City of Carter Lake v. Aetna Cas. & Sur. Co.

Citation454 F. Supp. 47
Decision Date02 August 1978
Docket NumberCiv. No. 76-0-484.
PartiesCITY OF CARTER LAKE, a Municipal Corporation in the State of Iowa, Plaintiff, v. The AETNA CASUALTY AND SURETY COMPANY, a corporation, Defendant.
CourtUnited States District Courts. 8th Circuit. United States District Court of Nebraska

William Brennan, Fitzgerald, Brown, Leahy, Strom, Schorr & Marmettler, Omaha, Neb., for plaintiff.

John R. Douglas, Cassem, Tierney, Adams & Gotch, Omaha, Neb., for defendant.

SCHATZ, District Judge.

In this litigation, the plaintiff, City of Carter Lake, Iowa, has alleged that its liability insurance policy with the defendant, Aetna Casualty and Surety Company (hereinafter Aetna), a Connecticut corporation, covers the negligent actions of Carter Lake's personnel which resulted in six separate incidents of sewage backup into the basement of a Carter Lake resident. Aetna argues that while the first incident may have been an "accident" or "occurrence" within the meaning of the insurance policy, the five subsequent incidents were not covered by the policy. This court has jurisdiction over this diversity action pursuant to 28 U.S.C. § 1332.

The facts are these. On February 26, 1975, the basement of one William Mecseji's house was flooded with raw sewage. The sewage pump had overloaded and had shut off. The sewage began to back up into the system and flooded the lowest area in the drainage system in the Carter Lake area, which happened to be the Mecseji basement. The city maintenance personnel reset the pump and the basement began to drain. Mr. Mecseji filed a claim against the City for his damages in the amount of $418.12. The City referred this claim to Aetna who initially denied the claim on the basis that the City was not negligent.

Due to repeated, identical failures of the sewage pump, the Mecseji basement was flooded again on July 14, 1975, August 2, 1975, and August 21, 1975. The Mecsejis filed suit against Carter Lake on August 26, 1975 alleging that the damage to their property was the result of Carter Lake's negligence. Their complaint was subsequently amended in January, 1976, to include two additional incidents of flooding on December 16, 1975, and December 18, 1975, again due to failure of the sewage pump. By letter of February 26, 1976, Aetna notified Carter Lake that it would defend the City in the lawsuit but that Aetna would not pay for any damages incurred subsequent to the first flooding, February 26, 1975. The City hired additional counsel for the trial and was represented by both private counsel and Aetna's counsel. Following trial the jury returned a verdict in favor of the Mecsejis in the amount of $11,404.14. The Mecsejis have since garnished this sum, plus interest, from Carter Lake's account. The sole question raised in this lawsuit is whether Aetna must reimburse Carter Lake for this amount.

Federal courts are bound by the substantive law of the forum state in diversity actions. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In the instant case, the cause of action arose in Iowa and the insurance policy was written in Iowa for an Iowa municipality. There is no disagreement that Iowa law applies to this case. However, this court has neither found nor been directed to any Iowa law on the question presented in this action. The court must, therefore, apply the law and fashion a remedy which, in its judgment, would be in accordance with the result reached by the Iowa Supreme Court were that court faced with the same question. In the absence of direct local authority as to state law, it is proper for a federal court to look to other sources from other jurisdictions, treatises and restatements. Wendt v. Lillo, 182 F.Supp. 56 (N.D.Iowa 1960).

Iowa law does provide broad principles for interpretation of insurance contracts. In Goodsell v. State Automobile and Casualty Underwriters, 261 Iowa 135, 153 N.W.2d 458, 461 (1967), the court outlined these principles:

The court should ascertain what the insured, as a reasonable person, understood the policy to mean, not what the insurer actually intended. Citations omitted. We have said on several occasions a contract of insurance should not be construed through the magnifying eye of the technical lawyer but rather from the standpoint of what an ordinary man would believe it to mean. Citations omitted. . . . Another rule of construction in insurance cases requires doubt or ambiguity to be construed strictly against the insurer and liberally in favor of the insured. (Citations omitted.)

This court must examine the policy provisions and decisions from other jurisdictions with these principles in mind.

The policy provision in question states:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damages, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payments of judgments or settlements.
"Occurrence" means an accident including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

Carter Lake argues that "accident" must be defined in terms of intention and that the term "accident" includes all incidents which are not actually intended by the insured. Aetna argues, however, that if the damage is the natural and probable consequence of the defendant's failure to do...

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2 cases
  • City of Carter Lake v. Aetna Cas. and Sur. Co., 78-1796
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • 24 Julio 1979
    ...entered judgment for Carter Lake against Aetna for $1,501.78, the amount attributable to the first backup. City of Carter Lake v. Aetna Cas. & Sur. Co., 454 F.Supp. 47 (D.Neb.1978). We agree that coverage under the policy extended only to the first flooding, but are persuaded that Aetna is ......
  • U.S. Fidelity and Guar. Co. v. Bonitz Insulation Co. of Alabama
    • United States
    • Supreme Court of Alabama
    • 30 Diciembre 1982
    ...of Alabama v. Rives, 264 Ala. 310, 87 So.2d 653 (1955). A case that is very instructive on this point is City of Carter Lake v. Aetna Casualty & Surety Co., 454 F.Supp. 47 (D.Neb.1978). In that case, the city maintained a pumping system that was not adequate during flooding to control the f......

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