King’s Cove Marina, LLC,

1
STATE OF MINNESOTA

IN SUPREME COURT

A19-0078

Court of Appeals Chutich, J.

King’s Cove Marina, LLC,

Appellant,

vs. Filed: April 14, 2021
Office of Appellate Courts
Lambert Commercial Construction LLC, et al.,

Defendants,

United Fire & Casualty Company,

Respondent.

________________________

Mark R. Bradford, Bassford Remele, P.A., Minneapolis, Minnesota; and

Stephen P. Watters, Watters Law Office, Minnetonka, Minnesota, for appellant.

Kay Nord Hunt, Keith J. Broady, Bryan R. Feldhaus, Lommen Abdo, P.A., Minneapolis,
Minnesota, for respondent.

Jennifer E. Olson, Schwebel, Goetz & Sieben , P.A., Minneapolis, Minnesota, for amicus
curiae Minnesota Association for Justice.

Dale O. Thornsjo, Lance D. Meyer, O’Mear a, Leer, Wagner & Kohl, P.A., Minneapolis,
Minnesota, for amicus curiae Insurance Federation of Minnesota.

Beth A. Jenson Prouty, Je ffrey M. Markowitz, Arthur, Ch apman, Kettering, Smetak &
Pikala, P.A., Minneapolis, Minnesota, for amic us curiae American Property Casualty
Insurance Association.

________________________

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S Y L L A B U S
1. A commercial general liability insu rance policy does not cover property
damage to an insured’s own completed work under the plain langu age of a “your work”
exclusion, which applies to work included in the “products-completed operations hazard.”
2. A Miller-Shugart settlement agreement that does not allocate between claims
that are covered and not cove red by the insurance policy is not per se unreasonable and
unenforceable against the insurer.
3. Determining the reasonableness of an unallocated Miller-Shugart settlement
agreement is a two-part inquiry that firs t examines the overall reasonableness of the
settlement and then determines how a reasonable person in the position of the insured
would have valued and allocated the covere d and uncovered claims at the time of the
settlement.
Affirmed in part, revers ed in part, and remanded.
O P I N I O N
CHUTICH, Justice.
This case requires us to determine whether a commercial general liability insurance
policy, which includes coverage for the “p roducts-completed operations hazard,” covers
property damage to the insured’s own comple ted work, notwithstanding an exclusion for
property damage arising out of the insured’s work. We also consider whether a

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Miller-Shugart settlement agreement1 that fails to allocate between claims that are covered
and not covered by the insurance policy is pe r se unreasonable and unenforceable against
the insurer. The district court determined that the insurance policy covers all of the claimed
property damage and also determined that the Miller-Shugart settlement agreement is
reasonable and enforceable against the insurer. The court of appeals reversed, concluding
that (1) the insurance policy covers some but not all of the claimed property damage, and
(2) the Miller-Shugart settlement agreement is unreasonable as a matter of law because the
agreement failed to allocate be tween covered and uncovered claims. We hold that the
insurance policy does not cover all of the claimed property damage and a Miller-Shugart
settlement agreement that fails to allocate between covere d and uncovered claims is not
per se unreasonable and unenforceable. Therefor e, we affirm in part, reverse in part, and
remand to the court of appeals for the consideration of the remaining issues on appeal.
FACTS
Appellant King’s Cove Marina, LLC, is a full-service marina in Hastings. King’s
Cove undertook an expansion and remodeling project involvin g the main building of the
marina. The project included new exterior walls, new windows, a new second-level
mezzanine space for offices, and a new ro of. Defendant Lambert Commercial
Construction LLC performed work on the bui lding’s roof and siding. Lambert also
performed other work, including the framing of window openings, installing window trim

1 A Miller-Shugart settlement agreement is a settlement between a plaintiff and an
insured defendant in which the defendant, ha ving been denied coverage for the claim,
agrees that the plaintiff may enter judgment against it for a sum collectible only from the
insurance policy. See Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982).

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materials, and installing wood flooring on the second level. Lambert hired Roehl
Construction, Inc., to perform concrete work.
During the course of the construction pr oject, King’s Cove advised Lambert of a
number of issues with the work. King’s Cove stated that the concrete floors were showing
“excessive cracking.” King’s Cove also repo rted problems with wa ter leaking from the
walls and the roof, leading to damage to inte rior finishes and damage to existing ceiling
tiles, carpet, and sheetrock. When King’s Cove refused to pay the outstanding balance on
Lambert’s invoices, Lambert stopped work on the project.
King’s Cove sued Lambert and others for breach of contract and negligence.
2
King’s Cove alleged that the concrete floor s were not constructed in accordance with
industry standards or project plans and specifications, resulting in excessive movement and
cracking. King’s Cove also alleged that there were defects with Lambert’s metal building
products and metal roof and claimed that the in-floor heating systems were not installed
properly, causing the concrete floors to move, crack, and expand.
Lambert tendered the defense of the lawsu it to respondent United Fire & Casualty
Company, which insured Lambert under a commercial general liability policy and a
commercial liability umbrella policy. The commercial general liability policy contained a
general aggregate limit of $2 million, a produc ts-completed operations aggregate limit of
$2 million, and an each-occurre nce limit of $1 million. The umbrella policy contained a

2 King’s Cove also sued Roehl Constr uction for the concrete work and Majeski
Plumbing, Inc., for the in-floor heating work . Majeski Plumbing was dismissed from the
lawsuit, and the claims against Roehl Cons truction went to trial. Neither Roehl
Construction nor Majeski Plumbing is a party to this appeal.

