King’s Cove Marina, LLC, Respondent,

STATE OF MINNESOTA
IN COURT OF APPEALS
A19-0078

King’s Cove Marina, LLC,
Respondent,

vs.

Lambert Commercial Construction LLC, et al.,
Defendants,

United Fire & Casualty Company,
Appellant.

Filed December 16, 2019
Reversed and remanded
Slieter, Judge

Washington County District Court
File No. 82-CV-14-527

Stephen P. Watters, Watters Law Office, Minnetonka, Minnesota; and

Mark R. Bradford, Bassford Remele, Minneapolis, Minnesota (for respondent)

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

Considered and decided by Cochran, Presiding Judge; Slieter, Judge; and Klaphake,
Judge.
S Y L L A B U S
A Miller-Shugart settlement agreement that fails to allocate covered and non-
covered damages is unreasonable as a matter of law and unenforceable against the insurer.

 Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.

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O P I N I O N
SLIETER, Judge
This appeal arises out of a Miller-Shugart settlement agreement 1 between
respondent King’s Cove Marina LLC and defendant Lambert Commercial Construction
LLC, and a subsequent garnishment action filed by the marina against Lambert’s insurance
company, appellant United Fire & Casualty Company. The district court granted partial
summary judgment in the marina ’s favor on coverage issues and approved the Miller-
Shugart settlement agreement. On appeal, United Fire argues that the district court erred
by granting partial summary judgme nt in the marina’s favor on coverage issues and by
approving the Miller-Shugart settlement agreement. Because an applicable policy
exclusion limits Lambert’s coverage and the Miller-Shugart settlement agreement failed to
allocate between covered and non-covered damages, the agreement is unreasonable as a
matter of law . As a result, we reverse and remand the district court’s grant of partial
summary judgment . Because we reverse and remand, w e do not reach the additional
arguments asserted by United Fire or the argument asserted by the marina on cross-appeal.
FACTS
King’s Cove Marina is a full-service marina in Hastings. In 2011, the marina sought
to expand and remodel its main building by installing new exterior walls, a new ceiling,

1 “In a Miller-Shugart settlement, the insured, having been denied any coverage for a claim,
agrees claimant may enter judgment against him for a sum collectible only from the
insurance policy. To be binding on the insurer if policy coverage is found to exist, the
settlement amount must be reasonable.” Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d
277, 278 n.1 (Minn. 1990). See Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982).

3
new windows, and a new second -level mezzanine floor above the showroom floor. The
marina hired Lambert to perform construction work on the remodeling project, although
the parties disagree over the nature and extent of Lambert’s involvement. The marina
claims that Lambert served as the project’s general contractor, while Lambert argues that
it was hired on a time -and-materials basis. However, it is uncontested that Lambert
supplied pre-engineered metal building products, supplied and erected the metal building
addition, supplied the exterior metal roof and metal wall paneling, supplied the metal
insulation, and supplied and installed window trim . Lambert also hired Roehl
Construction, Inc. as a subcontractor to install new concrete footings on the main level of
the building and to provide concrete for the second-level mezzanine floor.
During the course of the remodeling project in 2012, the marina’s president wrote a
letter to Lambert explaining that there were problems with “extremely large cracks” on the
first and second floors, and “cracking, popping and buckling ” of the concrete floor. The
letter stated that both the first and second floors required “significant and expensive repairs
to the concrete and in floor heating system.” The marina also identified problems with
leaking from the walls and the roof, leading to damage to the interior finishes and to ceiling
tiles, carpet, and sheetrock. The marina refused to pay th e outstanding balance on
Lambert’s invoices and, in response, Lambert stopped performing work on the project.
In July 2013, the marina initiated a civil action against Lambert, asserting causes of
action for breach of contract and negligence. 2 Specifically, the marina alleged that the

2 The marina’s complaint also asserted causes of action against Roehl Construction Inc.
and Majeski Plumbing Inc. for alleged defects in work performed at the marina. Majeski

