
against an Insured for a Wrongful Act, including any appeal therefrom.

(C.A. at 60.) The policy also contains the following relevant exclusion:

The Company shall not be liable for Loss on account of any Claim based
upon, arising from, or in consequence of:
....

-4-
 (b) any demand for monetary damages, suit, formal administrative or
regulatory proceeding commenced by the filing of a notice of charges,
formal investigative order or similar document or arbitration proceeding
pending, or order, decree or judgment entered against any Insured on or
prior to the Pending or Prior date set forth in Item 6 of the Declarations,
or the same or any substantially similar fact, circumstance or situation
underlying or alleged therein.

(C.A. at 53-54.) The policy also states that ERSIC "shall have the right and duty to
defend any Claim covered by this policy." (C.A. at 57.)

Capella tendered defense of the La Marca lawsuit to ERSIC. In September
2005, ERSIC denied that it owed Capella indemnity coverage or a duty to defend
against the La Marca lawsuit. After repeatedly and unsuccessfully requesting
coverage, Capella filed this declaratory judgment action against ERSIC.3

La Marca's claims against Capella in the underlying lawsuit, for which Capella
seeks coverage in this declaratory judgment action, were dismissed after a bench trial
in November 2007. After that trial, Capella made a motion seeking to tax costs and
attorney fees to La Marca. Capella requested that the court order La Marca to pay
$800,645.83 in costs and fees. The federal district court in California denied the
motion.

3
Capella also sued Arthur J. Gallagher and Co. and Arthur J. Gallagher Risk
Management Services, Inc. (collectively Gallagher). Capella alleged that if the ERSIC
policy does not provide coverage for the La Marca lawsuit, then Gallagher, acting as
the university's insurance broker, failed to procure proper insurance coverage. The
district court held that the claim against Gallagher failed because the ERSIC policy
does provide coverage. Capella acknowledges that if this court affirms the district
court's holding that the ERSIC policy provides coverage, then we should also affirm
the district court's holding regarding Capella's claim against Gallagher. Because we
affirm both holdings, we do not further analyze the claim against Gallagher.

-5-
 Shortly thereafter, the parties in this declaratory judgment action filed cross-
motions for summary judgment. The district court heard the motions in January 2008.
The court held that ERSIC had breached its contractual duty to defend Capella against
the La Marca lawsuit.

After judgment was entered, Capella moved to alter or amend the judgment and
moved for attorney fees and costs. Capella sought damages in the amount of the
attorney fees and costs it had expended defending the La Marca litigation, as well as
fees and costs expended in pursuing this declaratory judgment action. ERSIC
challenged various elements of each of Capella's motions. The matter was referred
to a magistrate judge for a report and recommendation. The magistrate judge agreed
with some of ERSIC's arguments, rejected others, and recommended awarding Capella
fees and costs in an amount less than its request. The district court adopted the
magistrate judge's recommendation. Neither the magistrate judge nor the district court
provided for prejudgment or postjudgment interest.

ERSIC appeals the district court's holding that ERSIC breached its contractual
duty to defend. Capella cross appeals, arguing the district court erred in failing to
award prejudgment and postjudgment interest.

II.

ERSIC contends that the district court erred by holding that ERSIC breached
its contractual duty to defend Capella against the La Marca lawsuit.4 First, ERSIC
argues that the La Marca lawsuit was not a claim first made during the policy period.

4
The parties agree that any question of indemnity is moot because the
underlying lawsuit was dismissed and Capella suffered no damages that ERSIC would
be liable to indemnify. We agree. In addition, ERSIC does not challenge on appeal
the district court's adverse summary judgment of its affirmative defense of
misrepresentation.

-6-
In support of that argument, ERSIC contends that the disability discrimination claim
asserted in the La Marca lawsuit was the subject of La Marca's previous administrative
complaints to the OCR. ERSIC argues that the resulting OCR proceedings constituted
a claim as defined in the policy and, as such, the claim for which Capella now seeks
defense costs was first made prior to the policy period. The policy defines a "Claim"
to include "a formal administrative or regulatory proceeding commenced by the filing
of a notice of charges, formal investigative order or similar document." (C.A. at 60.)
ERSIC argues that the OCR proceedings were formal administrative proceedings and
consequently constituted a claim, meaning that the subsequent related lawsuit could
not be a claim first made during the policy period.

