United States District Court,

D. Minnesota.

C.H. ROBINSON COMPANY, a Delaware corporation, Plaintiff,

v.

ZURICH AMERICAN INSURANCE COMPANY, a New York corporation; and United States

Fire Insurance Company, a New York corporation, Defendants.

Nov. 5, 2004.

 

MEMORANDUM AND ORDER

 

MAGNUSON, J.

This matter is before the Court on several Motions for Summary Judgment. Plaintiff C.H. Robinson Company (“C.H.Robinson”) seeks partial summary judgment against both Defendants regarding the insurers’ obligation to pay defense costs. Defendant United States Fire Insurance Company (“U.S.Fire”) seeks summary judgment that it is not responsible for reimbursing C.H. Robinson for a $4.25 million settlement payment. Defendant Zurich American Insurance Company (“Zurich”) seeks summary judgment that it is not responsible for costs incurred by C.H. Robinson’s independent defense counsel. For the reasons that follow, the Court grants in part and denies in part C.H. Robinson’s Motion, denies U.S. Fire’s Motion, and grants Zurich’s Motion.

BACKGROUND

The primary dispute at issue is who is responsible for the payment of $4.25 million used to settle Hylla v. T-J Transport, Inc., a personal injury action venued in an Illinois state court. Hylla arose from an automobile accident on September 13, 1999, which occurred when Isaac Stewart collided with a vehicle, ultimately causing a sixteen-car pile-up. Stewart was transporting a load for International Paper in a semi-tractor trailer owned by T-J Transport. C.H. Robinson brokered the load between International Paper and T-J Transport. The brokerage agreement required C.H. Robinson to indemnify and defend International Paper for all liability, including reasonable attorneys’ fees, arising from the brokerage agreement.

At the time of the accident, Zurich insured C.H. Robinson under a commercial automobile policy with a limit of $1 million per occurrence. U.S. Fire provided the next layer of insurance under a commercial umbrella policy, which had a limit of $25 million per occurrence. Both policies were duty to defend policies, and both included punitive damages exclusions. The U.S. Fire policy required C.H. Robinson to cooperate with U.S. Fire in the settlement and defense of litigation arising from an occurrence.

As a result of the collision, three wrongful death actions were filed in Illinois state court against C.H. Robinson, International Paper, and others: Hylla, Trout v. C.H. Robinson et al., and Ficke v. C.H. Robinson et al. International Paper looked to C.H. Robinson to defend the cases. In turn, C.H. Robinson tendered the defense to its insurance carriers. Zurich accepted the tender and appointed attorney Mark Cero to defend C.H. Robinson. Zurich also acknowledged the obligation to provide International Paper with separate defense counsel, and therefore retained the law firm of Pugh, Jones, Johnson & Quandt to represent International Paper.

The cases did not proceed well for the defendants. The plaintiffs in all three actions prevailed on the theory that C.H. Robinson was vicariously liable for damages caused by Stewart. Because Stewart had pled guilty to manslaughter charges, C.H. Robinson believed that a finding of liability was inevitable. U.S. Fire believed that these liabilities would exhaust the Zurich policy, and that Zurich would bear the majority of the potential verdict. As a result, U.S. Fire appointed attorneys Patterson Gloor and Michael Mullen to join the defense.

The plaintiffs in all three actions later amended the complaints to assert additional allegations against C.H. Robinson to obtain punitive damages. In response, U.S. Fire sent C.H. Robinson a letter on August 29, 2002, in which U.S. Fire purported to reserve its rights to deny coverage for punitive damages, as well as coverage for compensatory damages if C.H. Robinson knew there “was a substantial probability that the conduct would cause injury.” (Preus Aff. Ex. L.) Zurich also reserved its right to deny coverage for punitive damages, but tendered its $1 million policy toward settlement on September 9, 2002.

On September 16, 2002, C.H. Robinson inquired as to the breadth of U.S. Fire’s reservation of rights. In addition, C.H. Robinson claimed that the insurers’ reservations of rights created a conflict of interest, and therefore requested that C.H. Robinson appoint its own attorney to control the defense. U.S. Fire agreed to the substitution and withdrew Gloor as counsel. However, Zurich denied that a conflict of interest existed and refused to accede. C.H. Robinson nevertheless appointed its own defense counsel, Thomas Marrinson and Thomas Mulroy of the law firm of Scandaglia, Marrinson & Ryan.

