Royal Insurance Co. v. Kirksville College ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-2491
___________
Royal Insurance Company of America; *
American Employers’ Insurance *
Company, *
*
Plaintiffs - Appellees, * Appeal from the United States
* District Court for the Eastern
Kirksville College of Osteopathic * District of Missouri.
Medicine, *
*
Defendant - Appellant. *
___________
Submitted: April 21, 1999
Filed: September 15, 1999
___________
Before McMILLIAN, LOKEN, and MURPHY, Circuit Judges.
___________
LOKEN, Circuit Judge.
Kirksville College of Osteopathic Medicine (“KCOM”) punctured an
underground storage tank while allegedly trespassing on a neighbor's property.
Pollutants escaped from the tank, and the neighbor sued KCOM to recover its clean-up
costs. KCOM tendered defense of the suit to its liability insurers, Royal Insurance
Company of America (“Royal”) and American Employers’ Insurance Company
(“American”), who commenced this action seeking a declaratory judgment they have
no duty to defend or indemnify KCOM because of the absolute pollution exclusion in
their comprehensive general liability (“CGL”) policies. The district court granted
summary judgment for the insurers. KCOM appeals, arguing that its potential liability
is covered by both the property damage and the personal injury provisions of the
policies. We conclude the personal injury coverage in the policies triggers the insurers’
duty to defend the neighbor’s trespass claim. Therefore, we reverse and remand.
In reviewing the grant of summary judgment, we view the facts most favorably
to the non-moving party, KCOM. In August 1994, KCOM entered into a contract to
purchase property adjoining its facilities in Kirksville, Missouri, from Lewistown Heet
Gas, Inc. (“Heet”). Intending to build a parking lot, KCOM directed a contractor to
enter the property in April 1995, before completing the purchase and allegedly without
Heet’s permission. While grading the property and laying curbs, the contractor
ruptured an underground storage tank containing wastes from a coal gasification plant
that was operated on the site from 1905 to 1944. Heet sued KCOM for damages in a
Missouri state court, alleging that KCOM’s negligence and trespass caused Heet to
spend over $400,000 in “site assessment and remediation expenses.” KCOM tendered
the defense of Heet’s lawsuit to Royal and American. The insurers agreed to defend
under a reservation of rights and then commenced this action in federal court, seeking
a declaration that they have no duty to defend or indemnify KCOM under their
respective CGL policies.
The CGL policies provide coverage for damages KCOM is liable to pay to third
parties for causing “property damage,” which is part of “Coverage A,” or “personal
injury,” which is “Coverage B.” Under Missouri law, which applies in this diversity
action, an insurer’s duty to defend is broader than its duty to indemnify. If Heet’s
complaint “alleges facts that give rise to a claim potentially within the policy’s
coverage, the insurer has a duty to defend.” McCormack Baron Mgmt. Servs., Inc. v.
American Guar. & Liab. Ins. Co., 989 S.W.2d 168, 170-71 (Mo. banc 1999). The
district court concluded that the pollution exclusion in Coverage A of both policies
unambiguously excludes property damage caused by the release of pollutants, and that
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the exclusion also defeats KCOM’s claim for coverage under Coverage B. We review
the district court’s grant of summary judgment and its interpretation of state law de
novo. See Salve Regina College v. Russell, 499 U.S. 225, 231 (1991); Newyear v.
Church Ins. Co., 155 F.3d 1041, 1043 (8th Cir. 1998).
I. Coverage A Issues
Coverage A of the Royal and American policies indemnifies KCOM for “sums
that the insured becomes legally obligated to pay as damages because of . . . ‘property
damage’ to which this insurance applies.” The policies define “property damage” as
“physical injury to tangible property, including all resulting loss of use of that
property.” Coverage A also contains an “absolute” pollution exclusion. Royal’s
exclusion provides in relevant part:
This insurance does not apply to . . . .
f. Pollution
(1) “Bodily injury” or “property damage” arising out of the actual,
alleged or threatened discharge, dispersal, seepage, migration,
release or escape of pollutants . . .
(b) At or from any premises, site or location which is or was at
any time used by or for any insured or others for the handling,
storage, disposal, processing or treatment of waste;
* * * * *
Pollutants means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste. Waste includes materials to be recycled,
reconditioned or reclaimed.
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American’s pollution exclusion provides in relevant part:
This insurance does not apply to:
f. (1) “Bodily injury” or “property damage” which would not have
occurred in whole or in part but for the actual, alleged or
threatened discharge, dispersal, seepage, migration, release or
escape of pollutants at any time.
