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INSURANCE - insurer/insured relationship not fiduciary before duty to defend assumed

St. Paul Fire and Marine Insurance Company,
A.P.I., Inc., defendant, counter-claimant, third party plaintiff and judgment creditor,
OneBeacon Insurance Company, as successor to
General Accident Insurance Company, third party defendant and judgment debtor,
The Home Insurance Company, et al.,
Third Party Defendants.
Filed September 11, 2007
Affirmed in part, reversed in part, and remanded; motion denied.
Toussaint, Chief Judge
Ramsey County District Court
File No. C9-02-8084
John H. Faricy, Jr., Craig M. Roen, Mark A. Gwin, Rebecca L. Kassekert, Faricy & Roen,
P.A., Metropolitan Centre, 333 South Seventh Street, Suite 2320, Minnesapolis, MN 55402;
David F. Herr, Margo S. Brownell, Jason A. Lien, Maslon Edelman Borman & Brand, LLP,
3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-4140 (for
Eric J. Magnuson, Briggs & Morgan P.A., 2200 IDS Center, 80 South Eighth Street,
Minneapolis, MN 55402; and
Eric J. Strobel, Thomas P. Kane, Hinshaw & Culbertson, 3100 Campbell Mithun Tower,
222 South Ninth Street, Minneapolis, MN 55402 (for appellant)
James T. Martin, Gislason, Martin, Varpness & Janes, PA, 7600 Parklawn South, Edina,
MN 55435 (for amicus curiae Complex Insurance Claims Litigation Association)
Considered and decided by Toussaint, Chief Judge; Kalitowski, Judge; and Minge,
Absent special circumstances, the insurer-insured relationship is not fiduciary
before insurer assumes the duty to defend and acquires control of settlement negotiations.
TOUSSAINT, Chief Judge
This is an appeal from a judgment for respondent A.P.I., Inc. on its claim of
appellants wrongful denial of its tender of defense of asbestos actions. Appellant
OneBeacon Insurance Company, as successor to General Accident Insurance Company,
argues that (a) the jury was improperly instructed on breach of fiduciary duty and bad
faith; (b) A.P.I. failed to prove its breach of contract claim because there was no
evidence showing that OneBeacon breached the terms of the insurance policies with
respect to any particular claim, because all claims were defended and paid by other
insurers, and because A.P.I. failed to prove direct damages; (c) the consequential
damages for A.P.I.s actions in voluntarily seeking bankruptcy are speculative; and (d)
any claims for breach of contract by A.P.I. against OneBeacon are barred by the statute of
limitations. By notice of review, A.P.I. (a) appeals the district courts decision on
allocation of coverage among insurers; (b) requests amendments to the courts findings;
and (c) moves to strike the brief of amicus curiae Complex Insurance Claims Litigation
We affirm the district courts decision to allocate coverage among the insurers, but
remand for a determination of the period of allocation. Because we conclude that the
court misstated the law on breach of fiduciary duty and bad faith, which may have
affected the trial of the breach of contract claims, we reverse the judgment and remand
for a new trial on A.P.I.s breach of contract and independent tort claims. We do not
reach the issue of the propriety of the district courts ruling on the statute of limitations
because the record is not fully developed regarding dates of breaches and the issue of
concealment of the cause of action. We deny A.P.I.s motion to strike the amicus brief.
From the 1940s until the early 1970s, A.P.I. (formerly known as Asbestos
Products, Inc.) of Woodbury, Minnesota, sold, distributed, and installed insulation
materials, some of which contained asbestos, and worked as a contractor on large
commercial products. A.P.I. purchased comprehensive general liability insurance as
required by its customers and had multiple insurers over the years.
In about 1982, A.P.I. began being sued in asbestos-related personal injury lawsuits,
most of which alleged injury from exposure to asbestos emanating from A.P.I.s
contracting operations. Beginning in 1983, A.P.I. tendered these suits to insurers for
defense and indemnification; St. Paul Fire and Marine Insurance Company and other
insurers defended and indemnified A.P.I.
