Western National Mutual Insurance Company, Appellant,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A17-0992

Western National Mutual Insurance Company,
Appellant,

vs.

Prospect Foundry,
Respondent

Filed April 16, 2018
Affirmed
Worke, Judge

Hennepin County District Court
File No. 27-CV-16-3476

James T. Martin, Gislason, Martin, Varpness & Janes, P.A., Edina, Minnesota (for
appellant)

Christopher H. Yetka, Barnes & Thornburg, LLP, Minneapolis, Minnesota (for
respondent)

Considered and decided by Worke, Presiding Judge; Peterson, Judge; and Ross,
Judge.
U N P U B L I S H E D O P I N I O N
WORKE, Judge
Appellant challenges the district court’s order denying its motion for a new trial ,
arguing that: (1) the district court erred in refusing to set aside the jury’s special -verdict
finding that the respondent was not in breach of contract, (2) the district court erred in

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refusing to set aside the jury’s special verdict finding that appellant was in breach of the
implied covenant of good faith and fair dealing , (3) the district court’s instructions were
substantially prejudicial, and (4) the district court ’s evidentiary rulings were an abuse of
discretion. We affirm.
FACTS
Appellant Western National Mutual Insurance Company (Western National) sold
three workers’ compensation insurance policies to respondent Prospect Foundry (Prospect)
between 2011 and 2014. Each policy included a plan where Prospect’s premiums could be
returned as a dividend if a certain loss -ratio was met. The loss -ratio was determined on
June 1 of the following year, ten months after the final date of each policy.
In the spring of 2013, Prospect’s president discussed the 2011-2012 policy’s claims
with John Mares, Western National’s insurance agent. Prospect’s president later testified
that Mares said there were still two open claims under the policy, but they would be closed
by June 1. If these claims had closed before June 1, 2013, Prospect would have received a
dividend for the 2011-2012 policy.
But Prospect did not receive a dividend and when Prospect’s president asked Mares
why, Mares replied that Prospect’s loss-ratio was too high. Prospect looked into the matter
and discovered that the two claims were still open. When asked why these claims did not
close in time, Mares said the person in charge of adjusting the claims was on vacation.
In addition, Prospect believed that it was never paid a dividend for the 2012 -2013
policy. Similarly, Prospect disputed Western National’s dividend calculation with respect

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to the 2013 -2014 policy. Wester n National also asserted that Prospect owed money for
unpaid premiums.
Western National eventually sued Prospect for breach of contract. Prospect
counterclaimed, alleging that Western National breached its contract and violated the
implied covenant of good faith and fair dealing . Before trial, Western National objected
to the district court’s proposed jury instructions concerning the implied covenant of good
faith and fair dealing, proposing its own version of the instruction. The district court
determined that Western National’s proposed instruction did not “ accurately refle ct the
current state of the law” and instead supplied its own version of the instruction.
The jury found that, (1) Prospect did not breach its contracts with Western National;
(2) Western National breached its contracts with Prospect, but Prospect was not entitled to
damages; and (3) Western National violated the implied covenant of good faith and fair
dealing, and Prospect was entitled to $53,300 in damages. Although the jury found that
Prospect did not breach its contracts with Western National , when confro nted with the
special verdict’s question asking how much money Western National should be awarded
in damages for Prospect’s breach, the jury answered $101,407.64.
The district court entered judgment in favor of Western National in the amount of
$101,407.64 and in favor of Prospect in the amount of $53,300. Western National moved
for a new trial and alternatively for judgment as a matter of law. Prospect moved to amend
or correct the district court’s judgment, arguing that the jury did not intend to award
Western National any damages.

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The district court denied Western National’s motions but granted Prospect’s motion.
The district court found that the jury appropriately followed the verdict form’s instructions
by awarding a hypothetical judgment but the jury “did not intend for the Court to grant the
amount to [ Western National] in an award.” The district court vacated its judgment in
favor of Western National and entered judgment only in favor of Prospect for $53,300.
This appeal followed.
D E C I S I O N
Western National argues that the district court erred by declining to set aside the
jury’s findings that Prospect did not breach its contracts and that Western National
breached the implied covenant of good faith and fair dealing. “An answer to a special
verdict question should be set aside only if it is perverse and palpably contrary to the
evidence, or where the evidence is so clear as to leave no room for differences among
reasonable persons.” Moorhead Econ. Dev. Auth. v. Anda , 789 N.W.2d 860, 888 (Minn.
2010) (quotation omitted). “The test is whether the special verdict answers can be
reconciled in any reasonable manner consistent with the evidence a nd its fair inferences.
If the answers to special verdict questions can be reconciled on any theory, the verdict will
not be disturbed.” Dunn v. Nat’l Beverage Corp. , 745 N.W.2d 549, 555 (Minn. 2008)
(quotations and citation omitted). “Review [of a speci al verdict] is particularly limited
when the jury finding turns largely upon an assessment of the relative credibility of
witnesses whose testimonial demeanor was observed only by the jury and the [district]
court and the latter has approved the findings m ade.” Kelly v. City of Minneapolis , 598
N.W.2d 657, 662-63 (Minn. 1999).