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general aggregate limit of $1 million. United Fire denied coverage for the claims but
defended Lambert under a reservation of rights.
United Fire subsequently brought a decl aratory judgment action, seeking a ruling
that United Fire does not have a duty to defend or inde mnify Lambert. While the
declaratory judgment action was pending, King’s Cove and Lambert entered into
settlement negotiations to resolve the underlying lawsuit. United Fire received notice of a
proposed Miller-Shugart settlement and, according to th e district court, “minimally
participate[d] in discussions” about the settlement.
King’s Cove and Lambert ultimately reac hed an agreement to resolve the lawsuit
and executed a Miller-Shugart settlement agreement. According to the agreement, because
United Fire had denied insura nce coverage in the declarat ory judgment action, Lambert
faced the possibility of not having any coverage for the claims of King’s Cove. And even
if coverage is available, the agreement stated that Lambert faced exposure for amounts in
excess of the coverage limits. Therefore, Lamb ert stipulated to a judgment against it for
the sum of $2 million, plus interest and cost s, and King’s Cove agreed to enforce the
judgment against only United Fire. The agreement specified that the settlement “relates to
the claims and damages for the work provided by Lambert, including the roof and siding”
of the main building at the marina, but not for the work of Roehl Construction or other
defendants. The agreement rese rved the right of King’s Cove to pursue claims against
Roehl Construction for the concrete work.
Specifically, the parties stipulated and agreed as follows regarding “the claims and
damages for the work provided by Lambert.” The estimated cost of repairing the main

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building at the marina was $1,085,000. The ag reement attributed $599,000 of the cost to
Lambert for Lambert’s work, including the roofing and siding work. In addition, because
the cost of the repairs would exceed 50 percen t of the value of the building, the parties
believed that a municipal floo d-plain ordinance would require King’s Cove to raise the
elevation of the main building, as well as make changes to other buildings and areas of the
marina property. As a result, the total damages that King’s Cove sustained, which included
the cost to comply with the flood-plain ordinance, ranged from $4.5 million to $5.2 million.
Lambert’s proportionate share of liability—c alculated as 55.2 percent of the total
damages—ranged from $2,426,000 to $2,870,000.
The district court approved the Miller-Shugart settlement agreement. The court
ordered the entry of judgment against Lambert for $2 million, plus inte rest and costs, “to
be satisfied by any insurance coverage provided to Lambert by United Fire.”
The district court then granted the moti on of King’s Cove to file a supplemental
complaint for garnishment against United Fire. In the garnishment proceeding, United Fire
denied that insurance coverage exists for th e claims of King’s Cove. United Fire also
asserted, among other defenses, that the Miller-Shugart settlement agreement is
unreasonable to the extent that the settlement fails to allocate damages between covered
and uncovered claims.
The district court granted partial summary judgment to King’s Cove. The court
ruled that there is insurance coverage under the United Fire policies for the claims that
King’s Cove brought against Lambert. The court determined that “there have been

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multiple ‘occurrences’ causing property damage” to the main building at the marina and
that United Fire had not “established any exceptions to coverage.”
The district court then consid ered the reasonableness of the Miller-Shugart
settlement agreement. Following a 2-day evid entiary hearing, which included testimony
from expert attorneys, the court ruled that the settlement was reasonable in light of
Lambert’s potential exposure. The court stressed that, at the time of the settlement,
“Lambert had a very real and reasonable c oncern that it could be without insurance
coverage for the claims” brought by King’s Cove. Therefore, the court issued an order for
judgment, naming United Fire as the judgment debtor for the judgment against Lambert.
The court denied United Fire’s post-trial motions.
Both sides appealed. The court of appeals reversed and remanded. King’s Cove
Marina, LLC v. Lambert Com. Constr. LLC , 937 N.W.2d 458 (Minn. App. 2019).
Applying an exclusion in the United Fire polic ies that bars coverage for property damage
to the insured’s own work, the court of appeals concluded that the district court erred in its
coverage determination by fa iling “to distinguish between da mages directly caused by
Lambert’s work, and damages arising from Lambert’s work that were not part of the scope
of work Lambert was hired to perform.” Id. at 468. In addition, the court of appeals
determined that King’s Cove and Lambert we re required to identify “covered and non-
covered damages in their Miller-Shugart agreement.” Id. at 470. Because the agreement
does not “allocate between covered and non- covered damages,” the court of appeals
concluded that the agreement is “unreasonable as a matte r of law and unenforceable”

8
against United Fire. Id. After resolving the appeal on these grounds, the court of appeals
did not reach other issues raised on appeal. Id. at 464 n.3.3
King’s Cove petitioned for further review. We granted review on two issues: the
scope of coverage under the United Fire policies and the reasonableness of the
Miller-Shugart settlement agreement.
ANALYSIS
I.
We first review the issue of coverage fo r the claimed property damage under the
United Fire policies. If th ere is “no coverage for the Miller-Shugart judgment, that ends
the matter; there is no recovery against the insurer and the reasonableness of the settlement
becomes a moot issue.” Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn.
1990).
On appeal from summary judgment, we c onsider whether there are any genuine
issues of material fact and whether the di strict court erred in applying the law. Kelly v.
Kraemer Constr., Inc. , 896 N.W.2d 504, 508 (Minn. 2017). The interpretation of an
insurance policy, “including whether provisi ons in a policy are ambiguous, is a legal
question subject to de novo review.” Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917,
920 (Minn. 2011). “Language in an insura nce policy is ambiguous if it is reasonably

3 United Fire also argued that (1) the di strict court erred by granting King’s Cove
leave to serve and file a supplemental compla int against United Fire as garnishee, and
(2) the district court abused its discretion by denying United Fire’s motion for a new trial
or amended findings. King’s Cove Marina, 937 N.W.2d at 464 n.3. By notice of related
appeal, King’s Cove argued that the district court erred by denying its request for an award
of pre- and post-judgment interest. Id. The court of appeals did not reach these issues. Id.