A.P.I. began tendering asbestos-related bodily injury claims to General Accident
Insurance Company, the predecessor to OneBeacon, in 1987. At that time, A.P.I. could
not produce a copy of the policy or certificate of insurance from General Accident, but it
produced accounting records referring to A.P.I.s payment of premiums to General
Accident and identifying policy numbers. The records contained some conflicting
informationA.P.I.s attorney recognized and could not resolve entries showing that one
insurance policy was issued by both General Accident and another insurer, and a General
Accident policy appeared as both a workers compensation and a comprehensive liability
Based on the accountants records, beginning in April 1987, A.P.I. sent letters to
General Accident, notifying it of three policy numbers and A.P.I.s position that it
expected General Accident to defend and indemnify under those policies. General
Accident responded that it could not process A.P.I.s request without more information,
that it had thoroughly searched for the policies, had not found any, and would continue to
search, but its obligations were not triggered without production of the policies. In this
way, A.P.I. tendered hundreds of claims to General Accident, which never defended or
participated in the defense of any claim. In March 1999, A.P.I. ceased tendering ongoing
claims to General Accident.
Insurance defense of A.P.I.s asbestos claim litigation by other insurers was
contested after the 2001 million jury verdict against A.P.I. in Akin v. American
Standard, Inc. The following year, St. Paul Fire and Marine brought a declaratory
judgment action against its insured, A.P.I., seeking a declaration that it had no continuing
obligation to defend A.P.I. in asbestos-related bodily injury and property damage actions.
On April 29, 2003, A.P.I. brought this third-party action against several insurers,
including OneBeacon, seeking a declaration of the insurers duty to defend and to pay all
sums A.P.I. had become or would become obligated to pay as damages.
A.P.I. alleged that it had three General Accident policy numbers retrieved by its
accountants and that the coverage provided by General Accident would have been similar
to that provided in the policies issued by other insurers. OneBeacon, having assumed the
rights and obligations of General Accident, answered the third-party complaint.
OneBeacon denied having any evidence demonstrating insurance coverage of A.P.I. and
denied that A.P.I. was entitled to either defense or indemnity under any contract of
insurance with General Accident.
In April or May 2005, A.P.I. obtained two certificates of insurance that were in the
possession of one of its brokers. These showed that General Accident had issued
comprehensive general liability policies to A.P.I. covering 1958 to 1964. By September
2005, all of the insurers except OneBeacon had settled with A.P.I., and the court had
ruled on the issues of allocation of coverage among insurers and the applicability of the
statute of limitations.
In November 2005, two weeks before trial, OneBeacon admitted that the two
certificates were evidence of insurance from 1958 to 1964. The certificates showed
coverage of 0,000 for each person; million for each accident; and million
aggregate. Motions in limine were heard on November 21, 2005, and one week later the
jury trial commenced.
Both parties testified that they searched for policies issued by General Accident to
A.P.I., but neither was able to locate copies. Brooke Green of OneBeacon testified at the
trial that General Accident could have produced specimen form policies with the same
prefixes as those identified in the accountants papers, but General Accident took the
position that evidence of insurance policies and their terms was required before it was
required to defend.
On December 7, 2005, an advisory jury returned a verdict for A.P.I.; on January
19, 2006, the court entered judgment for A.P.I. pursuant to the special verdict. The jury
found that General Accident had issued three comprehensive general liability insurance
policies to A.P.I. covering three periods: 1958-61; 1961-64; and 1964-66. The jury
determined that the policies contained substantially the wording as that contained in the
policy forms utilized by General Accident and that the policy limits for the first two
periods were 0,000 per person; million per occurrence; and million aggregate.
The jury also found that the limits did not apply to the third policy period and that General
Accident had not proved that the aggregate limit for each policy was applicable to all
coverages provided by each policy.
The jury found that General Accident breached its contracts by failing to defend
and/or indemnify A.P.I. when claims were tendered to it by A.P.I., and those breaches
caused direct damages in the amount of ,573,824. The jury found that General
Accident had acted in bad faith and breached its fiduciary duty, for which A.P.I. was
entitled to million and million respectively. Finally, the jury found that General
Accident falsely represented a material fact to A.P.I., knowing it was false and intending
that A.P.I. would rely on it, but that A.P.I. did not rely on the false representation. The
court adopted the special verdict as the courts findings and concluded that A.P.I. had
prevailed and was entitled to judgment.
Both parties filed posttrial motions, which were heard on February 8, 2006. The
court denied both parties posttrial motions, but awarded A.P.I. attorney fees.
