author: KALITOWSKI, Judge.

text:
    RIVER CITY MORTGAGE CORPORATION, d/b/a River City Mortgage & Financial, Appellant, v. Gary J. BALDUS, Respondent, Darrell Thompson, Respondent, Statewide Lending Corporation, Respondent.
    No. A04-1338.
    Court of Appeals of Minnesota.
    April 19, 2005.

      Wayne E. Gilbert, River City Mortgage Corporation, Eagan, MN, for appellant.
    Steven J. Heim, Shannon M. Heim, Dorsey & Whitney LLP, Minneapolis, MN, for respondent Gary J. Baldus.
    Darrell J. Thompson, Eagan, MN, pro se respondent.
    Statewide Lending Corporation, Cannon Falls, MN, respondent.
    Considered and decided by KALITOWSKI, Presiding Judge; KLAPHAKE, Judge; and PETERSON, Judge.
   OPINION

KALITOWSKI, Judge.

On appeal in this real-estate financing contract dispute, appellant-lender argues that (a) the district court erred in finding that the rate-lock agreement it entered into with respondent-Baldus had no definite expiration date and was unenforceable under Minn.Stat. § 47.206 (2004); (b) even if Minn.Stat. § 47.206 was violated, the violation renders the contract voidable rather than void; (c) as a matter of law, respondent-Baldus anticipatorily breached the contract and appellant’s right to sue accrued at the time of breach, rather than the closing date; and (d) appellant established that respondents Thompson and Statewide Lending Corporation tortiously interfered with appellant’s contractual relations with respondent-Baldus; thus, even if the contract was invalid as to respondent-Baldus, the defense that the contract is voidable is not available to third-party tortfeasors Thompson and Statewide Lending Corporation.

FACTS

On July 24, 2002, respondent-Baldus (Baldus) applied for a mortgage loan with appellant River City Mortgage (appellant) to finance the purchase of a new home. And on August 29, 2002, Baldus entered into a Mortgage Loan Lock Agreement (rate-lock agreement) with appellant, where appellant agreed to provide a guaranteed interest rate of 6.25% if Baldus closed on his new home before November 25, 2002.

The record indicates that on October 4, 2002, Baldus submitted a separate nonbinding loan application to respondent-statewide Lending (Statewide). Baldus’s closing was subsequently postponed because of delays on the part of Baldus’s builder. Baldus eventually closed a mortgage loan with Statewide on January 6, 2003. Appellant filed suit against Baldus, Statewide, and Statewide’s agent — respondent-Thompson (Thompson) — on April 14, 2003, alleging breach of contract, fraud, and bad faith against Baldus; and tortious interference with contract against Statewide and Thompson individually.

On May 12, 2004, the case proceeded to trial before the Dakota County District Court. The district court entered its order on June 16, 2004, finding that the rate-lock agreement was unenforceable under Minn.Stat. § 47.206 (2004). The court based this finding on the language of the rate-lock agreement, which states:

The Interest Rate, Points and Program will be Locked-in under the following terms:
1. 11/25/02 Expiration Date (LOAN MUST CLOSE AND DISBURSE ON OR BEFORE THIS DATE)
2. 6.25% Interest Rate Per Annum
3. 0 Discount Points
4. Arms Only: _% Margin_% Annual Cap_% Lifetime Cap
5. Commitment Fee: $395.00
If the loan does not close on or before the Expiration Date, the Loan will be re-priced and closed at the greater of (a) the Interest Rate and Discount which RCMF is then willing to make the Loan in view of prevailing market conditions, or (b) the terms shown above.

Specifically, the district court recognized that the “writing did provide an ‘Expiration Date’ for the Lock Commitment.” But the court also found that the agreement “contained language which kept ... Baldus bound to borrow at a potentially higher rate once the ‘Expiration Date’ for the Lock had passed,” and there was “no indication of how long Baldus was bound to borrow from [appellant] if he did not do so while the Lock was in effect.” And, “[a]s such, there was no ‘definite expiration date or term of the agreement’ as required by the statute. Accordingly, the writing was not a valid contract, and there can be no breach of contract.” Finally, the district court held that “because the additional counts of [appellant’s] complaint ... are all reliant in some way on there being a valid contract in this matter, [appellant] cannot prevail on these counts in light of the Court’s conclusion that there was no valid contract in this case.” This appeal followed.

ISSUE

Did the district court err in finding that because the terms of appellant’s rate-lock agreement violate the requirements of Minn.Stat. § 47.206, subds. 2, 3 (2004), the agreement was unenforceable?

ANALYSIS

In a bench trial, this court is limited to determining whether the district court’s findings are clearly erroneous and whether the court erred in its conclusions of law. Leininger v. Anderson, 255 N.W.2d 22, 26 (Minn.1977). But statutory construction is a question of law, which this court reviews de novo. Brookfield Trade Ctr., Inc., v. County of Ramsey, 584 N.W.2d 390, 393 (Minn.1998).

I.

The questions of whether the rate-lock agreement here violates the requirements of Minn.Stat. § 47.206 (2004), and, if so, whether such a violation makes the agreement unenforceable as a matter of law, are questions of first impression. It is well settled that, when interpreting a statute, we must first determine whether the statute’s language, on its face, is clear or ambiguous. Baker v. Ploetz, 616 N.W.2d 263, 268 (Minn.2000). Where the language of the statute is clear, statutory construction is not only unnecessary, it is not permitted. State by Beaulieu v. RSJ, Inc., 552 N.W.2d 695, 701 (Minn.1996); see also Minn.Stat. § 645.16 (2004) (absent ambiguity, the letter of the law shall not be disregarded under the pretext of pursuing its spirit). And Minnesota statutes must be interpreted to give effect to all provisions and avoid rendering any one meaningless. Minn.Stat. §§ 645.16, .17 (2004).

Section 47.206, subdivision 2, states, in relevant part, that:

A lender offering borrowers the opportunity to enter into an agreement in advance of closing shall disclose, in writing, to the borrowers at the time the offer is made: (1) a definite expiration date or term of the agreement, which may not be less than the reasonably anticipated closing date or time required to process, approve, and close the loan....

In addition, section 47.206, subdivision 3, states that “[a] borrower or lender may not maintain an action on an agreement unless the agreement is in writing ... expresses consideration, sets forth the relevant terns and conditions, and is signed by the borrower and the lender.” (Emphasis added.)

Accordingly, we conclude that, under the plain language of Minn.Stat. § 47.206, a party may not maintain an action based on a rate-lock agreement when it fails to include the relevant terms and conditions outlined in the statute including the condition that a lender “shall disclose ... a definite expiration date or term of the agreement” to the borrower. See Minn.Stat. § 645.44, subd. 16 (2004) (stating that the word “shall” means mandatory); Beaulieu, 552 N.W.2d at 702 (same); see also Van Asperen v. Darling Olds, Inc., 254 Minn. 62, 74, 93 N.W.2d 690, 698 (1958) (different provisions of the same statute must be interpreted in light of each other).

As noted above, the district court based its finding that the agreement is unenforceable on the last clause in the rate-lock agreement, which states:

If the loan does not close on or before the Expiration Date, the Loan will be re-priced and closed at the greater of (a) the Interest Rate and Discount which RCMF is then willing to make the Loan in view of prevailing market conditions, or (b) the terms shown above.

Appellant argues that the district court erred in finding the rate-lock agreement unenforceable because the agreement “contains a clearly implied expiration date that cannot be ignored: the eventual closing date.” And this “clearly implied expiration date” satisfies the requirements of section 47.206, subdivisions 2 and 3. Appellant also argues that section 47.206 should be given a “flexible interpretation” because such an interpretation “best serves the interests of builders, borrowers, and lenders.” We disagree.

The statute by its plain language requires either a definite expiration date or a definite term of the agreement. Minn. Stat. § 47.206, subd. 2. This requirement was not met. If appellant’s arguments were accepted, the phrase in subdivision 3 of the statute beginning with “may not maintain an action on an agreement unless,” would be rendered essentially meaningless. See Minn.Stat. § 47.206, subd. 3; see also Minn.Stat. §§ 645.16, .17 (statutes must be interpreted to give effect to all provisions and avoid rendering any one meaningless). And we conclude that the words “may not” and “unless” in subdivision 3 must be read to impose a requirement that any rate-lock agreement contain “the relevant terms and conditions” listed in subdivision 2. See Van Asperen, 254 Minn. at 74, 93 N.W.2d at 698 (stating that different provisions of the same statute must be interpreted in light of each other).

Further, Minn.Stat. § 645.08(1) (2004), mandates that words and phrases be construed “according to their common and approved usage.” And Black’s Law Dictionary defines “term” as “a fixed period of time.” Black’s Law Dictionary 1482 (7th ed.1999). Appellant’s interpretation of “the eventual closing date” as “a clearly implied expiration date” does not comport with the commonly understood definition of the word “term” as “a fixed period of time”; nor does it comport with the alternative description of a “definite expiration date,” found in Minn.Stat. § 47.206, subd. 2. Accordingly, we conclude that- Minn. Stat. § 47.206 expressly prohibits the open-ended language found in the rate-lock agreement here, and we affirm, the district court’s application of the .statute.

Finally, we note that generally, when a party signs a contract and promises to perform under the contract, that performance will be required by law. Although the district court properly concluded that the contract signed by Baldus was unenforceable, our opinion here should not be construed as an approval of Baldus’s actions.

II.

Appellant raises a number of other claims regarding the distinction between void and voidable contracts, and the effect of that distinction, if any, on its claims against Baldus and Thompson and Statewide. But this issue was not raised in appellant’s complaint, nor was it argued before the district court. Accordingly, we decline to address appellant’s arguments here. See Thiele v. Stick, 425 N.W.2d 580, 582 (Minn.1988) (stating that 'appellate courts in Minnesota generally review only issues presented to and considered by the district court, and holding that parties may not obtain review “by raising the same general issue litigated below but under a different theory”); Dyrdal v. Golden Nuggets, Inc., 689 N.W.2d 779, 785 n. 4 (Minn.2004) (declining to- address appellant’s anticipatory breach argument -where it was raised for the first time on appeal).