Second, ERSIC argues that, even if the claim was first made during the policy
period, the duty to defend the lawsuit is negated by the policy's exclusion because the
lawsuit is based upon, arises from, or is in consequence of a formal administrative
proceeding that was pending on or prior to the commencement of the policy on May
9, 2005. More specifically, ERSIC argues La Marca's OCR complaint triggered a
formal administrative proceeding.

Both of ERSIC's primary arguments depend on an interpretation of the policy
concluding that La Marca's complaint to the OCR was a formal administrative
proceeding constituting a claim as defined by the policy. As such, if the OCR
proceedings were not formal administrative proceedings, then the La Marca lawsuit
is a claim first made during the policy period and is not subject to the exclusion as
based upon, arising from, or in consequence of a prior or pending formal
administrative proceeding. Capella does not dispute that the OCR is an administrative
body and that LaMarca's complaint initiated an administrative proceeding. Instead,
Capella argues that the OCR proceedings were not formal.5 We agree.

5
Capella also argues, and the district court held, that the administrative
proceedings were not "commenced by the filing of a notice of charges, formal
investigative order or similar document," as required by the policy. Because we hold

-7-
 The policy does not define the word formal, nor does it specify what constitutes
a formal administrative proceeding. Consequently, we must look to state law to assist
us in interpreting the insurance contract. Murray v. Greenwich Ins. Co., 533 F.3d 644,
648 (8th Cir. 2008) (applying state substantive law to a dispute involving insurance
policy interpretation and diversity of citizenship). Interpretation of an insurance
policy is a legal issue, subject to our de novo review. Gen. Cas. Co. of Wis. v.
Wozniak Travel, Inc., 762 N.W.2d 572, 575 (Minn. 2009). Under Minnesota law,
"[b]ecause most insurance policies are preprinted forms drafted solely by insurance
companies—basically contracts of adhesion—policy words of inclusion will be
broadly construed, and words of exclusion are narrowly considered." Id.

Importantly, the word "formal" must have some meaning. "'Construction of an
insurance policy which entirely neutralizes one provision should not be adopted if the
contract is susceptible of another construction which gives effect to all of its
provisions and is consistent with the general intent.'" Westchester Fire Ins. Co. v.
Wallerich, 563 F.3d 707, 712 (8th Cir. 2009) (quoting West Bend Mut. Ins. Co. v.
Armstrong, 419 N.W.2d 848, 850 (Minn. Ct. App. 1988)). The same is true for a
construction that neutralizes one word. Thus, not every administrative proceeding
amounts to a claim under the ERSIC insurance contract.

ERSIC looks to the leading legal dictionary, which defines formal as
"[p]ertaining to or following established procedural rules, customs, and practices."
Black's Law Dictionary 678 (8th ed. 2004). Certainly, the OCR is subject to
established procedural rules and follows routine customs and practices. As discussed
below, the OCR is governed by statutes and regulations, and it has established a
written "Case Resolution and Investigation Manual" (CRIM). Yet, those rules,
practices, and standard operating procedures do not distinguish the OCR and its
proceedings from the proceedings of every other administrative entity. We must not

the administrative proceedings in this case were not formal, we need not address the
alternative argument and holding.

-8-
give the word "formal" an isolated meaning. Instead, the word "must be considered
within its context, and with common sense." Id. (quoting Mut. Serv. Cas. Ins. Co. v.
Wilson Twp., 603 N.W.2d 151, 153 (Minn. Ct. App. 1999)). To determine that the
OCR proceedings in this case amounted to formal administrative proceedings as
defined by the policy merely because they follow the CRIM requires turning a blind
eye to the administrative context.

ERSIC also relies on a recent case from one of our sister circuits, addressing an
insurer's contractual obligation to cover a lawsuit arising from an earlier complaint
before the Equal Employment Opportunity Commission. (EEOC). See Am. Ctr. for
Int'l Labor Solidarity v. Fed. Ins. Co., 548 F.3d 1103 (D.C. Cir. 2008). American
Center interpreted insurance policy language identical to the language at issue in this
case and held that the administrative proceedings at issue there were sufficiently
formal to amount to a claim under the policy. Id. at 1105. The insured did not notify
the insurer of the EEOC complaint and proceedings, so the insured's subsequent notice
of the follow-on lawsuit authorized by the right to sue letter issued by the EEOC was
untimely under the insurance contract. ERSIC argues the OCR proceedings in this
case were similarly formal.