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susceptible to more than one interpretation.” Midwest Family Mut. Ins. Co. v. Wolters ,
831 N.W.2d 628, 640 (Minn. 2013).
United Fire has not challenged the court of appeals’ conclusion that King’s Cove
suffered some “property damage” that was caused by an “occurrence” within the meaning
of the policies. See King’s Cove Marina, LLC v. Lambert Com. Constr. LLC, 937 N.W.2d
458, 466 (Minn. App. 2019). The coverage dispute focuses on the applicability of a
particular exclusion in the Un ited Fire policies, exclusion l, which bars coverage for
property damage to the insured’s own work. The dispute concerns the insurer’s duty to
indemnify; the duty to defend is not at issue.
Our objective when interpreting an insurance policy is to “ascertain and give effect
to the intentions of the parties as reflected in the terms” of the policy. Jenoff, Inc. v. N.H.
Ins. Co. , 558 N.W.2d 260, 262 (Mi nn. 1997). We construe an insurance policy, “if
possible, so as to give effect to all provisions.” Bobich v. Oja, 104 N.W.2d 19, 24 (Minn.
1960). We give unambiguous policy language its plain and ordinary meaning. Thommes
v. Milwaukee Ins. Co., 641 N.W.2d 877, 880 (Minn. 2002). We construe ambiguous policy
language “in favor of covera ge” and read exclusions “na rrowly against the insurer.”
Wanzek Constr., Inc. v. Emps. Ins. of Wausau , 679 N.W.2d 322, 32 5 (Minn. 2004). The
insurer carries the burden of establishing the applic ability of an exclusion. Travelers
Indem. Co. v. Bloomington Steel & Supply Co. , 718 N.W.2d 888, 894 (Minn. 2006). But
the insured carries the burden of establishing th at an exception to an exclusion applies.
Midwest Family, 831 N.W.2d at 636.

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A.
We begin with an overview of the relevant provisions of the United Fire commercial
general liability policy. According to Unite d Fire, the policy is a standard commercial
general liability “Insurance Service Organization form policy” with the last major revision
in 1986. The United Fire umbrella policy contains the same relevant provisions.
The dispute here focuses on th e application of exclusion l, captioned “Damage To
Your Work.” We have described similar policy exclusions as “business-risk exclusions,”
which exclude “coverage for property dama ge caused by the insured’s ‘faulty
workmanship’ where the damages claimed are the cost of correcting the work itself.”
Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602, 611 (Minn. 2012)
(quoting Wanzek Constr., Inc., 679 N.W.2d at 325–26).
Exclusion l is an exclusion under “Coverage A” of the policy, which addresses
coverage for property damage liability. Under exclusion l, the insurance does not apply to:
“Property damage” to “your work” arising out of it or any part of it and included in
the “products-completed operations hazard.”

The term “your work” means th e work performed by or on beha lf of the insured and the
“[m]aterials, parts or equipment furnished in connection with such work.” Exclusion l does
not apply, however, “if the damaged work or the work out of which the damage arises was
performed on your behalf by a subcontractor.” The policy defines the “products-completed
operations hazard” as generally including “ ‘property damage’ occurring away from

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premises you own or rent and arising out of ‘your product’ or ‘your work.’ ” 4 T h e
declarations page of the policy specifies a products-completed operations aggregate limit
of $2 million. The policy prov ides that this limit is the mo st that United Fire will pay
because of “ ‘property damage’ included in the ‘products-completed operations hazard.’ ”
B.
We turn now to the dispute at hand, which concerns the applicability of exclusion l.
Lambert argued in the court of appeals that th e only exclusion in the United Fire policies
that is “arguably” at issue is exclusion l. The court of appeals concluded that exclusion l
applies “to at least some of the marina’s claims and damages.” King’s Cove Marina, LLC,
937 N.W.2d at 469. The court of appeals de termined that “any co sts associated with
repairing or replacing Lambert’s fa ulty work are barred by exclusion l.” Id. at 468. But
the court of appeals explained that “[a] claim for damages ca used by Lambert’s work to
preexisting structures located adjacent to the work perfor med by Lambert”—“damage to
existing sheetrock, tiles, carpet , and the floor”—“would, if proven, be covered under the
insurance policy and not excluded by exclusion l.” Id. Finally, the court of appeals
concluded that the subcontr actor exception to exclusion l is irrelevant here because the
Miller-Shugart settlement agreement “specifically excluded the concrete work” performed
by Roehl Construction. Id.

4 The policy definition of “products-completed operations hazard” excludes property
damage to the insured’s work if the work “has not yet been completed,” but this exclusion
is not relevant here because the parties agree that Lambert’s work was completed.