4
concrete floors on the first and second levels were not constructed in accordance with
industry standards or with project plans and specifications, resulting in excessive
movement and cracking of the new concrete floors. The marina also alleged defects with
Lambert’s metal building products and metal roof, and claimed that the in-floor heating
systems were not ins talled properly, causing the concrete floors to move, crack, and
expand. Lambert tendered its defense to its insurer, United Fire, who defended Lambert
under a reservation of rights to deny any duty to defend or indemnify Lambert.
In July 2015, two years after the initial lawsuit, United Fire commenced a
declaratory-judgment action against Lambert and the marina, seeking a ruling that United
Fire did not have a duty to defend or indemnify Lambert under the terms of its commercial
general liability and umbrella insurance policies. While the declaratory-judgment action
was pending, Lambert and the marina entered into settlement negotiations to resolve the
underlying lawsuit. United Fire received notice of a proposed Miller-Shugart settlement,
but did not participate in the settlement discussions.
On June 23, 2016, Lambert and the marina entered into a Miller-Shugart settlement
agreement in which Lambert confessed judgment in the marina’s favor in the amount of
$2 million, plus interest. The Miller-Shugart settlement agreement was expressly limited
to claims and damages for work performed by Lambert. On July 18, 2016, the district court

was dismissed from the action and is not a party to the appeal. In June 2018, the claims
between the marina and Roehl were determined by a jury trial, and Roehl is not a party to
this appeal.

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approved the Miller-Shugart settlement agreement between the marina and Lambert and
entered judgment against Lambert.
Following approval of the Miller-Shugart settlement agreement, the marina moved
to file a supplemental complaint for garnishment against United Fire, and the district court
granted that motion . United Fire answered, asserting in part that the settlement was
unreasonable to the extent it incorporated, but failed to allocate, covered and non-covered
damages.
In November 2016, the marina moved for partial summary judgment against United
Fire, seeking a determination that there is insurance coverage under the terms of the
policies.
In April 2017 , the district court determined that there was insurance coverage for
the claims and damages asserted by the marina against Lambert . The district court
concluded that United Fire provided coverage and insured Lambert “for defects related to
or arising from the work and operations performed by Lambert on the project, the products
or goods incorporated in the project, and the work performed ‘on its behalf, ’ such as b y
[Lambert’s subcontractors].”
In August 2018, following a hearing, the district court issued an order determining
that the Miller-Shugart settlement agreement between the marina and Lambert was
reasonable and enforceable against United Fire. The district court also issued an amended
order for judgment removing Lambert as the judgment debtor and naming United Fire as
the judgment debtor for the judgment entered against Lambert on July 18, 2016. United
Fire filed posttrial motions for a new trial or for amended findings, which the district court

6
denied. The district court also denied the marina ’s motion for pre - and post -judgment
interest. These appeals follow.3
ISSUES
I. Did the district court err in determining that Lambert had insurance coverage
for the claims and damages asserted by the marina and settled in the Miller-
Shugart settlement agreement?

II. Did the district court err in determining that the Miller-Shugart settlement
agreement was reasonable and prudent despite its lack of allocation between
covered and non-covered damages?

ANALYSIS
I.
A. Standard of Review
United Fire challenges the district court’s grant of partial summary judgment in the
marina’s favor. Summary judgment is appropriate “if the movant shows that there is no
genuine issue as to any material fact and the movant is entitled to judgment as a matter of
law.” Minn. R. Civ. P. 56.0 1.4 On appeal from summary judgment, a reviewing court
reviews de novo whether there are any genuine is sues of material fact and whether the

3 United Fire asserts on appeal that (1) the district court erred by granting the marina leave
to serve and file a supplemental complaint 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. By notice of related appeal, the marina also argues that the district court
erred by denying its request for an award of pre - and post-judgment interest. Because we
reverse and remand for the reasons stated in this opinion, we do not address the additional
arguments raised by the parties.
4 The district court applied the former version of rule 56 which at the time was Minn. R.
Civ. P. 56.03. The rule was recently “revamped” to more “closely follow” the federal rules
and was renumbered to Minn. R. Civ. P. 56.01. Minn. R. Civ. P. 56 2018 advisory comm.
cmt.

7
district court erred in its application of the law. STAR Ctrs., Inc. v. Faegre & Benson,
L.L.P., 644 N.W.2d 72, 77 (Minn. 2002). The interpretation of an insurance policy is a
question of law subject to de novo review. Travelers Indem. Co. v. Bloomington Steel &
Supply Co., 718 N.W.2d 888, 894 (Minn. 2006).
B. Existence of Policy Coverage
Where both the scope of an insurance policy’s coverage and the enforceability of a
Miller-Shugart settlement agreement are at i ssue, we first consider the scope of the
coverage. Alton M. Johnson Co. , 463 N.W.2d at 278-79. “If there is found to be 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.” Id. The
marina, as the party seeking to enforce the Miller-Shugart settlement agreement, had the
burden of demonstrating that claimed damages are covered by United Fire ’s insurance
policies. See Domtar, Inc. v. Nia gara Fire Ins. Co. , 563 N.W.2d 724, 736 (Minn. 1997)
(discussing burden of proof on coverage).
When interpreting insurance policies, a reviewing court applies general principles
of contract interpretation. Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249
(Minn. 1998). “If the language of an insurance contract is unambiguous, it must be given
its plain and ordinary meaning.” Travelers Indem. Co. , 718 N.W.2d at 894. “Coverage
provisions are construed according to the expectations of the insured.” Id. “While the
insured bears the initial burden of demonstrating coverage, the insurer carries the burden
of establishing the applicability of exclusions.” Id.