While the court in American Center did not explicitly define "formal
administrative proceeding," it is possible to glean certain factors that were important
to the court's decision to hold that the administrative proceedings at issue in that case
were formal. First, the American Center court held that the EEOC proceedings were
formal "[f]or the principle reason that their form is governed by extensive regulation."
Id. at 1104-05.6 Most of the regulations cited in American Center as indicative of the

6
The court listed numerous facets of the EEOC's work that were relevant to the
complaint against the insured and were governed by regulation. Integral to the
American Center analysis were EEOC regulations governing:

the submission of information on alleged instances of discrimination, 29
C.F.R. § 1601.6; the form, content, and procedure for filing of charges,

-9-
formality of the EEOC proceedings lack analogs applicable to the OCR proceedings
addressing LaMarca's complaint against Capella. While both the EEOC and the OCR
must receive complaints from any aggrieved person, the procedure for filing an EEOC
charge is much more regulated. Compare 29 C.F.R. §§ 1601.6-.12 (extensively
governing the filing and contents of an EEOC charge), with 34 C.F.R. § 100.7(b)
(providing simply for the filing of a written complaint within 180 days of alleged
discrimination). Similarly, an EEOC complaint must be served on the alleged
discriminator within ten days of its filing, 29 C.F.R. § 1601.14, whereas the OCR
apparently need not inform the alleged discriminator of the filing of a complaint or the
initiation of the OCR's preliminary investigation until the investigation is completed,
see 34 C.F.R. § 100.7 (requiring the OCR to inform the recipient that its investigation
indicated a failure to comply or that its investigation warranted no action).7

Another factor important to the American Center court was the EEOC's
investigative authority at the outset of the proceeding. Any member of the EEOC has
standing subpoena authority to require attendance and testimony of witnesses, and
access to and production of evidence. 29 C.F.R. § 1601.16. This authority is not tied
to any preliminary finding of noncompliance. See id. In contrast, the regulations

id. §§ 1601.7-.9, .11-.12; the service of charges on alleged
discriminators, id. § 1601.14; the Commission's investigative authority,
id. § 1601.15, subpoena power, id. § 1601.16, and power to compel
witnesses for public hearings, id. § 1601.17; the procedure for
Commission determinations of cause, settlement, and dismissal of
proceedings, id. §§ 1601.18-.21; the Commission's power to initiate its
own civil actions, id. § 1601.27; and Commission's role in empowering
individuals to sue, id. § 1601.28.

548 F.3d at 1105.
7
Apparently, the OCR interprets the statute in this manner, as the OCR did not
inform Capella of La Marca's first (April 2004) and third (March 2005) complaints.
(C.A. 40.)

-10-
governing the preliminary investigation of the OCR do not grant subpoena power.
See 34 C.F.R. § 100.7(c). The language governing investigation of an OCR complaint
is much less rigid and more permissive, and the more formal investigative
powers—upon which American Center relied to hold that the EEOC proceedings in
that case were formal—are not available in every OCR proceeding. A preliminary
OCR "investigation should include, where appropriate, a review of the pertinent
practices and policies of the recipient, the circumstances under which the possible
noncompliance . . . occurred, and other factors relevant to a determination as to
whether the recipient has failed to comply." 34 C.F.R. § 100.7(c) (emphasis added).

Multiple additional administrative steps are necessary before more formal
administrative tools are implicated in an OCR investigation. Even where the
preliminary investigation suggests a failure to comply, "the matter will be resolved by
informal means whenever possible." Id. § 100.7(d). Once the OCR has determined
that the noncompliance cannot be corrected by informal means, "compliance . . . may
be effected by the suspension or termination of or refusal to grant or to continue
Federal financial assistance or by . . . a reference to the Department of Justice." Id.
§ 100.8(a). Only at this point (a point not ever reached by any of La Marca's three
complaints) does an OCR proceeding approach the formality of the EEOC
proceedings examined in American Center. Before federal funds may be terminated
or suspended, the recipient of federal funds is entitled to notice and a hearing
regarding the intended procedure for effecting compliance. Id. §§ 100.8(c), 100.9.
Once this hearing is required, the proceedings are governed by a more robust set of
procedural rules and guarantees. See id. §§ 101.1-.131. Additionally, the recipient
is entitled to further notice (although not a hearing) before the matter may be referred
to the Department of Justice. Id. § 100.8(d).