The parties unsuccessfully attempted to settle the underlying suits several times, and disagree about the conduct of settlement negotiations. C.H. Robinson describes the insurers’ conduct as dilatory and dubious, contending that the insurers repeatedly promised to make final offers but continually reneged on those promises. U.S. Fire asserts that C.H. Robinson engaged in secret negotiations with the plaintiffs’ counsel in Hylla without informing U.S. Fire.

On November 7, 2002, U.S. Fire informed C.H. Robinson that U.S. Fire had the right to control the settlement negotiations in Hylla and demanded that C.H. Robinson cease any further unilateral settlement negotiations in the matter. Four days later, while Mullen was attempting to convince the plaintiffs’ counsel in Hylla that a $1 million settlement offer previously made was reasonable, he learned that the plaintiffs’ counsel had already rejected the offer in a letter to Marrinson. C.H. Robinson had not informed U.S. Fire of the rejection. Soon thereafter, Marrinson proposed a hypothetical settlement offer of $2.75 million. [FN1]

FN1. The parties dispute whether U.S. Fire sanctioned this offer. C.H. Robinson contends that U.S. Fire suggested making the offer, while U.S. Fire claims that it neither knew of nor authorized the offer.

On November 12, 2002, Mullen informed Marrinson that U.S. Fire was negotiating with other defendants’ insurers to provide a global settlement fund for the purpose of resolving the underlying suits on behalf of C.H. Robinson and other defendants. Mullen also advised Marrinson that if a global settlement proved unattainable, U.S. Fire would explore an individual settlement solely on behalf of C.H. Robinson. On November 14, 2002, the defendants’ insurance carriers discussed the creation of a $20 million global settlement fund. The next day, C.H. Robinson informed U.S. Fire that it would not agree to U.S. Fire’s control over the settlement process unless U.S. Fire rescinded its reservation of rights and acknowledged coverage for punitive damages.

Nevertheless, Mullen continued settlement efforts. On November 26, 2002, he offered $2.5 million to settle Hylla. The plaintiffs’ counsel scoffed at the offer, as Marrinson had previously offered $2.75 million. Mullen then continued to negotiate a settlement, offering $4 million on November 27, 2002, and $4.5 million on November 29, 2002.

Trial in Hylla began with no resolution and a demand of $12 million. Mullen countered with an offer of $5 million. On December 3, 2002, C.H. Robinson informed Mullen that it was willing to offer $2.5 million of its own funds, in excess of the pending $5 million carrier offer, to push the settlement offer to $7.5 million. Mullen offered the $7.5 million, but was rejected.

During a break in the trial proceedings, Marrinson and the plaintiffs’ counsel discussed settlement in the absence of Mullen. On December 3, 2003, the Hylla plaintiffs accepted a $9.25 million settlement offer. The settlement was consummated without the knowledge or authority of U.S. Fire. C.H. Robinson acknowledges that the $9.25 million offer was contingent on the insurers’ paying $5 million. [FN2] U.S. Fire refused to pay more than $5 million, leaving C.H. Robinson to pay the remaining $4.25 million. U.S. Fire contends that C.H. Robinson’s counsel secretly negotiated with the Hylla plaintiffs and unilaterally settled the case. It therefore argues that it is not responsible for reimbursing C.H. Robinson the $4.25 million as a matter of law.

FN2. The other two wrongful death lawsuits against C.H. Robinson also settled. Trout settled for $8.25 million and Ficke settled for $9.5 million. It is notable that U.S. Fire settled both of these matters without any contribution from C.H. Robinson.

DISCUSSION

A. Standard of Review

Summary judgment is proper if no reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Thus, only disputes of facts that might affect the outcome of the suit under the governing substantive law will preclude summary judgment. Id. The moving party bears the burden of showing that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The nonmoving party is entitled to all inferences that may be reasonably drawn from the underlying facts in the record. Kiemele v. Soo Line R.R. Co., 93 F.3d 472, 474 (8th Cir.1996). However, the nonmoving party may not merely rest upon allegations or denials in its pleadings–it must set forth specific facts showing that there is a genuine issue for trial. Anderson, 477 U.S. at 256.

