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Farmers Ins. Exchange v. Hallaway: USCD : INSURANCE - Questions of fact bar summary judgment regarding coverage for defamation; only one occurrence

Farmers Insurance Exchange,
Civil No. 07‐862
Kathleen Hallaway, David Ericson,
Ellie Singer and Minnesota Youth
Soccer Association,
Roger H. Gross and Timothy J. Crocker, Gislason & Hunter LLP for and on
behalf of Plaintiff Farmers Insurance Exchange.
Donald Chance Mark, Jr. and Edward E. Beckman, Fafinski Mark &
Johnson, P.A. for and on behalf of Defendants David Ericson, Ellie Singer and
Minnesota Youth Soccer Association.
Mark R. Miller, Saliterman & Siefferman for and on behalf of Kathleen
This matter is before the Court on Plaintiff Farmers Insurance Exchanges
(Farmers) motion for summary judgment.
This is a declaratory judgment action in which Farmers seeks a declaration
that the insurance policy at issue does not provide coverage for a civil judgment
obtained by Defendants David Ericson, Ellie Singer and the Minnesota Youth
Soccer Association (MYSA) (collectively referred to as the MYSA defendants)
against Defendant Kathleen Hallaway.
Background of the Underlying Action
The MYSA defendants brought an action in state court against Hallaway,
Eric Hawkins, and others, because of a series of e‐mails that were sent, either
anonymously or by Hallaway, that contained defamatory language against
Ericson and Singer, who were volunteers for the MYSA. The suit included
allegations of defamation, intentional infliction of emotional distress, and tortious
interference with contract, as well as a claim for punitive damages. The
defendants in the underlying suit were upset with the manner in which Ericson,
Singer and the MYSA handled a number of matters, including the suspension of
Eric Hawkins as a coach, the suspension or disaffiliation by the MYSA of the Elk
River United Soccer Club and the perceived failure to investigate an adult
accused of stalking/photographing minor girls playing soccer. The nature of the
e‐mails, however, went beyond merely asserting a complaint.
As an example, one email sent from the moccasoccer@hotmail.com
account to several members of different soccer associations, and signed by
Hallaway and several others, stated:
Mr. Ericson orchestrated the placing the Elk River United Soccer Club into
bad standing, and subsequently attempted to blackmail the mother of a
molestation victim . . . An investigation by Mr. Ericson concluded [the
alleged stalkers name] actions were appropriate. We are demanding the
immediate resignation of Mr. Ericson from all positions with the [MYSA}.
Farmers Ex. U.
Another email sent from the moccasoccer@hotmail.com account, but
signed by The Parents of P.A.S.S. stated:
[O]ne of our mothers filed a complaint for harassment and providing false
information against Ellie Singer . . . The complaint includes Ellies refusal
to process several complaints and providing false information repeatedly,
including deceptions . . . and Ellies extortion of a former ERU coach.
Farmers Ex. V.
Unsigned e‐mails from the hotmail account were also sent to Ericsons
employer, accusing Ericson of extortion and fraud. Farmers Ex. W. Although no
one admitted to sending the e‐mails from the hotmail account, it was determined
that some were sent from a coffee shop, and that Eric Hawkins had used his
credit card at the same shop at the time the e‐mails were sent. See Farmers Ex.
G, p. 103‐105.
Hallaway also sent e‐mails from her personal account. In one such e‐mail,
Hallaway described an incident in which she and others observed an individual
engaging in questionable behavior at a soccer practice, and then accused Singer
of not acting on her complaints regarding said individual. Second Beckman
Declaration, Ex. B. See also, Exs. C and D.
Eventually, four of the defendants in the underlying suit settled with the
MYSA defendants: two for ,500 and a letter of apology, one for ,000 and
Hawkins settled for 0,000. Hallaway did not settle the case against her, and
the matter went to trial. At the conclusion of the trial, the district court directed a
verdict on the defamation claims, and the jury found Hallaway liable for the
intentional infliction of emotional distress and punitive damages totaling
0,000. Following post trial motions, the verdict was reduced by ,000.
Farmers Ex. F.
The Policy
The policy at issue is a homeowners policy covering the period January 10,
2005 to January 2006. The relevant policy language provides coverage for
damages which an insured becomes legally obligated to pay because of bodily
injury, property damage or personal injury resulting from an occurrence.
