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

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

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

3. Iowa National Rule The “Iowa National” Rule: • Iowa Nat’l 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 • Loan receipt: an insured’s assignment of right to pursue other insurers for contribution toward defense costs and indemnity obligations

4. Iowa National Rule Iowa National Rule - Milestones • 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…

5. Iowa National Rule Iowa National Rule - Milestones • 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) “[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.”

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

7. Iowa National Rule Cargill v. Ace American Insurance Company,766 N.W.2d 58 (Minn. Ct. App. 2009). • What the District Court Wanted • 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) • Avoid the Iowa National rule

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

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

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

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

12. Contractual Indemnity Clcuses Minn. Stat. § 337.02 (1984) • Prohibited indemnity agreements where subcontractor agrees to indemnify general contractor for the general contractors own negligence.

13. Contractual Indemnity Clcuses Exceptions to Anti-Indemnity Rule: • Contractor can agree to indemnify landowner for access to construction site • Insurance contracts (e.g., insurance policies and surety agreements) • Promises to purchase specific insurance coverage for benefit of another (Minn. Stat. § 337.05, subd. 1).

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

15. Contractual Indemnity Clcuses Breach of Promise to Insure • 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? • Is there a “temporal, geographic, or causal nexus” between the Sub’s work and the claimed damages?

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

17. Contractual Indemnity Clauses Seward Housing Corp. v. Conroy Brothers Co., 573 N.W.2d 364 (1998) • 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

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

19. G. John VeithBrown & Carlson PA5411 Circle Down AvenueSuite 100Minneapolis, MN 55416(763) 591--9950 THANK YOU!