B. Hylla Settlement Payment

C.H. Robinson commenced this action, seeking a declaration that U.S. Fire and Zurich must reimburse C.H. Robinson the $4.25 million C.H. Robinson paid to the Hylla plaintiffs. U.S. Fire counterclaimed, alleging that C.H. Robinson breached three provisions of its insurance policy by unilaterally settling Hylla. U.S. Fire now seeks summary judgment, arguing C.H. Robinson breached its duty to cooperate, thereby vitiating U.S. Fire’s obligation to reimburse C.H. Robinson the $4.25 million.

In determining whether the settlement agreement is binding on U.S. Fire, the Court must determine whether C.H. Robinson violated its duty to cooperate with U.S. Fire. [FN3] An insured does not violate its duty to cooperate when it settles a claim while insurance coverage is in doubt. Miller v. Schugart, 316 N.W.2d 729, 732-34 (Minn.1982); see also S.G. v. St. Paul Fire & Marine Ins. Co., 460 N.W.2d 639, 643 (Minn.Ct.App.1990) (an insurer’s denial of coverage nullifies the duty to cooperate).

FN3. Whether the settlement agreement is binding also turns on whether the settlement agreement is reasonable and prudent, and not the product of fraud or collusion. Miller v. Schugart, 316 N.W.2d 729, 732- 35 (Minn.1982). Because a genuine issue of material fact exists as to whether C.H. Robinson breached its duty to cooperate, the Court need not address those issues.

However, once the insurer acknowledges coverage, the insured may not settle the claim without authority from the insurer. S.G., 460 N.W.2d at 643. Thus, an insured violates its duty to cooperate by settling a claim when a dispute exists only about the applicable limits of liability–and not whether part of the claim is covered. Buysse v. Baumann-Furrie & Co., 448 N.W.2d 865, 872- 74 (Minn.1989); see also Sargent v. Johnson, 551 F.2d 221, 231 (8th Cir.1977). Likewise, it violates its duty to cooperate when the insurer does not contest coverage entirely, but merely reserves its rights to defend against some claims. Steen v. Lloyds of London, 442 N.W.2d 158, 161-62 (Minn.Ct.App.1989).

A genuine issue of material fact remains as to whether U.S. Fire denied coverage for some or all claims against C.H. Robinson when C.H. Robinson unilaterally settled Hylla. The August 29, 2002, reservation of rights letter clearly begins with a partial reservation of rights by advising C.H. Robinson that U.S. Fire will not cover a punitive damages award. However, the letter also invokes an intentional acts exclusion, stating that U.S. Fire would not cover any damages that arose from C.H. Robinson’s conduct that “occurred with the knowledge that there was a substantial probability that the conduct would cause injury.” (Preus Aff. Ex. L .)

Thereafter, C.H. Robinson requested clarification from U.S. Fire as to whether the letter was a complete reservation of rights. U.S. Fire never responded, even though C.H. Robinson and U.S. Fire disagreed throughout the settlement process about who should control settlement negotiations in light of the letter. In addition, U.S. Fire’s conduct conveyed a message that it was gambling to see if a jury would return a verdict that would afford an excuse for invoking the intentional acts exclusion. For example, U.S. Fire indicated that any punitive damages award would be tantamount to a finding of intentional conduct, thereby excluding the entire verdict from coverage. [FN4] In this way, this case is similar to S.G., where the insured entered into a settlement without the insurer’s consent because the insurer continually avoided acknowledgment of full coverage. 460 N.W.2d at 641-44.

FN4. Insurers often seek to exclude coverage under intentional act exclusions, regardless of whether the insured’s actual liability is couched in terms of negligence. See, e.g., Haarstad v. Graff, 517 N.W.2d 582 (Minn.1994) (denying coverage under intentional acts exclusion for negligence and careless conduct claims).

On the other hand, U.S. Fire was present with authority to settle Hylla during most negotiations sessions, offered millions of dollars in settlement, and helped to pool a global settlement fund. Most importantly, C.H. Robinson used $5 million of insurance carrier money in the ultimate settlement offer. These actions indicate that U.S. Fire merely reserved its right to deny some claims– but not coverage entirely. See Steen, 442 N.W.2d at 160-62.

