Filed March 21, 2000.
Appeal from the District Court, Hennepin County, File No. 98-4936.
Michael C. Mahoney, Leona E. Lewis, (for appellant)
Gary A. Van Cleve, Sharna A. Wahlgren, (for respondent)
Considered and decided by Klaphake, Presiding Judge, Crippen, Judge, and Shumaker, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
Carefree Living of America (Minnetonka), Inc. challenges the grant of summary judgment to Chicago Title Insurance Co. in this declaratory judgment action. The district court concluded that the title insurance policy excludes coverage for title defects known to or created by an insured. Because there are no genuine issues of material fact and the district court did not err in ruling that there was no coverage, we affirm.
DECISION I. Summary Judgment
"On an appeal from summary judgment, we must examine two questions, whether there are any genuine issues of material fact and whether the lower courts erred in their application of the law." Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn. 1997) (citation omitted). "A reviewing court must view evidence in the light most favorable to the party against whom summary judgment was granted." Vetter v. Security Continental Ins. Co., 567 N.W.2d 516, 520 (Minn. 1997) (citation omitted).
The interpretation and application of an insurance policy are questions of fact, which this court reviews de novo. Franklin v. Western Nat'l Mut. Ins. Co., 574 N.W.2d 405, 406 (Minn. 1998). The question of whether an insurer has a duty to defend is also a question of law. Id.
An insurer's duty to defend arises when "any part of the claim against the insured is arguably" within the subject matter covered by the policy. Id. at 406-07; Brown v. State Auto. Cas. Underwriters, 293 N.W.2d 822, 825-26 (Minn. 1980). Any ambiguity in the language of the policy is construed against the insurer. Caledonia Community Hosp. v. St. Paul Fire Marine Ins. Co., 307 Minn. 352, 354, 239 N.W.2d 768, 770 (1976). If the insurer is relying on an exclusion to coverage, the insurer has the burden of proving it applies. Chicago Title Ins. Co. v. Resolution Trust Corp., 53 F.3d 899, 905 (8th Cir. 1995).
The district court relied on the following exclusions contained in the policy:
Defects, liens, encumbrances, adverse claims or other matters:
(a) created, suffered, assumed or agreed to by the insured claimant;
(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy * * *.
Although Minnesota courts have not directly interpreted this standard exclusion language, other courts have. The phrase "created, suffered and assumed" implies deliberate, rather than negligent, actions. American Sav. Loan Ass'n v. Lawyers Title Ins. Corp., 793 F.2d 780, 784 (6th Cir. 1986). "Created" means a deliberate, rather than an inadvertent, act. Id. "Suffered" is interpreted to mean "permit, which implies the power to prohibit or prevent the claim from arising." Id. (quotation omitted). "Assume" means there is actual knowledge of a title defect. Id. The Minnesota Supreme Court has stated that the purpose of insurance is to protect against results not expected or intended and that if an insured consciously controls risk by violating contract specifications, an insurer is unable to properly assess and spread risk. Franklin, 574 N.W.2d at 408.
The title defects in question here are the result of the deliberate actions of Wilnard Selbak, formerly the majority shareholder and president of Carefree. Selbak acquired title to the property insured by the title policy through a series of questionable transactions among corporations and limited partnerships created and controlled by him, including a transfer of title to him by a quitclaim deed that was never filed as a public record. Without making a formal determination, Selbak's method of acquiring title at the very least casts doubt on the validity of that title.
The particular transfers in question occurred prior to 1995, the year that Selbak and the minority shareholder incorporated Carefree. In 1995, Carefree acquired title to the subject property from Selbak, who was at that point president and majority shareholder in Carefree. Selbak, as president, signed the mortgage secured by the property on behalf of Carefree and was at the closing when the title insurance policy was issued. Selbak knew of the dubious history of the title transfers and in that sense could be said to have created or assumed the defect. Selbak also knew about the unrecorded quitclaim deed and failed to disclose its existence at closing.
Carefree challenges the district court's decision and claims that the corporation did not have actual knowledge of the alleged title defect, but only knowledge imputed to it by Selbak's actions, and thus cannot be said to have acted in a deliberate manner. Carefree argues that the question of actual knowledge is a question of material fact that should preclude the grant of summary judgment.
The knowledge of Selbak, an individual, can certainly be imputed to Selbak as President of Carefree. See Spering v. Sullivan, 361 F. Supp. 282, 286 (D.Del. 1973) (knowledge of officer or director imputed to corporation); s ee also Satellite Fin. Planning Corp. v. First Nat'l. Bank of Wilmington, 633 F. Supp. 386, 400 (D.Del. 1986) ("Knowledge and actions of a corporation's agent ordinarily are imputed to the corporation when the agent acts on the corporation's behalf.")
Carefree is a Delaware corporation and as such, the laws of Delaware govern the duties and responsibilities of corporate officers and directors. Potter v. Pohlad, 560 N.W.2d 389, 391 (Minn.App. 1997), review denied (Minn. June 11, 1997).
Carefree argues that imputed knowledge of a defect is not sufficient under the policy definitions of "knowledge." The policy defines "knowledge" as actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy or any other records which impart constructive notice of matters affecting the land.
The definition excluding implied knowledge must be read as a whole; only that knowledge imputed by reason of a public or other record is excluded. The knowledge here, while imputed to Carefree because of Selbak's status as an officer, is not based on public or other record, but rather on Selbak's actual knowledge.
When opposing the grant of summary judgment, a party must show something more than "some metaphysical doubt as to the material facts." DLH, Inc. v. Russ, 566 N.W.2d 60, 70 (Minn. 1997) (quotation omitted). Carefree's claim that corporate knowledge can somehow be isolated from the actual knowledge of a corporate officer or director is such a metaphysical doubt. The district court did not err in granting summary judgment.
Carefree raises the additional issue of whether the district court erred in granting a protective order denying it the opportunity to depose 19 witnesses. "The district court has considerable discretion in granting or denying discovery requests and, absent abuse of that discretion, will not be reversed on appeal." Berge v. Commissioner of Pub. Safety, 588 N.W.2d 177, 179 (Minn.App. 1999). The court will look at whether a party has been diligent in seeking discovery. Id. Here, Carefree waited until six weeks before the discovery deadline to notice the 19 depositions. Further, all 19 deponents had previously been deposed in the suit for which Carefree sought defense and indemnity. In light of these facts, the district court did not abuse its discretion.