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Capitol Indemnity Corp. v. Wonder Years Pre-School, Inc.: US District Court : INSURANCE - 'arising out of' employment relationship doesn't mean during it

Capitol Indemnity Corporation, Civil No. 08-651 (DWF/RLE)
Wonder Years Pre-School, Inc.;
Denise Renee Clusiau; Stacy Marie
Peroceschi; Shawn Marie Savolainen;
Deanne Elizabeth Faulkner, Eileen Berg
Korpi; and Linda Diane Nelson,
Daniel R. Gregerson, Esq., Joseph A. Nilan, Esq., Siira B. Gunderson, Esq., Gregerson
Rosow Johnson & Nilan, Ltd., counsel for Plaintiff Capitol Indemnity Corporation.
Brian P. Farrell, Esq., Brian P. Farrell PA, counsel for Defendants Wonder Years
Pre-School, Inc., Denise Renee Clusiau, Stacy Marie Peroceschi, Shawn Marie
Savoloinen, Deanne Elizabeth Faulkner, and Eileen Berg Korpi.
Patrick T. Tierney, Esq., Collins Buckley Sauntry & Haugh PLLP, counsel for Linda
Diane Nelson.
This matter is before the Court on a Motion for Summary Judgment brought by
Plaintiff Capitol Indemnity Corporation (Capitol). For the reasons stated below, the
Court grants the motion.
On September 20, 2004, Defendant Wonder Years Pre-School (Wonder Years)
obtained a Commercial Business Owners Policy, policy number BP00329564 (the
Policy), from Capitol. The Policy provides in part as follows:
A. Coverages
1. Business Liability
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of bodily
injury, property damage, personal injury or
advertising injury to which this insurance
applies. . . .
. . . .
b. This insurance applies:
(1) To bodily injury and property damage only
(a) The bodily injury or property
damage is caused by an occurrence
that takes place in the coverage
territory; and
(b) The bodily injury or property
damage occurs during the policy period.
(2) To:
(a) Personal injury caused by an offense
arising out of your business, excluding
advertising, publishing, broadcasting or
telecasting done by or for you;
(b) Advertising injury caused by an
offense committed in the course of
advertising your goods, products or
but only if the offense was committed in the
coverage territory during the policy period.
(Aff. of Joseph A. Nilan (Nilan Aff.) 4, Ex. A at Bates number CIC 24.) The term
personal injury is defined as injury, other than bodily injury, arising out of . . . [o]ral
or written publication of material that slanders or libels a person or organization or
disparages a persons or organizations goods, products or services. (Id. at Bates
number CIC 36-7.) The Policy further defines occurrence as an accident, including
continuous or repeated exposure to substantially the same general harmful conditions.
(Id. at Bates number CIC 36.)
The Policy contains an Employment-Related Practices Exclusion. This
exclusion provides:
This insurance does not apply to:
1. Bodily Injury or personal injury to:
a. A person arising out of any:
. . .
(3) Employment-related practices, policies, acts or
omissions, such as coercion, demotion,
evaluation, reassignment, discipline,
defamation, harassment, humiliation or
discrimination directed at that person[.]
(Id. at Bates number CIC 44.)
Defendant Linda Diane Nelson was the Director of Defendant Wonder Years from
approximately May 2001 through August 10, 2004, the date of her resignation. Her
duties as the Director included depositing tuition and fundraising money. Nelson also
had a credit card in the name of the Wonder Years to make purchases on behalf of
Wonder Years.
On December 28, 2004, Nelson attended a meeting with Defendants Denise Renee
Clusiau, Stacy Marie Peroceschi, Shawn Marie Savolainen, Deanne Elizabeth Faulkner,
and Eileen Berg Korpi (together with Wonder Years Preschool, Inc., the Wonder Years
Defendants). During this meeting, Nelson was accused of stealing funds,
misappropriating funds, and conducting suspicious transactions while acting as Director
of Wonder Years. Nelson was given one month to repay the allegedly stolen funds.
After the deadline passed with no action by Nelson, Savolainen contacted the Nashwauk
Police Department. (Nilan Aff. 6, Ex. C at 154.) After an investigation, the State of
Minnesota brought a criminal action. State of Minn. v. Linda Diane Nelson, Itasca
County Court File No. CR-06-1053. After a jury trial, Nelson was found not guilty.