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King’s Cove challenges the court of appeals’ conclusion that exclusion l bars
coverage for the claimed damages associated with repairing or replacing Lambert’s own
work. See 937 N.W.2d at 468. Although the pa rties have made arguments about the
applicability of other policy provisions and ex clusions, as well as arguments concerning
the scope of the Miller-Shugart settlement agreement, we decline to consider those issues
because they were not properly raised or presented in this court.5

5 Specifically, we decline to consider the j(6) exclusion in the United Fire commercial
general liability policy. This provision exclud es coverage for property damage related to
“[t]hat particular part of any property that must be restored, repaired or replaced because
‘your work’ was incorrectly performed on it”; however, “this exclusion does not apply to
‘property damage’ included in the ‘products-c ompleted operations hazard.’ ” Although
King’s Cove argued in its petition for review that the j(6) “exclusion exception” reinstates
coverage under the products-c ompleted operations hazard, King’s Cove did not mention
the j(6) exclusion until its reply brief. We do not consider arguments first made in a reply
brief. Minn. Sands, LLC v. County of Winona , 940 N.W.2d 183, 199 n.15 (Minn. 2020).
We note, however, that the j(6) exclusion a ddresses work in progress, and King’s Cove
states that there is no dispute that “Lambert completed its work.” See 9A Steven Plitt et
al., Couch on Insurance 3d § 129:22 (2015 rev. ed.) (explaining that the j(6) exclusion bars
“coverage for work in progre ss” and does “not apply to claims which arise after the
insured’s operations are complete”).
We also decline to consider whether the Miller-Shugart settlement agreement
covered the concrete work that Roehl Cons truction performed, and whether and to what
extent Roehl Construction was a subcontractor of Lambert. King’s Cove challenges the
court of appeals’ conclusion that the settle ment agreement was “limited to roofing and
siding performed by Lambert, and specifically excluded the concre te work performed by
Roehl.” See King’s Cove Marina, 937 N.W.2d at 468. But King’s Cove did not raise this
issue in its petition for review. Th erefore, the issue is forfeited. See In re Welfare of
Children of J.D.T., 946 N.W.2d 321, 326 n.3 (Minn. 2020). Nonetheless, we observe that
the argument of King’s Cove is not consis tent with the language of the settlement
agreement. The settlement agreement specifies that “[t]his Settlement relates to the claims
and damages for the work provid ed by Lambert . . . and not to the claims or damages for
the concrete work on the proj ect by Roehl Construction” and that the settlement is “not
intended to provide compensation for dama ges and losses sustai ned by King’s Cove
Marina, LLC arising from work and operations of Roehl Construction.”

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King’s Cove focuses on the relationship between exclusion l and the products-
completed operations hazard, arguing that the United Fire policies cover the costs to repair
or replace Lambert’s work on the roof and siding of the ma in building at the marina.
Specifically, King’s Cove argues that the United Fire policie s provide coverage for this
claimed damage under the products-completed operations hazard and that exclusion l does
not bar this coverage. United Fire responds that exclusion l eliminates coverage for damage
to Lambert’s work and incorporates the products-completed operations hazard.
The construction of the policy set forth by King’s Cove is not reasonable. To be
sure, the costs to repair or replace Lambert’ s work on the roof a nd siding fall within the
definition of “products-comp leted operations hazard” beca use the claimed property
damage occurred away from Lambert’s premises and arose out of Lambert’s work after the
work was completed. But exclusion l explicitly eliminates coverage for property damage
to an insured’s work arising out of the insured’s work “and included in the ‘products-
completed operations hazard.’ ” (Emphasis added.) A lthough we construe policy
exclusions narrowly against the insu rer, the language of exclusion l is clear and
unambiguous. See Commerce Bank v. W. Bend Mut. Ins. Co., 870 N.W.2d 770, 773 (Minn.
2015) (stating that we give unambiguous policy language “its plain and ordinary
meaning”). We will not create ambiguity where none exists. Eng’g Constr. Innovations,
Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 705 (Minn. 2013). Therefore, we conclude that
the plain language of exclusion l bars coverage for the cl aimed property damage to
Lambert’s own work, notwithstanding the products-completed operations hazard.

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King’s Cove argues that this construc tion of the policy unfairly eliminates
“$2 million in additional covera ge for ‘property damage’ en compassed by the ‘products-
completed operations hazard’ ” for which Lambert paid a separate premium. King’s Cove
maintains that excluding the costs to repair or replac e Lambert’s work under exclusion l
ignores the “plain languag e” of the policy—the definiti on of “products-completed
operations hazard”—which includes “all” property damage that arises out of the insured’s
work. King’s Cove also relies on the produ cts-completed operations aggregate limit of
$2 million that appears on the declarations page of the policy. According to King’s Cove,
the application of exclusion l to the claimed property damage would render coverage for
the products-completed operations hazard meaningless.
For support, King’s Cove relies on decisions of courts in other jurisdictions, which
have held that similar policy provisions ar e confusing to the po int of ambiguity and
interpreted the provisions “in a light favoring coverage.” Mike Hooks, Inc. v. JACO Servs.,
Inc., 674 So. 2d 1125, 1127–28 (La. Ct. App. 1996); see also Owners Ins. Co. v. Jim Carr
Homebuilder, LLC, 157 So. 3d 148, 157 (Ala. 2014) (accepting the argument that “the
‘your work’ exclusion does not apply” if th e policy’s “declarations show coverage for
‘products-completed operations’ ”); N. Cntys. Eng’g, Inc. v. State Farm Gen. Ins. Co. ,
169 Cal. Rptr. 3d 726, 747 (Cal. Ct. App. 2014) (noting “the complications, if not outright
ambiguity, presented by” the policy provis ions addressing the products-completed
operation hazard). These decisions, however, appear to be outliers.
A federal district court recently observed that courts “genera lly reach the same
conclusion—that there is no ambiguity” between exclusion l and the products-completed