Viewing these facts in a light most favorable to C.H. Robinson, the Court finds that U.S. Fire gave mixed signals that create a genuine issue as to whether U.S. Fire reserved its rights to deny all coverage in Hylla. Thus, U.S. Fire’s Motion for Summary Judgment is denied.

C. Independent Defense Costs

1. Zurich

C.H. Robinson has brought a partial Motion for Summary Judgment, contending that it was entitled to select its own defense counsel and require the insurers to pay its defense costs after the insurers reserved their rights to deny coverage for punitive damages. It seeks $364,936.22 from Zurich for the cost of independent defense counsel incurred before Zurich paid its policy limit on January 22, 2003. Zurich has cross-filed a Motion for Summary Judgment, arguing that it is not required to reimburse C.H. Robinson for the costs of the independent defense counsel.

a. Choice of Law

The parties dispute whether Illinois or Minnesota law should apply to this issue. “In a diversity case, a federal court applies the choice of law rules of the forum state.” Northwest Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1393 (8th Cir.1997). Under Minnesota law, the Court must first address whether an actual dispute exists between the laws of the different states and whether constitutional problems arise with application of either law. Jepson v. General Cas. Co. of Wis., 513 N.W.2d 467, 469 (Minn.1994). If an actual conflict exists and both laws can be constitutionally applied, then the Court must examine five factors to determine which state’s law should be applied: predictability of result, maintenance of interstate order, simplification of the judicial task, advancement of the forum’s governmental interests, and the better rule of law. Id. at 470.

Under the laws of both Minnesota and Illinois, an insured is entitled to choose counsel and obtain reimbursement from the insurer when an “actual conflict” exists between the insured and the insurer. Cf. Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 391 (Minn.1979) with Ill. Mun. League Risk Mgmt. Ass’n v. Seibert, 585 N.E.2d 1130, 1135 (Ill.App.Ct.1992). However, Illinois defines “actual conflict” more broadly than Minnesota.

Under Minnesota law, an actual conflict exists when the insurer denies coverage, but is still required to defend the suit. See Prahm, 277 N.W.2d at 391. [FN5] The conflict of interest does not relieve the insurer of its duty to defend, but requires the insurer to reimburse the insured for reasonable attorneys’ fees. Id. Minnesota courts have not addressed whether a reservation of rights relating to punitive damages creates an actual conflict. However, in Mutual Service Casualty Insurance Co. v. Luetmer, 474 N.W.2d 365, 368-69 (Minn.Ct.App.1991), the Minnesota Court of Appeals declined to adopt a rule that assumes a conflict of interest arises when an insurer defends under a general reservation of rights. Rather, Luetmer requires substantial evidence that an actual conflict exists, such as actions that demonstrate a greater concern for the insurer’s interest than the insured’s interests. Id. Accordingly, the mere reservation of rights by itself does not create a sufficient conflict under Minnesota law.

FN5. In Prahm, the insurer both denied coverage and refused to defend the insured, arguing that an exclusion in the insurance policy applied. The Minnesota Supreme Court recognized that requiring the insurer to defend the insured in an underlying suit created a conflict of interest because the insurer would be required to take opposing positions at trial to defend the insured while at the same time defending itself on the coverage question. 277 N.W.2d at 391.

Conversely, Illinois courts have expressly recognized that a punitive damages reservation of rights is an actual conflict vesting the insured with the right to select independent counsel at the cost of the insurer. Nandorf, Inc. v. CNA Ins. Co., 479 N.E.2d 988, 992 (Ill.App.Ct.1985); see also Seibert, 585 N.E.2d at 1135 (general rule is that an insurer has the right to control the insured’s defense, but an exception exists when the proof of certain facts would shift liability from the insurer to the insured). Because Illinois explicitly provides that a punitive damages reservation of rights creates an actual conflict, whereas Minnesota does not, the Court must assume a conflict of law exists and engage in a choice of law analysis. Med. Graphics Corp. v. Hartford Fire Ins. Co., 171 F.R.D. 254, 260 (D.Minn.1997) (Erickson, Mag. J.).

Whether the laws of a state can be applied constitutionally depends on whether sufficient contacts create state interests so that application of the state’s law is neither arbitrary nor fundamentally unfair. Jepson, 513 N.W.2d at 469. The parties do not dispute that Minnesota has sufficient contacts with the case. Illinois also has sufficient contacts, as the alleged conflict of interest arose in Illinois state court between Illinois defense counsel.

