Polytech, Inc. v. Affiliated FM Ins. Co.

Citation21 F.3d 271
Decision Date11 April 1994
Docket NumberNo. 93-1428,93-1428
PartiesPOLYTECH, INC., Plaintiff-Appellee, v. AFFILIATED FM INSURANCE COMPANY, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

William M. Lutz, Minneapolis, MN, argued, for appellant.

Louis J. Basso, St. Louis, MO, argued, for appellee.

Before HANSEN, Circuit Judge, LAY and BRIGHT, Senior Circuit Judges.

HANSEN, Circuit Judge.

Affiliated FM Insurance Company (Affiliated) appeals the district court's order granting summary judgment on Polytech's claim for payment on a business interruption insurance policy endorsement and denying Affiliated's motion for summary judgment on Polytech's claims for breach of contract. Affiliated argues that the district court erroneously concluded that the business interruption coverage was a statutory "valued policy" under Missouri law. Affiliated also contends that the district court erred in denying Affiliated's motion for summary judgment on Polytech's breach of contract claim. We reverse in part, affirm in part, and remand.

I.

Polytech, Inc., was a manufacturer of cast acrylic plastic sheets (plexiglass) and was located in Owensville, Missouri. An explosion and fire completely destroyed Polytech's production facilities on July 22, 1988. Polytech was insured with Affiliated against loss or damage by fire, among other things, under a policy and its accompanying endorsements.

One of the endorsements to the insurance policy provided coverage to Polytech for business interruption losses resulting from fire. The endorsement, which described the terms of the business interruption coverage, covered Polytech's loss of "gross earnings" and "expenses" that result directly from the business interruption. Polytech filed a claim with Affiliated for business interruption coverage seeking the full coverage limits of $633,600. Affiliated refused payment on the claim.

Polytech filed a suit for breach of the business interruption endorsement contract and for vexatious refusal to pay the insurance proceeds. Affiliated moved for summary judgment arguing that Polytech's claim for business interruption losses was wholly speculative as a matter of law. Polytech resisted Affiliated's motion and filed its own motion for summary judgment arguing that it was entitled to judgment for the full policy limits as a matter of law because the business interruption coverage constituted a "valued policy" under contract principles or under Missouri statutory law.

The district court entered an order denying Affiliated's motion for summary judgment. The morning the trial was to begin, the district court granted Polytech's motion for summary judgment. The district court found that while the business interruption insurance coverage was not a "valued policy" under contract law, the coverage constituted a "valued policy" under "the plain language" of Mo.Rev.Stat. Sec. 379.140. The district court entered judgment for the full amount of the business interruption coverage in favor of Polytech.

The district court and the parties prepared to go to trial on the vexatious refusal to pay claim until Polytech filed a stipulation voluntarily dismissing that claim without prejudice. The district court then entered a final judgment and Affiliated appealed.

II.

Affiliated first argues that the district court erred by finding that the Missouri "valued policy statutes" applied to estop Affiliated from contesting the value of Polytech's business interruption claim. This court reviews de novo the district court's construction of state law in a diversity case. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1220-21, 113 L.Ed.2d 190 (1991).

Valued policies can be created under either contract principles or statutory law. Huth v. General Accident & Life Assur. Corp., Ltd., 536 S.W.2d 177, 181 (Mo.Ct.App.1976). "In a valued policy, the value of the property insured is agreed upon by the parties. If a total loss of the insured property occurs, then the insurance company pays the stipulated value; the actual value is irrelevant." Clark v. Aetna Cas. & Sur. Co., 778 F.2d 242, 247 (5th Cir.1985) (citing 6 J. Appleman & J. Appleman, Insurance Law and Practice Sec. 3827 (1972)); see also Omaha Paper Stock Co. v. Harbor Ins. Co., 596 F.2d 283, 287 (8th Cir.1979) (providing similar definition of valued insurance policy). Valued policies are said to precisely fix the risks and are analogous to liquidated damages provisions in other contracts. Clark, 778 F.2d at 247. Valued policies are distinguished from open policies which leave the final amount to be paid uncertain. Id.

