Church Mut. Ins. Co. v. Clay Ctr. Christian Church

• Decision Date: 25 March 2014
• Docket Number: No. 13–1613.,13–1613.
• Citation: 746 F.3d 375
• Parties: CHURCH MUTUAL INSURANCE COMPANY, Plaintiff–Appellee v. CLAY CENTER CHRISTIAN CHURCH, Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

746 F.3d 375

CHURCH MUTUAL INSURANCE COMPANY, Plaintiff–Appellee

v.CLAY CENTER CHRISTIAN CHURCH, Defendant.

No. 13–1613.

United States Court of Appeals, Eighth Circuit.

Submitted: Nov. 19, 2013.

Filed: March 25, 2014.

Mark R. Richardson, argued, Lincoln, NE (Peter C. Wegman, Sheila A. Bentzen, on the brief), for Appellant.

Christian Andrew Preus, argued, Minneapolis, MN (Anthony James Alt, on the brief), for Appellee.

Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges.

WOLLMAN, Circuit Judge.

Cheryl Green and the Estate of John Green (the Greens) appeal from the district court's ¹ grant of summary judgment in favor of Church Mutual Insurance Company (Church Mutual). The district court concluded that coverage for the injuries the Greens suffered because of their exposure to carbon monoxide was precluded by pollution exclusions contained in the relevant policies. The district court also held that Church Mutual was not estopped from denying coverage based on those exclusions. We affirm.

I. Background

John Green was the pastor of Clay Center Christian Church (the Church). He and his wife, Cheryl, resided at the Church's parsonage. On November 19, 2009, the parsonage's heating system malfunctionedand released carbon monoxide throughout the residence. John died as a result of his exposure to the carbon monoxide. Cheryl suffered bodily injuries.

The Church had two policies issued by Church Mutual that are relevant to this appeal: a multi-peril policy and an umbrella policy. The multi-peril policy contained a pollution exclusion that excluded coverage for:

g. (1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants:

(a) At or from any premises, site, or location which is or was at any time owned or occupied by, or rented or loaned to, any insured[.]

The umbrella policy included identical language. “Pollutants” are defined under both policies as “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.”

Church Mutual was notified of John's death and Cheryl's injuries on November 20, 2009. That same day, Church Mutual retained attorney Jerald Rauterkus. The parties dispute the purpose for which Rauterkus was hired. Church Mutual contends that Rauterkus's role was limited to conducting a cause-and-origin investigation of the carbon monoxide leak and assisting the Church in matters of communication during the course of the investigation. The Greens assert that Rauterkus was hired to defend the Church against liability claims.

The parsonage's heating system was inspected and tested on three separate occasions from November 2009 to April 2010. The results of the inspections were inconclusive. Although it was evident that the carbon monoxide had been emitted from the parsonage's heating system, the exact source and cause of the carbon monoxide leak were not clear. There was minimal communication between the parties following the third inspection.

In March 2011, the parties resumed communicating when Rauterkus received requests for additional information from attorney Peter Wegman, who had been hired by the Greens to assist in their representation.² After exchanging correspondence, Wegman sent Rauterkus a demand letter on August 19, 2011, seeking policy limits for John's death and Cheryl's bodily injuries. In response, Church Mutual filed a declaratory judgment action on September 7, 2011, seeking a determination that the policies' pollution exclusions precluded any duty on its part to defend or indemnify the Church with respect to the Greens' claims. Church Mutual also sent the Church a reservation of rights letter denying coverage on the basis of those exclusions.

In February 2012, the Church and the Greens entered into a consent agreement in which the Greens agreed not to “pursue or collect on any of [the Church's] assets or assets of any members of the Church, except for any rights to indemnity under any insurance policies[.]” In exchange, the Church assigned to the Greens all rights it had under its insurance policies.

As the declaratory judgment action progressed in the district court, the Greens disclosed their intent to have a chemist testify as an expert witness regarding whether carbon monoxide is an “irritant” or “contaminant.” Church Mutual moved in limine to exclude the chemist's testimony and then later moved for summary judgment. The district court granted both motions, having concluded that the pollution exclusions were unambiguous, that carbon monoxide was a “pollutant” as defined by the policies, and that the Greens' claims thus were not covered under the plain terms of the policies. Additionally, the district court rejected the Greens' contention that Church Mutual was estopped from denying coverage because of its delay in reserving its rights.