OneBeacon filed a notice of appeal, and A.P.I. filed a notice of review. This court
granted leave for Complex Insurance to submit a brief, which was followed by A.P.I.s
motion to strike the brief.
1. Did the district court erroneously instruct the jury on A.P.I.s claims of bad
faith and breach of fiduciary duty?
2. Did the district court err in awarding A.P.I. extracontractual damages?
3. Did the district court err in denying OneBeacons motion for judgment as a
matter of law and new trial on A.P.I.s breach of contract claim?
4. Did the district court err in rejecting OneBeacons defense of the statute of
5. Did the district court err in its determination that allocation of coverage
among insurers should be based on time on the risk?
6. Did the district court err in denying requested amendments to findings and a
court order?
7. Does A.P.I.s motion to strike the amicus brief have merit?
OneBeacon argues that the jury instructions were erroneous because Minnesota
law does not recognize an insureds claim of bad faith and breach of fiduciary duty under
the circumstances presented in this case and that the district courts instructions on these
issues were error.
We review jury instructions to determine whether, taken as a whole, they are
confusing or misleading on a material issue.1 Lindstrom v. Yellow Taxi Co., 298 Minn.
224, 229, 214 N.W.2d 672, 676 (1974). When instructions fairly and correctly state the
applicable law, an appellate court will not grant a new trial. Alevizos v. Metro. Airports
Commn, 452 N.W.2d 492, 501 (Minn. App. 1990), review denied (Minn. May 11, 1990).
The district court instructed the jury that an insurer and its policyholder hold a
fiduciary relationship and the insurer owes its policyholder a fiduciary duty. . . . [A]n
insurer acts in bad faith when it breaches its fiduciary duty.
The general rule is that special circumstances must exist in a relationship between
parties for creation of a fiduciary relationship. See Klein v. First Edina Nat. Bank, 293
Minn. 418, 421-22, 196 N.W.2d 619, 622-23 (1972) (determining that evidence did not
show confidential relationship between bank and its customer). Ordinary business
1 In the district courts memorandum attached to its denial of posttrial motions, it
indicated that OneBeacons objections to the fiduciary duty jury instructions were filed
after the jury was instructed. The record reflects, however, that OneBeacon clearly
objected to presentation of the fiduciary duty claim when the court heard the motions in
relationships may involve reliance on a professional, a degree of trust, and a duty of good
faith, and yet not fall within the class of fiduciary relationships. See, e.g. Carlson v.
SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn. App. 2007) (concluding that no per
se fiduciary relationship existed between architect and client), review denied (Minn. Aug.
21, 2007). The rights and obligations of the insurer and insured are determined by the
insurance policy. Pillsbury Co. v. Natl Union Fire Ins., 425 N.W.2d 244, 248 (Minn.
App. 1988). The reality is that [the contractual] relationship [between insurer and
insured] . . . necessarily involves competing interests, which often generate litigation
between the insurer and insured. Cherne Contracting Corp. v. Wausau Ins., 572 N.W.2d
339, 343 (Minn. App. 1997), review denied (Minn. Feb. 19, 1998). Thus, at its inception,
the insurer-insured relationship is not fiduciary.
While recognizing that the relationship between the insurer and the insured is
primarily contract-based and not special or confidential, Minnesota has carved out an
exception when an insurer is obligated to assume and assumes the defense of the insured.
For this fiduciary duty to arise, first, the insured must come forward with facts showing
arguable coverage or the insurer must become independently aware of such facts so that
the insurer is obligated to defend or to further investigate the potential claim. See Metro.
Prop. & Cas. Ins. Co. v. Miller, 589 N.W.2d 297, 299 (Minn. 1999) (stating that duty to
defend arises if any one of asserted causes of action is arguably within scope of policy
coverage); SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305, 316 (Minn. 1995)
(stating when duty to defend arises). Second, the insurer must assume the duty to defend
and the concomitant duty to reasonably settle. When there is no dispute as to coverage,
liability, policy limits, and the duty to defend, the insurer owes the insured a fiduciary
duty to settle claims in good faith. Short v. Dairyland Ins. Co., 334 N.W.2d 384, 387-88
(Minn. 1983); Kissoondath v. U.S. Fire Ins. Co., 620 N.W.2d 909, 916 (Minn. App. 2001)
(holding that insurer, who knew that insured would likely be liable, accepted defense, but
refused to settle within policy limits had breached duty to insured), review denied (Minn.