8
The policy language at issue i n United Fire ’s Commercial Gen eral Liability
Coverage Form, provides as follows:
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury ” or
“property damage” to which this insurance applies. We will
have the right and duty to defend the insured against any “suit”
seeking those damages. However, we will have no duty to
defend the insured against any “suit” seeking damages for
“bodily injury” or “property damage” to which this insurance
does not apply.
. . . .
b. This insurance applies to ‘bodily injury’ and ‘property
damage’ only if:
(1) The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory[.]”
“Property damage” is defined as “physical injury to tangible property,” including
“all resulting loss of use of that property” or “loss of use of tangible property tha t is not
physically injured.” An “occurrence” is “an accident, including continuou s or repeated
exposure to substantially the same general harmful conditions.” The term “accident” is not
defined by the insurance policy.
The district court concluded that the marina suffered “property damage,” and that
the damage was caused by an “occurrence.” With regard to “property damage,” the district
court concluded that there is “clearly ‘physical injury to tangible property’ arising from the
actions of Lambert and the subcontractors working on its behalf,” including water intrusion
in the walls a nd roof, the cracking and chipping of the concrete on the first and second
floors, and related damage. The district court determined that this damage “clearly meet[s]

9
the definition of ‘property damage’ under the policies.” In light of this determination, the
district court concluded that there was coverage under United Fire’s policy.
On appeal, United Fire argues that Lambert’s poor workmanship and failure to
fulfill its contractual duties does not constitute an occurrence of property d amage. We
disagree. An independent investigation into the causes of the construction defects at the
property concluded that construction deficiencies “allow[ed] significant interior moisture
laden air to infiltrate into the walls or attics.” Because t he moisture could not dry
completely, the trapped moisture in the insulated spaces “create[d] several problems,
including staining, dripping, degradation of the thermal performance and the effective
service life of the insulation system and corrosion of meta l components.” Additionally,
the defects potentially caused “undesirable microbial problems such as staining that
appeared to be organic growth and odors.” The investigation also uncovered cracks in the
concrete floors as “a result of shrinkage during th e initial drying process” caused by “the
omission of control joints and welded wire fabric reinforcement in the concrete.” We
discern no error in the district court’s determination that the marina suffered “property
damage” as defined by the terms of the insurance policy.
With regard to whether the damage was caused by an “occurrence,” United Fire
argues that the property damage arose as a result of Lambert’s failure to perform its work
completely and properly. Lambert acknowledged that it did not finish certain aspects of
the construction work, including work related to the window trim. United Fire argues that
Lambert’s failure to complete its work does not constitute an “accident,” and therefore
cannot be an “occurrence.” Minnesota courts define the te rm “accident” under a

10
commercial general liability policy as an “unexpected, unforeseen or undesigned
happening or consequence.” Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn.
2001); see also Remodeling Dimensions, Inc. v. Integrity Mut. Ins. C o., 819 N.W.2d 602,
611 (Minn. 2012). Further, “where there is no intent to injure, the incident is an accident,
even if the conduct itself was intentional.” Am. Family Ins. Co., 628 N.W.2d at 612. Such
determinations are made through a “case by case factual inquiry.” Id. at 613.
The district court’s opinion was informed by the Remodeling Dimensions case,
which held that moisture damage resulting from “continuous or repeated exposure” to
water intrusion into a building constitutes an “occurrence” under a commercial general -
liability insurance policy similar to the policy at issue here. 819 N.W.2d at 611. Applying
Remodeling Dimensions to undisputed facts of this case, the district court found that the
“occurrences” at the marina’s main building “were the result of ‘continuous or repeated
exposure to substantially the same general harmful conditions.’” The district court rejected
United Fire’s argument that the damages were caused by Lambert’s “intentional deviation”
from the construction plans , noting that there was no evidence that Lambert intended to
cause harm or property damage to the marina’s main building.
Damage resulting from “ grossly, obviously defective workmanship ” or “obvious
violations of contract standards of workmanship are not ‘unexpect ed,’” and an insured
cannot be covered for such results. Johnson v. AID Ins. Co. of Des Moines, I owa., 287
N.W.2d 663, 664-65 (Minn. 1980). But here, Lambert did not make “willful and knowing
violations of contract specifications” or of expected standard s of workmanship. See id.
(noting that insured contractor’s willful and knowing violations of contract specifications