II. Discussion

“We review de novo a district court's interpretation of an insurance policy and its grant of summary judgment.” Eichholz v. Secura Supreme Ins. Co., 735 F.3d 822, 825 (8th Cir.2013). Summary judgment is proper if “the record, when viewed in the light most favorable to the non-moving party, shows no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” Langley v. Allstate Ins. Co., 995 F.2d 841, 844 (8th Cir.1993). “[W]hen federal courts are exercising diversity jurisdiction, the rules for construing insurance policies are controlled by state law.” Id. The parties agree that Nebraska law controls in this case. “In interpreting state law, ‘we are bound by the decisions of the state's highest court.’ ” Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 534 (8th Cir.2006) (quoting Eichenwald v. Small, 321 F.3d 733, 736 (8th Cir.2003)). “When a state's highest court has not decided an issue, it is up to this court to predict how the state's highest court would resolve that issue.” Cont'l Cas. Co. v. Advance Terrazzo & Tile Co., Inc., 462 F.3d 1002, 1007 (8th Cir.2006).

A. Pollution Exclusions

The Greens contend that the district court erred in concluding that the pollution exclusions were unambiguous and barred coverage of the Greens' claims. “The interpretation of an insurance policy is a question of law.” Countryside Coop. v. Harry A. Koch Co., 280 Neb. 795, 790 N.W.2d 873, 881 (2010). “Under Nebraska law, a court interpreting a contract, such as an insurance policy, must first determine, as a matter of law, whether the contract is ambiguous.” Reisig v. Allstate Ins. Co., 264 Neb. 74, 645 N.W.2d 544, 550 (2002). “A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.” Id. If an insurance policy is ambiguous, it “will be construed in favor of the insured.” Id. In contrast, “[w]hen the terms of an insurance contract are clear, the court may not resort to rules of construction, and the terms are to be accorded their plain and ordinary meaning as an ordinary or reasonable person would understand them.” Lovette v. Stonebridge Life Ins. Co., 272 Neb. 1, 716 N.W.2d 743, 747 (2006).

The Greens argue that the terms “irritant” and “contaminant,” as used in the policies' definition of “pollutants,” are ambiguous. Although the Nebraska Supreme Court has not addressed whether these specific terms create ambiguity in a pollution exclusion, its decision in Cincinnati Insurance Co. v. Becker Warehouse, Inc., 262 Neb. 746, 635 N.W.2d 112 (2001), points to the conclusion that it would likely reach if the issue were presented to it.

In Cincinnati Insurance Co., the owners of food products stored in a warehouse sued the owner of the warehouse, alleging that their food products had been contaminated by xylene fumes from a floor sealant that had been applied to the warehouse's concrete floor. The warehouse owner filed claims with its insurer, seeking indemnity and defense against these claims. The insurer denied coverage on the basis of a pollution exclusion nearly identical to the pollution exclusions at issue in this case, but additionally including “[p]ollutants include but are not limited to substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment.” See id. at 116. In response to the insurer's declaratory judgment action, the warehouse owner argued that the pollution exclusion was ambiguous and that it applied only to traditional environmental pollution claims.

The Nebraska Supreme Court concluded that although the pollution exclusion was “quite broad,” it was unambiguous and was not limited to traditional environmental damage. Id. at 120. In rejecting the warehouse owner's arguments, the court recognized that the “majority of state and federal jurisdictions have held that absolute pollution exclusions are unambiguous as a matter of law and, thus, exclude coverage for all claims alleging damage caused by pollutants.” Id. at 118. Continuing, the court stated:

The broad nature of the pollution exclusion may cause a commercial client to question the value of portions of its commercial general liability policy, but, as an appellate court reviewing terms of an insurance contract, we cannot say that the language of the pollution exclusion is ambiguous in any way. The language in the instant pollution exclusion is clear and susceptible of only one possible interpretation.

Id. at 120.

The Greens seek to distinguish Cincinnati Insurance Co. on the ground that the ambiguity alleged in that case was not based on the terms “irritant” or “contaminant.” Nevertheless, the decision in Cincinnati Insurance Co. suggests that, given its conclusion that the entirety of the exclusion was broad and unambiguous, the Nebraska Supreme Court would reject the Greens' contention that the terms “...