The question then is which state law should be applied under the Minnesota choice of law factors. Most relevant to this case are three factors: predictability of results, maintenance of interstate order, and advancement of the forum’s interests. [FN6] “The first factor, predictability of results, is most relevant when parties have expectations about the applicable law, such as in consensual transactions where people should know in advance what law will govern their act, but has less relevance in cases such as accidents when the parties could not reasonably have such expectations.” Northwest Airlines, Inc., 111 F.3d at 1394 (internal quotations and citations omitted). C.H. Robinson argues that the parties expected to apply Minnesota law, as this case involves the interpretation of an insurance policy brokered and executed by Minnesota companies in Minnesota. Although the present action is based on an insurance contract, it was foreseeable that C.H. Robinson might incur liability outside Minnesota. Thus, the fact that the insurance contract arose in Minnesota is not determinative, and predictability of result is not advanced by applying Minnesota law. See Am. States Ins. Co. v. Mankato Iron & Metal, Inc., 848 F.Supp. 1436, 1443 (D.Minn.1993) (Kyle, J.).

FN6. The simplification of the judicial task factor is usually inconsequential, as the Court has no difficulty applying the laws of either state. Northwest Airlines, Inc., 111 F.3d at 1394. Likewise, the better rule of law factor only applies when the first four factors do not clearly resolve the choice of law question. Id . at 1395. Because the Court finds that the application of Minnesota law is most appropriate, it need not address the last factor.

Maintenance of interstate order is satisfied if applying Minnesota law would not show disrespect for the sovereignty of Illinois or impede interstate commerce. Northwest Airlines, Inc., 111 F.3d at 1394. When examining this factor, the Court must determine whether Minnesota has sufficient contacts with the litigation to meet the requirements of due process, and whether the application of Minnesota law encourages forum shopping. Id. Minnesota clearly has sufficient contacts to justify application of its law. C.H. Robinson is a Minnesota corporation, and the contract at issue was executed in Minnesota through a Minnesota broker. Moreover, C.H. Robinson has commenced this action based on that contract in the District of Minnesota, and has requested that the Court apply Minnesota law to its claim. Thus, this factor weighs in favor of applying Minnesota law. [FN7]

FN7. Notably, the court in the underlying suits applied Missouri law, not Illinois law, to the claims.

Advancement of the forum’s interest considers both Minnesota’s governmental interests and the relative interests of Illinois. Northwest Airlines, Inc., 111 F.3d at 1394. According to C.H. Robinson, Illinois has a greater interest in this case because only Illinois is interested in enforcing its rules of professional responsibility. However, the underlying concern is not the enforcement of ethical rules, but rather the protection of the insured when its interests conflict with those of its insurer. See N. Ins. Co. of New York v. Allied Mut. Ins. Co., 955 F.2d 1353, 1359 (9th Cir.1992); see also Golotrade Shipping & Chartering v. Travelers Indem. Co., 706 F.Supp. 214, 218 (S.D.N.Y.1989) (when determining whether the insured was entitled to independent defense counsel, the main legal issues concern the rights and obligations of the parties to an insurance contract–and not where the underlying action was litigated). Minnesota has a strong interest in seeing its law applied to protect a Minnesota insured and to a contract negotiated and executed in Minnesota. See American States Ins. Co., 848 F.Supp. at 1444 (“Application of contrary or uncertain law from other states would be inconsistent with Minnesota’s interest in policing the issuance and terms of insurance contracts in the state.”). Moreover, applying Minnesota law does not harm Illinois’s interest, as attorneys practicing in Illinois still must abide by local ethics rules and may be sanctioned for failing to do so. Accordingly, the Court finds that this factor weighs in favor of applying Minnesota law.

b. Application of Minnesota Law

Under Minnesota law, a potential conflict of interest arises when an insurer reserves its right to deny coverage. As the Luetmer court explained:

Problems can arise when an insurer defends under a reservation of rights. While the insured seeks to avoid liability on all claims and the insurer shares that desire, the insurer has an additional interest that if liability is found, that it be found on claims for which there is no coverage…. A further concern is that counsel selected by the insurer will have a compelling interest in protecting the rights of the insurer rather than the rights of the insured because of counsel’s closer ties with the insurer.