The mandatory use of the regulatory proceedings by a complainant as a
prerequisite to bringing a lawsuit is another factor indicating that the proceeding is
formal. As noted in American Center, "[t]hat [EEOC] proceedings are regular and
formalized . . . is hardly surprising given their statutorily prescribed role as a

-11-
necessary predicate to filing a Title VII suit." 548 F.3d at 1105. In contrast, a person
desiring to file a lawsuit alleging discrimination by a recipient of federal education
monies need not exhaust any remedies with the OCR. While the EEOC is "a kind of
national triage center for [employment] discrimination claims" and is concerned with
resolving such claims from the perspective of the claimant, id., the OCR's mission is
slightly different. The OCR's mission is not limited to resolving individual claims but
also includes achieving institutional compliance—i.e., ensuring no discrimination in
"any program or activity receiving Federal financial assistance from the Department
of Education." 34 C.F.R. § 100.1; see also id. § 100.7(c) (requiring an investigation
when—even in the absence of an individual's complaint—a compliance review,
report, or any other information indicates noncompliance).

That mission highlights another factor American Center referenced in holding
EEOC proceedings to be formal, the "serious consequences for their targets." 548
F.3d at 1105. American Center points out that, in an EEOC proceeding, "records from
the investigation, any determination of cause to believe that discrimination occurred,
and position statements submitted by the charged party may all be admissible as
relevant evidence in subsequent litigation." Id. As discussed above, a preliminary
OCR investigation is accompanied by fewer formal investigatory tools. At the same
time, regardless of whether an individual complaint has been filed or noncompliance
is even suspected, the OCR has the power to require compliance reports and to
inspect the documents of any entity receiving funds from the Department of
Education. 34 C.F.R. § 100.6. Thus, the preliminary investigation would not be
likely to yield records which would be otherwise unavailable to the OCR.
Additionally, the OCR is not required by regulation to make any written determination
of compliance associated with the preliminary investigation. Compare id. § 100.7(d)
(requiring a Department official to notify recipient of a failure to comply but not
mentioning a writing), with id. § 100.9(d)(2) (requiring written findings to resolve any
hearing required by § 100.8(c)). Further, the preliminary OCR investigation does not
require, nor must it allow, a written response to every complaint. Compare id. §
100.7 (making no allowance for a response), with id. § 100.9(d)(1) (entitling recipient

-12-
"to introduce all relevant evidence" when a hearing is required); id. § 101.52 (allowing
recipient to file an answer when a hearing is required); and id. § 101.71 (permitting
presiding hearing officer to require written statements of position). Here again, these
formalities are not operative until the OCR has completed a preliminary investigation,
attempted and failed to secure compliance through informal measures, and decided to
effect compliance through one of the formal means listed in 34 C.F.R. § 100.8. Thus,
the consequences that American Center was concerned with are lessened in the
preliminary OCR proceedings to which Capella was subject.

American Center was also concerned with prejudice to the insurer's ability to
resolve the issue precipitating the EEOC complaint before litigation ensues; "if the
case remains unresolved at this opening stage, and notice can be withheld until a [civil
court] complaint is filed, the insurer's only chance for pre-litigation settlement will
have fallen by the wayside." 548 F.3d at 1106. The link between administrative
proceedings and civil litigation is much more attenuated in the OCR context. OCR
proceedings are neither necessary nor a condition-precedent to filing civil lawsuits.
The aggrieved party need not exhaust any remedies with the OCR, and he can file a
lawsuit at any point in the OCR process. Indeed, an aggrieved party can avoid the
OCR entirely and proceed directly to federal court. Not so, the EEOC complainant.

Based on the foregoing, American Center is factually distinguishable. It
remains, however, useful for resolving the primary issue in this case. By applying
each of the major indices referenced by American Center, it becomes clear that the
OCR proceedings were not formal administrative proceedings under the insurance
policy.

First, American Center noted that the proceedings were governed by extensive
regulation. 548 F.3d at 1104-05. As discussed above, the OCR proceedings ERSIC
points to as formal were subject to much less regulation. Capella was not entitled to
notice of the complaints, nor was the university entitled to respond to the substance
of the complaints. The OCR was not empowered to subpoena documents or witnesses

-13-
for testimony. The OCR could only demand compliance reports and examine relevant
documents at Capella's facilities. If the OCR determined that the matter could not be
resolved by informal means and utilizing only informal investigation, then the OCR
could initiate formal proceedings—requiring notice, a hearing, and implicating a host
of procedural regulations. Only at this point would the OCR proceedings have
matched the formality of the proceedings held to be formal in American Center. The
fact that the proceedings could eventually become formal does not satisfy the plain
language of the policy provisions invoked by ERSIC, which affirmatively requires the
occurrence (as opposed to the mere prospect) of formal proceedings. ERSIC relies on
the September 2004 OCR letter to Capella, along with the CRIM, in support of its
argument that the proceedings were formal. Indeed, the letter and the CRIM detailed
an established procedure for evaluating complaints. The letter provided Capella
notice of the complaint (but not the name of the complainant), allowed Capella to
respond, and requested certain documents from Capella. None of those actions were
required by statute or regulation, however.

