Bella Vista Condominium Association, et al., Appellants,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A20-1526

Bella Vista Condominium Association, et al.,
Appellants,

vs.

Western National Mutual Insurance Company,
Respondent.

Filed September 13, 2021
Reversed and remanded
Slieter, Judge

Goodhue County District Court
File No. 25-CV-20-520

Kay Nord Hunt, Michael R. Moline, Lommen Abdo, P.A., Minneapolis, Minnesota; and

Roger L. Kramer, Kramer Law, LLC, Mendota Heights, Minnesota (for appellants)

John M. Bjorkman, Patrick H. O’Neill III, Larson • King, LLP, St. Paul, Minnesota (for
respondent)

Considered and decided by Bryan, Presiding Judge; Reilly, Judge; and Slieter,
Judge.
NONPRECEDENTIAL OPINION
SLIETER, Judge
In this appeal from the di strict court’s grant of summa ry judgment to respondent-
insurer, appellant-claimant argues that the district court erred by granting summary
judgment on the ground that an agreement between appellant and a third-party contractor
2
was an unenforceable Miller-Shugart agreement. Because a Miller-Shugart analysis is not
an appropriate basis to gran t summary judgement, and we conclude that there remain
unresolved issues of fact, we reverse and remand.
FACTS
Bella Vista is a multi-unit condominium development in Go odhue County. A
permit was issued to build the condominium development in November of 2005, and
appellant Bella Vista Condominiu m Association (Bella Vista) was incorporated in 2006.
Numerous construction subcontr actors assisted in the cons truction of the development,
including appellant Wa tertight Specialties Inc. (Watertight), who was to serve as the
development’s waterproofing subcontractor. Watertight installed all waterproofing for the
foundation as well as water/weatherproofing for all of the residential balconies and decks
between October 2005 and February 2006.
Pursuant to allegations made by Bella Vi sta—as incorporated into an order for
default judgment against Watertight—faulty waterproofing performed by Watertight
resulted in substantial water-intrusion damage throughout the property. This damage was
first noticed in 2012 with more substantial da mage noticed in 2015, at which point Bella
Vista began further investigation into its cause. In 2016, Bella Vista brought suit against
Watertight and the other subcontractors, alleging negligence, breach of warranty, and other
causes of action. 1 Bella Vista settled the claims involving most of the defendants and, in

1 In its initial lawsuit, Bella Vista sued the general contractor who subsequently
commenced a third-party contribution action against Watertight. Bella Vista amended its
original complaint to include a direct action against Watertight.
3
September 2018, sought and obtained a defa ult judgment against Watertight and the
remaining defendants. The district court found, pursuant to affidavits and expert reports
submitted by Bella Vista, that “defects in th e construction of the [property]” had resulted
in “damages sustained by Bella Vista.” Th e district court concluded that because the
defendants had “acted in a common scheme or plan to construct the [property],” they shared
liability for the damage, “jointly and severally, in the amount of $2,919,350.”
Following default judgment, Bella Vist a contacted the insurer for the judgment-
debtor Watertight, respondent Western Nati onal Mutual Insurance Company (Western
National) and presented a claim for indemnification for the full damages amount. Western
National denied the claim, indicating that “t here [was] no coverage provided for [Bella
Vista]’s loss” because it is “unlikely” that “any alleged damage occurred before [the] policy
was canceled on April 25, 2006.”
In October 2019, Bella Vi sta commenced the current de claratory-judgment action
against both Watertight and We stern National, seeking a de claration that the Western
National insurance policy provided coverage for the damage caused to the property. While
this action was pending, Bella Vista and Watertight executed an “Assignment of Claim
under Miller v. Shugart,” in which Watertight stipulated to liability to Bella Vista as set
forth in the district court’s default judgment in the amount of $2 ,919,350 and assigned to
Bella Vista of all of Watertight’s rights to any resulting cause of action it might have against
Western National. The agreement also provided that Bella Vista would seek collection of
the default judgment only from Western National.
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The parties presented the district court with cross-motions for summary judgment.
The district court granted summary judgment to Western National, concluding that the
agreement was an unenforceable Miller-Shugart agreement.2 This appeal follows.
DECISION
Bella Vista argues that the di strict court erred by applying a Miller-Shugart3 analysis
in granting Western National summary judgment. Western National counters that Miller-
Shugart was both applicable and determinative and that, even if it were not applicable, the
district court’s grant of summary judgment was proper for a reas on not considered: the
undisputed material facts establish that the damage to the property was not insured.
A Miller-Shugart agreement is a settlement agreement in which “a plaintiff and an
insured defendant stipulate to a judgment against the defend ant on the cond ition that the
plaintiff releases the defendant from any pers onal liability and agrees to seek recovery
solely from th e insurer.” King’s Cove Marina, LLC v. Lambert Com. Constr. LLC , 958
N.W.2d 310, 320-21 (Minn. 2021 ). Such agreements are desi gned to protect defendants
should their insurer deny coverage for a plaintiff’s claims. Id. at 320.
Once an agreement has been reached, the plaintiff may “proceed[] against the
insurer in a garnishment proceeding.” Id. at 321. However, a Miller-Shugart settlement
agreement is valid only if two conditions are met: first, the insurer must receive notice of
the settlement, and second, the settlement must be “reasonable.” Id. A s s u c h , i n t h e