474 N.W.2d at 368; see also United States Fidelity & Guaranty Co. v. Louis A. Roser Co., Inc., 585 F.2d 932, 938 (8th Cir.1978) (when insurer denies coverage of one count in the complaint, “[c]ommon logic dictates that … [the insurer] would be inclined, albeit acting in good faith, to bend his efforts, however unconsciously, to establishing that any recovery by” the plaintiff would be grounded in the uncovered theory). When an insurer reserves its right to deny coverage for punitive damages, a risk exists that the insurer will be less motivated to achieve the best possible result if it believes that the loss will result from punitive damages. Furthermore, it may be tempted to devote more effort into the non-coverage issue than into defending the insured.

The Court therefore recognizes that Zurich’s reservation of rights regarding punitive damages may have entitled C.H. Robinson to independent counsel albeit one fact: Zurich offered its $1 million policy limit immediately after reserving its rights. When Zurich offered to exhaust its limits under the policy, its reservation of rights relating to punitive damages became moot. Thus, when C.H. Robinson identified the potential conflict of interest and requested independent defense counsel, no possibility existed to shift liability from Zurich to C.H. Robinson. Merely because C.H. Robinson faced substantial exposure beyond Zurich’s limits does not create an actual conflict of interest between C.H. Robinson and Zurich.

C.H. Robinson contends that the tendering of the policy limit in and of itself created a conflict of interest, as Zurich thereafter had no economic incentive to defend aggressively. However, C.H. Robinson presents no evidence that Zurich afforded a less vigorous defense after it tendered its policy limits. Luetmer requires substantial evidence of an actual conflict, such as actions demonstrating that Zurich was more concerned with its interests than with C.H. Robinson’s interest. C.H. Robinson has not presented any evidence of such dereliction on the part of Zurich.

Under the facts of this case, the Court finds that no actual conflict of interest existed between C.H. Robinson and Zurich because Zurich had already tendered its policy limit when the potential conflict of interest arose. Accordingly, Zurich is not required to reimburse C.H. Robinson for independent defense counsel costs. Zurich’s Motion for Summary Judgment is therefore granted, and C.H. Robinson’s partial Motion for Summary Judgment on this point is denied.

2. U.S. Fire

U.S. Fire acknowledges that its broad reservation of rights requires it to pay C.H. Robinson’s independent defense costs incurred once all primary insurance limits were exhausted. C.H. Robinson seeks summary judgment that U.S. Fire must pay $148,418.06 for the independent defense counsel costs. U.S. Fire argues that summary judgment is inappropriate because genuine issues of material fact exist as to the amount due.

U.S. Fire first claims that C.H. Robinson has not presented evidence establishing exhaustion of all primary insurance policies covering the underlying litigation or evidence that C.H. Robinson incurred any defense costs after such exhaustion. [FN8] C.H. Robinson counters that U.S. Fire knew that all primary policies were exhausted as of January 31, 2003. The Zurich policy was exhausted on January 22, 2003, with the $1 million payment toward the Hylla settlement. On January 31, 2003, Continental Western Insurance Company, the other primary insurer, informed U.S. Fire that it had $206,557 remaining on its policy limits toward satisfaction of the underlying suits. (McKinney Aff. Ex. C.) On that day, the $8.25 million settlement in Trout was reached, thereby exhausting the primary insurance policy limits. Indeed, in May 2004, U.S. Fire explicitly promised to reimburse C.H. Robinson for reasonable attorneys’ fees incurred by C.H. Robinson since the Trout settlement. (Id.; see also Campbell Aff. Ex. 1.) U.S. Fire fails to dispute this acknowledgment and merely asserts that it is unaware of when the primary policies were exhausted. Because U.S. Fire fails to set forth specific facts showing there is a genuine issue for trial, the Court finds as a matter of law that U.S. Fire was required to pay for C.H. Robinson’s independent defense counsel fees as of January 31, 2003.

FN8. The U.S. Fire umbrella policy provides that U.S. Fire has a duty to defend when damages sought were not covered by the terms and conditions of underlying or other insurance. Accordingly, U.S. Fire was not required to pay defense costs until all available primary insurance was exhausted.