KCOM concedes that Heet’s negligence claim is for “property damage” arising from
the release of pollutants from the underground tank. The district court concluded that
both exclusions unambiguously preclude coverage under Coverage A. We agree.
The Royal Exclusion. KCOM argues that Royal’s exclusion does not apply
because the Heet property was not “used . . . for the handling, storage, disposal,
processing or treatment of waste.” The term “used” must be construed in favor of the
insured to mean “primarily used,” KCOM explains, and the coal gasification plant only
incidentally produced the wastes that were released from the punctured storage tank.
This argument is without merit, totally at odds with the plain language of the exclusion.
The coal gasification plant handled, stored, and disposed of the wastes it generated,
even if its operations ceased before environmental protection laws required the
processing or treatment of such contaminants. In support of its absurd construction of
the exclusion, KCOM cites only S.N. Golden Estates, Inc. v. Continental Cas. Co., 680
A.2d 1114, 1118 (N.J. Super. 1996). But that court did not apply a “primary use”
analysis. It held that the pollution exclusion did not exclude liability claims against a
real estate developer accused of installing defective home septic systems because “the
construction of a home that includes a septic system is not the kind of activity to which
the ‘Absolute Pollution’ exclusion applies.” Under Missouri law, “the courts are not
authorized to . . . exercise inventive powers for the purpose of creating an ambiguity
when none exists.” State Farm Mut. Auto. Ins. Co. v. Ward, 340 S.W.2d 635, 639
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(Mo. 1960); accord Harrison v. MFA Mut. Ins. Co., 607 S.W.2d 137, 142 (Mo. banc
1980). Royal’s exclusion applies to KCOM’s claim for coverage under Coverage A.
The American Exclusion. KCOM argues that American’s pollution exclusion
does not apply because the term “but for” has two reasonable meanings under Missouri
law, “the cause” and “a cause.” Applying the meaning favorable to the insured in this
case, the single, originating cause of Heet’s damages was the wrongful entry by KCOM
and its contractor onto the property, not the subsequent release of pollutants. Again,
this contention is contrary to the plain meaning of the policy language. Under Missouri
law, but for “is an absolute minimum for causation because it is merely causation in
fact.” Callahan v. Cardinal Glennon Hosp., 863 S.W.2d 852, 862 (Mo. banc 1993).
Heet’s alleged property damage was the cost of remedying the release of pollutants
onto its property. This property damage clearly would not have occurred “in whole or
in part but for” the release of the pollutants. The exclusion applies.
II. Coverage B Issues
Coverage B of both policies obligates the insurers to pay “sums that the insured
becomes legally obligated to pay as damages because of ‘personal injury’ . . . to which
this insurance applies.” Personal injury is defined as “injury, other than ‘bodily injury,’
arising out of one or more of the following offenses:
“a. False arrest, detention or imprisonment;
“b. Malicious prosecution;
“c. The wrongful eviction from, wrongful entry into, or invasion of the
right of private occupancy of a room, dwelling or premises that a
person occupies by or on behalf of its owner, landlord or lessor;
“d. [Slander or libel;]
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“e. . . . publication of material that violates a person’s right of
privacy.”
Heet’s complaint accused KCOM and its contractor of “trespass or an unauthorized
invasion of [Heet’s] interest in the exclusive possession of its property,” intentional
misconduct that caused Heet to incur site assessment and remediation expenses in
excess of $400,000.00. KCOM contends that the insurers’ duty to defend is triggered
by this damage claim because it falls within the “wrongful entry” and “invasion of the
right of private occupancy” provisions in subpart c. of the definition of personal injury
under Coverage B. This is a difficult issue. The plain language of subpart c. certainly
seems to encompass liability KCOM incurs for entering Heet’s premises and causing
injury. The insurers nonetheless argue that this liability is not covered under Coverage
B for three distinct reasons.
1. The insurers first argue that, to give effect to their policies as a whole, the
pollution exclusions located in Coverage A must be read as excluding coverage of
Heet’s trespass claim under Coverage B. Though there is no reported Missouri
decision on point, many recent cases from other jurisdictions have addressed this
contention. A majority have held that an insured may not recast a claim for property
damage that is excluded under Coverage A as a claim for personal injury under
Coverage B so as to circumvent an applicable pollution exclusion. Compare Lakeside
Non-Ferrous Metals, Inc. v. Hanover Ins. Co., 172 F.3d 702, 705-06 (9th Cir. 1999),
City of Delray Beach v. Agricultural Ins. Co., 85 F.3d 1527 (11th Cir. 1996), and
Harrow Prods., Inc. v. Liberty Mut. Ins. Co., 64 F.3d 1015, 1024 (6th Cir. 1995), with
Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1042 (7th
Cir. 1992), and Titan Holdings Synd., Inc. v. City of Keene, 898 F.2d 265 (1st Cir.