Farmers Ex. R, Section II ‐ Liability, p. 13. Personal injury is defined as any
injury arising from . . (3) libel, slander, defamation of character . . . Id. An
occurrence is defined as an accident including exposure to conditions which
results during the policy period in bodily injury or property damage. Repeated
or continuous exposure to the same general conditions is considered to be an
occurrence. Id., Definitions, p. 4.
The policy also provides:
At our expense and with attorneys of our choice, we will defend an
insured against any covered claim or suit. We are not obligated to pay
defense costs, including attorneys fees of any claim or suit where you
select an attorney not chosen by us . . . We may investigate and settle any
claim or suit that we consider proper.
Id., p. 13.
The policy excludes from coverage the following: bodily injury, property
damage or personal injury which is caused intentionally by or at the direction of
an insured or that results from any occurrence caused by an intentional act of any
insured where the results are reasonably foreseeable. Id. Section II ‐ Exclusions,
p. 15. Further, the policy excludes from coverage punitive or exemplary damages
or the cost of defense related to such damages. Id. p. 14.
Finally, the policy provides that in the case of an occurrence, the insured
must, as soon as possible, give the insurer written notice of the occurrence, with
names and addresses of the claimants and to promptly send the insurer any legal
papers received and to cooperate and assist in any matter relating to the claim.
Id., Section II ‐ Conditions, p. 16‐17.
Farmers asserts that Hallaway did not provide it notice of the underlying
suit until after the verdict had been rendered against her.
Summary judgment is appropriate if, viewing all facts in the light most
favorable to the non‐moving party, there is no genuine issue as to any material
fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.
P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322‐23 (1986). The party seeking
summary judgment bears the burden of showing that there is no disputed issue
of material fact. Celotex, 477 U.S. at 323. This burden can be met by showing ‐
that is , pointing out to the district court ‐ that there is an absence of evidence to
support the nonmoving partys case. Id. at 325. The party opposing summary
judgment may not rest upon mere allegations or denials, but must set forth
specific facts showing that there is a genuine issue for trial. Krenik v. County of
Le Sueur, 47 F.3d 953, 957 (8th Cir.1995).
Under Minnesota law, the initial burden of proof is on the insured to
establish a prima facie case of coverage. SCSC Corp. v. Allied Mutual Ins.Co.,
536 N.W.2d 305, 311 (Minn. 1995) (citing Boedigheimer v. Taylor, 287 Minn. 323,
329, 178 N.W.2d 610, 614 (1970)). The policy must be read as a whole, and
unambiguous language must be accorded its plain and ordinary meaning. Id. at
311 (citing Henning Nelson Constr. Co. v. Firemanʹs Fund Am. Life Ins. Co., 383
N.W.2d 645, 652 (Minn.1986)). Any ambiguity is construed in favor of the
insured. Lott v. State Farm Fire & Cas. Co., 541 N.W.2d 304, 307 (Minn. 1995).
1. No coverage for Punitive Damage Awards
Farmers first argues that the policy clearly excludes coverage for a punitive
damages award. Ex. R, p. 14. The MYSA defendants do not take a position on
whether the policy covers punitive damages. As the policy unambiguously
excludes coverage for punitive damages, Farmers motion, as to the punitive
damages award, will be granted.
2. Intentional Act Exclusion
Farmers asserts that the remaining portion of the judgment for defamation
and intentional infliction of emotional distress is excluded as the policy provides
coverage only for an occurrence, which is defined as an accident. Farmers Ex. R.
p. 4. Intentional acts are specifically excluded. Id. p. 15.
Minnesota courts have defined accidents as unexpected, unforeseen or
undesigned happenings. Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 611
(Minn. 2001) (citing Hauenstein v. St. Paul‐Mercury Indem. Co., 242 Minn. 354,
358, 65 N.W.2d 122, 126 (1954)). There must also be a lack of specific intent to
injure. Id., 628 N.W.2d at 612. Minnesota courts have also recognized an
inferred intent to injure when the insured knew or should have known that a
harm was substantially certain to result from the insureds conduct. Id., at 613.
Whether the court should infer an intent to injure must be based on the specific
facts before it. Id.
Farmers argues that the damages award for defamation and intentional
infliction of emotional distress arose from intentional conduct, and that based on
the specific facts supporting the damages award, the Court may infer that
Hallaway acted with an intent to harm. Accordingly, the damages award is
excluded by the terms of the policy.
The MYSA defendants do not take a position with respect to damages for
intentional infliction of emotional distress. Given the nature of this particular
claim, there can be no dispute that damages awarded for intentional infliction of
emotional distress are excluded under the terms of the intentional acts exclusion.