DECISION

Because thé plain language of Minn.Stat. § 47.206 (2004), makes the rate-lock agreement between appellant and Baldus unenforceable, we affirm the district court’s decision. And because the remainder of appellant’s claims were not raised in its complaint or argued before the district court, we decline to address those claims here.

Affirmed.


source: Caselaw Access Project

author: WRIGHT, Judge.

license: Public Domain

text:
    MUNRO HOLDING, LLC, Relator, v. Jacki L. COOK, Respondent, Commissioner of Employment and Economic Development, Respondent.
    No. A04-1249.
    Court of Appeals of Minnesota.
    May 3, 2005.

      Brian E. Cote, Cote Law Firm, Ltd., Minneapolis, MN, for relator.
    Jacki L. Cook, Ogilvie, MN, pro se respondent.

      Lee B. Nelson, Linda A. Holmes, Department of Employment and Economic Development, St. Paul, MN, for respondent Commissioner.
    Considered and decided by MINGE, Presiding Judge; WRIGHT, Judge; and PORITSKY, Judge.

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

   OPINION

WRIGHT, Judge.

Relator challenges the decision of the commissioner’s representative that respondent-employee quit her employment with good reason attributable to the employer and is, therefore, entitled to receive unemployment benefits. Relator argues that (a) the evidence does not support the finding that the employer-owner engaged in sexual harassment; (b) the employee did not properly notify the employer of the harassment; and (c) even if the employee’s notification were proper, the employer took timely and appropriate action to stop the harassing conduct. We affirm.

FACTS

Respondent Jacki Cook was employed by relator Munro Holding, LLC (Munro Holding) as a waitress from July 20, 2003, through October 8, 2003. Munro Holding is owned by Pat Munro.

According to Cook, about once a week throughout her employment, employer-owner Munro grabbed her hips from behind and brushed against her while she was working. Munro did so even when there was sufficient space to pass Cook without touching her. Although Munro touched Cook in this manner at least eleven times, Cook neither confronted Munro nor informed a supervisor about Munro’s conduct at the time it occurred.

On October 6, 2003, Cook was taking food from the pick-up station to serve a customer when Munro came up behind her and “grabbed [her] butt” by placing both palms on her buttocks and squeezing. On this occasion, Cook immediately told the cook who was standing nearby that Munro had grabbed her and that if Munro touched her again, she would quit. The cook reported the incident to the head cook, who phoned the kitchen manager, Debra Duffee, at home to relay Cook’s complaint.

Duffee returned to the restaurant later that evening and spoke directly with Cook about the incident. Cook told Duffee that Munro had grabbed her buttocks that night, that he had intentionally grabbed her hips on several prior occasions, and that Munro’s behavior made her very uncomfortable. Duffee responded that Munro was “just a very touchy-feely guy” and that “he didn’t mean anything by it.” According to Cook, Duffee also admitted that Munro had slapped her buttocks before, that other female servers had complained about Munro’s conduct, and that she had previously “warned” Munro about his behavior. Duffee then offered to speak with Munro on Cook’s behalf.

The next day, Cook called the head waitress, seeking a substitute to take her shift. Cook told the head waitress about Munro’s actions the day before and her discussion with Duffee. During their conversation, Cook expressed concern that Duffee was not. taking her complaint seriously. The head waitress relayed to Duffee that Cook was frustrated by Duffee’s reaction to the alleged harassment. When Duffee called Cook to discuss their options for confronting Munro about his behavior, Cook advised Duffee that she would talk to Munro. Duffee expressed approval and reassured Cook that she “backed her employees a hundred percent.”

On the morning of October 8, Duffee and the head waitress confronted Munro about Cook’s complaint and informed Munro that Cook would be speaking with him about the allegations. Munro denied touching Cook. Shortly thereafter, Cook called Duffee and formally quit her employment because she was afraid to return to work.

Cook subsequently established an unemployment benefits account with the Department of Employment and Economic Development (department). The department determined that Cook quit with good reason caused by her employer and. was, therefore, entitled to unemployment benefits. Munro Holding appealed to an unemployment law judge, who reversed the department’s decision, concluding that Cook was disqualified from receiving benefits because Cook did not give Munro Holding “a reasonable opportunity to correct the adverse working conditions.” Cook then appealed to the commissioner’s representative, who reversed the decision of the unemployment law judge and reinstated Cook’s benefits. The commissioner’s representative found that Munro’s conduct was inappropriate and offensive and created an intimidating and hostile work environment for Cook. The commissioner’s representative concluded that “[Munro] was aware of the sexual harassment and ... [he] failed to take timely and appropriate action because [Munro] himself was the harasser and he continued to harass [Cook] during her employment.” This cer-tiorari appeal followed.

ISSUE

Did the commissioner’s representative err in concluding that respondent quit her employment because of a good reason caused by the employer?

ANALYSIS

In unemployment cases, we review the record to determine whether it reasonably supports the decision of the commissioner’s representative. Tuff v. Knitcraft Corp., 526 N.W.2d 50, 51 (Minn. 1995). While we defer to the commissioner’s representative’s findings of fact if the record reasonably supports them, similar deference is not afforded questions of law. Ress v. Abbott Northwestern Hosp., Inc., 448 N.W.2d 519, 523 (Minn.1989). Whether an employee had good cause to quit is a question of law, which we review de novo. Peppi v. Phyllis Wheatley Cmty. Ctr., 614 N.W.2d 750, 752 (Minn.App.2000). Credibility determinations are resolved by the commissioner’s representative and will not be disturbed on appeal. Jenson v. Dep’t of Econ. Sec., 617 N.W.2d 627, 631 (Minn.App.2000), review denied (Minn. Dec. 20, 2000).

An employee who voluntarily terminates his or her employment is disqualified from receiving unemployment benefits unless he or she “quit the employment because of a good reason caused by the employer[.]” Minn.Stat. § 268.095, subd. 1(1) (Supp. 2003). “Good reason caused by the employer” is defined as an action by the employer “(1) that is directly related to the employment and for which the employer is responsible;” and “(2) that is significant and would compel an average, reasonable worker to quit and become unemployed rather than remaining in the employment.” Id., subd. 3(a)(1), (2) (Supp.2003).

Sexual harassment by an employer or by fellow employees provides an employee with a good reason to quit if (1) “the employer was aware, or should have been aware” of the harassment; and (2) “the employer failed to take timely and appropriate action.” Id., subd. 3(e) (Supp. 2003). The employee has the burden to demonstrate both that she gave the employer notice and that the employer failed to take timely and appropriate action. Biegner v. Bloomington Chrysler/Plymouth, Inc., 426 N.W.2d 483, 486 (Minn.App.1988).

A.

As a threshold matter, Munro Holding argues that the commissioner’s representative erred in finding that Munro sexually harassed Cook. Whether one engaged in the actions underlying the sexual harassment claim is a question of fact. Fore v. Health Dimensions, Inc., 509 N.W.2d 557, 560 (Minn.App.1993). But whether such actions constitute sexual harassment under the statute is a question of law. Gradine v. Coll. of St. Scholastica, 426 N.W.2d 459, 463 (Minn.App.1988), re-vieiv denied (Minn. Aug. 24,1988).

Sexual harassment is defined in relevant part as “unwelcome sexual advances ... sexually motivated physical contact or other conduct or communication of a sexual nature” when “the conduct or communication has the purpose or effect of substantially interfering with an applicant’s work performance or creating an intimidating, hostile, or offensive working environment.” Minn.Stat. § 268.095, subd. 3(e)(3) (Supp. 2003). Our canons of construction require us to construe the unambiguous language of a statute according to its plain meaning. See Minn.Stat. 645.16 (2004).

We are mindful that the Minnesota Human Rights Act and Title VII of the Civil Rights Act employ similar language in defining “sexual harassment.” See Minn.Stat. § 363A.03, subd. 43 (2004); 42 U.S.C. §§ 2000e-2000e-17 (2000). We also acknowledge that caselaw under these statutory schemes has established a four-prong test to make a prima facie case of sexual harassment based on “hostile work environment,” invoking a substantially higher standard than we employ here. However, because the unemployment benefits statutory scheme serves a different purpose than civil rights legislation, we decline to import the higher standard employed in these other bodies of law. See Weaver v. Minn. Valley Labs., Inc., 470 N.W.2d 131, 135 n. 2 (Minn.App.1991) (noting that Minnesota courts may “distinguish between ... harassment for unemployment compensation purposes and ... for other purposes, such as suit for money damages against the employer”). Here, we are asked to resolve the sole issue of whether an employee qualifies for unemployment benefits because she had a good reason to quit her employment caused by her employer, not whether an employee presents an actionable claim for damages in a sexual-harassment case.

The commissioner’s representative found, “On a number of occasions during the applicant’s employment, the owner touched the applicant’s hips and brushed against her while the applicant was working.” The commissioner’s representative also found, “The final incident occurred on October 6, 2003 ... [when] the owner grabbed the applicant’s hips with both hands and squeezed.” In evaluating the evidence presented, the commissioner’s representative further explained, “We find credible the evidence submitted by the applicant that she was subjected to inappropriate touching by the owner of the employer.”

These findings are supported by the record. According to Cook, the repeated touching was not accidental and occurred approximately once a week throughout her tenure. Cook testified that, on October 6, Munro “grabbed [her], butt” by placing both of his palms on her buttocks and squeezing. Although Munro maintains that any touching was benign, the commissioner’s representative rejected this claim as lacking credibility. Determinations of credibility are the province of the commissioner’s representative and are accorded deference on review by an appellate court. Gradine, 426 N.W.2d at 462.