The issue for us is whether the district court properly determined that the business interruption insurance Polytech held with Affiliated is a valued policy under Missouri statutory law. In Missouri there are three valued policy statutes: Mo.Ann.Stat. Secs. 379.140, 379.145, & 379.160 (Vernon 1991). "Sections 379.140 and 379.145 apply only to real property, and Sec. 379.160 applies to both real and personal property." Wells v. Missouri Property Ins. Placement Facility, 653 S.W.2d 207, 210 (Mo.1983) (en banc) (citing Duckworth v. United States Fidelity & Guar. Co., 452 S.W.2d 280, 282-85 (Mo.Ct.App.1970)). When any of these valued policy statutes apply, the insurer is estopped from denying that the value of the insured property at the time the policy was written is equal to the amount of insurance for which the policy was written. Wells, 653 S.W.2d at 210.

The district court found that Sec. 379.140 applied in this case. That section provides:

In all suits brought upon policies of insurance against loss or damage by fire ..., the defendant shall not be permitted to deny that the property insured thereby was worth at the time of the issuing of the policy the full amount insured therein on said property; and in case of total loss of the property insured, the measure of damage shall be the amount for which the same was insured, less whatever depreciation in value, below the amount for which the property is insured, the property may have sustained between the time of issuing the policy and the time of the loss, and the burden of proving such depreciation shall be upon the defendant....

Mo.Ann.Stat. Sec. 379.140. Polytech argues that the very terms of the statute make it applicable here because this is a suit brought "upon [a policy] of insurance against loss or damage by fire...." Id. The district court agreed with Polytech, finding that the plain language of the statute made this business interruption policy a valued policy under Missouri law. Affiliated argues that section 379.140 does not apply here because it applies only to real property and business interruption losses do not qualify as real property. We agree with Affiliated.

Section 379.140 applies only to real property. Mo.Stat.Ann. Sec. 379.145(2) (Vernon 1969) ("This and section 379.140 shall apply only to real property insured.") 1 ; see also Wells, 653 S.W.2d at 210 (noting the same limitation). "Real property" is defined in the Missouri statutes as real estate, lands, or premises. Mo.Ann.Stat. Sec. 1.020(16) (Vernon 1969 & West Supp.1993). We find that the gross earnings and expenses which the business interruption coverage of the policy insures do not constitute real property. Hence, we conclude that the district court erred in applying section 379.140 in this case.

The only case that addresses this issue from any jurisdiction determined that business interruption insurance is a separate type of coverage which is outside of the scope of a valued policy statute. Hudson Mfg. Co. v. New York Underwriters' Ins. Co., 33 F.2d 460 (7th Cir.1929). Polytech attempts to distinguish Hudson because the Wisconsin valued policy statute that the Hudson court interpreted was limited to real property. Polytech's reasoning is unpersuasive because that same restrictive limitation to real property is part of Sec. 379.140, the statute relied on by the district court.

Polytech also argues that the district court's decision to treat the business interruption policy as a valued policy can be affirmed under the valued policy statute found at section 379.160(3), which applies to policies covering both real and personal property. Section 379.160(3) specifically provides in relevant part:

that in all suits brought upon policies of insurance against loss or damage by fire hereafter issued or renewed, the defendant shall not be permitted to deny that the property insured thereby was worth at the time of the issuing of the policy the full amount insured therein on said property covering both real and personal property; ....

Polytech argues that its business interruption coverage should be treated as a policy insuring personal property pursuant to section 379.160(3). Affiliated argues that section 379.160(3) does not apply because coverage for business interruption losses does not constitute coverage for personal property. While the district court placed, at most, minimal reliance on section 379.160(3) in finding that the policy was a valued policy under Missouri law, we nonetheless will address Polytech's argument because both parties have addressed the applicability of section 379.160(3) in their arguments to this court. We must determine whether coverage for business interruption constitutes coverage for personal property loss or damage for the purposes of section 379.160.

Personal property is defined in the Missouri Code as including "money, goods, chattels, things in action and evidences of debt." Mo.Ann.Stat. Sec. 1.020(12) (Vernon 1969 & West Supp.1993). Hence, personal property includes both tangible personal property (i.e., goods and chattels) and intangible personal property (i.e., things in action). See Norris v. Norris, 731 S.W.2d 844, 845 (Mo.1987) (en banc) ("Personal property can be either tangible or intangible."); McDougal v. McDougal, 279 S.W.2d 731 (Mo.Ct.App.1955) (finding under...

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