Apr. 17, 2001); see also Miller v. ACE USA, 261 F. Supp. 2d 1130, 1140-41 (D. Minn.
2003) (limiting Shorts and Kissoondaths imposition of fiduciary duty to context of
settlement negotiations).
Here, the district courts instructions did not limit the fiduciary duty to special
circumstances or to the situation arising when the insurer represents the insured for
settlement purposes. The courts instruction that the insurer-insured relationship was per
se fiduciary was incorrect. This error carried into the courts instruction equating a
breach of fiduciary duty with bad faith. The errors in the instructions on breach of
fiduciary duty and bad faith require reversal of the judgment on those two claims and
remand for a new trial.
The jury found OneBeacon liable for extracontractual damages arising out of
OneBeacons breach of fiduciary duty and bad faith. Having concluded that the courts
instructions on breach of fiduciary duty and bad faith were erroneous, the damages
awarded for these claims must also be reversed. To establish extracontractual damages in
this breach of contract action, A.P.I. must do more than simply allege a malicious or badfaith
motive in breaching a contract. See Pillsbury Co., 425 N.W.2d at 248-49 (citing
Wild v. Rarig, 302 Minn. 419, 234 N.W.2d 775 (Minn. 1975)); see also Morris v.
American Family Mut. Ins. Co., 386 N.W.2d 233, 237 (Minn. 1986) (setting out
traditional rule that bad faith breach of contract does not convert to tort). A.P.I. must
prove the elements of an independent tort before the insurers assumption of the insureds
defense. See Pillsbury Co., 425 N.W.2d at 249 (stating that such claims arise only in
exceptional circumstances).
The district court instructed the jury on the elements of an independent tort:
intentional and negligent misrepresentation, but the jury determined that A.P.I. had not
established that it had relied on a misrepresentation. Absent proof of each element of an
independent tort, extra contractual damages were also unavailable. Lickteig v. Alderson,
Ondov, Leonard, 556 N.W.2d 557, 561 (Minn. 1996) (discussing tort damages in context
of legal malpractice claim). On remand for retrial of the breach of contract action, A.P.I.
may retry its claim of misrepresentation.
OneBeacon asserts that its duty to defend depended on the terms of its insurance
contract and the substance of the particular claims tendered to it. It does not argue that it
did not have the obligation to defend; it argues that A.P.I. failed to prove that each
complaint for which it sought a defense presented claims potentially covered under one of
the alleged General Accident policies. It also argues that there is no evidence that it
breached its duty to indemnify A.P.I. against lawsuits brought against it.
The jury found that OneBeacon breached its contracts of insurance by failing to
defend and/or indemnify A.P.I. when claims were tendered to it. The jury also found
that the breaches directly caused damage to A.P.I. in the amount of ,573,824.
This court affirms a denial of judgment as a matter of law if there is any competent
evidence in the record that would reasonably sustain the verdict. Pouliot v. Fitzsimmons,
582 N.W.2d 221, 224 (Minn. 1998); See Minn. R. Civ. P. 50.01.
The jurys findings on breach of contract do not identify whether General Accident
breached its duty to defend or to indemnify A.P.I. or when those breaches occurred.
Although competent evidence indicates that these duties existed during the policy periods
and General Accident never acted to defend or indemnify, damages must be linked to
breaches within the periods covered by the policies. See Meadowbrook, Inc. v. Tower Ins.
Co., 559 N.W.2d 411, 418-19 (Minn. 1997) (comparing allegations of complaint against
insured to language of insurance contract and assessing whether claims state cause of
action within coverage afforded by policy); Milbank Ins. Co. v. B.L.G., 484 N.W.2d 52,
59 (Minn. App. 1992) (remanding due to genuine issues of material fact as to whether
insured was legally liable for covered loss under duty to indemnify), review denied
(Minn. July 16, 1992).
On this record, we cannot determine the basis for the awards of damages, and we
conclude that the awards may reflect the jurys misunderstanding of the law on fiduciary
duty and bad faith. On remand of the breach of contract claim, the issue of when
breaches and resulting direct and other contemplated damages occurred will be retried.