The commissioner’s representative found that, at the time Cook quit, “[she] was too fearful and embarrassed to return to work” and that, after the final incident, “[Cook] was too frightened to either confront the owner or to return to work.” Again, the record reasonably supports the commissioner’s representative’s findings. Cook testified that, prior to October 6, she did not confront Munro because she was scared of him. Cook testified that Munro’s touching made her uncomfortable and that she ultimately decided to quit because she “didn’t feel comfortable [at work]” and was “scared to go there.”

The commissioner’s representative also did not err in concluding as a matter of law that Munro’s actions constitute sexual harassment. Indeed, we conclude that Munro’s repeated “inappropriate touching” was “unwelcome ... sexually motivated physical contact or ... conduct of a sexual nature.” Munro could have avoided touching Cook but, instead, intentionally grabbed and otherwise touched her. Applying the plain language of Minn. Stat. §' 268.095, subd. 3(e), to the facts presented here, we conclude that repeatedly and advertently grabbing a female employee’s hips and buttocks from behind constitutes sexually motivated physical contact or conduct of a sexual nature. The record also establishes that Munro’s touching was unwanted, caused Cook to feel uncomfortable and afraid, and ultimately caused her to quit the employment. Thus, we also conclude, as did the commissioner’s representative, that Munro’s inappropriate, unwelcome, sexually motivated physical contact created an offensive, intimidating, and hostile work environment for Cook.

B.

Having determined that Munro’s conduct constituted sexual harassment, our next inquiry is whether Cook adequately demonstrated that Munro Holding was “aware or should have been aware” of the sexual harassment. See Biegner, 426 N.W.2d at 486. Munro Holding contends that Cook should have specifically confronted Munro about the harassment on or before October 6, and her failure to do so precludes a determination that sexual harassment by Munro constituted a good reason to quit caused by her employer.

To establish an employer’s awareness of the sexual harassment, the employee ordinarily must provide the employer with notice of the sexual harassment. McNabb v. Cub Foods, 352 N.W.2d 378, 382 (Minn.1984). Notice to the employee’s supervisor or upper-level management provides the employer with the knowledge required to discipline harassing employees or otherwise remedy inappropriate conduct. See Larson v. Dep’t of Econ. Sec., 281 N.W.2d 667, 669 (Minn.1979) (holding that, without full knowledge of harassment from co-workers, employer had right to assume problem had been solved).

But a sexual harassment victim is not required to complain to the employer’s upper-level management when the circumstances demonstrate that the employer should have had knowledge of the harassment. McNabb, 352 N.W.2d at 383; cf. Bersie v. Zycad Corp., 417 N.W.2d 288, 291 (Minn.App.1987) (employer liability may be created through either actual knowledge of incidents or the fact that incidents were so pervasive employer should have known of alleged misconduct). In the unique circumstance in which the actual employer — rather than a co-worker or manager — engages in sexual harassment, we may infer that the employer had or, at the very least, should have had knowledge of the sexual harassment. See Clark v. K-Mart Store # 3059, 372 N.W.2d 847, 850 (Minn.App.1985) (holding that, because assistant manager was offender, he “clearly had knowledge of the situation”).

In Kay v. Peter Motor Co., a factually similar sexual harassment damages case, we observed that an employee is not required to complain to his or her supervisor when the supervisor is the harasser because the employee would not have “a reasonable expectation of assistance.” 483 N.W.2d 481, 484 n. 1 (Minn.App.1992); see also Jenson v. Eveleth Taconite Co., 824 F.Supp. 847, 878 (D.Minn.1993) (reasoning that employees are not required to complain when person to whom report should be made is harasser). The Kay court reasoned that, because the owner’s actions were patent acts of sexual harassment, the employer knew or should have known that the owner’s conduct constituted wrongful harassment. 483 N.W.2d at 485.

Here, the commissioner’s representative concluded that Munro either “was or should have been aware that his conduct was inappropriate or offensive” such that Cook was not required to tender a complaint. We agree. The record establishes that Munro, the employer-owner, engaged in patently offensive harassing conduct. In light of Munro’s position as employer-owner and the patently offensive nature of his conduct, Cook was not required to formally complain to her supervisor or management to notify Munro Holding of the sexual harassment. See Kay, 483 N.W.2d at 484 n. 1. Under these circumstances, Munro should have been aware of the harassing conduct, regardless of whether Munro admitted that his actions legally constituted sexual harassment. See Clark, 372 N.W.2d at 850. When, as here, an employer-owner engages in patently offensive harassing conduct, the employer-owner is deemed to be aware of the sexual harassment notwithstanding the lack of a formal complaint.

C.

Munro Holding also argues that it took “timely and appropriate” action once Cook notified her immediate supervisors of the sexual harassment, thereby precluding Cook from establishing good cause to quit'.

Once an employer has notice of sexual harassment, the employer assumes an affirmative duty to investigate the complaint and take appropriate steps against the harasser, notwithstanding any misgivings by the harassment victim. McNabb, 352 N.W.2d at 384; Peppi, 614 N.W.2d at 752; Gillson v. State, Dep’t of Natural Res., 492 N.W.2d 835, 841 (Minn.App.1992), review denied (Minn. Jan. 28, 1993). Timely and appropriate action may include following an established anti-harassment policy, disseminating a new policy, transferring the harassing employee to another shift, or taking disciplinary action against the harassing employee. McNabb, 352 N.W.2d at 384; Wetterhahn v. Kimm Co., 430 N.W.2d 4, 6-7 (Minn.App.1988).

A complaining employee ordinarily must give the employer an opportunity to take the appropriate steps before quitting the employment. Dura Supreme v. Kienholz, 381 N.W.2d 92, 95 (Minn.App.1986). But, if upon reporting, an employee is given no assurance that the problem will be corrected, the employee has a good reason to quit. Id.; see also Hanke v. Safari Hair Adventure, 512 N.W.2d 614, 617-18 (Minn.App.1994) (concluding that employee had good reason to quit when employee reported manager’s harassing comments to owner and owner stated that he could not “control the opinions of what other people feel or think”); cf. Porrazzo v. Nabisco, Inc., 360 N.W.2d 662, 664 (Minn.App.1985) (holding that employee quit with good cause when, after he was given increased work hours and responsibilities, he was given no assurances of assistance from his employer).

If an employer-owner, who typically would bear the responsibility to initiate action against a harassing party, is in fact the harassing party, the employee does not have a reasonable expectation that the owner will end the harassment. See Kay, 483 N.W.2d at 484 n. 1 (noting that employee need not complain to supervisor before quitting employment when supervisor is harasser because employee would not have “reasonable expectation of assistance”); see also DiGiannantoni v. Wedgewater Animal Hosp., Inc., 109 Ohio App.3d 300, 671 N.E.2d 1378, 1383 (1996) (noting that when employee is subjected to physical sexual harassment by employer, employee need neither notify employer nor wait for employer to correct problem before quitting); Sweitzer v. State, Dep’t of Employment Sec., 43 Wash.App. 511, 718 P.2d 3, 6 (1986) (holding that employee is excused from exhausting alternatives before quitting when such action would be futile). Under such circumstances, resignation, without providing the employer an opportunity to take corrective action, is justified.

Here, because the employer-owner sexually harassed Cook in a patently offensive manner throughout her employment, Munro Holding knew of the harassment, not only on October 6 when Cook complained to Duffee, but also in late July 2003 when Munro initiated the sexual harassment. Once on notice, Munro was required to take timely and appropriate action to end the harassment. See McNabb, 352 N.W.2d at 384 (holding that “[a]n employer must act to prevent and correct harassment when it becomes aware of the problem”). The record establishes, however, that instead of ceasing the harassment, Munro continued to touch Cook unnecessarily and inappropriately.

Although Cook’s immediate supervisors, the head waitress and Duffee, confronted Munro shortly after they learned of the harassment, their response was not sufficient under the circumstances. An oral warning from a superior to a subordinate may constitute appropriate action, but a subordinate manager’s oral warning to her superior is insufficient. Neither Duffee nor the head waitress had the authority to fire, transfer, suspend, or otherwise discipline Munro. Furthermore, Munro’s summary denial of the allegations precluded any further investigation. The only appropriate action to be taken under the facts before us was for Munro to stop harassing Cook after the first instance. Because he did not do so, Munro Holding failed to take “timely and appropriate action.”

Cook had no one else to whom she could report the harassment and from whom she could expect remediation. She was not required to withstand further sexual harassment while waiting for Munro to cease his harassing conduct or forego unemployment benefits. Thus, Cook had a good reason to quit caused by her employer.

DECISION

Respondent quit her employment for a good reason caused by her employer. Because it was the employer-owner who engaged in sexual harassment, the employee was not required to complain to her employer about the harassment or wait for him to take “timely and appropriate” action to end the harassment in order to demonstrate a good reason to quit her employment.

Affirmed.

      . The commissioner's representative found that Cook quit her employment on October 7, 2003. The record demonstrates that Cook initially testified to this date but later amended her testimony, ultimately concluding that she quit on October 8, 2003. Although the record does not support the commissioner's October 7, 2003 finding, the error is harmless.

      . The revisor of statutes inadvertently substituted the term “ineligible for” for the term "disqualified from” in Minn.Stat. § 268.095, subds. 1, 4, 7, 8(a) (Supp.2003). See Minn. Stat. § 268.095, subds. 1, 4, 7, 8(a) (2002) (using term "disqualified from”); 2003 Minn. Laws 1st Spec. Sess. ch. 3, art. 2, § 11 (making other changes to Minn.Stat. § 268.095, subd. 1, but retaining term “disqualified from”); 2003 Minn. Laws 1st Spec. Sess. ch. 3, art. 2, § 20(j), (k) (directing revisor to change the term "disqualified from” to “ineligible for” only in Minn.Stat. § 268.095, subd. 12, and then to renumber to Minn.Stat. § 268.085, subd. 13b).

      . Amendments made to the 2002 statute became effective August 1, 2003. See Minn. Stat. § 645.02 (2004) (providing that, unless otherwise specified, each act "takes effect on August 1 next following its enactment”). Because Cook quit on October 8, 2003, we apply Minn.Stat. 268.095, subd. 1(1) (Supp.2003), which was the law in effect at the time of the quit. See Brown v. Nat’l Am. Univ., 686 N.W.2d 329, 332 (Minn.App.2004), review denied (Minn. Nov. 16, 2004).

