Noran Neurological v. Travelers Indemnity ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 99-3471
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Noran Neurological Clinic, P.A., *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
The Travelers Indemnity Company, *
*
Appellee. *
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Submitted: June 13, 2000
Filed: October 16, 2000
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Before HANSEN and HEANEY, Circuit Judges, and MILLS,1 District Judge.
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HANSEN, Circuit Judge.
Noran Neurological Clinic, P.A., (Noran) brought suit against its property
insurer, The Travelers Indemnity Company (Travelers), alleging breach of contract; a
deceptive trade practice in violation of Minn. Stat. §§ 325D.09-.16 (1995); and bad
1
The Honorable Richard Mills, United States District Judge for the Central
District of Illinois, sitting by designation.
faith denial of coverage. Noran now appeals the district court's2 grant of summary
judgment in favor of Travelers, except for the bad faith denial of coverage claim which
is not at issue in this appeal. We affirm.
I.
Noran is a neurological medical clinic with its principal office located in south
Minneapolis. Noran's radiology department is located on the lower level of the building
and has large windows facing an open-to-the-sky, landscaped "atrium." From the
outside, the windows are nearly even with the ground. The base of the atrium is
approximately seven feet below street level. A drain, which is located in the southeast
corner of the atrium, leads to a catch basin and storm drain. On July 1, 1997,
Minneapolis received excessive rainfall occurring during a one-hour period. At some
point during the storm, the atrium filled with water comprised of rain falling on the
atrium and water flowing into the atrium from the nearby flooded street, causing at least
one of the clinic's windows to break and water to rush into the radiology department.
The water destroyed most of the office furniture, imaging equipment, and computers
located in the department. Noran believed that debris collected in the atrium, blocked
the atrium's drain, and culminated in the buildup of water breaking the window.
At the time of this incident, Noran owned a commercial property insurance
policy written by Travelers that provided coverage for physical loss or damage to the
clinic, subject to specified exclusions. Noran submitted a claim exceeding $1.6 million
under its insurance policy with Travelers, which Travelers denied pursuant to the
policy's surface water exclusion. This provision mandated that any loss caused either
directly or indirectly by surface water was excluded from coverage. Noran
subsequently filed suit, and the case was submitted on motions for summary judgment.
2
The Honorable Donovan W. Frank, United States District Judge for the District
of Minnesota.
2
Noran argued that Travelers improperly denied coverage and asserted that
Travelers should have provided coverage consistent with the blocked drain exception
found within a subsection of the water exclusion provision of the policy. The district
court disagreed and held as a matter of law that the blocked drain exception was
inapplicable to Noran's loss, which was caused by surface water. The district court
also concluded that because Travelers' denial of coverage was justified by the policy
language, Noran's statutory claim necessarily failed. Noran now appeals.
II.
Summary judgment is appropriate when no genuine issue of material fact
remains, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.
P. 56(c). We review a grant of summary judgment de novo, applying the same standard
as the district court. See Callas Enters., Inc. v. Travelers Indem. Co., 193 F.3d 952,
955 (8th Cir. 1999). We also review a district court's interpretation of the contractual
provisions of an insurance policy de novo as a question of law. See Koch Eng'g Co.
v. Gibralter Cas. Co., 78 F.3d 1291, 1294 (8th Cir. 1996). The parties agree that
Minnesota law governs this diversity action.
When reviewing the construction of insurance policies, general contract
principles govern. See Progressive Specialty Ins. Co. v. Widness, 613 N.W.2d 781,
783 (Minn. Ct. App. 2000). "In interpreting a policy exclusion, any ambiguity in the
language of the policy must be construed in favor of the insured." Henning Nelson
Constr. Co. v. Fireman's Fund Amn. Life Ins. Co., 383 N.W.2d 645, 652 (Minn. 1986).
If, however, the contract is clear and unambiguous, then the language is given its plain
and ordinary meaning. See Lobeck v. State Farm Mut. Auto Ins. Co., 582 N.W.2d
246, 249 (Minn. 1998); American Commerce Ins. Brokers, Inc. v. Minnesota Mut. Fire
& Cas. Co., 551 N.W.2d 224, 227-28 (Minn. 1996). Moreover, when a provision
within an insurance policy is subject to both a reasonable and unreasonable
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interpretation, the reasonable construction controls, thereby eliminating any ambiguity.
