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American Family Mutual Insurance Co. v. Donaldson

United States Court of Appeals, Eighth Circuit

April 26, 2016

American Family Mutual Insurance Company Plaintiff- Appellee
John Martin Donaldson Defendant-Appellant Todd Richard Patton; Jacob Todd Patton Defendants

Submitted: October 22, 2015

Appeal from United States District Court for the District of Minnesota - Minneapolis

Before WOLLMAN, BYE, and GRUENDER, Circuit Judges.

BYE, Circuit Judge.

American Family Mutual Insurance Company (American Family) brought this declaratory judgment action to determine whether an umbrella insurance policy it issued to Todd Patton provided any coverage for an automobile accident in which a passenger in a vehicle driven by Todd's son, Jacob Patton, was seriously injured. The district court[1] granted summary judgment in favor of American Family after concluding the umbrella policy did not provide coverage. We affirm.


In April 2011, Jacob Patton obtained his driver's license. He was eighteen years old at the time. About one week later, Jacob decided to drive his father's Chevrolet minivan after he had been drinking. Jacob's friend, John Donaldson, was a passenger in the vehicle. A pedestrian observed Jacob driving erratically and called 911. When a police officer responded to the 911 call, saw the vehicle and turned on his siren, Jacob panicked and tried to flee. Shortly thereafter, but not before reaching speeds exceeding at least sixty miles per hour, Jacob lost control of the minivan and collided into a tree. Donaldson suffered serious injuries in the accident and was hospitalized for almost a month following multiple surgeries. Jacob was also taken to the hospital and had his blood drawn for analysis, which revealed a blood alcohol concentration of .20.

At the time of the accident, American Family insured the Pattons' vehicle under an automobile policy providing $100, 000 in coverage. Jacob's father, Todd, had also purchased an umbrella policy from American Family with policy limits of $1, 000, 000. Within just months of the accident, American Family negotiated the terms of a Drake-Ryan settlement[2] with Donaldson in which American Family agreed the automobile policy provided primary coverage to Donaldson for the injuries arising out of the accident and further agreed to pay the full policy limits of the automobile policy. American Family did not, however, agree that its umbrella policy provided coverage but left Donaldson free to pursue a claim against the excess policy. Significantly, a Drake-Ryan settlement protects an insured defendant from any further personal liability, except to the extent a plaintiff may successfully pursue a claim against the policy limits of an excess carrier. The settlement in this case specifically provided that, by accepting the full policy limits of the automobile policy and preserving the right to pursue coverage under the umbrella policy, Donaldson would "refrain from collecting or attempting to collect any unsatisfied portion of such judgments from the personal assets of Todd Patton and Jacob Patton." Appellee's App. at 129.

After settling for the policy limits of the primary automobile policy, Donaldson brought suit in Minnesota state district court against both Jacob and Todd Patton for the injuries arising out of the accident. For its part, American Family filed this declaratory judgment action against both the Pattons and Donaldson alleging that it had no duty to defend or indemnify the Pattons under the umbrella policy. American Family had, however, been providing a defense to the Pattons in the state district court action, while still reserving its right to litigate coverage issues under the umbrella policy.

In response to the declaratory judgment action, the Pattons obtained a new attorney in the state district court action. The new attorney then entered into a Miller-Shugart settlement[3] with Donaldson which admitted liability and provided for a binding arbitration to set the amount of damages. The Pattons' new attorney notified American Family of the binding arbitration and gave American Family the opportunity to appear and participate at the hearing, but American Family chose not to appear, instead advising the Pattons that it believed the Miller-Shugart settlement violated the umbrella policy's cooperation clause. The arbitrator ultimately set the amount of damages at $1, 250, 000. The arbitration award was filed with the state district court, and a final judgment was entered pursuant to the award.

In this separate declaratory judgment action, American Family filed a motion for summary judgment primarily contending that Jacob Patton's conduct at the time of the accident fell within the umbrella policy's intentional act exclusion.[4] The district court granted the motion for summary judgment on the grounds that Jacob's conduct fell within the intentional act exclusion.

Donaldson filed an appeal in our Court challenging the district court's determination that the umbrella policy's intentional act exclusion barred coverage. While the appeal was pending, Jacob Patton was convicted of felony criminal vehicular operation of a motor vehicle as a result of his conduct in the accident which injured Donaldson. Because Jacob's conviction potentially triggered a second policy exclusion for violations of law, [5] we declined to exercise jurisdiction over the appeal and sent this case back to the district court to consider in the first instance whether the violation-of-law exclusion was an additional or alternative ground for granting American Family summary judgment.

On remand, Donaldson asserted the umbrella policy's severability clause[6]triggered separate coverage for Todd Patton even assuming one or both of the contested exclusions for intentional acts and violations of law might bar coverage for Jacob Patton. See Am. Nat'l Fire Ins. v. Estate of Fournelle, 472 N.W.2d 292, 294 (Minn. 1991) ("The intent of a severability clause is to provide each insured with separate coverage, as if each were separately insured with a distinct policy, subject to the liability limits of the policy. Thus, severability demands that policy exclusions be construed only with reference to the particular insured seeking coverage. . . . A reasonable interpretation of [the severability clause] leads to the obvious and singularly correct conclusion that each insured must be treated as if each were insured separately, applying exclusions individually to the insured for whom coverage is sought.") (internal citations omitted).

The district court rejected the Pattons' argument regarding the severability clause and again granted summary judgment to American Family, concluding the violation-of-law exclusion also barred coverage as to both Jacob and his father, Todd. Donaldson filed a timely appeal. In this second appeal, Donaldson contends neither of the contested exclusions bars coverage for Jacob. Donaldson further contends the policy's severability clause triggers ...

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