MN School Boards v. Employers Ins. of

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 02-1612
___________

Minnesota School Boards Association *
Insurance Trust, *
*
Appellant, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
*
Employers Insurance of Wausau, a *
Mutual Company, a corporation, *
*
Appellee. *
___________

Submitted: March 14, 2003

Filed: June 9, 2003
___________

Before WOLLMAN, RICHARD S. ARNOLD, and SMITH, Circuit Judges.
___________

WOLLMAN, Circuit Judge.

The Minnesota School Boards Association Insurance Trust (the Trust) appeals
the district court’s1 denial of its motion for judgment as a matter of law following an
adverse jury verdict on its breach of contract claim against Employers Insurance of

1
The Honorable Donovan W. Frank, United States District Judge for the
District of Minnesota.
Wausau (Wausau). The Trust also contends that the district court improperly
instructed the jury. We affirm.

I.

The Trust is a state-created self-insurance pool that issues property insurance
policies to participating school districts in Minnesota. To reduce its exposure for
catastrophic losses claimed under the policies it issues, the Trust purchases
reinsurance contracts from companies, including Wausau. Under these reinsurance
contracts, if a claimed loss exceeds a threshold amount, the reinsurer provides
coverage to the Trust for the excess losses.

The Trust purchased a reinsurance policy (the 1993 policy) from Wausau that
incepted on April 1, 1993, and contained a termination date of April 1, 1996.
Pursuant to the 1993 policy, any losses in excess of $6,750,000 up to $50 million
were the responsibility of Wausau. The 1993 policy required that the Trust and
Wausau renegotiate premiums each year.

By letter dated December 27, 1993, the Trust replaced its insurance broker for
the reinsurance contracts. On January 25, 1994, the Trust wrote to Ken Harrison, its
former broker, to “officially request that you immediately issue notice of cancellation,
effective April 1, 1994, to all reinsurance and insurance markets.” On February 2,
1994, Harrison requested that Wausau cancel the Trust’s policy effective April 1,
1994. The Trust’s letter to Harris made no mention of an expectation that coverage
under the policy would continue beyond the cancellation date. On April 25, 1994, the
Burnsville High School was destroyed in an arson fire. The school district filed a
claim for its losses under a policy issued by the Trust. The Trust settled the school
district’s claim for $14,141,781.73 and sought to recover $7,356,781.73 from Wausau
under the 1993 policy. Wausau declined coverage, asserting that the Trust’s

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cancellation of the policy completely terminated Wausau’s obligations to the Trust
effective April 1, 1994.

II.

On appeal, the Trust contends that the district court erred by denying its motion
for summary judgment, by denying its Rule 50(a) and 50(b) motions for judgment as
a matter of law, and by improperly instructing the jury. The district court’s denial of
summary judgment after a full trial on the merits is not reviewable on appeal;
accordingly, we consider only the latter two charges of error. Metro. Life Ins. Co. v.
Golden Triangle, 121 F.3d 351, 354 (8th Cir. 1997). We review de novo the denial
of a motion for judgment as a matter of law. Cross v. Cleaver, 142 F.3d 1059, 1066
(8th Cir. 1998). We evaluate the record in the light most favorable to the nonmoving
party and reverse only if there is no legally sufficient basis for a reasonable jury to
find for the nonmoving party. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S.
133, 150-51 (2000).

The Trust places primary emphasis on its contention that once the court
determines that an insurance policy is ambiguous, it must invariably construe the
policy in favor of coverage, limited only by the insured’s reasonable expectations.
We agree with the district court that the policy is ambiguous. The policy claims to
follow form to a policy identified only as “20-000000-00.” The parties agree that no
such policy exists. In addition, the 1993 policy was silent on whether it was a risk-
attaching or a losses-occurring policy;2 whereas the subsequent policy purchased by

2
In its instructions to the jury, the district court described these two types of
insurance as follows:

Insurance provided on a “risk-attaching” basis is intended to cover the
risks associated with an insurer’s contractual obligations to its
policyholders which are created, or “incept,” during the time the risk-

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the Trust from Wausau contained the following declaration: “Reinsurance term: April
1, 1994 to April 1, 1995; risks attaching basis.” The addition of language in the
subsequent policy expressly stating that it was written on a risk-attaching basis
strongly supports a finding of ambiguity. Orren v. Phoenix Ins. Co., 179 N.W.2d 166,
169 (Minn. 1970); see also Northwest Airlines, Inc. v. Globe Indem. Co., 225 N.W.2d
831, 837 (Minn. 1975) (“[T]he very fact that their respective positions as to what this
policy says are so contrary compels one to conclude that the agreement is indeed
ambiguous.”).