11
and expected standards of workmanship d id not constitute “occurrence” under standard
liability insurance-policy language); see also Ohio Cas. Ins. Co. v. Terrace Enters ., Inc.,
260 N.W.2d 450, 452-53 (Minn. 1977) (reasoning that contractor’s faulty work constituted
an “occurrence,” where contractor’s work “was perhaps negligent, but not reckless or
intentional”). Thus, the district court d etermined that “[a]s it is undisputed that Lambert
did not intend to cause property damage to the building, there are ‘occurrences’ as defined
by the policy.” Because the district court found that there were “occurrences” resulting in
“property damage,” it concluded that United Fire’s insurance policy provided coverage for
the marina’s damages. We discern no error in this determination.
C. Existence of Policy Exclusion
“If the insured meets its burden of establishing coverage of the claim, the burden
shifts to the insurer to prove the applicability of an exclusion under the policy as an
affirmative defense.” Remodeling Dimensions, 819 N.W.2d at 617. “ Insurance contract
exclusions are construed narrowly and strictly against the insurer, and, like coverage, in
accordance with the expectations of the insured.” Travelers Indem. Co. , 718 N.W.2d at
894 (citation omitted).
United Fire’s insurance policy provides that property damage coverage is limited
by 12 exclusions. United Fire argued that e xclusions j(5), j(6), l, and m —known as the
“business risk exclusions”—bar coverage for damages arising out of Lambert’s work at the
marina. The district court rejected United Fire’s argument and concluded that none of the
policy exclusions applied. We reverse the district court with respect to the applicability of
exclusion l, which excludes coverage for damages arising from Lambert’s own work.

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“Generally, a business -risk exclusion is predicated on the business -risk doctrine,
which excludes coverage for property damage caused by the insured ’s ‘faulty
workmanship’ where the damages claimed are the cost of correcting the work itself. ”
Remodeling Dimensions, 819 N.W.2d at 611. In exclusion l, United Fire’s insurance policy
excludes coverage for damages associated with Lambert’s work . This provision excludes
coverage for:
“Property damage” to “your work” arising out of it or
any part of it and included in the “products -completed
operations hazard.”
This exclusion does not apply if the damaged work or
the work out of which the damage arises was performed on
your behalf by a subcontractor.
Under the terms of the insurance policy, “you” and “your” refer to Lambert. The
term “Your work” is defined as “work or operations” performed by the i nsured, or on the
insured’s behalf, along with “[m]aterials, parts or equipment furnished in connection with
such work or operations.” It also includes “warranties or representations.” This provision
also includes work arising out of or related to the pr oducts-completed operations hazard .
The products-completed operations hazard includes, with certain exceptions, “all ‘bodily
injury’ and ‘property damage’ occurring away from premises you own or rent and arising
out of ‘your product’ or ‘your work.’” The Minnesota Supreme Court has explained that
[a] comprehensive general liability policy provides protection
to an insured, generally a contractor, under premises -
operations coverage, who performs work at various locations
but once such operation has been co mpleted, as defined, it is
excluded under the policy and if the insured requires liability
protection from losses that may occur from its work product it

13
then must carry completed operations coverage or else it is
without protection.
R.E.M. IV, Inc. v. Robert F. Ackermann & Assocs., Inc., 313 N.W.2d 431, 435 (Minn. 1981)
(quoting 7A John Alan Appleman, Insurance Law & Practice § 4508.03 (1979)).
Minnesota caselaw analyzing the “your work” exclusion under the business -risk
doctrine recognizes that it bars coverage for the costs associated with repairs of the
insured’s defective work, such that there is no coverage for costs incurred during the
“repair” or “redoing” of the insured’s defective work. See Corn Plus Coop. v. Cont’l Cas.
Co., 516 F.3d 674, 680 (8th Cir. 2008) (citing Bright Wood Corp. v. Bankers Standard Ins.
Co., 665 N.W.2d 544, 548-49 (Minn. App. 2003) (barring coverage for damages associated
with the cost of repairing or replacing an insured’s defective product or work)); see also
22 Britten D. Weimer, Clarance E. Hagglund & Andrew F. Whitman Minnesota Practice,
§ 5:11 (2018 ed.)
Here, any costs associated with repairing or replacing Lambert’s faulty work are
barred by exclusion l. It is uncontested that Lambert’s work included supplying and
installing the exterior metal roof and metal wall paneling, as well as s upplying the metal
insulation, vapor barrier, steel girders, and wood flooring . Lambert also framed window
openings and installed trim materials around exterior windows. The record establishes that
Lambert—rather than its subcontractors —performed this wo rk. Further, the Miller-
Shugart settlement agreement states that “Lambert performed all Roofing and Siding work
and operations on the project,” and the “[t]otal cost of repair damages related to the Roofing
and Siding work by Lambert, as opposed to work and operations by any other defendants,