15
operations hazard and that insureds “are not entitled to coverage for their own faulty work.”
Sunwestern Contractors Inc. v. Cincinnati Indem. Co. , 390 F. Supp. 3d 1009, 1019 (D.
Ariz. 2019) (concluding that the products-completed operations hazard does not entitle an
insured “to coverage for its own faulty work, if that faulty work led to property damage
that occurred after completion” of the work); see, e.g. , Reliance Ins. Co. v. Moessner ,
121 F.3d 895, 903 n.6 (3d Cir. 1997) (rejecti ng the argument that an insurance policy is
“ambiguous as a whole” based on the products-completed operations hazard); Am. Home
Assur. Co. v. AGM Mari ne Contractors, Inc., 379 F. Supp. 2d 134, 137 (D. Mass. 2005)
(concluding that “the ‘products-completed operations hazard’ provision does not create an
ambiguity”), aff’d, 467 F.3d 810 (1st Cir. 2006); cf. Valmont Energy Steel, Inc. v. Com.
Union Ins. Co., 359 F.3d 770, 776 (5th Cir. 2004) (c oncluding that a policy exclusion for
“your product” unambiguously applied to rest rict coverage for property damage, despite
the products-completed operatio ns hazard). Our conclusion is consistent with the great
weight of authority from other jurisdictions. A policy’s complexity does not necessarily
signify ambiguity. See Moorhead Mach. & Boiler Co. v. Emps. Com. Union Ins. Co. of
Am., 285 N.W.2d 465, 469 (Minn. 1979).
We also reject the argument of King’s Cove that the products-completed operations
hazard is a distinct category of coverage. The declarations page merely shows that the
products-completed operations hazard has “a different applicable limit”—not that it is “a
separate form of coverage.” Sparta Ins. Co. v. Colareta, 990 F. Supp. 2d 1357, 1364 (S.D.
Fla. 2014). In explaining coverage limits, the policy states that the completed operations
aggregate limit is the “most [United Fire] will pay under Coverage A” for property damage

16
included in the products-completed operations hazard. Because exclusion l is an exclusion
under Coverage A, exclusion l applies to coverage for property damage that is included in
the products-completed operations hazard unde r Coverage A. “The fact that a policy’s
declarations page sets forth a special policy limit for prod ucts-completed operations does
not mean that the coverage for products-completed operations exists independently of the
exclusions and conditions set forth in the policy.” 3 Allan D. Windt, Insurance Claims &
Disputes § 11:32 (6th ed. 2020); see also, e.g., Sunwestern Contractors, 390 F. Supp. 3d
at 1020 (explaining that the products-compl eted operations hazard is “subject to any
relevant exclusions and any fa ulty work that is encompassed in the products-completed
operations hazard provision is unambiguously excluded from coverage by exclusion (l)”).
Therefore, we conclude that coverage fo r property damage arising from Lambert’s
completed work under Coverage A is subject to the exclusions under Coverage A,
including exclusion l.
Although exclusion l may limit coverage for property damage included in the
products-completed operations hazard, the c overage is not illusory, as King’s Cove
suggests. See W. Bend Mut. Ins. Co . v. Allstate Ins. Co. , 776 N.W.2d 693, 704 (Minn.
2009) (distinguishing limited coverage from illusory coverage). United Fire acknowledges
that “exclusion l does not apply to damage to other property” arising out of Lambert’s
work, such as damage to existing “sheetrock, tiles and carpeting.” Exclusion l also contains
an exception for the work of subcontractors. Our interpretation of the United Fire policies
is consistent with the genera l purpose of a commercial gene ral liability policy, which is
intended to protect the insured when its work “damages someone else’s property” and is

17
not intended to be “a performance bon d covering an insured’s own work.” Wilshire Ins.
Co. v. RJT Constr., LLC, 581 F.3d 222, 226 (5th Cir. 2009).
In sum, we conclude that the claimed pr operty damage to Lambert’s own work on
the roof and siding of the main building of the marina is not covered under the United Fire
policies based on the plain language of exclusion l. We therefore affirm the coverage
determination of the court of appeals.
II.
We now turn to the second issue: whether the Miller-Shugart settlement agreement
is invalid and unenforceable as a matter of law because the agreemen t failed to allocate
between covered and uncovered claims. As we concluded a bove, the claimed property
damage to the roof and siding of the main building at the marina, arising from Lambert’s
own work, is not covered by the United Fire policies. And United Fire has not challenged
the court of appeals’ conclusion that damage to “existing sheetrock, tiles, carpet, and the
floor” of the main building, which was “adjacent to the work performed by Lambert would,
if proven, be covered under the insurance policy.” King’s Cove Marina, LLC v. Lambert
Com. Constr. LLC, 937 N.W.2d 458, 468 (Minn. App. 2019). Therefore, the United Fire
policies cover some but not all of the property damage claimed by King’s Cove.
The allocation issue presents a matter of first impression for our court. Determining
a legal standard is a question of law that we review de novo. See Jerry’s Enters. v. Larkin,
Hoffman, Daly & Lindgren, Ltd., 711 N.W.2d 811, 819 (Minn. 2006).