2 Because the district court did not consid er appellants’ motion for summary judgment,
neither do we.
3 Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982).
5
garnishment proceeding, the insurer may challenge not only the scope of coverage but also
the “validity and reasonableness of the settlement.” Id.
Summary judgment is appropriate “if the movant shows that there is no genuine
issue as to any material fact and the movant is en titled to judgment as a matter of law.”
Minn. R. Civ. P. 56.01. Appellate courts “view the evidence in the light most favorable to
the party against whom summary judgment was granted.” STAR Ctrs., Inc. v. Faegre &
Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002). In reviewing a district court’s grant
of summary judgment, appellate courts review de novo whether there were any genuine
issues of material fact and whether the distri ct court erred in its application of law.
Montemayor v. Sebright Prods, Inc. , 898 N.W.2d 623, 628 (Minn. 2017). The district
court’s determination as to the applicability of a Miller-Shugart analysis is one such issue
of law, and interpretation of the provisions of the relevant insurance policy is another. We
therefore review de novo whether the district court was correct in applying Miller-Shugart
to this matter and whether, concluding as we have that Miller-Shugart is inapplicable, the
grant of summary judgment is alternatively justified due to the insurance-policy terms.
I. Applicability of Miller-Shugart
The district court, analyzing the “Assignment of Claim under Miller v. Shugart ”
between Bella Vista and Watertight as a Miller-Shugart agreement and citing to the holding
of this court in King’s Cove Marina, LLC v. Lambert Com. Constr. LLC, 937 N.W.2d 458
(Minn. App. 2019), rev’d 958 N.W.2d 310 (Minn. 2021), concluded that the agreement’s
failure to “properly allocate between c overed and uncovered damages” rendered it per se
unreasonable and unenforceable. See id. at 470 (“Because the Miller-Shugart settlement
6
agreement did not allocate between covered and non-covered damages, it is unreasonable
as a matter of law.”).
However, we conclude that the di strict court erred by applying a Miller-Shugart
analysis in granting Western National summary judgment. As noted, in a Miller-Shugart
agreement, “a plaintiff a nd an insured defendant stipulate to a judgment against the
defendant.” Kings Cove, 958 N.W.2d at 320 (emphasis adde d). No stipulated judgment
exists between Bella Vista and Watertight. Instead, Bella Vista obtained a default
judgment against Watertight, and that judgment was obtained prior to their stipulation to
liability for the existing judgment. It was that default judgment for which it sought
enforcement in a direct action against Western National. Such a direct action is legally
appropriate. See Camacho v. Todd & Lieser Homes , 706 N.W.2d 49, 56 (Minn. 2005)
(“[I]t is a longstanding common-law rule that courts will not allow third parties to maintain
a direct action against an insurer until the third party has a judgment against the insured.”)
(emphasis added); Britamco Underwriters, Inc. v. A & A Liquors of St. Cloud, 649 N.W.2d
867, 870 (Minn. App. 2002) (recognizing rule that “plaintiff [can] not bring a direct action
against the insurer” where it “had not obtained a judgment against the tortfeasor.”).
It is the default judgment Bella Vista obt ained against Watertight, rather than the
subsequent stipulation between Bella Vista and Watertight, which gave rise to Bella Vista’s
cause of action against Western National. That Bella Vista and Watertight entered into a
stipulation to liability for that judgment which purported to incorporate some elements of
a Miller-Shugart agreement, is irrelevant to Bella Vista’s right to pursue a direct action
7
against Western National. The district court erred by applying the Miller-Shugart analysis
to grant summary judgment in this matter.4
II. Existence of Coverage
Western National argues it is entitled to summary judgment for two grounds argued
by appellant but not decided by the district court because the district court relied solely on
its Miller-Shugart analysis, which we now conclude was in error. Summary judgment may
be affirmed pursuant to reasoning other than that applied by the district court. Katz v. Katz,
408 N.W.2d 835, 839 (Minn. 1987) (“[Appellate courts] will not reverse a correct decision
simply because it is based on incorrect reas ons.”). However, neither of the alternative
grounds presented by Western National support summary judgment.
Western National first argues that Watertight’s failure to provide Western National
notice of Bella Vista’s suit “as soon as reasonably practicable,” as required by Watertight’s
insurance policy, voided any potential coverage. Second, Western National argues that
Bella Vista failed to provide an y evidence creating a genuine i ssue of material fact as to
whether property damage occurred during th e policy period. The law and the record
compels our disagreement as to each assertion. “Interpretation of an insurance policy, and
whether a policy provides coverage in a particular situa tion, are questions of law that