14
is determined by taking the Roof and Siding damage amounts plus a proportionate sh are
of the general damages.” As it is uncontested that the marina’s claimed damages arose at
least in part out of Lambert’s work, any damages associated with repairing Lambert’s work
are excluded from insurance coverage under the plain language of exclusion l. See Corn
Plus Coop., 516 F.3d at 680. The district court erred by failing to apply exclusion l to bar
coverage for this aspect of the marina’s claims.
Exclusion l includes an exception, stating that “[t]his exclusion does not apply if the
damaged work, or the work out of which the damage arises was performed on your behalf
by a subcontractor.” The marina bears the burden of establishing that the subcontractor
exception to the exclusion applies. See Midwest Family Mut . Ins. Co. v. Wolters ,
831 N.W.2d 628, 636 (Minn. 2013) (discussing burden of proof for exception to
exclusion). The district court held that exclusion l does not bar coverage for the damage
to the marina ’s property because “[t]he concrete work was performed by Roehl
Construction, which subcontracted with Lambert.” The district court reasoned that “[t]he
subcontractor exception to the ‘your work’ exclusion has been recognized as restoring
coverage to claims that would otherwise be excluded as property damage to the insured’s
own work.” See O’Shaughnessy v. Smuckler Corp., 543 N.W.2d 99, 104-05 (Minn. App.
1996) (determining there was coverage under commercial general liability policy when
damage to insured ’s work was caused by work performed on insured ’s behalf by
subcontractor), review denied (Minn. Mar. 28, 1996). The record demonstrates that Roehl
was Lambert’s only subcontractor, and that Roehl performed concrete work on the
building. However, the Miller-Shugart settlement agreement is limited to roofing and

15
siding performed by Lambert , and specifically excluded the concrete work perfor med by
Roehl. Thus, the subcontractor exception to exclusion l does not apply to the claims at
issue in the Miller-Shugart settlement agreement.
Moreover, the district court failed to distinguish between damages 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. Specifically, the marina asserted that it
suffered damage to existing sheetrock, tiles, carpet, and the floor. A claim for damages
caused by Lambert’s work to preexisting structures located adjacent to the work performed
by Lambert would, if proven, be covered under the insurance policy and not excluded by
exclusion l. See Remodeling Dimensions, 819 N.W.2d at 612 (holding that a “your work”
exclusion did not apply to preclude coverage for damage caused to preexisting adjacent
walls and structures that were not otherwise part of contractor’s work).
Because the district court erred by failing to apply exclusion l to at least some of the
marina’s claims and damages, and because the subcontractor exception to exclusion l does
not apply, the district court erred in its coverage determination.5
II.
Following approval of a Miller-Shugart settlement agreement, in addition to
coverage, the insurer may challenge the validity and reasonableness of the settlement. See
Miller, 316 N.W.2d at 733 -35 (establishing insurer’s right to challenge Miller-Shugart

5 Because our determination that the district court erred by concluding that exclusion l did
not bar coverage resolves this appeal , we do not c onsider whether the marina’s damages
are barred under exclusions j(5), j(6), or m.

