932 F.2d 717 (8th Cir. 1991), 90-1102, First Southern Ins. Co. v. Jim Lynch Enterprises, Inc.

Docket Nº:90-1102.
Citation:932 F.2d 717
Party Name:FIRST SOUTHERN INSURANCE COMPANY, Appellant, v. JIM LYNCH ENTERPRISES, INC.; James R. Lynch; Daniel Norath, Appellees.
Case Date:May 03, 1991
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 717

932 F.2d 717 (8th Cir. 1991)




Norath, Appellees.

No. 90-1102.

United States Court of Appeals, Eighth Circuit

May 3, 1991

Submitted Oct. 9, 1990.

Thomas J. Plunkert, St. Louis, Mo., for appellant.

Andrew Rothschild, St. Louis, Mo., for appellees.

Before McMILLIAN, Circuit Judge, HENLEY, Senior Circuit Judge, and STUART, [*] Senior District Judge.

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McMILLIAN, Circuit Judge.

First Southern Insurance Company ("First Southern") appeals from a final judgment entered in the United States District Court for the Eastern District of Missouri, granting partial summary judgment in favor of Jim Lynch Enterprises, Inc. ("Lynch Enterprises"), James R. Lynch, and Daniel Norath on the issue of the duty to defend. For reversal, First Southern argues that the district court erred in determining that the breach of contract claim of the underlying suit was arguably within the policy coverage. For the reasons discussed below, we reverse the judgment of the district court.


On April 24, 1989, First Southern filed an amended complaint for declaratory judgment in the United States District Court for the Eastern District of Missouri against its insureds, Lynch Enterprises and James R. Lynch (hereinafter collectively referred to as "Lynch"), and against Daniel Norath, a former employee of Lynch. First Southern sought a declaration that it was not obligated to defend or indemnify Lynch in a pending lawsuit filed by Norath in the Circuit Court of St. Louis County ("Norath suit").

The Norath suit arises out of the termination of Norath by Lynch and a subsequent dispute over a Stock Purchase Agreement. The agreement provided for a redemption of Norath's stock in Lynch Enterprises upon his termination of employment. Lynch has not redeemed the stock, and in 1988, Norath brought suit under three counts to recover under the agreement. Count I seeks damages for breach of the agreement, Count II alleges that Lynch made misrepresentations with respect to the value of the stock, and Count III claims that Lynch made misrepresentations to induce Norath to move to California. First Southern has provided Lynch with a defense under a reservation of right to contest coverage.

Lynch claims that First Southern is obligated to defend and indemnify it in the Norath suit under two successive policies of liability insurance, the later of which is entitled Employee Benefits Liability Coverage. It provides, in pertinent part:

[First Southern] will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of and arising out of any negligent act, error or omission in the administration of the Named Insured's employee benefit programs. [First Southern] shall have the right and duty to defend any suit against the Insured seeking damages for such negligent acts, errors or omissions, even if any of the allegations of the suit are groundless, false or fraudulent.

Joint Appendix at 39W. The policy explicitly excludes "any dishonest, fraudulent, or criminal act." Id.

First Southern and Lynch each filed motions for summary judgment. On December 11, 1989, the district court granted summary judgment in favor of Lynch, declaring that First Southern had a duty to defend Lynch against the claims of Norath. The district court specifically held that "liability under Norath's Count I is potentially within the coverage of the policy, as Lynch Enterprise's breaching acts and omissions may have been committed negligently." First Southern Insurance Co. v. Jim Lynch Enterprises, Inc., No. 88-2353C(1), slip op. at 4 (E.D.Mo. Dec. 12, 1989) (footnote omitted). The district court also dismissed First Southern's amended complaint as premature to the extent it seeks declaratory judgment concerning the issue of indemnification. This appeal followed.


The sole issue on appeal is whether the district court erred in holding that First Southern was obligated to defend Lynch under the Employee Benefits Liability Coverage policy. Summary judgment is appropriate when the district court determines "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

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In this diversity case, we review the district court's conclusions of law, including the granting of summary judgment, under the de novo standard. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). In addition, we note that the interpretation and construction of insurance policies is a matter of law, Huffstutter v. Michigan Mutual Insurance Co., 778 S.W.2d 391, 393 (Mo.Ct.App.1989), and therefore, issues involving the duty to defend are particularly amenable to summary judgment. See, e.g., John Deere Insurance Co. v. Shamrock Industries, Inc., 929 F.2d 413, 415 (8th Cir.1991).

First Southern argues that it has no duty to defend Lynch because the Norath suit is essentially a breach of contract action that is not predicated on any negligence. Although First Southern concedes policy coverage for errors and omissions within an action for breach of contract, it claims that such coverage is limited to situations involving a breach of a duty to perform some act,...

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