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A.
We begin with an overview of our case law relating to Miller-Shugart settlement
agreements. In Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982), we approved a settlement
method that protects an insured defendant when an insurer denies insurance coverage for a
plaintiff’s claims. Under a Miller-Shugart settlement agreement, a plaintiff and an insured
defendant stipulate to a judgment against the defendant on the condition that the plaintiff
releases the defendant from any personal liability and agrees to seek recovery solely from
the insurer. Bob Useldinger & Sons , Inc. v. Hangsleben , 505 N.W.2d 323, 330 (Minn.
1993). The plaintiff judgment creditor then proceeds against the insurer in a garnishment
proceeding. See Miller, 316 N.W.2d at 732. In the garn ishment proceeding, the insurer
may challenge not only the scope of coverage under the insurance policy, but also the
validity and reasonableness of the settlement. See Alton M. Johnson Co. v. M.A.I. Co. ,
463 N.W.2d 277, 279 (Minn. 1990). A Miller-Shugart settlement agreement is enforceable
against the insurer if the insurer receives no tice of the settlement, and the settlement is
reasonable and not the produc t of fraud or collusion. Miller, 316 N.W.2d at 733–35.
Reasonableness is “a question of fact” for the district court to resolve as the fact-finder.
Alton M. Johnson , 463 N.W.2d at 279. If insuranc e coverage is established, but the
settlement is unreasonable, the default rule is that the parties to th e settlement agreement
are returned “to the even footing of a trial on the merits of the main action.” Id. at 280.
B.
We turn next to the parties’ dispute—whether the Miller-Shugart settlement
agreement is unreasonable as a matter of law because the agreement fails to allocate

19
between covered and uncovered claims. 6 In a prior case, we held that a Miller-Shugart
settlement agreement that failed to allocat e the damages among multiple defendants was
unreasonable and unenforceable against the insurer, explaining that there was “no efficient
way for the trial court to allocate the damages among the defendants.” Bob Useldinger &
Sons, Inc., 505 N.W.2d at 331. “Except in the mo st unusual case,” we stated that “it is
unreasonable for a defendant to settle a case for an un specified sum.” Id. We have not
considered the failure to allocate in a case involving a single defendant.
Federal courts in Minnesota have addressed the failure to allocate a Miller-Shugart
settlement agreement in cases involving a si ngle defendant, holding that the failure to
allocate between covered and uncovered cl aims makes the settlement agreement

6 Neither party accepts the court of appeals’ determination that the Miller-Shugart
settlement agreement resolved a mix of covered and uncovered claims. See King’s Cove,
937 N.W.2d at 470 (stating that “the district court failed to distinguish between repair-and-
replacement damages caused by work Lambert was hired to perform—to which exclusion l
applies—and damages to adjacent structures that were not caused by, though arising from,
Lambert’s construction work”). King’s Cove asserts that the settlement agreement
resolved “a unitary damage cl aim for the total enhanced repa ir costs to comply with the
flood-plain ordinance,” which King’s Cove tr eats as a covered claim under a concurrent
causation theory. According to King’s Cove, the agreement “did not settle any uncovered
damage claims.” United Fire, on the othe r hand, asserts that “on the contemporaneous
record” of the settlement “nothing is covere d.” While acknowledging that King’s Cove
“made assertions of damaged carpet and ceiling tile,” United Fire claims that King’s Cove
“produced no evidence that da mage to other property played any part in the $2 million
settlement.” Neither party, however, raised an issue regarding the scope of the settlement
agreement in a petition for review or request for conditional cross-review. Therefore,
having concluded that exclusion l bars insurance coverage for property damage to
Lambert’s own work, we accept the premise of the court of appeals’ decision that the
Miller-Shugart settlement agreement resolved a mix of covered and uncovered claims and
decline to address the scope of the settlement agreement. See In re GlaxoSmithKline PLC,
699 N.W.2d 749, 757 (Minn. 20 05) (“Generally, we do not addr ess issues that were not
raised in a petition for review.”).

20
unreasonable and unenforceable as a matter of law. E.g., Corn Plus Coop. v. Cont’l Cas.
Co., 516 F.3d 674, 681 (8th Cir. 2008); Interlachen Props., LLC v. State Auto Ins. Co. ,
275 F. Supp. 3d 1094, 1111 (D. Minn. 2017). Th e Eighth Circuit Court of Appeals
reasoned that our “requirement in Bob Useldinger & Sons that the insured allocate damages
among multiple defendants applies with equa lly compelling logic to the allocation of
damage items in cases of a single defendant.” Corn Plus Coop. , 516 F.3d at 681. The
Eighth Circuit concluded that “a judicial de termination into the reasonableness” of an
unallocated settlement is “impractical since the parties are naturally in a better position to
calculate the damages.” Id. The Eighth Circuit also e xplained that parties would be
“tempted to inflate their covered claims post hoc” if there was no contemporaneous
allocation of the claims. Id.
The court of appeals found the reasoning in the federal decisions persuasive. King’s
Cove, 937 N.W.2d at 470 n.6. Because the Miller-Shugart settlement agreement does not
allocate between covered and uncovered claims , the court of appeals concluded that the
settlement is unreasonable as a matter of law and unenforceable against United Fire. Id. at
470.
King’s Cove urges us to adopt a new rule in cases involving a single defendant. It
advocates for a rule that perm its the district court to dete rmine the reasonableness of a
Miller-Shugart settlement agreement based on the va lue of the covered claims. King’s
Cove asserts that a strict allocation rule is “unnecessary” and “imposes unrealistic and
unfair burdens on settling parties” at a time wh en coverage issues remain unresolved.
King’s Cove also argues that “there is no factual or legal basis to assume that district courts