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Breach of Contract
Western National argues that the jury’s special verdict finding that Prospect did not
breach its contacts was against the greater weight of the evidence, and the di strict court
erred by not setting aside the verdict. 1 Specifically, Western National argues that
Prospect’s own statements acknowledge that it breached the insurance contract s.
Generally, a party who first breaches a contract cannot use the other party’s later breach to
avoid liability. Space Ctr., Inc. v. 451 Corp. , 298 N.W.2d 443, 451 (Minn. 1980). Here,
the district court acknowledged evidence that Prospect stopped paying its premiums , but
wrote that the jury found that Western National breached first by failing to close the two
open claims and failing to pay Prospect its due dividend. On that basis, the district court
concluded that the jury’s finding was consistent with the evidence and declined to set aside
the jury’s answer on the special-verdict form.
Western National challenges the district court’s reasoning, arguing that there were
three separate insurance contracts spanning policy terms from 2011 -2014 and that it was
only suing Prospect for breach of the last two contracts, not the first . Western National
claims that it “was not in breach in respect to either the second or third insurance contracts

1 Western National also argues that the jury intended to award it $101,407.64 in damages
for its breach-of-contract claim against Prospect, and the district court erred by interpreting
that award as hypothetical. However, the jury clearly found that Prospect did not breach
its contracts with Western National. The third question on the special verdict form the n
asked how much money would compensate Western National for its damages “regardless
of your answers to the previous questions.” Even though the jury responded with
$101,407.64, based on the language of the question, we conclude that the jury intended to
respond with what Western National would have won if it had prevailed on its breach -of-
contract claim.

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and sought only to enforce Prospect’s premium payment obligations under those policies,”
and that “any claimed breach of the first [contract] is no justification for Prospect’s failure
to pay the full amounts owed for the second and third policies.” Prospect counters that
evidence introduced at trial demonstrated that Western Nation al breach ed all th ree
contracts. For instance, Prospect claims that it introduced evidence at trial that Western
National did not pay Prospect promised credits for the 2012-2013 and 2013-2014 policies,
that Western National did not pay the correct dividen d for the 2012-2013 policy, and that
Western National impermissibly changed the amount of premiums Prospect allegedly
owed for the 2013-2014 policy—including demanding a new number the day before trial—
in violation of the agreement.
We conclude that the record contains evidence demonstrating that Western National
breached all three contracts. This court should set aside the jury’s special-verdict answers
only if its decision cannot be reconciled on any theory. Dunn, 745 N.W.2d at 555. Because
the jury’s verdict may be reconciled with Prospect’s evidence showing that Western
National breached all three contracts, we will not set aside the jury’s special-verdict finding
that Prospect was not in breach.2

2 Western National also argues that the verdict should be set aside because the jury was
never instructed that an initial breach by Western National could excuse subsequent
breaches by Prospect. Again, we will not disturb a jury’s special verdict if it can be
reconciled on any theory. Dunn, 745 N.W.2d at 555. Only when it is clear that findings
cannot be reconciled should the verdict be set aside. Nihart v. Kruger, 291 Minn. 273, 276,
190 N.W.2d 776, 778 (1971). Because the jury’s verdict may be reconciled with the theory
that Western National breached each contract prior to any subsequent breach by Prospect,
we will not disturb the verdict.

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Implied Covenant of Good Faith and Fair Dealing