The district court denied OneBeacons summary judgment motion and posttrial
motion for judgment as a matter of law based on the statute of limitations. The question
of the applicable statute of limitations is a question of law reviewed by this court de novo.
Benigni v. County of St. Louis, 585 N.W.2d 51, 54 (Minn. 1998).
The statute of limitations for a contract action is six years. Minn. Stat. 541.05,
subd. 1(1) (2006). Generally, a cause of action for breach of contract accrues when the
terms of the contract are breached. Bachertz v. Hayes-Lucas Lumber Co., 201 Minn. 171,
176, 275 N.W. 694, 697 (1937); Amdahl v. Stonewall Ins. Co., 484 N.W.2d 811, 812
(Minn. App. 1992) (stating that limitations period on claim on insurance contract begins
to run on identifiable claim against insurer), review denied (Minn. July 16, 1992). A duty
to indemnify arises when the insured is legally obligated to pay damages as a result of a
judgment or settlement. Nw. Nat. Ins. Co. ex rel. Swanberg v. Carlson, 711 N.W.2d 821,
825 (Minn. App. 2006).
A.P.I. considered General Accident to be in breach when General Accident first
declined A.P.I.s request that it defend in 1987. Requests to defend and indemnify were
ongoing, however, through 1999. A.P.I.s requests ceased because General Accident
would not acknowledge the existence of a contract of insurance requiring it to defend. In
2003, A.P.I. brought this action alleging breach of duty to defend and to indemnify.
The district court determined that continuing breaches tolled the running of the
limitations period. We are aware of no cases extending the doctrine of continuing
violations from the typical discrimination or workers compensation case to the breach of
contract case that we have here. Davies v. West Pub. Co., 622 N.W.2d 836, 841 (Minn.
App. 2001) (rejecting continuing violation doctrine and distinguishing continuing course
of conduct from separate distinct acts), review denied (Minn. May 29, 2001); see, e.g.,
State Dept. of Labor v. Wintz Parcel Drivers, 555 N.W.2d 908, 912 (Minn. App.1996)
(continuing workers compensation violations), review granted in part, decision modified,
558 N.W.2d 480 (Minn. 1997). Therefore, we conclude that each failure to defend or
indemnify was a distinct breach and could be pursued within six years. The record on
appeal, however, does not reflect the dates on which identifiable claims required General
Accident to defend or when it became legally obligated to indemnify.
A.P.I. also argues that OneBeacons fraudulent misrepresentations tolled the
statute. See Haberle v. Buchwald, 480 N.W.2d 351, 356 (Minn. App. 1992) (setting out
elements to show fraudulent concealment of cause of action), review denied (Minn. Aug.
4, 1992). There is no jury finding to support the tolling of the six-year statute of
limitations; the jury did not find fraud or that OneBeacon withheld or concealed the
partys insurance contract. See also Davies, 622 N.W.2d at 841 (where elements of
equitable estoppel were not shown, it could not serve to toll statute).
As the record on the running of the statute of limitations is not fully developed, we
remand for findings on when the causes of action accrued and a jury determination of
whether there was a basis to toll the statute of limitations.
A.P.I. challenges the district courts determination on summary judgment that pro
rata time-on-the-risk allocation of coverage was appropriate under the circumstances of
these asbestos claims. It also requests that this court limit the allocation period to years of
available coverage based on Wooddale Builders, Inc. v. Maryland Cas. Co., 722 N.W.2d
283 (Minn. 2006).
On an appeal from summary judgment, this court must decide (1) whether there
are any genuine issues of material fact and (2) whether the [district] court erred in [its]
application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). No
genuine fact issue for trial exists if the record taken as a whole could not lead a rational
trier of fact to find for the nonmoving party. DLH, Inc. v. Russ, 566 N.W.2d 60, 69
(Minn. 1997) (quotation omitted). The allocation issue is considered a fact-dependent
damages issue that is subject to the abuse of discretion standard of review. In re Silicone
Implant Litigation, 667 N.W.2d 405, 417 (Minn. 2003).