21
are incapable, in every case, of determining the reasonableness of unallocated settlements.”
United Fire responds that Miller-Shugart settlement agreements are “suspect” because of
concerns with overreaching, and the burden of allocation after the fact should not be placed
on the courts when the settling parties are “in the best position to kn ow how they valued
the claims.”
We hold that the failure to allocate be tween covered and uncovered claims does not
make the Miller-Shugart settlement agreement per se unrea sonable. Our prior decisions
show that the test for the reasonableness of a Miller-Shugart settlement agreement is a
flexible one, grounded in principles of equity. The district court is “asked to apply its sense
of fairness to evaluate a compromise of c onflicting interests, a characteristic role for
equity.” Alton M. Johnson Co., 463 N.W.2d at 279. In Bob Useldinger & Sons, where the
Miller-Shugart settlement agreement did not allocate damages among multiple defendants,
we concluded that, “[w]ithout knowing what each defendant has agreed to pay as its share,
there is no way of judging the reasonableness or prudence of the agreement from the
standpoint of each defendant.” 505 N.W.2d at 331. This conc lusion does not hold true,
however, when the settlement agreement involves a single defendant that has agreed to pay
a fixed sum to settle claims. Further, we agree with King’s Cove that requiring allocation
between covered and unc overed claims may “unfairly bur den[] the settling parties with
predicting how the court in the garnishment action may resolve complex coverage issues,”

22
particularly in cases like this one, when the insu rer and insured both took all-or-nothing
positions. Therefore, we reject the rigidity of a per se allocation rule.7
C.
We now consider the reasona bleness of the unallocated Miller-Shugart settlement
agreement. King’s Cove argues that the district court shou ld evaluate the reasonableness
of the settlement “in light of the value of the covered damage claims.” According to King’s
Cove, “[i]f the value of the covered claim ex ceeds the value of the settlement, there is no
reason to invalidate a Miller-Shugart settlement.” But we have explained that “[t]he issue
of how much of the settlement is covered is distinct from the issue of whether a settlement
is reasonable.” Jostens, Inc. v. CNA Ins./Cont’l Cas. Co. , 403 N.W.2d 625, 629 (Minn.
1987), overruled on other grounds by N. States Power Co. v. Fid. & Cas. Co. of N.Y. ,
523 N.W.2d 657 (Minn. 1994). The allocation issue relates to the relative value of covered
and uncovered claims. “An allocation is, by its very nature, a determination of the relative
value—not the absolute value—of the items being assessed.” UnitedHealth Grp. Inc. v.
Columbia Cas. Co., 47 F. Supp. 3d 863, 877 (D. Minn. 2014).
We hold that determining the reasonableness of an unallocated Miller-Shugart
settlement agreement involves a two-step inquiry. The district court first considers the

7 In the context of non- Miller-Shugart settlement agreements, we have allocated
settlement costs when there was an appropriate basis for doing so. See Jostens, Inc. v. CNA
Ins./Cont’l Cas. Co., 403 N.W.2d 625, 630–31 (Minn. 1987), overruled on other grounds
by N. States Power Co. v. Fid. & Cas. Co. of N.Y. , 523 N.W.2d 657 (Minn. 1994)
(determining the appropriate allocation of cl ass-action settlement amounts). We do not
consider the circumstances of a Miller-Shugart settlement to be so unusual as to require a
departure from this accepted procedure.

23
overall reasonableness of the settlement. If the settlement is reasonable, the district court
then considers how a reasonable person in th e position of the insured would have valued
and allocated the covered and uncovered claims at the time of the settlement.
As a threshold matter, the di strict court must find that the settlement is reasonable,
examining the value of both the covered an d uncovered claims. We have imposed a
reasonableness requirement “to di scourage possible overreaching in Miller-Shugart
settlement negotiations.” Jorgensen v. Knutson, 662 N.W.2d 893, 905 (Minn. 2003); see
Alton M. Johnson Co. , 463 N.W.2d at 280 (noting th at “the exposed insured has no
incentive to drive a hard bargai n” in settlement negotiations if it will have no personal
liability for the amount of the settlement). The plaintiff judgment creditor bears the burden
of showing that “the settlement is reasonable and prudent.” Miller v. Shugart, 316 N.W.2d
729, 735 (Minn. 1982).
The test is “what a reasonably prudent person in the position of the defendant would
have settled for on the merits” of the plainti ff’s claims at the time of the settlement. Id.
This is a multi-factor objective test, which requires the district court to consider “the facts
bearing on the liability and damage aspects” of the plaintiff’s claims. Id. The relevant
evidence regarding reasonableness includes “t he customary evidence on liability and
damages,” as well as the risks of going to trial, “the likelihood of favorable or unfavorable
rulings on legal defenses and evidentiary issues if the tort action had been tried,” expert
legal opinions, and “other factors of forensic significance.” Alton M. Johnson, 463 N.W.2d
at 279.