1990). The district court adopted “the majority approach.”
However, these cases have a factor that is missing here -- they all involved what
might be called trespass-by-pollution, that is, the release or discharge of pollutants from
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an insured’s property that caused property damage elsewhere. Though tort law may
characterize the discharge of pollutants onto a neighbor’s property as a trespass,
liability for this type of conduct falls more logically under Coverage A, where it is
expressly excluded. Thus, we agree with decisions holding such a discharge is not the
“offense” of wrongful entry or invasion encompassed by subpart c. of the definition of
personal injury under Coverage B. But to conclude that such claims do not fall within
the scope of Coverage B is not the same as incorporating the pollution exclusion in
Coverage A into Coverage B. That incorporation is contrary to the plain language of
the policy. Moreover, it is apparent from prior cases that some insurers draft their
pollution exclusions to apply expressly to Coverage B as well as Coverage A. See
Pipefitters, 976 F.2d at 1042. Accordingly, we reject the insurers’ contention that their
Coverage A pollution exclusions apply to Coverage B. Therefore, KCOM’s claim for
coverage under Coverage B is not barred by the pollution exclusions in the Royal and
American CGL policies.
2. The insurers also argue that, even if KCOM’s alleged trespass was a
wrongful entry or invasion of Heet’s property, it is not covered because under subpart
c. the trespass must be committed “by or on behalf of [the property’s] owner, landlord
or lessor,” which in this case was Heet, not KCOM or its contractor. KCOM responds
that the words “by or on behalf of” in subpart c. modify “occupies,” not the more
distant antecedents, “wrongful entry” and “invasion.” The “by or on behalf of” clause
is apparently a recent addition to the widely-used form of Coverage B.1 The insurers
note that a number of courts have agreed with their interpretation; indeed, our court has
observed that KCOM’s interpretation is doubtful. See TGA Dev., Inc. v. Northern Ins.
1
For example, the policies at issue in Liberty Mut. Ins. Co. v. FAG Bearings
Corp, 153 F.3d 919, 921 (8th Cir. 1998), and in Great Northern Nekoosa Corp. v.
Aetna Cas. & Sur. Co., 921 F. Supp. 401, 405 (N.D. Miss. 1996), defined personal
injury to include “injury arising out of . . . (2) wrongful entry or eviction or other
invasion of the right of private occupancy.”
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Co. of New York, 62 F.3d 1089, 1091 (8th Cir. 1995). But in the recent case of New
Castle County v. National Union Fire Ins. Co. of Pittsburgh, 174 F.3d 338, 344-51 (3d
Cir. 1999), the court exhaustively reviewed the policy language and these authorities
and concluded that both interpretations are reasonable, so the term is ambiguous and
must be construed against the insurer under Delaware law. Missouri law, too,
construes an ambiguous insurance policy against the insurer. See Martin v. United
States Fid. & Guar. Co., 1999 WL 432609, at *2 (Mo. banc June 29, 1999). We
conclude that the Supreme Court of Missouri would follow New Castle County and
hold that wrongful entry or invasion by a non-owner is included in subpart c. of the
definition of “personal injury” in Coverage B of the Royal and American policies.
3. Finally, the insurers argue that the personal injury coverage they provided
under Coverage B does not extend to Heet’s claims for property damage. This
contention has surface appeal, because the law often distinguishes between injuries to
persons and damage to property. But Coverage B in these insurance policies defines
personal injury to include “injury, other than ‘bodily injury,’ arising out of” five types
of specified “offenses.” Four of those offense categories -- false arrest, malicious
prosecution, slander and libel, and invasion of privacy -- rarely if ever result in property
damage. But the offenses in subpart c. -- wrongful eviction, wrongful entry, and
invasion of the right of occupancy -- often result in injuries to persons and damage to
property, and the law of trespass has long allowed a trespass victim to recover both
types of damages. See, e.g., 75 AM. JUR. 2D Trespass § 126 (1991). Thus, an insurer
that contractually provides coverage for this type of intentional offense should
anticipate that the “injury” being covered would include claims for property damage.
And in fact, prior cases have held such property damage claims to be covered. See
Western Cas. & Sur. Co. v. International Spas of Ariz., Inc., 634 P.2d 3 (Ariz. App.
1981); Cincinnati Ins. Co. v. Davis, 265 S.E.2d 102 (Ga. App. 1980).