Second, the OCR proceedings that actually occurred in this case implicated
relatively fewer consequences for Capella. The preliminary investigation undertaken
lacked the teeth to require production of any document that the OCR could not
otherwise have accessed in absence of the proceedings. Nor were written admissions
by Capella or a written decision by the OCR required, making it unlikely that such
writings would be later used against Capella.

Additionally, because the informal OCR investigation did not reveal a failure
to comply with programming regulations, the enforcement and remedy regulations did
not even call for attempts at informal resolution. Proceedings to suspend or refuse
federal financial assistance—which represent the first time OCR proceedings require
many formalities—were still further removed. Before such consequences would have
been implicated, Capella would have received written notice of noncompliance and
the right to a formal hearing.

-14-
 Finally, the OCR proceedings were not a necessary predicate to the lawsuit
against Capella. La Marca could have sued Capella at any time.

ERSIC relies on American Center's statement that "formality is a question of
what proceedings might involve rather that a question of what they ultimately end up
involving; by the time the extent of the proceedings is known, any notice will come
too late to actually provide notice at all." 548 F.3d at 1105. That may be true in the
EEOC context, where one notice can initiate an unbroken line of administrative
proceedings with serious consequences to both the insured and insurer. The question
of "what the proceedings might involve" has a different answer in this case. The
extent of the OCR proceedings at issue in this case was limited to a preliminary
investigation which could not result in any involuntary adverse consequences until
Capella received further notice and the opportunity to be heard. To resolve this case,
we need not answer whether, at the point that additional notice is required, the
concerns referenced in American Center are implicated and the proceedings become
formal. Instead, we conclude only that the administrative proceedings undertaken by
the OCR in this case were not yet formal.

ERSIC also relies on the last clause of the exclusion discussed above. ERSIC
argues that the exclusion, in addition to precluding coverage for disputes that arise
from formal administrative proceedings, also excludes disputes that arise from "a
substantially similar situation that was pending or prior to May 9, 2005." (Appellant's
Br. at 47.) Again, the exclusion provides:

The Company shall not be liable for Loss on account of any Claim based
upon, arising from, or in consequence of: . . . any demand for monetary
damages, suit, formal administrative or regulatory proceeding
commenced by the filing of a notice of charges, formal investigative
order or similar document or arbitration proceeding pending, or order,
decree or judgment entered against any Insured on or prior to the
Pending or Prior date . . . or the same or any substantially similar fact,
circumstance or situation underlying or alleged therein.

-15-
(C.A. at 53-54.) While the exclusion is certainly no model of clarity or skilled
draftsmanship, it is sufficiently intelligible when broken down into its component
parts. In the introductory clause, the exclusion says that the company will not be
liable for damages on account of claims that arise from a list of occurrences. The
exclusion then lists those occurrences. The question is whether the final clause—"the
same or any substantially similar fact, circumstance or situation underlying or alleged
therein"—is an independent member of the list of occurrences or whether it merely
modifies each of the other occurrences. It is clear to us that the final clause is a
modifier. If, attempting to read the final clause as an independent basis upon which
to exclude liability, we excise the remainder of the list and read the final clause
together with the introductory clause, we are left with a nonsensical result: "The
Company shall not be liable for Loss on account of any Claim based upon, arising
from, or in consequence of: . . . the same or any substantially similar fact,
circumstance or situation underlying or alleged therein." (C.A. at 53-54). If ERSIC
is not liable for loss on account of any claim arising from the facts underlying that
claim, then ERSIC is liable for nothing. Adding the "pending or prior" language
cannot save ERSIC's preferred interpretation of this claims-made policy. If ERSIC
is not liable for loss on account of any claim arising from facts that were pending or
prior to the policy period, then the ERSIC policy would be an occurrence-based
policy. ERSIC acknowledges that the policy is a claims-made policy.