24
If the district court finds that the unallocated Miller-Shugart settlement agreement
is reasonable, the district court then consider s the issue of allocation. The test is how a
reasonable person in the pos ition of the insured would have valued and allocated the
covered and uncovered claims at the time of the settlement. See UnitedHealth Grp. Inc. v.
Exec. Risk Specialty Ins. Co. , 870 F.3d 856, 863 (8th Cir. 2017) (adopting a similar
allocation test in a dispute over coverage for settlements under professional liability excess
insurance policies).
Like the reasonableness inquiry, the allo cation inquiry is a multi-factor objective
test, which requires the consid eration of “any facts that be ar on the issues of liability,
damages, and the risks of trial.” Jorgensen, 662 N.W.2d at 904. The relevant evidence
regarding allocation may include (1) information that was ava ilable to the parties at the
time of the settlement regarding the underlying facts, (2) materials produced in discovery
and any court rulings in the underlying litigation, (3) evidence of how the parties and their
attorneys evaluated the claims at the time of the settlement, and (4) expert testimony about
the value of the settled claims. See UnitedHealth Grp. Inc. v. Columbia Cas. Co. , 47 F.
Supp. 3d 863, 874–75 (D. Minn. 2014) (discussi ng “several types of evidence” that are
relevant in determining “what portion of a multi-claim settlement should be allocated to a
particular claim”); Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252,
264 (4th Cir. 2006) (identifying “a variety of factors” that may be relevant in allocating
settlements). As the Eighth Circuit explained, “Events and circumstances happening after
settlement are relevant only insofar as they inform how a reasonab le party would have

25
valued and allocated the claims at the tim e of settlement.” Exec. Risk Specialty Ins. Co. ,
870 F.3d at 864.
Because the relevant evid ence on reasonableness and allocation overlaps, we
contemplate that the district court typically will consider the reasonableness and allocation
issues at the same time. If the district court finds that the unallocated settlement is
reasonable, the district court then makes an allocation ruling in light of the ultimate
coverage determination.8
We acknowledge that a post-hoc allocati on of covered and un covered claims may
in some circumstances be a difficult task for district courts. Analyses of reasonableness
are required in many areas of the law, howeve r, and district courts are asked to weigh the
relevant evidence to determin e the reasonable value of cove red and uncovered claims in
other contexts. For example, in an analogous situation involving the failure to allocate an
arbitration award between claims that were covered and not covered under a commercial
general liability policy, we directed the parties to present evidence to the district court and
stated that “the district court must, as best it can, establish the al location the arbitrator
would have made if alloca tion had been requested.” Remodeling Dimensions, Inc. v.
Integrity Mut. Ins. Co., 819 N.W.2d 602, 618 (Minn. 2012); see also RSUI Indem. Co. v.

8 The district court already ruled on the overall reasonableness of the Miller-Shugart
settlement agreement here after concluding that the United Fi re policies cover the claims
that King’s Cove brought against Lambert. United Fire challenged the district court’s
reasonableness ruling on appeal, but the court of appeals did not reach this issue. We too
do not reach this issue. The court of appeals may consider this issue on remand. Nothing
in our opinion should be construed as an expression of our views on the overall
reasonableness of the Miller-Shugart settlement agreement.

26
New Horizon Kids Quest, Inc., 933 F.3d 960, 966 (8th Cir. 2019) (applying our allocation
analysis in Remodeling Dimensions to an unallocated jury awar d). As long as the parties
present sufficient evidence, the district cour t has the expertise and authority to determine
post-hoc allocations in the Miller-Shugart settlement agreement context as well.
King’s Cove will bear the burden of proof on allocation. Placing the burden of proof
on the plaintiff judgment creditor is consistent with the general rule that “the burden of
proof rests upon the party claiming coverage under an insurance policy,” Boedigheimer v.
Taylor, 178 N.W.2d 610, 614 (Minn. 1970), as well as the more specific rule that the
plaintiff judgment creditor bear s the burden of establishing the reasonableness of a
Miller-Shugart settlement agreement, Miller, 316 N.W.2d at 735–36. See UnitedHealth
Grp. Inc. v. Columbia Cas. Co., 941 F. Supp. 2d 1029, 1036 (D. Minn. 2013) (concluding
that the insured bears the burden of proving how much of a settlement was allocated
between covered and excluded claims); cf. Bor-Son Bldg. Corp. v. Emp’rs Com. Union Ins.
Co. of Am., 323 N.W.2d 58, 64 (Minn. 1982) (concluding that the insured failed to meet its
burden of proving a re imbursement claim regarding a se ttlement under a comprehensive
general liability policy). And in the context of an arbitration award, we concluded that the
insured generally bears the burden to prove al location unless the insurer who controls the
insured’s defense “fails to make a timely disclosure of the insured’s interest in obtaining a
written explanation of the award.” Remodeling Dimensions, 819 N.W.2d at 619.
Moreover, because King’s Cove ne gotiated and was a party to the Miller-Shugart
settlement agreement, King’s Cove is “not only in a better position to know how the settling
parties valued the claims,” but also “was able to shape the record on that issue—and to do

27
so at a time when [the parties] knew that allocation would almost certainly become a crucial
issue” in the litigation. Columbia Cas. Co. , 941 F. Supp. 2d at 1036–37. The
Miller-Shugart settlement agreement here specifica lly acknowledged that “Lambert may
not have any insurance coverage for the claims alleged” by King’s Cove.
In sum, we reject a per se rule that invalidates unallocated Miller-Shugart settlement
agreements in cases involving a single defendan t. We instead adopt a flexible approach
that allows a district court to consider all relevant facts and circumstances in determining
the overall reasonableness of the settlement and in allocating the settlement between
covered and uncovered claims. We remand to the court of appeals to resolve the remaining
issues on appeal in light of the coverage determination and allocation standard that we
announce here.
CONCLUSION
For the foregoing reasons, the decision of th e court of appeals is affirmed in part,
reversed in part, and the case is remanded to the court of appeals.
Affirmed in part, revers ed in part, and remanded.