The jury also determined that Western National breached the implied covenant of
good faith and awarded Prospect $53,300 in damages. Minnesota law recognizes the
implied covenant of good faith and fair dealing in most contracts, including insurance
contracts. Columbia Cas. Co. v. 3M Co. , 814 N.W.2d 33, 36 (Minn. App. 2012) , review
denied (Minn. Jun e 19, 2012). The implied covenant requires that “o ne party not
unjustifiably hinder the other party’s performance of the contract.” In re Hennepin C ty.
1986 Recycling Bond Litig., 540 N.W.2d 494, 504 (Minn. 1995) (quotation omitted). “To
establish a violation of this covenant, a party must establish bad faith by demonstrating that
the adverse party has an ulterior motive for its refusal to perform a contractual duty .”
Minnwest Bank Cent. v. Flagship Props. LLC, 689 N.W.2d 295, 303 (Minn. App. 2004) .
“Actions are done in good faith when done honestly, w hether it be negligently or not.”
Prairie Island Indian Cmty. v. Minn. Dep’t of Pub. Safety , 658 N.W. 2d 876, 889 (Minn.
App. 2003) (quotation omitted).
The district court upheld the jury’s special verdict based on four main pieces of
evidence. First, Prospect’s president testified that an agent for Western National told him
that the two open claims would be resolved and closed, resultin g in Prospect receiving a
dividend. Second, Prospect’s president testified that the same agent told him that the two
claims were not closed in time because the adjuster in charge of them was on vacation.
Third, Prospect’s expert witness testified that one of the claims should have been closed
before the policy period ended, something a claims supervisor at Western National also
conceded at trial, and that the reserves on the other open claim were significantly

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overstated. And f ourth, Prospect’s president testified that he had trouble understanding
how Western National arrived at its numbers, and even Western National’s vice president
testified that his numbers were fluctuating and the calculations he approved yielded
different numerical outcomes. While Western National’s witnesses disputed some of this
evidence, the district co urt concluded that the jury found Prospect’s witnesses more
credible.
We believe the district court did not err in upholding the jury’s special verdict.
Again, we must determine if the jury’s special verdict can be reconciled in any reasonable
manner with the evidence and fair inferences, and under any theory. Dunn, 745 N.W.2d at
555. This court’s review is also “particularly limited” in this instance, because the jury’s
finding “turns largely upon an assessment of the re lative credibility of witnesses . . . .”
Kelly, 598 N.W.2d at 662 . Here, the jury reconciled conflicting testimony in favor of
Prospect’s witnesses, and given the evidence of Western National’s fluctuating numbers
and questionable statements from its representatives, it was reasonable for the jury to
conclude that Western National unjustifiably hindered the contracts and acted in bad faith.
Given the evidence, we conclude that the district court did not err in refusing to set aside
the jury’s special verdict.
Jury Instructions
Western National argues the district court’s jury instruction regarding the implied
covenant of good faith and fair dealing was inc omplete and unduly prejudicial. “The
district court has broad discretion in determining jury instructions and we will not re verse
in the absence of abuse of discretion.” Hilligoss v. Cargill, Inc. , 649 N.W.2d 142, 147

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(Minn. 2002). If the instruction destroys the substantial correctness of the charge as a
whole, causes a miscarriage of justice, or results in substantial prejudice, the error requires
a new trial. Lindstrom v. Yellow Taxi Co. of Minneapolis, 298 Minn. 224, 229, 214 N.W.2d
672, 676 (1974). A new trial is also required if the instruction was erroneous and its effect
cannot be determined. Lieberman v. Korsh , 264 Minn. 234, 242, 119 N.W.2d 180, 186
(1962).
The district court’s instruction read as follows:
Under Minnesota law, every contract includes an implied duty
of good faith and fair dealing. Acting in good faith means a
person acts honestly in performing th is part of the contract,
whether it be negligently or not.

Western National Mutual Insurance Company has a duty to act
in good faith in the calculation of Prospect Foundry’s
entitlement [to] dividend payments.

By contrast, Western National’s proposed instruction read:

Under Minnesota law, every contract includes an implied
covenant of good faith and fair dealing requiring that one party
not unjustifiably hinder the other party’s performance of the
contract. Actions are done in good faith when done honestly,
whether it be negligently or not. Actions are done in bad faith
when a party’s refusal to fulfill some duty or contractual
obligation is based on an ulterior motive, not an honest mistake
regarding one’s rights or duties.

Western National argues that the district court’s instruction was misleading because
it did not mention that the implied covenant requires that the violating party, with an
ulterior motive in mind, unjustifiably hindered or obstructed the other party’s performance.
But the district court determined that Western National’s instruction was too restrictive and
cited to the Restatement (Second) of Contracts for the idea that “evasions of the spirit of

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the bargain, lack of diligence and slacking off, willful rendering of imperfect performance,
abuse of power to specify terms, and interference with or failure to cooperate in another
party’s performance” also qualify as violations of the covenant. See Restatement (Second)
of Contracts § 205 cmt. d (1981).3
The instruction preserved the substantial correctness of the charge and did not result
in a miscarriage of justice such that it affected “the fairness, integrity or public reputation
of judicial proceedings.” State v. Kelley , 855 N.W.2d 269, 279 (Minn. 2014) (quotation
omitted). And while Prospect prevailed on its claim, that is insufficient to conclude that
Western National was substantially prejudiced by the instruction. Because the district
court’s instruction was not erroneous or prejudicial to Western National, we conclude that
the district court did not abuse its discretion.
Evidentiary Rulings

Western National argues that it is entitled to a new trial because the district court
improperly admitted the hearsay statements of its insurance agent, John Mares. The district
court has broad discretion on evidentiary matters and this court will not disturb its ruling
“unless it is based on an erroneous view of the law or constitute s an abuse of discretion.”