      . For example, the Eighth Circuit held that a male teacher's inappropriate conduct toward a female faculty member over two school years, which included touching her, commenting on her appearance, saying "I love you,” exhibiting demeanor of a sexual nature, calling her many times at home, and giving her two romance novels and another gift, was "not sufficiently severe or pervasive” to constitute sexual harassment. Alagna v. Smithville R-II Sch. Dist., 324 F.3d 975, 979-80 (8th Cir.2003); see also Meriwether v. Caraus

        tar Packaging Co., 326 F.3d 990, 993 (8th Cir.2003) (holding that single incident of grabbing employee's buttocks did not demonstrate a hostile work environment); Duncan v. Gen. Motors Corp., 300 F.3d 928, 935 (8th Cir.2002) (finding no sexual harassment when male co-worker made a pass at female coworker who had to work with him for three more years, suffering additional boorish behavior until she resigned); Klink v. Ramsey County by Zacharias, 397 N.W.2d 894, 901-02 (Minn.App.1986) (holding that foul language and vulgar behavior in workplace did not establish sexual harassment), review denied (Minn. Feb. 13, 1987).


author: PETERSON, Judge.

text:
    Dale RUTER, Appellant, v. STATE of Minnesota, et al., Respondents.
    No. A04-1025.
    Court of Appeals of Minnesota.
    May 3, 2005.

      John E. Mack, Mack & Daby, P.A., New London, MN, for appellant.
    Mike Hatch, Attorney General, Rory H. Foley, Assistant Attorney General, St. Paul, MN, for respondents.
    Considered and decided by HUDSON, Presiding Judge; PETERSON, Judge; and WILLIS, Judge.
   OPINION

PETERSON, Judge.

After sustaining a work-related injury, appellant Dale Ruter began receiving disability benefits from the Minnesota State Retirement System Correctional Employees’ Retirement Fund and the Teachers’ Retirement Association, among others. After reaching age 55, appellant sought to have his disability benefits converted to an ordinary retirement annuity. On appeal from a summary judgment after remand, appellant argues that (1) the district court erred in concluding that he did not have a right to forego his disability benefits; and (2) he is entitled to state-paid medical insurance under his union’s contract with the Minnesota Department of Corrections. We affirm.

FACTS

In 1989, appellant began working as a vocational-masonry teacher at the Minnesota correctional facility in St. Cloud. On June 21, 1990, appellant sustained a work-related injury. Although appellant initially missed little time from work, his back problems caused by the injury progressively worsened, disabling him from September 1994 to February 1995.

Due to the injury, appellant received benefits from multiple sources, including workers’ compensation benefits from the Minnesota Department of Employee Relations (DOER). In addition to workers’ compensation benefits, appellant sought benefits from ITT Hartford Insurance Company, which provides public employees with disability benefits under a state-sponsored supplemental insurance program. As a condition to receiving benefits under the private disability policy, Hartford required appellant to apply for both Minnesota State Retirement System (MSRS) and Teachers Retirement Association (TRA) disability benefits.

In February 1996, appellant was awarded MSRS disability benefits as a covered correctional employee pursuant to Minn. Stat. § 352.95. The DOER offset appellant’s workers’ compensation benefits by the amount of his MSRS disability benefits pursuant to Minn.Stat. § 176.021, subd. 7 (2004). As a result of the offset, appellant no longer received workers’ compensation payments.

Appellant challenged the offset as violating the equal protection clauses of the Minnesota and United States Constitutions. Ruter v. Minn. Dep’t of Corrections, 569 N.W.2d 407, 408 (Minn.1997) (Ruter I). The Minnesota Supreme Court upheld the offset, holding that the offset prevented duplication of benefits. Id.

After reaching age 55 in December, 1997, appellant sought to have his disability benefits converted to an ordinary retirement annuity. Minnesota law provides:

After separation from state service, an employee covered under section 352.91 who has reached age 55 years and has credit for at least three years of covered correctional service and regular Minnesota State Retirement System service is entitled upon application to a retirement annuity under this section based only on covered correctional employees’ service.

Minn. Stat § 352.93, subd. 1 (2004). Based on this statute, appellant believed he had a right to convert his disability benefits to an ordinary retirement annuity. Appellant wanted to do this to avoid further offsets of his workers’ compensation benefits by his disability benefits. But the MSRS refused to allow the conversion and continued to offset appellant’s workers’ compensation benefits by the amount of his disability benefits. Appellant brought an action in district court seeking a declaratory judgment that he was entitled to regular retirement status upon reaching age 55.

The district court granted summary judgment in favor of respondents in March 2002. Although the district court held that appellant’s claims were barred by collateral estoppel and that it lacked subject matter jurisdiction, the court nonetheless addressed the merits of appellant’s claims. The district court determined that because appellant voluntarily chose to receive disability benefits under Minn.Stat. § 325.95, subd. 5, he could not receive an ordinary retirement annuity under Minn.Stat. § 352.93, subd. 1, until he reached age.65. The district court also determined that appellant was not entitled to continuing health-care coverage under his collective-bargaining agreement. Appellant appealed to this court, which reversed and remanded based on an apparent concession by respondents.. Ruter v. State, Dep’t of Corrections, No. C6-02-643, 2003 WL 42171 at *4-5 (Minn.App. Jan. 7, 2003) (Ruter II).

On remand, respondents indicated that thefi position was that an employee receiving disability benefits does not have a right to receive ordinary retirement benefits until age 65, but that they would not contest the issue in an effort to resolve the lawsuit. In April 2004, the district court concluded that respondents’ position was akin to an offer of settlement and ultimately concluded that entering into a settlement not authorized by law would breach respondents’ fiduciary duty to retirement plan members and beneficiaries.

In the March 2002 order, the district court ruled that “[i]f an injured worker applies for and receives a disability pension, that injured worker is not deemed to be a retired employee until age 65.” On remand, the district court determined that this ruling was the law of the case because the court of appeals “did not remand this matter for reconsideration.” The district court also addressed the merits of the issue, concluding that the initial ruling correctly interpreted the law, and granted summary judgment for the state. Appellant filed an appeal from the April 9, 2004, order for summary judgment. This court issued an order construing the appeal to be from the June 1, 2004, judgment entered pursuant to the order.

ISSUES

1. Was the issue of appellant’s right to forego his' disability pension and receive an ordinary retirement annuity properly before the district court on remand?

2. Did the district court err in concluding that because appellant applied for and receives disability benefits, he is not deemed to be a retired employee until age 65?

3. Is appellant entitled to continuing health coverage under his collective-bargaining agreement?

ANALYSIS

On appeal from summary judgment, an appellate court determines whether any genuine issues of material fact exist and whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). This court views the evidence in the light most favorable to the party against whom judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993).

1. Appellant argues that the issue of his eligibility to forego disability benefits and receive an ordinary retirement annuity was not properly before the district court on remand. Appellant argues that the only issues remanded were (1) whether he was entitled to receive his benefit retroactively and without offset; and (2) if retroactive receipt is deemed appropriate, whether he must, in order to avoid unjust enrichment, reimburse the state for disability benefits previously received. But, after this court specifically identified those two issues in our earlier opinion, we further stated, “If this court’s understanding of the position of the parties on these issues is incorrect, both shall have the right to argue their respective positions before the district court on remand.” Ruter II, 2003 WL 42171, at *4 n. 5. We also stated, “Consistent with this court’s earlier observation regarding the parties’ positions, we do not intend to limit the discretion of the district court on remand to consideration of only the two issues that we identify.” Id., at *4 n. 6. In light of our earlier opinion, the issue of appellant’s eligibility to forego disability benefits and receive an ordinary retirement annuity was properly considered by the district court on remand.

Appellant also contends that he did not have a sufficient opportunity to present his position to the district court. He does not claim that he was denied the opportunity to present evidence but rather argues that he did not have a sufficient opportunity to develop his legal argument, particularly with respect to legislative history. But legislative history is relevant only if a statute is ambiguous, and to the extent that additional briefing might have been helpful to the district court, appellant has fully briefed the issue for this court and, thus, will not be prejudiced. See Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 393 (Minn.1998) (stating tax court’s statutory construction is a question of law subject to de novo review); State v. Hannuksela, 452 N.W.2d 668, 673 n. 7 (Minn.1990) (stating “it is the responsibility of appellate courts to decide cases in accordance with law, and that responsibility is not to be diluted by counsel’s oversights, lack of research, failure to specify issues or to cite relevant authorities”) (quotation omitted); Greenbush State Bank v. Stephens, 463 N.W.2d 303, 306 n. 1 (Minn.App.1990) (applying Hannuksela in a civil case), review denied (Minn. Feb. 4, 1991).

The objective of statutory interpretation “is to ascertain and effectuate the intention of the legislature. Every law shall be construed, if possible, to give effect to all its provisions.” Minn.Stat. § 645.16 (2004). If the statutory language is unambiguous, an appellate court relies on its plain meaning, which manifests legislative intent. In re Estate of Nordlund, 602 N.W.2d 910, 913 (Minn.App.1999), review denied (Minn. Feb. 15, 2000).

Section 352.95 (2004) states:

Subdivision 1. Job-related disability. A covered correctional employee who becomes disabled and who is expected to be physically or mentally unfit to perform the duties of the position for at least one year as a direct result of an injury, sickness, or other disability that incurred in or arose out of any act of duty that makes the employee physically or mentally unable to perform the duties is entitled to a disability benefit. The disability benefit may be based on covered correctional service only.

Minn.Stat. § 352.95, subd. 1. The statute also states:

Subd. 5. Retirement status at normal retirement age. The disability benefit paid to a disabled correctional employee under this section shall terminate at the end of the month in which the employee reaches age 65, or the five-year anniversary of the effective date of the disability benefit, whichever is later. If the disabled correctional employee is still disabled when the employee reaches age 65, or the five-year anniversary of the effective date of the disability benefit, whichever is later, the employee shall be deemed to be a retired employee.

