COVERED CLAIM DEFINED
Declaratory Judgment Action Does Not Constitute Suit
Three city council members and the mayor of the City of Afton allegedly violated the Minnesota Open Meeting Law by failing to obtain two bids on a well drilling contract. Suit was brought against them seeking the imposition of a $100 civil penalty for each violation of the Open Meeting Law and determinations that the officials were ineligible to sit on the Afton City Council, they violated the Uniform Municipal Contracting Law, and that the mayor entered into the well drilling contract without proper authority from the city council.
The officials brought suit against the City of Afton and The League of Minnesota Cities Insurance Trust, seeking a declaration that the Trust’s covenant with Afton required the Trust to reimburse the officials for their defense costs. The trial court granted summary judgment in favor of the Trust, holding that the Trust was not required to reimburse the officials under the covenant because the lawsuit did not constitute a covered claim.
The court of appeals reversed the trial court and held that the Trust was required to reimburse the officials for their defense costs.
On appeal to the Minnesota Supreme Court, the officials argued that the errors and omissions provision of the covenant entitled them to defense costs. The errors and omissions provision, however, limited the Trust’s duty to defend to a suit seeking “damages.” The supreme court held that the lawsuit sought only declaratory relief and the imposition of a “civil penalty.” The suit was not seeking “damages” and, therefore, was not a covered claim. The supreme court held that absent a covered claim, there was no duty to defend.
Accordingly, the supreme court reversed the decision of the court of appeals and held that the Trust was not required to reimburse the officials for their defense costs because the lawsuit did not involve a covered claim.
Kroschel v City of Afton, 524 NW2d 719 (Minn 1994), rev’g 512 NW2d 341 (Minn App 1994).
Note: The result is similar to those cases which hold that a PRP letter does not constitute a suit seeking damages. See Lapham-Hickey v Protection Mutual Ins. Co., 655 NE2d 842 (Ill 1995) [see summary at (7) 115-11*].