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settlement in garnishment or declaratory-judgment proceeding); see also Alton M. Johnson
Co., 463 N.W.2d at 279 (add ressing reasonableness of Miller-Shugart settlement). The
insurer is permitted to challenge reasonableness after approval of the settlement because
the judgment entered against the insured is not “an adjudication on the merits” and the
insured “would have been quite willing to agree to anything as long as plaintiff promised
them full immunity.” Miller, 316 N.W.2d at 735. The district court has broad discretion
to conduct an objective inquiry into the overall reasonableness of the Miller-Shugart
settlement agreement. Alton M. Johnson Co., 463 N.W.2d at 279 (“The test as to whether
the settlement is reasonable and prudent is what a reasonably prudent person in the position
of the [insurer] would have settled for on the merits of [claimant’s] claim.”).
In June 2016, Lambert and the marina entered into a Miller-Shugart settlement
agreement in which Lambert confessed judgment in the marina’s favor for $2 million, plus
interest. The settlement covered the marina’s damages “for the work provided by Lambert,
including the roof and siding of the Main Building.” The district court approved the
settlement agreement in July 2016, determining that the ag reement was reasonable. The
district court noted that Lambert “fac[ed] the possibility of substantial damages” and that,
by settling, Lambert “avoid[ed] the possibility of a jury awarding damages which might
put [the company] out of business because United Fire was contesting their duty to defend
and indemnify.” The district court further stated:
The Miller/Shugart agreement was entered into on June 23,
2016, almost a year after the filing of the declaratory judgment
action. For all of that time, and until the court found that
United Fire had an obligation to defend and indemnify Lambert
by its order of April 24, 2 017, Lambert was exposed to the

17
potential of up to $5.2 million in damages, without insurance
to cover the potential damage award. A high jury verdict could
have easily put Lambert out of business, depriving him of his
livelihood. Faced with conflicting opinions [regarding the
scope of damages], and in light of the potential damages facing
him, the court finds that the $2,000,000 agreed upon in the
Miller/Shugart agreement was entirely reasonable from the
perspective of Lambert.
A Miller-Shugart settlement agreement is invalid and unenforceable when the
parties fail to allocate liability and damages among various defendants. Bob Useldinger &
Sons, Inc. v. Hangsleben , 505 N.W.2d 323, 331 (Minn. 1993). The Useldinger decision
reasoned 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.” Id. at 33 1. Relatedly, the Eighth Circuit has applied Useldinger to
conclude that a Miller-Shugart settlement agreement that encompasses both covered and
non-covered damages under the insured’s commercial general -liability insurance policy,
but fails to allocate between covered and non -covered damages, is also unreasonable as a
matter of law . Corn Plus Coop. , 516 F.3d at 681 ( “[F]ailure to allocate the settlement
amount by damage item precludes enforcement of a Miller-Shugart agreement consisting
of covered and non-covered claims.”).
As discussed above, Lambert’s insurance policy wit h United Fire expressly
excluded coverage under exclusion l for damages arising from Lambert’s own work.
Under the terms of the insurance policy, United Fire is not responsible for repair or
replacement costs incurred as a result of Lambert’s own defectiv e work. However, the
district court failed to distinguish between repair-and-replacement damages caused by

18
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. Accordingly, the parties were required to identify those covered and non -covered
damages in their Miller-Shugart agreement.
The marina , as the part y seeking to enforce the Miller-Shugart settlement
agreement, bear s the burden of establishing this allocation between covered and non -
covered damages. See Ebenezer Soc’y. v. Dryvit Sys., Inc., 453 N.W.2d 545, 549 (Minn.
App. 1990) (holding that party who fails to allocate in settlement agreement for covered
and non-covered claims cannot establish probable cause). The Miller-Shugart settlement
agreement in this case does not allocate between covered and non -covered damages. A
settlement agreement that “encompassed settlement of claims for some damages for which
there was no coverage and . . . failed to allocate the settlement amount among covered and
non-covered claims” is “unenforceable as a matter of law.” Interlachen Props., LLC v.
State Auto Ins. Co., 275 F. Supp. 3d 1094, 1111 (D. Minn. 2017) (citing Corn Plus Coop.,
516 F.3d at 681).6
Because the Miller-Shugart settlement agreement did not allocate between covered
and non-covered damages, it is unreasonable as a matter of law. We therefore reverse and
remand to the district court for further proceedings consistent with this opinion.

6 Although not precedential authority, we find the reasoning in Interlachen persuasive. See
Hinckley Square Assocs. v. Cervene, 871 N.W.2d 426, 430 (Minn. App. 2015) (noting that
federal law is not binding on Minnesota courts but may be persuasive).

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D E C I S I O N
The district court erred in granting partial summary judgment on coverage in the
marina’s favor because an exclusion to the insurance policy, exclusion l, applies to the facts
of this case and excludes certain damages caused by Lambert’s work. Further, as the
Miller-Shugart settlement agreement fails to allocate between covered and non -covered
damages, it is unreasonable as a matter of law and unenforceable against the insurer. We
therefore reverse and remand.
Reversed and remanded.