Id., subd. 5. The law also provides:

After separation from state service, an employee covered under section 352.91 who has reached age 55 years and has credit for at least three years of covered correctional service and regular Minnesota State Retirement System service is entitled upon application to a retirement annuity under this section based only on covered correctional employees’ service. Application may be made no earlier than 60 days before the date the employee is eligible to retire by reason of both age and service requirements.

Minn.Stat. § 352.93, subd. 1 (2004).

Upon reaching age 55, appellant met the criteria of both MinmStat. § 352.95, subd. 1, and MinmStat. § 352.93, subd. 1. He argues that because MinmStat. § 352.95, subd. 5, does not prohibit an employee under age 65 from converting a disability pension to a retirement annuity under Minn.Stat. § 352.93, subd. 1, the statute should be construed as permitting such an election. But MinmStat. § 352.115, subd. 9 (2004), provides: “All annuities, and disability benefits authorized by this chapter, must be paid in equal monthly installments and must not be increased, decreased, or revoked except as provided in this chapter.” “‘Must’ is mandatory.” Minn.Stat. § 645.44, subd. 15a (2004).

Appellant’s disability benefits are authorized by MinmStat. § 352.95, subd. 1. Therefore, under MinmStat. § 352.115, subd. 9, the disability benefits may only be revoked as provided in chapter 352. There is no provision in chapter 352 that allows a correctional employee who is receiving disability benefits to elect to revoke the disability benefits upon reaching age 55 and begin receiving a retirement annuity under MinmStat. § 352.93, subd. 1. Therefore, having chosen to receive disability benefits, appellant is bound by that election and may only continue to receive them according to MinmStat. § 352.95, subd. 5. And because MinmStat. § 352.113, subd. 9 (2004), provides that “[n]o employee is entitled to receive disability benefits and a retirement annuity at the same time,” appellant is not entitled to receive a retirement annuity as long as he continues to receive disability benefits.

2. Appellant argues that he is entitled to employer contributions for health insurance because he is still an employee under the State Residential Schools Education Association contract (SRSEA contract). Article 21, section 2(B)(4), of the contract states:

An employee who was off the State payroll due to a work-related injury or a work-related disability may continue to participate in the Group Insurance Program as long as such an employee receives workers’ compensation payments or while the workers’ compensation claim is pending.

In its March 2002 order, the district court granted summary judgment for the state on this issue because appellant was not receiving workers’ compensation payments and because his claims for such benefits were denied in Ruter I. On remand, the district court declined to reconsider this issue and instead cited the March 2002, decision as remaining in effect. Because this issue was not addressed in the first appeal and the district court incorporated the March 2002, decision into its April 2004, order, we can review the March 2002, decision, making a second remand unnecessary.

Currently, appellant is not receiving workers’ compensation benefits because those benefits are offset by his disability benefits. He argues that in some months, he receives workers’ compensation payments because his workers’ compensation benefit in those months exceeds his disability benefit, but he provides no citation to the record supporting this factual assertion. Appellant argues that his disability benefit should be divided into two components, an earned retirement component and an injury-compensation component, for purposes of deducting the disability benefit from workers’ compensation benefits otherwise payable. But Minn.Stat. § 176.021, subd. 7, explicitly provides that when “an employee covered by the [MSRS] receives ... disability benefits pursuant to section [ ] 352.95 ..., the amount of disability benefits shall be deducted from workers’ compensation benefits otherwise payable.” The plain language of the statute does not permit deducting only a portion of the disability benefits from the workers’ compensation benefits.

Because appellant does not receive workers’ compensation benefits, the district court properly concluded that he is not eligible for employer contribution to his health insurance under article 21, section 2(B)(4), of the SRSEA contract.

DECISION

The district court properly concluded that upon reaching age 55, appellant could not elect to revoke his disability benefits and begin receiving a retirement annuity. The district court properly concluded that appellant is not eligible for employer contribution to his health insurance under article 21, section 2(B)(4), of the SRSEA contract. The district court properly granted summary judgment for respondents.

Affirmed.

      . In 2001, the age in Minn.Stat. § 352.95, subd. 5, was amended from 62 to 65. 2001 Minn. Laws 1st Spec. Sess. ch. 10, art. 3, § 12. Whether this amendment affects appellant’s benefits is not at issue in this case, and we express no opinion about the amendment’s effect.


author: GORDON W. SHUMAKER, Judge.

text:
    In re the Marriage of Fiona Maria EUSTATHIADES, petitioner, Respondent, v. Ben Trevor BOWMAN, Appellant.
    No. A04-1526.
    Court of Appeals of Minnesota.
    May 3, 2005.

      David Gronbeck, Law Offices of David Gronbeck, Minneapolis, MN, for respondent.
    Stephen R. Arnott, Arnott Law Firm, P.A., St. Paul, MN, for appellant.
    Susan E. Gaertner, Ramsey County Attorney, Patrick M. West-Hest, Assistant County Attorney, St. Paul, MN, for amicus curiae Ramsey County Child Support and Collections.
    Considered and decided by PETERSON, Presiding Judge; KLAPHAKE, Judge; and SHUMAKER, Judge.
   OPINION

GORDON W. SHUMAKER, Judge.

Appellant-father challenges the district court’s order denying his motion for the establishment of respondent-mother’s child-support obligation. Appellant claims that the district court erred by requiring a substantial change in circumstances under the modification standard, rather than treating appellant’s request as an initial establishment of child support. We reverse and remand.

FACTS

Appellant Ben Bowman and respondent Fiona Eustathiades were married in July 1991. In July 1998, the district court dissolved the parties’ marriage, awarded the parties joint legal custody of their three minor children, and awarded respondent sole physical custody. By amended judgment and decree in February 1999, the district court awarded respondent sole legal custody of the children. On July 1, 2002, the district court entered an order, based upon a stipulation by the parties, in which it awarded the parties temporary joint legal custody of the children, awarded appellant temporary sole physical custody, and stated that “the issue of temporary child support shall be reserved.” On September 2, 2003, the district court entered an order, based upon another stipulation by the parties, in which it stated:

1. Except as specifically modified hereinafter, all terms and conditions of this court’s order filed July 1, 2002 remain in full force and effect.
2. Paragraph 1 of the July 1, 2002 order is hereby amended to read as follows:
1. The parties shall have joint legal custody of the minor children and the father shall have sole physical custody of the children.

After appellant applied for child-support enforcement services, appellant and Ramsey County filed motions for the establishment of respondent’s child-support obligation. Respondent, however, filed a motion requesting a determination that no award of child support may be made absent a substantial change in circumstances. Following a hearing on the issue of child support, the district court stated:

Absent unusual circumstances, a reservation of child support creates a situation in which a subsequent child support motion is to be treated as a de novo setting or an establishment of child support, not a modification. But as the Minnesota Court of Appeals pointed out in McNattin [v. McNattin, 450 N.W.2d 169 (Minn.App.1990) ], where the reservation of child support is an integral part of the agreement to modify custody, then a modification standard may apply for a subsequent award of child support.

The district court found that implicit in the parties’ agreement to modify custody, was a mutual assumption that child support was unnecessary. Therefore, the district court concluded that appellant “must show a change in circumstances under [Minn.Stat.1 § 518.64, subd. 2 to obtain a child support order,” and found that there was insufficient information in the record to show a substantial change in circumstances to justify a change in the reservation of child support. This appeal followed.

ISSUE

Did the district court err in applying a modification standard to appellant’s motion for child support rather than treating it as a request for an initial establishment of support?

ANALYSIS

A district court has broad discretion to provide for the support of the parties’ children. Rutten v. Rutten, 347 N.W.2d 47, 50 (Minn.1984). A district court abuses its discretion when it sets support in a manner that is against logic and the facts on record or misapplies the law. Id. (setting support in a manner that is against logic and facts on the record); Ver Kuilen v. Ver Kuilen, 578 N.W.2d 790, 792 (Minn.App.1998) (improper application of the law). A reviewing court, however, is not bound by and need not give deference to a district court’s decision on a purely legal issue. Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn.2003).

Whether to modify support is discretionary with the district court and its decision will be altered on appeal only if it resolved the matter in a manner that is against logic and the facts on record. Putz v. Putz, 645 N.W.2d 343, 347 (Minn.2002). But when child support is reserved in a judgment and decree, a subsequent request for child support is generally treated as an initial establishment of child support rather than a modification of child support. See Aumock v. Aumock, 410 N.W.2d 420, 422 (Minn.App.1987) (stating that when the district court “makes an award of child support following a reservation of the matter, it must base its determination on facts and circumstances existing at the time of the application for support, as if the entire action had been brought at the later date”).

Appellant contends that the district court’s reliance on McNattin was misplaced. The McNattin court stated that “[generally, there is no need to show a substantial change in circumstances to grant child support reserved in a decree.” McNattin v. McNattin, 450 N.W.2d 169, 171 (Minn.App.1990). But the “unusual facts” in McNattin justified the trial court’s application of the modification standard. Id. The record in McNattin plainly showed that the father “only agreed to a change in custody upon [the mother’s] promise not to seek child support.” Id. The record in McNattin contained a letter that the mother wrote to the father stating:

As I have said repeatedly to you, if you sign the stipulation for change of custody ... without our having to engage in any further legal proceeding, I have no intention of seeking child support from you and am willing to reserve child support in the stipulation. As I have explained to you, this is the best reassurance I am able to give you legally.

Id. at 170.

Here, unlike McNattin, the record contains no explicit agreement between the parties linking a change in custody to a promise not to seek child support. Appellant argues that when the parties stipulated to a temporary reservation of child support, they did not intend that there be a permanent reservation of child support. In his motion for the establishment of child support, appellant stated by affidavit:

I felt it was best to separate the issues of child custody from child support in order to minimize the conflict during what I expected to be a difficult period of custody evaluations and possible subsequent transition of custody from [respondent] to myself. Therefore, I stipulated to a reservation of child support. I intended to pursue child support, if appropriate, after the custody issues were settled.