See Mutual Serv. Cas. Ins. Co. v. Wilson Township, 603 N.W.2d 151, 153 (Minn. Ct.
App. 1999). In this case, we recognize our duty to "fastidiously guard against the
invitation to create ambiguities where none exist." Columbia Heights Motors, Inc. v.
Allstate Ins. Co., 275 N.W.2d 32, 36 (Minn. 1979) (internal quotations and citation
omitted).
In relevant part the Travelers policy provides:
B. EXCLUSIONS
1. We will not pay for loss or damage caused directly or indirectly by
any of the following. Such loss or damage is excluded regardless
of any other cause or event that contributes concurrently or in any
sequence to the loss.
....
g. Water
(1) Flood, surface water, waves, tides, tidal waves,
overflow of any body of water, or their spray, all
whether driven by wind or not;
(2) Mudslide or mudflow;
(3) (a) Water or sewage that backs up or overflows
from a sewer, drain or sump.
(b) Except for septic tank and cess pool systems
this exclusion does not apply when the cause
of water or sewage overflow occurs due to a
blockage which originates on the described
premises.
(Appellant's App. at A-81 - A-82 (emphasis added).) We cannot agree with Noran that
it is reasonable to interpret the exception contained in provision 3(b) as pertaining to
all of the prior provisions contained within section g. As the district court keenly
observed, the "water or sewage overflow" language contained within the 3(b) blockage
exception mirrors the language contained in 3(a), and only 3(a). Thus, the blocked
drain exception only applies when "water or sewage . . . backs up or overflows from
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a sewer, drain, or sump." (See Appellant's App. at A-82.) Further, we find the
placement of the exclusion telling. Given the structure of the policy, it appears to us
that provision 3(b) only modifies 3(a) and not section g in its entirety. In the final
analysis, if Travelers had wanted to draft an exception to the surface water exclusion
covering the peril at issue, it could have done so, but it did not. Noran merely attempts
to inject ambiguity into the contract. As such, Noran's view proposes a strained reading
of the contract language contrary to the contract's plain meaning and therefore must fail.
Accordingly, we hold the policy is not ambiguous, and the blocked drain exception
plainly does not apply to the surface water situation of this case.
Noran would have us consider the testimony of two Travelers' representatives
in support of its interpretation of the policy. The court does not, however, consider
extrinsic evidence when determining if a contract is ambiguous. See In re Hennepin
County 1986 Recycling Bond Litig., 540 N.W.2d 494, 498 (Minn. 1995). "[A]n
insurance policy is still a contract, and where its provisions are unambiguous the courts
have no right to thrust upon the insurer a risk that it did not accept and for which it was
not paid a premium." Simon v. Milwaukee Auto. Mut. Ins. Co., 115 N.W.2d 40, 49
(Minn. 1962); see also Berken v. Beneficial Standard Life Ins. Co., 221 N.W.2d 122,
124 (Minn. 1974) ("It is clear that the clause before us meets this standard in that it is
unambiguous and unequivocally states the circumstances under which coverage will be
denied. It is therefore unnecessary to resort to a determination of the subjective intent
of the parties.").
Finally, we agree with the district court's conclusion that Noran's Minnesota
statutory claim was premised upon the alleged wrongful denial of coverage. Because
the policy language justified Travelers' denial of benefits, this premise was invalid and
summary judgment as to this claim was proper.3 Noran's new argument that Travelers
3
There exists a dispute over whether Noran pleaded claims under the Uniform
Deceptive Trade Practices Act, the Prevention of Consumer Fraud Act, or the Unlawful
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never intended to grant coverage under the blockage exception is similarly ineffective
because of our conclusion that the blocked drain exception simply does not apply to the
situation at hand.
III.
Accordingly, we affirm the judgment of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
Trade Practices Act. This dispute is not material, however, because we conclude that
the factual predicate underlying the claim stated in the complaint under any of these
statutes is invalid because there was no wrongful denial of coverage.
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