With respect to the damages awarded based on defamation, however, the MYSA
defendants argue that such damages are covered by the policy. It is their position
that damages for personal injury should not be limited to those arising from an
occurrence, as personal injury is defined in the policy to include libel, slander,
defamation of character and other acts that can only be understood to be
intentional acts, such as false arrest or malicious prosecution. Thus, it doesnt
make sense to limit personal injury to accidents, since the very definition of
personal injury includes intentional conduct. Similarly, the MYSA defendants
argue that the definition of defamation does not distinguish between negligent
and intentional defamation. Thus, anyone reading a Farmers policy would
understand it to cover all forms of defamation. The MYSA defendants further
argue that as the Court should not limit coverage for personal injury to accidents,
the inferred intent argument is not relevant and the exclusion does not apply.
Finally, the MYSA defendants argue that Minnesota law does not recognize a
1While Britton does involve a probation officer, which Minnesota courts deem a public
official, there is language in the case recognizing negligent defamation brought by a private
person ‐ If, on the other hand, Britton is a private individual, then he may recover damages by
showing that Koep was merely negligent when she made false statements about his behavior.
Britton, 470 N.W.2d at 520.
cause of action for negligent defamation. See Wallin v. Minnesota Dept. of
Corrections, 598 N.W.2d 393, 401 (Minn. Ct. App. 1999). Rather, defamation is
treated as an intentional tort ‐ as evidenced by the fact that such claims are
covered by the two year statute of limitation for intentional torts, and the
elements of a defamation claim reflect the intentional nature of the claim.
The Court first notes that Minnesota law does recognize a claim of
negligent defamation. See, Moreno v. Crookston Times Printing, 610 N.W.2d 321,
329 (Minn. 2000) (adopting negligence standard for private individual suing
media for defamation); Britton v. Koep, 470 N.W.2d 518, 520 (Minn.
1991)(defamation claim involving public official)1. See also Cincinnati Ins. Co. v.
Eastern Atlantic Ins. Co., 260 F.3d 742, 746‐47 (7th Cir. 2001) (finding that intent to
injure is not an element of a defamation claim, recognizing that defamation is
often not intended or expected to injure anyone.) The Court further rejects the
MYSA defendants argument that as the definition of personal injury does not
distinguish between negligent and intentional defamation, both types are
covered by the policy.
When determining whether conduct is accidental or intentional, Minnesota
holds that the courts must look to the intent of the actor. In American Family, the
court interpreted an accident policy by first recognizing that the word accident
encompasses both the acts of the insured and the consequences of the insureds
acts. Id. 628 N.W.2d at 609‐11. The court further recognized that accidental
conduct and intentional conduct are opposite sides of the same coin. The scope
of one in many respects defines the scope of the other. Id. at 611. The court
concluded that in analyzing whether there was an accident for purposes of
coverage, lack of specific intent to injure will be determinative, just as it is in an
intentional act exclusion analysis. Id., at 612.
Applying this analysis to the case at bar, the policy will not provide
coverage for the damages awarded on the defamation claim if the facts support a
finding that Hallaway intended to harm the MYSA defendants when she sent or
participated in the sending of the defamatory emails. On this record, however,
no such finding can be made because Hallaways negligence, or whether she
acted with an intent to injure, was not essential in finding her liable on the
defamation claim. See Rohrer v. Rick, 529 N.W.2d 406 (Minn. Ct. App. 1995). See
2Hallaway, in her brief, explains that she did not know that she was covered under the
Farmers policy until post‐verdict, as she was going through a divorce in January 2006, and it
was her understanding that she was removed as an insured under the marital home policy
when she moved out and bought a condo.
also, Rouse v. Dunkley & Bennett, P. A., 520 N.W.2d 406, 410 (Minn.1994)
(elements of a defamation claim are: (1) a false statement; (2) communication of
the statement to a third party; and (3) resulting harm to the plaintiffʹs reputation
and standing in the community). Because Hallaways intent to injure is
determinative of coverage, and because there are genuine issues of material fact
as to whether Hallaway acted with an intent to injure, summary judgment is not
appropriate with respect to the defamation claim.
3. Lack of Notice ‐ Prejudice
The policy at issue also requires the insured to give prompt notice to the
insurer of a claim and to forward legal papers to the insurer promptly.