Based on appellant’s affidavit, the district court found that appellant “did not put the issue of child support on the table in 2003 to avoid conflict.” The district court also found that “[i]mplicit in the agreement to modify custody, and leave the reservation of child support ‘in full force and effect,’ was an assumption that under the circumstances an award of child support was unnecessary.” The district court concluded that “[i]t follows that the continued reservation of child support served to facilitate the agreement of the parties to modify the children’s custody.”

The district court conceded that, unlike McNattin, there was no claim that appellant promised not to seek child support. Nevertheless, the court stated that “[certainly, the issue of child support, and its reservation, was discussed when the parties agreed to modify the physical custody of the children.” Be that as it may, the record does not support a finding that the change in custody was expressly conditioned on a promise by appellant not to seek child support. Thus, the district court’s reliance on McNattin was misplaced.

When child support has been reserved, that is not deemed a setting of support for purposes of the modification statute. See Aumock, 410 N.W.2d at 422; see also Mulroy v. Mulroy, 354 N.W.2d 66, 69 (Minn.App.1984) (stating that “there is a distinction between a provision that no support is to be awarded at the time of the decree, and a reservation of the issue of support at the time of that decree”). Child support is initially set on the basis of particular economic circumstances. See Minn.Stat. § 518.551, subd. 5(b) (2004). A reservation might be prompted by economic circumstances, but those circumstances do not become factors in the way they would if an amount was to be set, even if the amount was set at zero. Thus, as a general rule, (a) if there has been an affirmative setting of a support amount, including the affirmative setting of support at an amount of zero, any subsequent change of the support obligation is a modification; and (b) if there has been only a reservation of support, a later setting of a support obligation is an initial setting of support. Because this case involved a reservation of support, and because this record lacks the “unusual circumstances” that, under McNattin, allow an exception to the general rule, the district court should not have treated appellant’s motion for child support as a motion to modify.

DECISION

This record does not show the “unusual circumstances” necessary to create an exception to the general rule that a change in circumstances does not have to be shown to set a support obligation where there has been a reservation of child support. Because this case is distinguishable from McNattin, the district court erred when it applied a modification standard rather than considering appellant’s motion for child support as a request for an initial establishment of support.

Reversed and remanded.


author: HUDSON, Judge.

text:
    WOODDALE BUILDERS, INC., Respondent, v. MARYLAND CASUALTY COMPANY, d/b/a Zurich North America, defendant and third party plaintiff, Respondent, v. American Family Insurance, third party defendant, Respondent, Western National Insurance Group, third party defendant, Respondent, West Bend Mutual Insurance Company, third party defendant, Appellant (A04-1442), Respondent (A04-1612), SafeCo, third party defendant, Respondent (A04-1442), Appellant (A04-1612).
    Nos. A04-1442, A04-1612.
    Court of Appeals of Minnesota.
    May 3, 2005.

      Ernest F. Peake, Justin P. Weinberg, Leonard, O’Brien, Spencer, Gale & Sayre, Ltd., Minneapolis, MN, for respondent Wooddale Builders, Inc.
    Peter G. Van Bergen, Andrea E. Reis-bord, Minard M. Halverson, II, Cousineau, McGuire & Anderson, Minneapolis, MN, for respondent Maryland Casualty Co., d/b/a Zurich North America.
    James T. Martin, Gislason, Martin & Varpness, P.A., Edina, MN, for respondent Western National Insurance Group.
    David Oskie, James M. Hamilton, Oskie, Reuter, Hamilton & Sofio, St. Paul, MN, for respondent American Family Insurance.
    Gregory J. Johnson, Klay C. Ahrens, Johnson Provo-Petersen, LLP, St. Paul, MN, for respondent West Bend Mutual Insurance Company.
    Ted E. Sullivan, William L. Davidson, Lind, Jensen, Sullivan & Peterson, P.A., Minneapolis, MN, for appellant SafeCo.
    Considered and decided by HALBROOKS, Presiding Judge; SCHUMACHER, Judge; and HUDSON, Judge.
   OPINION

HUDSON, Judge.

On appeal from summary judgment in a declaratory-judgment action, appellant West Bend Mutual Insurance Company argues that the district court (a) erred in its allocation-of-damages ruling by setting the end date for the allocation period as the date when the insured received notice of a pending claim, and (b) erred in its allocation-of-defense-costs ruling by holding that defense costs should be equally allocated between the insurers. Appellant American Economy Insurance Company seeks a clarification of the district court’s order proposing that obligations should be apportioned on a pro-rata basis according to the number of years an insurer is on the risk. Because we conclude that the district court erred in its allocation of damages and defense costs, we affirm the district court’s judgment in part and reverse in part. We dismiss American Economy Insurance Company’s appeal because the issue was not properly presented to the district court.

FACTS

The material facts as determined by the district court are not in dispute. Respondent Wooddale Builders, Inc. (Wooddale) is a general contractor, primarily in the business of constructing single-family homes. In late 2000, the current owners of sixty stucco homes built by Wooddale from 1990 to 1996 began making complaints to Wooddale, alleging that defective construction or faulty workmanship resulted in water-infiltration and mold-growth problems in their homes. The homeowners filed claims against Wooddale to recover the costs necessary to repair the homes.

Appellant West Bend Mutual Insurance Company (West Bend), appellant American Economy Insurance Company (Safe-co), respondent Maryland Casualty Company (Maryland Casualty), respondent American Family Insurance Group (American Family), and respondent Western National Insurance Group (Western National) are insurance companies that provided commercial-general-liability coverage under occurrence-based policies to Wooddale from November 13, 1990, through November 13, 2002. The policy periods are as follows:

American Family November 13, 1990' — ■ November 13,1995
West Bend November 13, 1995 — November 13,1996
Safeco November 13, 1996 — November 13,1997
Maryland Casualty November 13, 1997 — November 13, 2000
Western National November 13, 2000-— November 13, 2002

Each of the insurance policies issued by the insurers contains standard language calling upon the insurer to defend and indemnify Wooddale with respect to any property damages resulting from an occurrence to which the insurance applies.

Wooddale tendered the homeowner claims to the insurers that are parties to this action, but no insurer provided payment for repairs. Wooddale commenced this lawsuit against Maryland Casualty in October 2002. Maryland Casualty, in turn, filed a third-party complaint against the other four insurers, seeking contribution and/or indemnity with respect to any payments that Maryland Casualty might be required to pay under its policies with Wooddale. The insurance companies disputed the extent of their obligation to indemnify Wooddale for any of the homeowner claims, but the insurers were involved to varying degrees in the investigation, settlement, and defense of the homeowner claims against Wooddale. Some of the homeowner claims were investigated and repaired; some claims have yet to be investigated. The insurers and Wooddale have settled some claims; others claims remain in dispute.

Affidavits received from various experts stated that the damage sustained by these homes was the result of repeated water-intrusion events, occurring over an extended period of time, with continual, progressive, and indivisible damage occurring to the homes. The damage cannot be traced to one solitary, identifiable, water-intrusion event. Rather, the decay in the homes was caused by repeated wetting over an extended period of time. Each wetting reinvigorated fungal growth. The extent of the decay in each individual home was dependent on the frequency, intensity, direction, and duration of rainstorms since construction. According to an environmental health consultant, “[a]ll that one can say with a degree of reasonable scientific certainty is that the mold damage to any given building began during or after construction and that it continued or will continue until such time as the mold colonies are deprived of one or more of the conditions required for continued growth: food, water and warmth.”

The parties filed cross-motions for summary judgment in April 2004. The parties agreed that liability should be allocated among the insurers pro rata by time on the risk. The parties also agreed that the starting point for the allocation of damages is the closing date on the purchase of the home. Additionally, the insurers stipulated that a claim for reimbursement of defense costs shall not be barred because of the absence of any loan-receipt agreement, and all insurers have otherwise waived the rule in Minnesota barring contribution toward defense costs without a loan-receipt agreement. The parties disagreed on the ending point for allocation of damages and the allocation-of-defense and investigative costs.

The district court granted summary judgment in June 2004. In its conclusions of law, the district court noted that Minnesota follows the “actual injury” or “injury-in-fact” rule with regard to insurance coverage. The district court set the starting date for allocation purposes as the closing date on the purchase of the home. The district court set the ending date for allocation purposes as the date Wooddale was put on notice that a homeowner was making a claim for damages. Finally, the district court concluded that the insurers would bear the costs of defending Wood-dale and investigating the homeowner claims equally, and not pro rata by their time on the risk. But no insurer would be obligated to share in the defense and investigation costs for a claim for which it was not on the risk.

The court entered judgment on this order on June 24, 2004. Both West Bend and Safeco appealed from this judgment. By order of this court, the appeals were consolidated.

ISSUES

I. Did the district court err by setting the ending date for allocation purposes as the date Wooddale received notice of a pending claim?
II. Did the district court err by allocating the costs of defending Wooddale and investigating the homeowners’ claim equally?
III. Is Safeco’s proposed clarification properly before this court?

ANALYSIS

On appeal from a summary judgment, this court determines whether there are any genuine issues of material fact, or whether the district court erred in its application of the law. Offerdahl v. Univ. of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn.1988). When, as in this case, the material facts are not in dispute, a reviewing court need not defer to the trial court’s application of the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn.1989). Generally, “Insurance coverage issues are questions of law for the court.” State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn.1992).

I

West Bend challenges the district court’s ruling setting the ending date for allocation purposes as the date that Wood-dale received notice of a homeowner’s pending claim, arguing that the allocation period should extend until the damage is repaired, removed, or contained.