On September 25, 2007, Nelson commenced an action against the Wonder Years
Defendants in state court (the Underlying Action). In the Underlying Action, Nelson
alleges that the Wonder Years Defendants made false and defamatory statements, namely
that Nelson had stolen and misappropriated money. (Nilan Aff. 7, Ex. D.) Nelson
further alleges that her reputation was injured, her credit rating harmed, and that she
suffered physical and emotional damages as a result of the Wonder Years Defendants
On March 10, 2008, Capitol brought this declaratory judgment action. Capitol
seeks a determination that Capitol has no obligation to defend or indemnify the Wonder
Years Defendants or Nelson in the Underlying Action. Nelson filed a memorandum in
opposition to Capitols motion for summary judgment; the Wonder Years Defendants
filed a separate opposition memorandum.1
Summary judgment is proper if there are no disputed issues of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The
Court must view the evidence and the inferences that may be reasonably drawn from the
evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank
of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated,
[s]ummary judgment procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
to secure the just, speedy and inexpensive determination of every action. Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at
747. The nonmoving party must demonstrate the existence of specific facts in the record
that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th
Cir. 1995). A party opposing a properly supported motion for summary judgment may
not rest upon mere allegations or denials but must set forth specific facts showing that
1 The Court refers primarily to Nelsons opposition memorandum, as the Wonder
Years Defendants concur with Nelsons legal analysis. (See Wonder Years Defs. Mem.
in Oppn to Pl.s Mot. for Summ. J. at 4.)
there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256
The issue before the Court is whether the Policys Employment-Related Practices
Exclusion excludes coverage for Nelsons alleged personal injury arising out of the
Wonder Years Defendants alleged defamation. Capitol asserts that the alleged
defamatory statements in this case are excluded from coverage under the Policy because
they arose out of an employment-related practice, policy, act, or omission. Nelson asserts
that the Employment-Related Exclusion does not bar coverage of her defamation claims
because the allegedly defamatory statements were not made while she was an employee
and did not arise out of an employment-related practice.
General principles of contract interpretation govern the construction of insurance
contracts. Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 880 (Minn. 2002); Lobeck
v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn. 1998). The correct
interpretation of a clause in an insurance policy is a question of law. Haarstad v. Graff,
517 N.W.2d 582, 584 (Minn. 1994). Words in insurance contacts are given their plain
and ordinary meaning. Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn.
2001). Policy exclusions in insurance contracts are to be strictly construed against the
insurer. Thommes, 641 N.W.2d at 880.
Nelson asserts that her defamation claim is based on allegedly defamatory
statements made by the Wonder Years Defendants after Nelson resigned in August 2004.
In the complaint in the Underlying Action, Nelson alleges that after a jury found Nelson
not guilty, the Wonder Years Defendants continued to falsely and maliciously accuse
[Nelson] of stealing and misappropriating funds from Wonder Years Preschool, Inc.
(Nilan Aff. 7, Ex. D. at 11.) With respect to this allegation, Nelson specifically
asserts that Savolainen told a reporter that the Wonder Years Defendants were
disappointed in the decision in the criminal case, but that the facts of the matter still
stand; that Clusiau told a reporter that Wonder Years was holding a fundraiser to pay off
debts due to previously mismanaged school funds; that the Wonder Years Defendants
stated that Nelson was responsible for Wonder Years credit card debt; and that the
Wonder Years Defendants continued to tell people that they disagreed with the jury
verdict in the criminal case, that Linda Nelson had stolen or misappropriated funds from
Wonder Years Preschool, and that the ongoing financial problems of Wonder Years
Preschool were caused by Plaintiffs mismanagement and theft of funds. (Aff. of
Patrick T. Tierney in Oppn to Pl.s Mot. for Summ. J. 2, Ex. A at 11-12.) Nelson
alleges that such defamatory statements were made to parents of preschool students,
Nelsons neighbors, Nelsons childrens classmates and their parents, the police
department, the county attorneys office, and various media outlets. Nelson asserts that
these statements are not subject to the Employment-Related Practices Exclusion because
the statements were made after Nelsons employment with Wonder Years ceased and
were not related to an employment-related practice.
The fact that the allegedly defamatory statements were made after Nelsons tenure
at Wonder Years does not preclude a finding that the statements fall under the exclusion.
The Eighth Circuit Court of Appeals has determined that an employment-related
practices exclusion applies to statements made after a working relationship has ended, so
long as the statements arise out of the employment relationship. See Capitol Indemnity
Corp. v. 1405 Assocs., Inc., 340 F.3d 547, 550 (8th Cir. 2003). Moreover, the policy
language arising out of is to be interpreted broadly when used in an exclusion to limit
coverage. Murray v. Greenwich Ins. Co., 533 F.3d 644, 649-50 (8th Cir. 2008) (The
phrase arising out of has been given broad meaning by Minnesota Courts . . . [and] has
also been held to mean originating from, or having its origins in, growing out of, or
flowing from.). Here, the allegedly defamatory statements were all to the effect that
Nelson misappropriated and mismanaged funds during her employment at Wonder Years.
While these statements were allegedly made to various people after Nelsons
employment ended at Wonder Years, the statements all concern her alleged misconduct
during her employment. The Court concludes that the statements arose out of the
employment relationship and fall under the Employment-Related Practices Exclusion.
Therefore, the exclusionary provision operates to deny coverage and Capitol has no duty
to defend or indemnify the Wonder Years Defendants or Nelson in the Underlying
1. Capitols Motion for Summary Judgment (Doc. No. 23) is GRANTED.
Dated: January 7, 2009 s/Donovan W. Frank
Judge of United States District Court


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