Defendant Hallaway admits that she did not provide notice until post‐verdict ‐ in
December 2006.2
Notice requirements in insurance policies are meant to give insurers an
opportunity for prompt investigation so as to protect itself against fraudulent or
exorbitant claims and, while the matter is fresh in the minds of all, to appraise
and determine a disposition by way of settlement or defense. Sterling State
Bank v. Virginia Surety Co., 173 N.W.2d 342 (Minn. 1969). Lack of notice does
not, in and of itself, establish prejudice. Rather, Farmers must show that during
the period where notice should have been given, the insurer was prejudiced in an
articulable manner. Hooper v. Zurich American Ins. Co., 552 N.W.2d 31, 36
(Minn. Ct. App. 1996) (citing Reliance Ins. Co. v. St. Paul Ins. Cos., 307 Minn. 338,
341, 239 N.W.2d 922, 924‐25 (1976)); North Star Mut. Ins. Co. v. Midwest Family
Mut. Ins. Co., 634 N.W.2d 216 (Minn. Ct. App. 2001) (finding that insurer must
demonstrate that its inability to participate in settlement negotiations resulted in
actual prejudice).
Farmers argues that it has been prejudiced by Hallaways late notice
because it was not able to defend and thereby control the defense of the case.
Farmers argues it was denied the ability to choose experienced counsel, and to
participate in settlement negotiations. Farmers notes that four other defendants
in the underlying case settled prior to trial for amounts as little as ,500 and
,000. Farmers argues that had it had experienced counsel present, counsel
would have had settlement funds available and would have settled the matter
prior to trial.
The Court finds that fact questions exist as to whether Farmers was
prejudiced by lack of notice in this case. Whether Farmers would have settled
this case early is speculative. The MYSA defendants point out that Hallaway
never apologized for her e‐mails, and that without a written apology, the MYSA
defendants would not have settled for a minimal amount. In addition, one of the
defendants, Eric Hawkins settled for 0,000. Given the range of settlements
entered into, the amount Farmers would have settled for is clearly speculative.
Accordingly, Farmers motion for summary judgment on the issue of prejudice
must be denied.
4. Applicable Policy Periods
Finally, the parties challenge how many policy periods are applicable in
this case. Farmers asserts that only one policy period is applicable, as the
defamatory e‐mail campaign should be considered one occurrence. Farmers
notes that occurrence is defined in the policy to include [r]epeated or
continuous exposure to the same general conditions is considered to be one
occurrence. Farmers Ex. R, p. 4. Liability is further limited for one occurrence,
irregardless if the occurrence spans over more than one policy period. Id., p. 16.
The MYSA defendants argue that each defamatory e‐mail was a discrete
event that gave rise to damages, and as the defamatory e‐mail campaign covered
three policy periods, from September 2003 to October 2005, each policy period
applies, citing to Wooddale Bldrs., Inc. v. Maryland Cas. Co., 722 N.W.2d 283, 295
(Minn. 2006).
Minnesota does follow the actual injury rule to determine which insurance
policies have been triggered. Id. at 292. Notwithstanding this rule, the policy at
issue limits liability to one occurrence. To determine whether a series of events,
such as at issue here, should be considered related or one occurrence, the Court
should consider the following factors: whether the acts are connected by time,
place, opportunity, pattern, and most importantly method or modus operandi.
American Commerce Ins. v. Minn. Mut. Fire, 551 N.W.2d 224, 231 (Minn. 1996).
Applying this analysis, the court in American Commerce found that an
embezzlement scheme by an employee was considered two occurrences for
insurance coverage purposes, even though there over 150 incidents of
embezzlement that took place, because the employee used two distinct methods
of embezzlement. Id. at 230.
In this case, the defamatory e‐mail scheme must be considered a series of
related acts. The e‐mail scheme commenced due to Hallaways and others
concern about an individual they believed was acting suspiciously around their
children at soccer practice, and they continued the scheme because they did not
get the response they wanted from the MYSA defendants. Under these
circumstances, the Court finds that the e‐mail campaign should be considered
one occurrence, and that liability under the policy is limited as provided therein.
IT IS HEREBY ORDERED that Plaintiff Farmers Insurance Exchanges
Motion for Summary Judgment [Doc. No. 23] is GRANTED in part and DENIED
in part as follows: The Policy does not provide coverage for damages awarded as
punitive damages, or damages attributable to the claim for intentional infliction
of emotional distress. A question of fact exists as to whether the Policy provides
coverage for damages attributable to the defamation claims.
Date: July 6, 2008
s / Michael J. Davis
Michael J. Davis, Chief Judge
United States District Court


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