When allocating damages between multiple insurers on the risk for environmental clean-up costs, Minnesota follows the “actual-injury” or “injury-in-fact” theory to determine which policies have been triggered by an occurrence causing damages for which an insured is liable. N. States Power Co. v. Fidelity & Cas. Co. of New York, 523 N.W.2d 657, 662 (Minn.1994) (hereinafter NSP). Under the actual-injury theory, “only those policies in effect when damage occurred are triggered.” Id. “The essence of the actual injury trigger theory is that each insurer is held liable for only those damages which occurred during its policy period; no insurer is held liable for damages outside its policy period.” Id. Because the discharge of environmental pollutants is continuous and repetitive and cannot be traced to one discrete, identifiable event, “the unidentifiable individual instances [merge] into one continuing occurrence,” and there is one occurrence during each triggered policy period. Id. at 664.

Acknowledging that damage allocations are by nature fact-dependent and that trial courts should be given flexibility, the NSP court adopted the pro-rata-by-time-on-the-risk allocation scheme:

This method assumes that the damages in a contamination case are evenly distributed (or continuous) through each policy period from the first point at which damages occurred to the time of discovery, cleanup or whenever the last triggered policy period ended. Each triggered policy therefore bears a share of the total damages proportionate to the number of years it was on the risk relative to the total number of years of coverage triggered.

Id. at 663. When, as in the NSP case, the damages occur over multiple policy periods, the trial court “should presume that the damages were continuous from the point of the first damage to the point of discovery or cleanup.” Id. at 664. So, for example, if the contamination occurred over a period of ten years, one-tenth of the damage would be allocated to the insurer that was on the risk for one year. Id. And three-tenths of the damage would be allocated to the period of time a three-year policy was in force. Id.

Here, under the district court’s allocation dates, each triggered insurer bears a share of the total damages proportionate to the number of years it was on the risk, relative to the number of years between the date of closing and the date that Wooddale received notice of a pending claim. The district court did not assign liability for damages as a result of ongoing decay to the homes from the date of notification until the date of remediation. Accordingly, either no insurer is liable for post-notification damages or each triggered insurer is potentially liable for post-notification damages even if a separate insurer provided Wooddale coverage during that period.

Minnesota - authority supports West Bend’s position that the appropriate ending date is the date of remediation. Although “the length .of the allocation period was not at issue in NSP,” the NSP court instructed that damages could be allocated continually through the time of discovery, cleanup, or whenever the last triggered policy period ended. In re Silicone Implant Ins. Coverage Litig., 652 N.W.2d 46, 61 (Minn.App.2002) (hereinafter Silicone), rev’d in part on other grounds by In re Silicone Implant Ins. Coverage Litig., 667 N.W.2d 405 (Minn.2003); see also NSP, 523 N.W.2d at 661, 663.

The supreme court next addressed apportionment of damages among consecutive insurers on the risk in Domtar, Inc. v. Niagara Fire Ins. Co., holding that “[e]aeh insurer is liable for that period of time it was on the risk compared to the entire period during which damages occurred.” 563 N.W.2d 724, 732 (Minn.1997); see also Silicone, 652 N.W.2d at 62 (“Applying the law clearly set out in NSP and Domtar, the insurers are liable for their time on the risk in proportion to the entire period over which damages occur....”).

Respondents argue that the “known-loss” rule or the “loss-in-progress” rule compels the district court’s conclusion that the ending date for purposes of allocation is that date that Wooddale received notice of a homeowner’s intent to file a claim. The known-loss rule in Minnesota is a fraud-based defense. Domtar, 563 N.W.2d at 737. Under this rule,

[o]nce the loss has occurred, there is no ■longer any “risk.” Hence, where the loss has occurred prior to the application for insurance, the relevant question is ... whether the parties, particularly the insured, knew of the loss at the time of application, since that knowledge would be nearly conclusive evidence as to bad faith.

Waseca Mut. Ins. Co. v. Noska, 331 N.W.2d 917, 925 n. 6 (Minn.1983). Addressing the insurers’ argument in Domtar that the known-loss-rule barred coverage because the insured had purchased insurance with the knowledge of potential liability for groundwater contamination, this court held- that the known-loss rule was inapplicable because knowledge of a potential for loss did not have “the same legal significance as knowledge that an insurable loss has occurred.” Domtar, Inc. v. Niagara Fire Ins. Co., 552 N.W.2d 738, 747 (Minn.App.1996), rev’d in part on other grounds by Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724 (Minn.1997).

Here, Wooddale acknowledges in its brief that it has not sought indemnification for the homeowner claims from insurers that issued policies to it after the homeowners tendered their claims to Wooddale. Thus, Wooddale purchased each triggered policy with knowledge of a potential for loss and without knowledge of an actual loss. The known-loss defense as traditionally applied in Minnesota is therefore not applicable.

The respondent insurers argue, however, that the district court’s conclusion is supported by an extension of the known-loss rule. Specifically, Maryland Casualty contends that continuing insurance coverage beypnd the date the insured is placed on notice of a loss is at odds with the basic principle that insurance is purchased to cover risk of loss, not an existing loss. Once the homeowner placed Wooddale on notice of a claim, there was no longer any risk of loss. Similarly, Western National argues any damage occurring after the insured had 'notice is not accidental and, therefore, does not result from an occurrence. As such, it would be fundamentally unfair to hold an insurer liable for additional property damage on account of conditions known to the insured. We disagree.

Respondent’s proposed extension of the known-loss rule conflicts with the actual-injury method of allocation. Under NSP, the insurer is liable for damages occurring during its policy period. Because the damage cannot be traced to one discrete, identifiable event, the individual instances of damage merge into one continuing occurrence. The method then assumes that the loss — the damages “occurring” during each insurer’s policy period — is evenly distributed throughout the insurer’s time on the risk. Thus, when a homeowner placed Wooddale on notice of a claim, the risk of loss remained the same because the occurrence was still continuing.

The respondents also contend that public policy and the need for flexibility in allocation support the district court’s conclusion. According to Maryland Casualty, if the allocation date is extended to the date of remediation, the insured could maximize insurance coverage by delaying repair efforts until the start of a new policy period, or insurers could minimize their share of liability by extending the allocation period through delays. But these arguments fail to consider the nature of the claims at issue: any delay in commencing repair efforts will result in additional decay and additional expense for the insured and the insurer on the risk. Neither the insured nor the insurer has an incentive to delay.

We hold that the appropriate ending date when allocating liability among consecutive insurers according to the pro-rata-by-time-on-the-risk method is the date of remediation. Accordingly, the district court erred by setting the allocation end date as the date of notice.

II

West Bend next challenges the district court’s equal allocation of defense and investigative costs for each homeowner’s claim among the insurers whose policies were triggered, notwithstanding the pro-rata allocation of damages.

There is no Minnesota authority directly addressing the allocation of defense costs among consecutively liable insurers. The respondent insurers rely heavily on the decision in Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161 (Minn.1986). That reliance is misplaced. The supreme court in Jostens apportioned liability for defense costs between a general-liability carrier and an umbrella carrier, each of whom had concurrent, primary coverage for the claim. Id. at 167. Here, each triggered insurer is consecutively, not concurrently, liable for the damages occurring during that insurer’s time on the risk. Moreover, the Jostens court remanded for the trial court to apportion the defense costs between the two insurers, noting that “[i]f defense costs for the two sets of claims are so inextricably intertwined they cannot be fairly sorted out, the costs may be equally divided.” Id. at 168. Thus, equal division of the claims was a default only where allocation based on each insurer’s actual liability proved practically impossible.

Maryland Casualty argues that general principles of an insurer’s duty to defend require the district court’s equal allocation. An insurer’s duty to defend is distinct from and broader than its duty to indemnify. See, e.g., Franklin v. W. Nat’l Mut. Ins. Co., 574 N.W.2d 405, 406 (Minn.1998). If any part of the claim against the insured is arguably within the policy’s scope of coverage, the insurer must provide a defense to the entire lawsuit. Id. at 406-07. But an insurer’s duty to the insured is separate and distinct from its obligations for contribution to other insurers for the costs of defense. Thus, while an insurer has a complete duty to the insured to defend the entire suit, that duty is not implicated here, when the district court was allocating each insurer’s respective contribution to the defense among the insurers.

American Family contends that an allocation of defense costs pro rata by time on the risk would encourage delay in assumption of the duty to defend, as contractually obligated insurers would contest the timing of the actual injury. This argument, too, is unpersuasive. If defense costs are allocated according to the same method as indemnity costs, an insurer has no incentive to delay assumption of the duty to defend because the insurer who defends will receive contribution from the other consecutively liable insurers for the portion of time the defending insurer was not on the risk. Thus, an insurer can defend and contest the timing of the actual injury concurrently without assuming additional liability.

The majority of jurisdictions that have addressed allocation of defense costs among consecutively liable insurers have held that defense costs should be apportioned according to the same methodology as indemnity costs. See, e.g., Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1225 (6th Cir.1980) (apportioning indemnity costs in claims related to inhalation of asbestos fibers according to the number of years the workers were exposed and noting that “[t]here is no reason why this same theory should not apply to defense costs”). Moreover, allocating defense costs equally based on the number of insurers leads to inequitable results. For example, assume an insured’s actions progressively contaminated a property for a period of 20 years and that the insured obtained coverage for 19 of those years from one insurer, but switched insurers for the last remaining year. Under the district court’s reasoning, an insurer who was on the risk for 5% of the period during which damage occurred would be liable for 50% of the costs of investigation and defense. Although the disparity in percentages is not as pronounced in the instant action, the potential for inequity is clear.

Because we conclude that the majority jurisdictions have the better-reasoned approach to this issue, we hold today that defense costs among consecutively liable insurers should be allocated according to the same method used to apportion indemnity costs. Accordingly, the district court erred in allocating defense costs equally according to the number of insurers.

Ill

Safeco also appeals from the district court judgment proposing a clarification of the district court order that obligations should be apportioned on a pro-rata basis according to the number of years an insurer is on the risk. Thus, if a policy is triggered and provides coverage for a few weeks or months, the entire policy applies for purposes of allocation. We dismiss Safeco’s appeal because Safeco did not raise this clarification at the district court level. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn.1988) (noting that this court generally does not consider matters that were not argued and considered in the district court).

