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Inc. v. U.S. Specialty Insurance Co.

United States Court of Appeals, Eighth Circuit

January 11, 2017

Jerry's Enterprises, Inc. Plaintiff- Appellant
v.
U.S. Specialty Insurance Company Defendant-Appellee

          Submitted: October 18, 2016

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

          Before GRUENDER, BEAM, and SHEPHERD, Circuit Judges.

          SHEPHERD, Circuit Judge.

         Jerry's Enterprises, Inc. ("JEI") brought a breach of contract and declaratory judgment action against its liability insurance carrier, U.S. Specialty Insurance Company ("U.S. Specialty"). The conflict concerned the insurance carrier's refusal to indemnify JEI for the settlement of a lawsuit. U.S. Specialty argued that the underlying suit, brought by a former director of JEI, was excluded from coverage by language in the directors' and officers' liability insurance policy. On cross-motions for summary judgment, the district court[1] ruled in favor of U.S. Specialty. We note jurisdiction over this final order of the lower court, see 28 U.S.C. § 1291, and affirm.

         I. Background

         A. Facts

         In 1950, Jerry Paulson founded JEI as a small butcher shop in Edina, Minnesota. Over the decades, JEI came to operate a score of retail and grocery stores in Minnesota, Wisconsin, and Florida. The closely held family company now employs approximately 4, 000 employees. As he grew the business, Jerry Paulson gifted non-voting shares in JEI to his three daughters, including Cheryl Sullivan. He also gifted shares to his grandchildren, including Sullivan's daughters Kelly and Monica. Paulson established an estate plan that, upon his death, appointed his daughters as members of the JEI Board of Directors. They would remain as directors until such time as their shares, and those of his grandchildren, were redeemed.

         Jerry Paulson died on April 5, 2013. In accordance with Paulson's estate plan, Sullivan became a director of JEI in April, and she held that position until August, when her shares were redeemed. At that time, Cheryl Sullivan owned 28.06% of all outstanding company shares, while Kelly and Monica owned 2.4% and 1.2%, respectively. During her stint as a company director, Sullivan raised a number of concerns with directors of JEI in regards to how her shares were being valued. These concerns were never addressed to her satisfaction.

         As a result, Sullivan and her daughters filed suit against JEI, alleging multiple acts of misconduct by JEI directors designed to lower the value of their shares. The complaint contained claims for declaratory judgment, breach of fiduciary duty, aiding and abetting tortious conduct, equitable relief under Minnesota common and statutory law, breach of contract, civil conspiracy, and preliminary and permanent injunctive relief. All claims were brought jointly by all three plaintiffs. After several months of negotiation, JEI reached a confidential settlement agreement with Sullivan and her daughters. When JEI sought coverage for its defense costs and for sums paid under the settlement agreement, U.S. Specialty refused to pay.

         B. The Insurance Policy

         JEI held a directors' and officers' liability insurance policy-Policy No. 14-MGU-12-A27558-through U.S. Specialty. Under the policy, U.S. Specialty agreed to "pay to or on behalf of the Insured Persons [or the Insured Organization] Loss arising from Claims first made against them during the Policy Period or Discovery Period (if applicable) for Wrongful Acts." (Appellant App. 32.) There is no dispute that the Sullivan lawsuit is a claim made during the policy period for wrongful acts. The policy defines Insured Person as "any past, present or future director, officer, managing member, manager or Employee of the Insured Organization . . . ." (Appellant App. 34.) Claim is defined, in relevant part, as "any civil proceeding commenced by service of a complaint or similar pleading." (Appellant App. 32.)

         Aside from these particular definitions, JEI's insurance policy contains two other provisions significant to this appeal. The first is the "Insured vs. Insured" exclusion. This provision excludes from coverage under the policy any claim:

[B]rought by or on behalf of, or in the name or right of . . . any Insured Person, ...

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