U.S. Fire also contests the reasonableness of the independent defense counsel fees. U.S. Fire asserts that C.H. Robinson failed to disclose several documents on which it now bases its calculation of fees, and that the defense counsel invoices provided during discovery contain several billing entries that do not relate to C.H. Robinson’s defense in the underlying litigation. [FN9] In May 2004, C.H. Robinson provided U.S. Fire with invoices from its independent defense counsel totaling $166,078.12. After reviewing the invoices, U.S. Fire objected to some of the charges, and now claims that other entries relate to billings unconnected to the underlying litigation. As the moving party, C.H. Robinson must demonstrate that no genuine issue of material fact remains. Because the record reflects a dispute in the amount of fees incurred since January 31, 2003, the Court denies C.H. Robinson’s Motion on this point.

FN9. U.S. Fire identifies several invoices upon which C.H. Robinson bases its Motion, but did not produce during discovery. U.S. Fire asks the Court to bar C.H. Robinson from further using the previously undisclosed documents in this litigation. Because the Court denies C.H. Robinson’s Motion for partial Summary Judgment, and because U.S. Fire now possesses all documents on which C.H. Robinson bases its claim, the Court finds that U.S. Fire is not prejudiced by the untimely disclosure. Thus, the Court denies U.S. Fire’s request.

D. Defense Costs for International Paper

In its Motion for partial Summary Judgment, C.H. Robinson seeks an order that Zurich pay International Paper’s defense costs for the underlying suits that were incurred before Zurich paid its policy limit on January 22, 2003, and that U.S. Fire pay for International Paper’s defense costs incurred since January 31, 2003. On June 16, 2004, International Paper issued a formal demand for payment of its legal fees, claiming that over $550,000 remains unpaid for defense costs relating to the underlying suits. While this Motion was pending, C.H. Robinson informed the Court that C.H. Robinson and International Paper have agreed to mediate disputes regarding the reimbursement of attorneys’ fees, and requested that the Court order Zurich to participate in the mediation session.

Neither insurer disputes its responsibility for International Paper’s defense costs. Indeed, Zurich expressly recognized its obligation to provide International Paper with a separate defense on April 23, 2002, and claims that it has already paid over $403,000 to International Paper’s defense counsel. U.S. Fire argues that C.H. Robinson has not disclosed the costs International Paper incurred after all of its primary insurance was exhausted.

Because C.H. Robinson seeks declaratory relief, a dispute as to the exact amount due will not preclude summary judgment. See, e.g., Employers Mutual Casualty Co. v. Wendland & Utz. Ltd., 351 F.3d 890 (8th Cir.2003) (summary judgment granted to insurer who sought declaration as to coverage of insurance policy). No genuine issue of material fact exists, as Defendants do not dispute their obligation to pay for International Paper’s defense costs. [FN10] The Court therefore grants C.H. Robinson’s Motion as it relates to its request for declaratory relief. It similarly grants C.H. Robinson’s request that Zurich be ordered to participate in mediation sessions involving International Paper with full settlement authority to resolve the outstanding defense cost dispute. Finally, if parties cannot resolve the disputes as to the reasonableness of independent defense costs incurred by C.H. Robinson and International Paper, the Court strongly encourages the parties to consent to the appointment of a Special Master to decide the outstanding amounts due.

FN10. Zurich’s argument that C.H. Robinson is ambushing Zurich with its request for declaratory relief is unfounded. In its Complaint, C.H. Robinson requests a declaration that it is entitled to all defense fees and costs incurred as a result of the underlying suits. (Compl. at 8.) The parties do not dispute that C.H. Robinson was required to pay for International Paper’s defense costs. Moreover, Zurich has acknowledged responsibility for payment of International Paper defense costs since April 2002.

CONCLUSION

For the foregoing reasons, and upon all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that:

1. Defendant Zurich American Insurance Company’s Motion for Summary Judgment (Clerk Docket No. 84) is GRANTED;

2. Defendant U.S. Fire’s Motion for Summary Judgment (Clerk Doc. No. 107) is DENIED; and

3. Plaintiff C.H. Robinson’s Motion for Partial Summary Judgment (Clerk Doc. No. 93) is GRANTED in part and DENIED in part.