Even if some property damage is covered under subpart c. of the definition of
personal injury in Coverage B, there remains the question whether that coverage
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extends to property damage that is expressly excluded under Coverage A. Under
California law as construed by the Ninth Circuit, the answer is clearly no. See
Lakeside, 172 F.3d at 705-06. However, we have construed Missouri law to the
contrary. In Hartford Acc. & Indemn. v. Krekeler, 491 F.2d 884 (8th Cir. 1974), the
insured went to the home of a slow-paying customer, got in a fight, and was sued for
trespass and battery. The district court held the insurer had no duty to defend under the
personal injury policy provisions because the alleged injuries were caused by the
battery, not the trespass. We reversed. Because a trespasser is generally liable for
physical harm to the possessor of land at the time of the trespass, and because the
battery immediately followed the trespass, we concluded that the insurer had a duty
to defend -- the third party’s claim was potentially within the policy’s coverage.
We note that the harm inflicted in Krekeler -- bodily injury -- is generally
covered by Coverage A, but intentional acts such as battery are typically excluded
under Coverage A. Likewise, the harm inflicted here -- property damage -- is generally
covered by Coverage A, but property damage caused by the release of pollutants is
expressly excluded. The parallel is obvious, and so Krekeler is controlling. We further
note that Coverage B in the Royal and American policies expressly defines “personal
injury” to exclude “bodily injury.” That eliminates the potential trespass coverage at
issue in Krekeler. But the insurers did not choose to extend their pollution exclusions
to Coverage B. Construing the duty to defend broadly, as we must under Missouri law,
and without deciding whether the insurers have a duty to indemnify because that
question is premature on this record, we conclude that the insurers must defend Heet’s
trespass claim under Coverage B of their CGL policies.2
2
The dissent suggests that our interpretation of Coverage B “would effectively
negate the pollution exclusion.” We disagree. As we have explained, virtually every
pollution exclusion case that has denied a duty to defend under Coverage B involved
a release of the insured’s pollutants which then caused damage or injury, usually to a
neighbor’s property. To reiterate, we agree with those decisions. By contrast, this case
involves an insured who allegedly trespassed on a neighbor’s property and caused
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The judgment of the district court is reversed, and the case is remanded for
further proceedings not inconsistent with this opinion. KCOM’s motion for leave to
file a supplemental appendix is denied.
McMILLIAN, Circuit Judge, concurring in part and dissenting in part.
I concur in Part I because I agree that the insurers have no duty to defend KCOM
against Heet’s negligence claim for “property damage” caused by the release of
pollutants when KCOM’s contractor ruptured the underground storage tank. The
pollution exclusion unambiguously precludes coverage under Coverage A.
However, I dissent from Part II because I do not agree that the insurers have a
duty to defend KCOM against Heet’s trespass claim for “personal injury” caused by
the same conduct. I agree with the district court’s analysis, and with the majority of
the jurisdictions that have considered the issue, and would refuse to allow the insured
to “recast a claim for property damage that is excluded under Coverage A as a claim
for personal injury under Coverage B so as to circumvent an applicable pollution
exclusion.” Slip op. at 6. For this reason, I would hold that the pollution exclusion
bars coverage under Coverage B as well and affirm the judgment of the district court.
The language of the pollution exclusion is unambiguous. Even though the
pollution exclusion does not expressly apply to Coverage B, these policies, when read
as a whole, clearly exclude coverage for property damage caused by pollution. An
ordinary person of average understanding, if purchasing insurance, could not have
damage or injury by inadvertently releasing the neighbor’s pollutants. (Note in this
regard that Coverage B expressly excludes an insured’s “willful violation of a penal
statute or ordinance.”) This is a narrow class of cases, one that is sufficiently within
the apparent scope of the trespass clause of Coverage B, and outside the apparent
scope of the Coverage A pollution exclusion, so as to trigger the duty to defend.
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reasonably expected coverage for a property damage claim which is clearly excluded
under the pollution exclusion simply by recharacterizing it as “a personal injury claim
unburdened by a pollution exclusion clause.” Lakeside Non-Ferrous Metals, Inc. v.
Hanover Insurance Co., 172 F.3d 702, 705 (9th Cir. 1999). Policy language should be
interpreted to give effect to every part if possible. KCOM’s interpretation would
effectively negate the pollution exclusion. “[I]t is hardly a fair reading of the policy to
permit property and environmental claims, under the guise of ‘personal injury,’ where
the pollution exclusion clearly protects the insurer from precisely such claims.” East
Quincy Services District v. Continental Insurance Co., 864 F. Supp. 976, 981 (E.D.
Cal. 1994).
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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