DECISION

Because there are no genuine issues of material fact, the district court did not err in awarding summary judgment. But because we conclude that the appropriate ending date for allocation of liability among consecutive insurers under the pro-rata-by-time-on-the-risk method is the date of remediation, the district court erred by ruling that the allocation period ended on the date of notice. Moreover, because we conclude that defense costs among consecutive insurers shall be apportioned in the same manner as indemnity costs, the district court erred by apportioning defense costs equally among the insurers.

Affirmed in part, reversed in part, and appeal dismissed.

      . Safeco, American Family, and Maryland Casualty contend that the appropriate standard of review is whether the trial court abused its discretion. The supreme court has stated that a trial court's "allocation decisions should be reviewed under an abuse of discretion standard.” In re Silicone Implant Ins. Coverage Litig., 667 N.W.2d 405, 417 (Minn.2003). The issue before the Silicone court was the district court's decision to apply the pro-rata-by-time-on-the-risk method in allocating damages among multiple insurers. Id. Here, the issue is the district court’s application of this method to the facts presented, and this court reviews the district court’s conclusions de novo.


text:
    The TRAVELERS INDEMNITY COMPANY, et al., Respondents, v. BLOOMINGTON STEEL & SUPPLY COMPANY, et al., Defendants, Jose Padilla, Appellant.
    No. A04-1713.
    Court of Appeals of Minnesota.
    May 3, 2005.
    Bethany K. Culp, Duana J. Grage, Holly J. Tchida, Hinshaw & Culbertson, LLP, Minneapolis, MN, for respondents.
    Charles D. Slane, Terry & Slane, PLLC, Bloomington, MN, for appellant.

      Considered and decided by SHUMAKER, Presiding Judge, TOUSSAINT, Chief Judge; and DIETZEN, Judge.
   OPINION

GORDON W. SHUMAKER, Judge.

Appellant Jose Padilla contests the district court’s grant of declaratory relief with respect to an insurance policy issued by respondents to a company wholly owned by an individual who assaulted appellant. The district court granted respondents’ motion for summary judgment, finding that a policy exclusion applied and no indemnification would be required in an underlying civil suit. We affirm the district court’s judgment.

FACTS

Appellant Jose Padilla worked for a company that shared a common work area with Bloomington Steel, a corporation wholly owned by Cecil Reiners since 1991. On October 18, 2000, Reiners confronted Padilla twice about distracting Blooming-ton Steel’s workers. The men argued, and Reiners picked up a two-by-four and struck Padilla on the head, causing serious injuries. Reiners was charged with first-degree assault. He ultimately pleaded guilty after the original jury verdict was vacated on appeal because of the district court’s denial of Reiners’s peremptory challenge to a prospective juror. State v. Reiners, 664 N.W.2d 826, 835 (Minn.2003).

In an underlying civil action, Padilla sought damages from Reiners and Bloom-ington Steel on theories of assault and battery, respondeat superior, and negligent retention and supervision. Respondents Travelers Indemnity Company and The Charter Oak Fire Insurance Company (hereinafter collectively referred to as “Travelers”) defended Bloomington Steel, but reserved the right to deny coverage for damages under Bloomington Steel’s liability insurance policy.

Travelers brought the present action in district court, seeking a declaratory judgment under Minn.Stat. § 555.01 (2002) that Travelers has “no obligation to indemnify Bloomington Steel in the Underlying Action.” Bloomington Steel and Padilla (as an assignee of Reiners and Blooming-ton Steel) filed separate motions seeking dismissal of Travelers’ action and a declaratory judgment that Travelers was obligated to indemnify Bloomington Steel. The district court denied the defendants’ motions, and granted the motion of Travelers, stating that it did “not have to provide coverage to Bloomington Steel for any damages” because the assault was expected from the standpoint of Bloomington Steel and thus fell under the insurance policy’s expected-acts exclusion. Padilla alone appeals from the declaratory judgment.

ISSUE

Did the district court err by granting declaratory judgment that the assault was an expected act from the standpoint of the insured and thus excluded under the insurance policy?

ANALYSIS

Construction of an insurance policy is a question of law reviewed de novo. Auto-Owners Ins. Co. v. Todd, 547 N.W.2d 696, 698 (Minn.1996). Summary judgment is appropriate where, based on the pleadings, discovery and other documentation, there are no genuine issues of material fact and either party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03. The parties agree that the material facts are not in dispute.

Travelers issued commercial insurance policies to Bloomington Steel providing general liability and excess liability (umbrella) coverage, which included the payment of damages for bodily injury. But the policies excluded coverage for bodily injury “expected or intended from the standpoint of the insured.” To determine whether Reiners’s assault of Padilla was “expected” from Bloomington Steel’s standpoint, the district court cited the following test: “For the purposes of an exclusionary clause in an insurance policy the word ‘expected’ denotes that the actor knew or should have known that there was a substantial probability that certain consequences will result from his actions.” Am. Family Mut. Ins. Co. v. M.B., 563 N.W.2d 326, 328 (Minn.App.1997) (quoting Diocese of Winona v. Interstate Fire & Cas. Co., 89 F.3d 1386, 1391 (8th Cir. 1996)), revieiv denied (Minn. July 28, 1997). “For substantial probability to exist, ‘the indications must be strong enough to alert a reasonably prudent man not only to the possibility of the results occurring but the indications also must be sufficient to forewarn him that the results are highly likely to occur.’ ” M.B., 563 N.W.2d at 328. (quotation omitted).

Citing Reiners’s extensive history of violence on the job — including Padilla’s own allegations that Reiners assaulted and threatened other employees and damaged vehicles and equipment — the district court concluded that Bloomington Steel knew or should have known that an assault was highly likely. Analogizing to the circumstances in M.B., wherein a company president’s awareness of her employee’s behavior precluded coverage, id. at 327, the district court stated that “knowledge on the part of a company’s sole owner, director, and operator of his own violent tendencies makes his own assault ‘expected’ under the Insurance Policy exclusion.”

Padilla contends that the district court erred by placing the burden on the defendants to prove the existence of an exclusion. See Amos v. Campbell, 593 N.W.2d 263, 266 (Minn.App.1999) (placing the burden on the insurer to establish the applicability of an exclusion, which is strictly interpreted against the insurer). But “[i]f the insurer demonstrates the applicability of an exclusion, then the insured bears the burden of proving an exception to the exclusion.” Id. (emphasis added). The district court expressly stated that Travelers had demonstrated the applicability of an exclusion under its policy with Bloomington Steel, and at that point the burden properly shifted to Padilla to show an exception to the exclusion.

Padilla also argues that the district court erred by applying the objective test of M.B., stating that Minnesota courts have adopted a stricter standard for determining when an injury is expected from the standpoint of the insured. Padilla asserts that Domtar v. Niagara Fire Ins. Co., 563 N.W.2d 724 (Minn.1997), provides the proper test to determine whether Bloomington Steel should have expected the assault of Padilla by Reiners:

For [comprehensive general liability] policies, this court has interpreted the meaning of “expected” damage to require a certainty of harm on the part of the insured greater than general standards of foreseeability used to impose liability on the insured. In explaining the high degree of certainty demanded, we have also equated “expected” damage with “reckless” conduct. Of course, this standard does not preclude the use of circumstantial evidence or proof of willful blindness, but it is the insured’s actual expectation of damage that allows a defense to coverage.

Id. at 735 (citing Continental Western Ins. Co. v. Toal, 309 Minn. 169, 176, n. 3, 244 N.W.2d 121, 125, n. 3 (1976); Bituminous Cas. Corp. v. Bartlett, 307 Minn. 72, 77-79, 240 N.W.2d 310, 313-14 (1976); Ohio Cas. Ins. Co. v. Terrace Enters., Inc., 260 N.W.2d 450, 452-53 (Minn.1977)).

Because we find this distinction unavailing to Padilla’s argument, we decline to reach the issue of which is the applicable test. Even applying the Domtar standard, Bloomington Steel must be held to have expected the damages resulting from Padilla’s injuries. The commingled identity of Reiners and Bloomington Steel permits no other rational result. And while we have found no authority under the law to impute intent to Bloomington Steel for the acts of Reiners, we are persuaded as a matter of law, given Reiners’s lengthy record of violent behavior, that Bloomington Steel’s ongoing placement of Reiners in situations where that violence could be triggered was “reckless” under the subjective standard provided by Domtar.

Padilla also advances two arguments that are not relevant to this appeal: (1) “Travelers erroneously contends that Bloomington Steel and Cecil Reiners are one and the same” and (2) “The terms of the policy require that the coverage applies separately to each insured and as if they were the only insured.” These arguments are not relevant to Padilla’s appeal because the district court clearly agreed with Padilla:

The “Separation of Insureds” clause contained in the Insurance Policy controls the Court’s analysis in this case and requires it to consider whether the assault on Padilla was “expected or intended” from the standpoint of each insured. Since the parties agree that the exclusion applies to Reiners, the disposi-tive question becomes whether Bloom-ington Steel “expected or intended” the assault on Padilla to occur.

Viewing the assault from the standpoint of Bloomington Steel and in light of Minnesota law, the district court determined that “knowledge on the part of a corporate entity that one of its employees might engage in particular conduct triggers the applicability of an expected act exclusion.”

While Padilla may have properly characterized aspects of Travelers’ argument to the district court, he appeals from the district court’s judgment and not from Travelers’ motion. The record reveals that the district court distinguished between Bloomington Steel and Reiners for the purpose of construing the insurance policy’s coverage of Padilla’s bodily injury. That distinction is further emphasized by the district court’s selection of the verb “expected” rather than “intended,” given that Reiners, as an individual, pleaded guilty to an intentional offense. See Minn.Stat. § 609.02, subd. 10 (2002) (defining “assault” as intentional).

DECISION

The district court did not err in its determination that the assault on appellant was an expected act from the standpoint of the insured and that respondent insurers were thus not required to provide coverage for damages.

Affirmed.