Taylor Corporation v. XL Insurance America, Inc.

Background

Taylor sought insurance coverage for damage to concrete press pads at a leased printing facility. Taylor also pursued claims in Minnesota state court against the facility’s owner, engineer, and developer. The insurers denied coverage but agreed eight times to extend the policies’ 12-month deadline for Taylor to sue over the denial. Those extensions effectively extended the deadline by 27 months, to June 1, 2022.

Taylor settled with the facility’s engineer in February 2021. In 2023, Taylor voluntarily dismissed with prejudice its press-pad claims against the remaining state-court defendants because Taylor stated that trying those claims was not cost-effective. The insurers’ counsel attended the state-court trial but did not object to the dismissal.

The policies’ subrogation provision stated that, after a payment under the policy, the insurer would acquire the insured’s recovery rights against responsible third parties, and that the insured would take steps to protect those rights. The provision also stated that the insured would do nothing after a loss to prejudice the insurer’s subrogation rights.

Insurers’ Summary-Judgment Arguments

The insurers argued that Taylor could not recover under the policies for two reasons. First, they argued that Taylor had extinguished the insurers’ subrogation rights by dismissing its press-pad claims in state court. Subrogation is an insurer’s ability, after paying a covered loss, to pursue the responsible third party using the insured’s recovery rights.

Second, the insurers argued that Taylor should be equitably estopped from recovering. Equitable estoppel is a doctrine that can prevent a party from asserting legal rights when that party made a promise or inducement, the other side reasonably relied on it, and the other side would be harmed if the doctrine were not applied.

Subrogation

The court held that the policies’ subrogation provisions unambiguously required the insurers to make a payment before Taylor had a duty to protect the insurers’ subrogation rights. The payment condition appeared at the beginning of the provision and applied to Taylor’s obligation as well as to the insurers’ subrogation right.

The insurers had not paid under the policies. The court therefore concluded that Taylor had not violated the policies by voluntarily dismissing the press-pad claims in the state action. The court also noted that Minnesota law would relieve Taylor of a subrogation obligation if Taylor ultimately prevailed on its claim that the insurers had wrongfully denied coverage, although that coverage issue remained unresolved.

Equitable Estoppel

The court concluded that the insurers could not establish the required elements of equitable estoppel. First, the court found that Taylor had not promised or represented that it would try all of its press-pad claims in the state action. Taylor had communicated that it was diligently litigating and hoped to prevail, but that was not a representation that it would try every claim.

Second, the court held that any belief that Taylor would proceed to trial at all costs would have been unreasonable. Parties may settle claims or abandon them when litigation costs exceed the expected benefit. Third, the court found that the insurers had not shown the required harm. The court explained that the insurers’ alleged loss of subrogation rights was not connected to the extended deadline for Taylor to sue over the coverage denial. The insurers had nearly a year after Taylor filed this action to pay the claim and intervene in the state case, but they did not do so.

Disposition

The court denied the defendants’ motion for summary judgment in part and granted summary judgment in part to Taylor on the equitable-estoppel issue. The order also stated: “Defendants’ claims for equitable estoppel are dismissed with prejudice.” The ruling did not resolve whether the insurers had wrongfully denied coverage or whether they ultimately had to pay Taylor’s press-pad costs.