3 Minnesota’s appellate courts have not settled whether the state’s common law limits an
implied-covenant claim only to the unjustifiable hindrance of performance or if this claim
could include the behaviors in Section 205, comment d, of the Restatement (Second ) of
Contracts. See Columbia Cas. Co. , 814 N.W.2d at 40 (declining to determine whether a
claim under the implied covenant of good faith and fair dealing is limi ted to unjustifiable
hindrance). “Restatements of the law are persuasive authority only and a re not binding
unless specifically adopted in Min nesota by statute or case law.” Williamson v. Guentzel,
584 N.W.2d 20, 24 (Minn. App. 1998), review denied (Minn. Nov. 24, 1998). Minnesota
has not adopted this part of the Restatement (Second) of Contracts in statute or in caselaw,
but we find its guidance persuasive.

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Kroning v. State Farm Auto. Ins. Co. , 567 N.W.2d 42, 45-46 (Minn. 1997). “Entitlement
to a new trial on the grounds of improper evidentiary rulings rests upon the complaining
party’s ability to demonstrate prejudicial error.” Id. at 46 (quotation omitted).
Western National argues that the district court abused its discretion by permitting
Prospect’s president to testify about statements made by Western National’s insurance
agent, John Mares, that the two open claims would be closed, which would have entitled
Prospect to a dividend. The district court determined that Mares was a broker for Western
National and was therefore Western National’s agent. Because Mares was an agent , the
court concluded that his hearsay statements were admissible as statements of a party
opponent. See Minn. R. Evid. 801(d)(2). Western National argues that because Mares had
no authority to determine when and how claim reserves were established, he was not an
agent for the purposes of the hearsay analysis.
In the past, Minnesota distinguished between insurance age nts and insurance
brokers for principal-agent analysis. See Eddy v. Republic Nat'l Life Ins. Co., 290 N.W.2d
174, 176 (Minn.1980) (stating that the essence of the difference between agents and brokers
is that an insurance agent acts on behalf of a particular insurance company, whereas an
insurance broker acts on behalf of the prospective insured). However, a Minnesota statute
now states that “[a] person performing acts requiring a producer license . . . is at all times
the agent of the insurer an d not the insured.” Minn. Stat. § 60K.49, subd. 1 (2016 ); see
also Graff v. Robert M. Swendra Agency, Inc. , 800 N.W.2d 112, 118 n.5 (Minn. 2011)
(stating that although Minnesota law previously recognized a distinction between agents
and brokers, that distinction “appears to have been superseded by statute.”). One such act

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is negotiating insurance. Minn. Stat. § 60K.32 (2016). And negotiating insurance is
specifically defined as “conferring directly with or offering advice directly to a purchaser
or pros pective purchaser of a particular contract of insurance concerning any of the
substantive benefits, terms, or conditions of the contract if the person engaged in that act
either sells insurance or obtains insurance from insurers for purchasers.” Minn. Sta t.
§ 60K.31, subd. 12 (2016).
Western National and John Mares’s brokerage company had an agency agreement
giving him some authority to act and speak on Western National’s behalf. Specifically, the
agreement gave brokers the authority to provide “all usual and customary services of an
insurance agent on all insurance contracts placed by the Agent with the [Western
National].” A Western National employee testified that all communica tions between
Western National and Prospect flowed through John Mares’s company and that one of the
services the company provides is communicating about claims between policyholders and
Western National . The scope of this relationship was supported by Pro spect’s expert
witness who testified to his understanding that policyholders take what an insurance agent
tells them as a communication from the insurance company itself.
Based on this evidence, we conclude that the district court had sufficient grounds to
treat John Mares as being “authorized by [ Western National ] to make a statement
concerning” the open claims to Prospect, or —at minimum —was making a statement
concerning a matter within the scope of the agency or employment, either of which would
qualify as a party-opponent statement. See Minn. R. Evid. 801(d)(2)(C)-(D). The district

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court did not abuse its discretion by admitting testimony about statements made by Western
National’s agent.
Affirmed.