4 Even if application of Miller-Shugart to this matter had been appropriate, the Minnesota
Supreme Court’s recent ruling in King’s Cove, 958 N.W.2d 310 (Minn. 2021), which was
issued after the district court’s order and which created a new test for determining the
reasonableness of a Miller-Shugart agreement, would have required a remand for
application of that new test.
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[appellate courts] review de novo.” See Depositors Ins. Co. v. Dollansky, 919 N.W.2d 684,
687 (Minn. 2018) (quotation omitted).
Lack of Notice, Voiding of Coverage
“[A] trial court must determine if an in sured has met all notice requirements as a
condition precedent to determinin g whether there exists a duty to defend or indemnify.”
Hooper v. Zurich American Ins. Co. , 552 N.W.2d 31, 35 (Minn. App. 1996), rev. denied
(Minn. Sept. 20, 1996) (alteration in origin al) (quotation omitted). Once a failure to
provide timely notice has been established, the insurer must then show “prejudice from the
insured’s delay in giving notice of a claim.” Id. at 36. Western National argues that it “had
no notice from Watertight concerning the la wsuit and [Watertight] never tendered its
defense of the suit prior to entry of the defa ult judgment,” and that it was prejudiced as a
result of this lack of notice. Therefore, Western National argues, “[t]his lack of notice
voids any coverage that migh t otherwise have been availa ble.” Appellants claim that
Western National “waived any late notice argument” due to their failure to assert such an
argument in their initial coverage denial letter. Appellants are correct.
Denial of liability on grounds other than notice constitutes waiver of the defense
that timely notice was not given. See Johnson v. Bankers’ Mut. Cas. Co. , 151 N.W. 413,
415 (Minn. 1915); see also Food Market Merchandising, Inc. v. Scottsdale Indem. Co., 857
F.3d 783, 788-89 (8th Cir. 2017), quoting Minnesota Farm Bureau Serv. Co. v. Am. Cas.
Co. of Reading, Pa., 167 F. Supp. 315, 319 (D. Minn. 19 58) (“It is the law in Minnesota
and many other jurisdictions that a refusal by an insurer to pay a claim or to defend an
action on the grounds that the loss occurred in consequence of risk not covered by the
9
policy is in itself a waiver of the policy provisions requiring notice.”). Western National’s
letter denying coverage stated its denial was because “there [wa]s no cove rage provided
for th[e] loss under the Commercial General Li ability Policy covering Watertight.” The
denial letter made no mention of late notice as its reason for denial. Therefore, the lack of
notice argument was thereby waived. Johnson, 151 N.W. at 415.5
Damage During Policy Period
Western National argues that the record wa s insufficient to create a genuine issue
of material fact as to whether damage oc curred during the policy period. Watertight’s
insurance policy was effective from May 17, 2005 until its cancellation on April 25, 2006.
The policy states that Western National “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.” The policy further stated that it “applie[d] to . . . ‘property
damage’ only if . . . [t]he . . . ‘property damage’ [wa]s caused by an ‘occurrence’ that t[ook]
place . . . during the policy period.”
Policies such as this, which are triggere d by an “occurrence,” are subject to the
“actual-injury” trigger rule. In re Silicone Implant Ins. Coverage Litigation, 667 N.W.2d
405, 415 (Minn. 2003) (quotation omitted). “Whether damages . . . actually occurred
within the policy coverage period is a question of fact.” Westfield Ins. Co. v. Kroiss, 694
N.W.2d 102, 106-107 (Minn. App. 2005), rev. denied (Minn. Jun. 28, 2005). Pursuant to
the actual-injury rule, “the time of the occurrence is . . . the time the complaining party was