On the other hand, the exclusion can be coherently read as modifying (and
expanding) each of the other items on the list of occurrences. Thus, ERSIC is not
liable, for example, "for Loss on account of any Claim based upon . . . [a] formal
administrative or regulatory proceeding . . . pending . . . on or prior to [May 9, 2005]
. . . or the same or any substantially similar fact, circumstance or situation underlying
or alleged therein." See id. In other words, although the loss is not on account of a
claim based upon a formal administrative proceeding pending or prior to May 9, 2005,
the exclusion would still operate if the loss were based upon the same or a
substantially similar fact, circumstance or situation underlying or alleged in the

-16-
formal administrative proceeding. Because the exclusion is "'subject to two
interpretations, one reasonable and the other unreasonable in the context of the policy,
the reasonable construction will control.'" Westchester Fire Ins. Co., 563 F.3d at 712
(quoting Mut. Serv. Cas. Ins. Co., 603 N.W.2d at 153). Under the reasonable
interpretation of the final clause, the exclusion still requires formal administrative
proceedings. There were no formal administrative proceedings, so the "same or
substantially similar" language does not exclude Capella's claim.

Because the OCR proceedings were not formal administrative proceedings, the
La Marca lawsuit is a claim first made during the policy period, and it is not subject
to the exclusion as based upon, arising from, or in consequence of prior or pending
formal administrative proceedings. Based on the foregoing, we affirm the district
court's holding that ERSIC had a duty to defend Capella against the La Marca lawsuit.
The parties' dispute does not end there, however, so neither does our inquiry.

III.

ERSIC challenges elements of the damages awarded by the district court related
to the underlying La Marca lawsuit. ERSIC argues Capella should be estopped from
requesting more than the $800,645.83 in costs and fees that Capella requested the
California district court to order La Marca to pay in the underlying action. Judicial
estoppel is an equitable doctrine, invoked by a district court at its discretion, New
Hampshire v. Maine, 532 U.S. 742, 750 (2001), and we review the application of
judicial estoppel for abuse of discretion, Stallings v. Hussman Corp., 447 F.3d 1041,
1046 (8th Cir. 2006). The judicial estoppel doctrine exists to protect the integrity of
the judicial process. Id. at 1047. While the doctrine is not subject to a finite set of
elements or factors, three factors have recurred in courts' analyses and have been
applied by the United States Supreme Court and this court:

-17-
 First, a party's later position must be clearly inconsistent with its earlier
position. Second, courts regularly inquire whether the party has
succeeded in persuading a court to accept that party's earlier position, so
that judicial acceptance of an inconsistent position in a later proceeding
would create the perception that either the first or the second court was
misled. Absent success in a prior proceeding, a party's later inconsistent
position introduces no risk of inconsistent court determinations, and thus
poses little threat to judicial integrity. A third consideration is whether
the party seeking to assert an inconsistent position would derive an
unfair advantage or impose an unfair detriment on the opposing party if
not estopped.

New Hampshire v. Maine, 532 U.S. at 750-51 (internal citations and quotations
omitted). Accepting for the sake of argument that Capella's positions in the successive
lawsuits are inconsistent, we nonetheless hold that the district court did not abuse its
discretion in declining to apply judicial estoppel. The California district court refused
to grant Capella's request for fees and costs in the underlying lawsuit. Thus, the court
did not accept Capella's estimate of fees and costs, so there is no risk of inconsistent
court determinations threatening judicial integrity. Additionally, no unfair advantage
to Capella or detriment to ERSIC will result from allowing a subsequent, accurate
accounting of the fees and costs to form the basis for the award in this case.
Consequently, we affirm the district court's award of fees and costs.

IV.

Capella cross-appeals, arguing that the district court erred in failing to award
prejudgment and postjudgment interest. The district court entered a judgment on
February 13, 2008, and it amended the judgment on October 15, 2008. The original
order did not mention interest, and the amended order refused to "award" Capella
prejudgment and postjudgment interest. Capella filed a timely appeal from the
October 15, 2008, judgment.

