Royal Insurance v. Kirksville College, 98-2491

• Citation: 191 F.3d 959
• Decision Date: 21 April 1999
• Docket Number: No. 98-2491,98-2491
• Parties: (8th Cir. 1999) Royal Insurance Company of America; American Employers' Insurance Company, Plaintiffs - Appellees, v. Kirksville College of Osteopathic Medicine, Defendant - Appellant. Submitted:
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 959

191 F.3d 959 (8th Cir. 1999)

Royal Insurance Company of America; American Employers' Insurance Company, Plaintiffs - Appellees, v. Kirksville College of Osteopathic Medicine, Defendant - Appellant.

No. 98-2491

United States Court of Appeals FOR THE EIGHTH CIRCUIT

Submitted: April 21, 1999

Filed: September 15, 1999

Rehearing and Rehearing En Banc

Denied Nov. 3, 1999.^*

Appeal from the United States District Court for the Eastern District of Missouri.

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 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.

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. (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;].

"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,...