5 Because we find any claim of late notice to be waived, we need not reach the issue of
whether Western National was prejudiced by a lack of notice.
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actually damaged.” Singsaas v. Diederich , 238 N.W.2d 878, 880 (Minn. 1976). “For
purposes of the actual-injury trigger theory, an injury can occur even though the injury is
not diagnosable, compensable, or manifest during the policy period as long as it can be
determined, even retroactively, that some injury did occur during the policy period.” In re
Silicone, 667 N.W.2d at 415 (emphasis added) (quotations omitted). Therefore, to trigger
Watertight’s policy coverage, Bella Vista “must show that some damage occurred during
the policy period.” Id.; N. States Power Co. v. Fide lity and Casualty Co. of N.Y. , 523
N.W.2d 657, 663 (Minn. 1994).
Bella Vista maintains that the act ual injury—improper installation of
waterproofing—caused immediate water intrusion and damage. In support of this assertion
and in response to Western National’s summ ary judgment motion, Bella Vista submitted
to the district court an expert report from Encompass Engineering Consultants
(Encompass). Encompass had performed “n umerous inspections of reported water
intrusion issues occurring at the Bella Vi sta Condominiums” and concluded that the
deficient waterproofing caused damage that “would have begun immediately following []
installation.” The Encompass report, therefore, directly supports th e proposition that the
actual injury—in the form of water damage—occurred during the policy period. Viewed
in the light most favorable to the Bella Vista, this creates a genuine issue of material fact
as to whether that injury occurred during the policy period.
6

6 Western National additionally argues that Bella Vista is collaterally estopped from
arguing that it experienced damage immedi ately upon installation of the defective
waterproofing because it previously argued, in the underlying suit against Watertight, that
no damage to the building was discovered befo re 2012. However, th e first element of
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In summary, we conclude that the dist rict court erred by its application of a Miller-
Shugart analysis to this matter and, therefore, its grant of summary judgment was error.
Furthermore, because the record establishes genuine issues of material fact as to whether
the damage to the property occurred during the insurance coverage period, summary
judgment for that reason is also not appropriate.
Reversed and remanded.

collateral estoppel is that “the issue was identical to one in a prior adjudication.” Nelson
v. Am. Family Ins. Grp., 651 N.W.2d 499, 511 (Minn. 2002) (quotation omitted). As noted
above, “[f]or purposes of the actual-injury trigger theory, an injury can occur even though
the injury is not diagnosable . . . as long as it can be determin ed . . . that some injury did
occur during the policy period.” In re Silicone, 667 N.W.2d at 415 (quotation omitted).
Therefore, though the previous ly litigated issue relating to the issue of the statute of
limitations revolved around the issue of when the injury was discovered, the current issue
is when the first instance of damage occurred.