The rule that ambiguity must be resolved in favor of the insured derives from
the presumption that the insurer is the drafter of the contract and offers it on a take-it-
or-leave-it basis. Although this rule would seem to have less force in the present
context, in which the insured is a business represented by lawyers and an insurance
broker, the Minnesota Supreme Court has applied the rule in disputes between parties
apparently having equal bargaining power. See 3M v. Travelers Indem. Co., 457
N.W.2d 175, 184 (Minn. 1990); 3M, 457 N.W.2d at 185 (Kelley, J., dissenting)
(arguing that construction against the insurer is “inapt” in the context of large
corporations with sophisticated legal departments). Minnesota courts have stated that
“all doubts” are “to be resolved in favor of the insured.” Watson v. United Servs.
Auto. Ass’n, 566 N.W.2d 683, 692 (Minn. 1997); see also Northwest Airlines, 225
N.W.2d at 837 (“The rule is well settled that ambiguous language will be strictly

attaching insurance is in effect. . . . Risk-attaching insurance protects
the insured for the entire length of time the insured assumed the risk
involved in the underlying contractual agreement, including any time
after the point where no new risks would attach to the risk-attaching
insurance.

Insurance provided on a “loss-occurring” basis covers an insured’s
losses which arise during the time the policy is in effect. Loss-occurring
insurance does not cover losses which arise after the expiration or
cancellation of the policy.

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construed in favor of the insured.”). However, “the reasonable-expectations doctrine
does not automatically mandate either pro-insurer or pro-insured results” Atwater
Creamery Co. v. Western Nat’l Mut. Ins. Co., 366 N.W.2d 271, 278 (Minn. 1985).
The important issue on appeal is what role the jury plays once the court determines
that the policy is ambiguous.

“[I]f the language is ambiguous, resort may be had to extrinsic evidence, and
construction then becomes a question of fact, unless such evidence is conclusive.”
Transport Indem. Co. v. Dahlen Transport, Inc., 161 N.W.2d 546, 550 (Minn. 1968)
(citations omitted); Wessman v. Mass. Mut. Life Ins. Co., 929 F.2d 402, 406 (8th Cir.
1991) (remanding “so that the finder of fact can determine what the Wessmans’
expectations were, and whether those expectations were reasonable under the
circumstances”). Although the Trust argues that doubts should be resolved in its
favor as a matter of judicial function, determination of the reasonableness of its
expectations was properly for the jury. See Fenske v. Waseca Mutual Ins. Co., No.
C9-93-2054, 1994 WL 149483, at *4 (Minn. Ct. App. Apr. 19, 1994) (reversing
summary judgment for insurer and remanding for trial to determine in light of
extrinsic evidence what a reasonable person would understand the terms to mean).
As the district court recognized, the Trust clearly intended to have seamless
reinsurance coverage. Nevertheless, the question properly presented to the jury was
whether it was reasonable to expect such coverage under the 1993 policy after that
policy had been unconditionally cancelled. The record contains ample evidence upon
which the jury could have found for Wausau on the basis of the Trust’s unconditional
cancellation or a determination that an expectation of run-off coverage for risks that
had attached during the term of the 1993 policy was not reasonable under the
circumstances.

The Trust contends that the district court erred by charging the jury with
determining whether the policy was ambiguous and, if so, to ascertain the mutual
intent of the parties. The district court enjoys broad discretion in formulating jury

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instructions. Cross, 142 F.3d at 1067. The jury was instructed “to determine whether
[the 1993 policy] provided coverage after the April 1, 1994, cancellation.” The jury
returned a special verdict form indicating a finding of no coverage. The form did not
require the jury to specify whether its finding was based on a determination that the
Trust could not reasonably have expected risk-attaching coverage under the
circumstances or based on a determination that the parties intended the cancellation
to be effective without regard to the type of coverage. Although the jury instructions
describe what it means for an insurance policy to be ambiguous, the instructions do
not charge the jury with deciding whether the 1993 policy was ambiguous. Viewed
as a whole, the district court’s instructions “fairly and adequately submit[ted] the
issues to the jury.” Id. (citation omitted). Accordingly, we find no error in those
instructions.

In light of our holding, we deny as moot Wausau’s motion to strike portions
of the Trust’s reply brief and supplemental appendix.

The judgment is affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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