-18-
 Federal Rule of Appellate Procedure 37(a) provides that, "Unless the law
provides otherwise, if a money judgment in a civil case is affirmed, whatever interest
is allowed by law is payable from the date when the district court's judgment was
entered." At the same time, the United States Code provides that, "Interest shall be
allowed on any money judgment in a civil case recovered in a district court." 28
U.S.C. § 1961(a). The combination of Rule 37 and § 1961 has led this court to hold
that, "Postjudgment interest is mandatory under 28 U.S.C. § 1961 . . . and should
therefore be awarded." Hillside Enters. v. Carlisle Corp., 69 F.3d 1410, 1416 (8th Cir.
1995) (providing for postjudgment interest although it was not requested in the district
court) (citing Dunn v. HOVIC, 13 F.3d 58, 60 (3d Cir.), cert. denied, 510 U.S. 1031
(1993)); see also Dunn, 13 F.3d at 62 (holding that "post-judgment interest is awarded
by statute as a matter of law so it is automatically added, whether or not the district
court orders it"). Capella was entitled to postjudgment interest as provided by § 1961.

"In a diversity case, the question of prejudgment interest is controlled by state
law." Trinity Prods., Inc. v. Burgess Steel, L.L.C., 486 F.3d 325, 335 (8th Cir. 2007).
"Minnesota adopted a compensatory policy toward prejudgment interest awards by
amending Minn. Stat. § 549.09, subd. 1 to provide prejudgment interest in most
cases." Solid Gold Realty, Inc. v. Mondry, 399 N.W.2d 681, 683 (Minn. Ct. App.
1987). Similar to 28 U.S.C. § 1961, Minnesota Statute § 549.09 employs the
mandatory language "shall." Minn. Stat. § 549.09, subd. 1 ("[I]nterest from the time
of the verdict . . . until judgment is finally entered shall be computed by the court
administrator . . . ."); id. § 549.09, subd. 2 ("[P]reverdict, preaward, or prereport
interest on pecuniary damages shall be computed . . . ."); id. § 645.44, subd. 16
("'Shall' is mandatory."); Cargill Inc. v. Lone Star Techs., Inc., No. A04-2137,
2005 WL 1514631, *1 (Minn. Ct. App. June 28, 2005) (noting mandatory language
"shall" and interpreting Minnesota Statute § 549.09 to provide a "statutory entitlement
to . . . preverdict interest").8 "Indeed, the statute compels the computation of

8
Notably, Minnesota Statute § 549.09 distinguishes between prejudgment
interest and preverdict interest.

-19-
preverdict interest from the date suit was filed except as 'otherwise . . . allowed by
law,' not as otherwise restricted by law." Marvin Lumber & Cedar Co. v. PPG Indus.
Inc., 401 F.3d 901, 919 (8th Cir. 2005) (first emphasis added); see also Seaway Port
Auth. of Duluth v. Midland Ins. Co., 430 N.W.2d 242, 252 (Minn. Ct. App. 1988)
("The prejudgment interest statute was not intended to disturb the existing law of
prejudgment interest, but to provide for prejudgment interest in situations where
prejudgment interest was not already allowed by law. It was settled law before the
1984 amendments to Section 549.09 that where defense costs are awarded against an
insurer, prejudgment interest must be paid . . . .").

ERSIC argues that Capella waived any objection to the district court's denial
of interest by failing to timely raise the issue in a Federal Rule of Civil
Procedure 59(e) motion. ERSIC does not explain why Capella's recourse lies solely
with a Rule 59(e) motion, to the exclusion of Capella's timely appeal. Considering
this court's previous reluctance to find a wavier of 28 U.S.C. § 1961 postjudgment
interest and the similarly mandatory nature of Minnesota Statute § 549.09, we find no
reason to treat the prejudgment interest issue differently. Indeed, under Minnesota
law, "[i]f a statutory right is to be waived by the parties, the waiver must be voluntary
and intentional." Loo v. Loo, 520 N.W.2d 740, 745 (Minn. 1994); see also W. Nat'l
Mut. Ins. Co. v. Frost Paint & Oil Corp., No. C3-97-1118, 1998 WL 27247, *4 (Minn.
Ct. App. Jan. 27, 1998) (citing Loo and rejecting argument that opposing party waived
statutory prejudgment interest). Capella did not waive its right to statutory
prejudgment interest.

That portion of the district court's judgment refusing to award statutory
prejudgment and postjudgment interest must be reversed. The case will be remanded
to allow the district court to include prejudgment interest according to Minnesota
Statute § 549.09 and postjudgment interest according to 28 U.S.C. § 1961 in its
judgment.

-20-
 V.

Accordingly, the judgment of the district court is affirmed in part, reversed in
part, and the case is remanded for further proceedings consistent with this opinion.
______________________________

-21-