The district court applied the holding in Domtar, Inc. v. Niagara Fire Ins. Co., 563
N.W.2d 724, 733-34 (Minn. 1997), that pro rata time on the risk is the proper allocation
in those difficult cases in which . . . damage is both continuous and so intermingled as
to be practically indivisible.
While agreeing that the undisputed medical evidence establishes that asbestos
injury is continuing in nature, A.P.I. argues that multiple discrete and identifiable
events made General Accident liable for the damage that occurred during the period of its
policy. Expert evidence at trial showed that the inhalation of the fibers could not be
divided into discrete events; theoretically they are individual events, but not practically.
Impracticality is a basis for apportionment. See Domtar, 563 N.W.2d at 733-34.
Amicus notes that [m]ost courts nationwide have similarly allocated damages
throughout the period of injury or damage. Specifically, amicus states that it would be
unreasonable to expect a single policy to indemnify the policy holder for liability years
after the policy ended. For the same reason, the all sums language does not defeat
allocationassessment of all sums in a single year is inconsistent with long-term
Wooddale specifically addressed periods during which the insured had no
coverage. 722 N.W.2d at 297. It concludes that an insured that elects to assume a
liability will be held responsible as self-insured. 722 N.W.2d at 297. The record does not
reflect A.P.I.s deliberate decision not to insure for asbestos injuries, but this issue was
not directly considered and decided below.
We affirm the district courts exercise of discretion in its determination on pro rata
allocation, but we remand for a determination on the total period over which liability is
A.P.I. sought additional findings and rulings following the return of the special
verdict form. Because the jury had determined that there was an insurance policy with
General Accident covering 1964-66, but had specifically not determined its policy limits,
A.P.I. requested that the court make that determination based on evidence that it had
always maintained the coverage required by its customers.
On review, answers to special verdict questions will not be set aside unless they
are perverse and palpably contrary to the evidence or where the evidence is so clear as to
leave no room for differences among reasonable people. Hanks v. Hubbard
Broadcasting, Inc., 493 N.W.2d 302, 309 (Minn. App. 1992), review denied (Minn. Feb.
12, 1993). The evidence must be viewed in a light most favorable to the jury verdict. Id.
If the jurys special verdict finding can be reconciled on any theory, the verdict will not
be disturbed. Id.
The fact question of limits on the policy in question was submitted to the jury. For
each of the two prior policy periods, A.P.I. had certificates of insurance containing the
policy amounts found by the jury. Absent this clear evidence on the policy limits
applicable to the third period, the jurys answer was not perverse; the jury was not
persuaded by the evidence offered by A.P.I.
A.P.I. also asks this court to strike hypothetical examples regarding injuries
triggering coverage that were contained in the district courts summary judgment order.
As both parties agree that the examples are nonbinding dicta, we decline to strike those
parts of the district courts order.
This court granted Complex Insurances motion for leave to file an amicus curiae
brief in this appeal, stating: The purpose of an amicus brief is to inform the court of
facts or matters of law that may have escaped its consideration, not to repeat or emphasize
arguments already put forth by a party. Complex Insurance filed its brief, and A.P.I.
moved to strike the brief as improper.
Complex Insurance expressly submits its brief in support of OneBeacon
Insurance Company and urges this court to rule in OneBeacons favor. Although the
amicus brief should not argue that a particular party should prevail, such a position
necessarily follows from the alignment of interests among insurance companies. Because
alignment of interests is to be expected with trade groups, this alone does not support
striking the brief. The brief sheds additional light on the important issues and
considerations of the insurance industry, which pervasively affects the public. It provides
citations to relevant precedent, arguments, and policy considerations not included in the
primary briefs. Because the brief does not simply duplicate one partys position and adds
some useful insights, it has merit, and we deny the motion to strike.
Because we conclude that the jury instruction misstated the law on breach of
fiduciary duty and bad faith in this breach of contract action, we reverse the judgment and
remand for a new trial on A.P.I.s breach of contract and independent tort claims and
resulting damages. We do not reach the issue of the propriety of the district courts
ruling on the statute of limitations because the record is not fully developed on the issues
of accrual and concealment of the causes of action. We affirm the district courts
decision to allocate coverage but remand for a determination of the total period of
allocation. We deny A.P.I.s motion to strike the amicus brief.
Affirmed in part, reversed in part, and remanded; motion denied.


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