Hawkins Chemical, Inc. v. Westchester Fire Ins. Co.

• Decision Date: 21 October 1998
• Docket Number: Nos. 97-4028,97-4032,s. 97-4028
• Citation: 159 F.3d 348
• Parties: 29 Envtl. L. Rep. 20,309 HAWKINS CHEMICAL, INC., a Minnesota corporation; The Lynde Company, a Minnesota corporation, Plaintiffs--Appellees, v. WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation; North River Insurance Company, a New Jersey corporation, Defendants--Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 348

159 F.3d 348

29 Envtl. L. Rep. 20,309

HAWKINS CHEMICAL, INC., a Minnesota corporation; The Lynde

Company, a Minnesota corporation, Plaintiffs--Appellees, v. WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation;

North River Insurance Company, a New Jersey

corporation, Defendants--Appellants.

Nos. 97-4028, 97-4032.

United States Court of Appeals,

Eighth Circuit.

Submitted May 11, 1998.

Decided Oct. 21, 1998.

Jeffrey Michael Thompson, Minneapolis, MN, argued (Charles E. Spevacek and Thomas M. Crouch, on the brief), for North River.

Robert Chaney, Chicago, IL, argued (Paul A. Banker, Minneapolis, MN, Jeffrey A. Goldwater, Chicago, IL, on the brief), for Westchester Fire.

Stuart T. Williams, Minneapolis, MN, argued, for appellee.

Before RICHARD S. ARNOLD, JOHN R. GIBSON, and FAGG, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

North River Insurance Company and Westchester Fire Insurance Company appeal from a summary judgment entered in favor of Hawkins Chemical, Inc., and its subsidiary, The Lynde Company. Lynde occupied a downtown Minneapolis warehouse owned by Hawkins, a chemical distributor. A fire in February 1995 destroyed the warehouse and sent toxic smoke and fumes to the surrounding area. Those injured by the smoke and fumes pursued a class action against Hawkins, which tendered the defense of the suit to North River and Westchester. Both insurers denied coverage and refused to defend Hawkins, claiming that their respective policies excluded this sort of liability under a "total pollution exclusion." Hawkins brought this diversity action in response. Applying Minnesota law, the district court ¹ found for Hawkins. The court adopted the recommendations of the magistrate judge ² and awarded Hawkins the amounts it paid to settle the class action as well as the fees and expenses incurred for defending it. Following the parties' stipulation to his jurisdiction, the magistrate judge also awarded Hawkins attorneys' fees incurred in this action for establishing the insurers' breach of the duty to defend under the insurance contracts. We affirm.

North River and Westchester present distinct legal claims based on different facts. North River first sold Hawkins a one-year general liability policy in August 1993, naming Lynde as an insured. North River renewed the policy in September 1994, thus covering Hawkins from September 30, 1994, to September 30, 1995. The policy generally required North River to defend and indemnify Hawkins from claims for "bodily injury," "property damage," and "personal injury" as the policy defined those terms. Certain aspects of North River's coverage were limited by a pollution exclusion outlined in the policy jacket. A "total pollution exclusion" endorsement further limited North River's coverage; unlike the pollution exclusion in the policy jacket, the endorsement did not include an exception for "hostile fire" ³ incidents.

North River's appeal depends upon the endorsement's validity; without the endorsement, North River's policy encompasses the hostile fire in question. Minnesota law requires insurers to file policies and provisions in advance with the State's Commissioner of Commerce. See Minn.Stat. § 70A.06 (1994). ⁴ Several months before North River sold its policy to Hawkins, the Commissioner's office had declared that pollution exclusions in general liability policies must contain an exception for hostile fire. The decision followed a request by the Insurance Services Office, Inc. (ISO)--a trade association of property and casualty insurers-- to approve a "form" "total pollution exclusion" endorsement without a hostile fire exception. An analyst working under the Commissioner denied the ISO's request, citing the Department's longstanding policy that general pollution exclusions must make exceptions for hostile fire. Henceforth, any individual insurer wishing to use such an endorsement would need the approval of the Department, which would approve "reasonable" filings on an individual basis.

North River sought no such approval of the endorsement attached to Hawkins's policy. Nevertheless, it attempted to prove to the district court that the Commissioner had in 1989 approved a set of forms that included a "total pollution exclusion" endorsement outlined in wording nearly identical to that of Hawkins's endorsement in the 1993 policy. The parties dispute this factual contention, and the district court ultimately rejected it. Alternatively, the court held the North River/Hawkins endorsement invalid regardless of the Commissioner's alleged actions in 1989; because "total pollution exclusion" endorsements without hostile fire exceptions were specifically disapproved, North River could not use the Commissioner's earlier approval--if any--to "resurrect" currently-disapproved policy language. North River's endorsement was therefore void, and Hawkins's coverage was limited only by the policy jacket's pollution exclusion. So interpreted, the policy covered "property damages" and "bodily injury"--but not "personal injuries"--caused by the fire's smoke and fumes.

While North River served as Hawkins's primary insurer, Westchester sold Hawkins a one year "umbrella" policy to begin September 1993. The umbrella policy provided excess coverage to the North River general liability policy as well as certain coverage (not relevant to our decision) that North River's policy did not provide. The policy included a pollution exclusion similar to that contained in North River's policy jacket; specifically, the exclusion provided an exception for hostile fire incidents. In September 1994, Westchester and Hawkins agreed to renew the policy for one year. The magistrate judge's report and recommendation, adopted in full by the district court, stated that neither the binder issued to Hawkins nor its accompanying cover letter identified any reduction in Hawkins's coverage.

Westchester and its agent later attempted to add an "Endorsement No. 3" to the policy's terms. Endorsement No. 3 closely resembled North River's "total pollution exclusion" endorsement; in other words, it broadened the pollution exclusion by eliminating the hostile fire exception. ⁵ Hawkins paid the premium on the renewed policy on November 2, 1994. On November 11, 1994, and November 30, 1994, Westchester's agent sent Hawkins letters asking it to sign and return Endorsement No. 3. Hawkins's president finally signed the endorsement on December 9, 1994--some five weeks after Hawkins's payment. Throughout, Westchester provided Hawkins with less than complete notice of this change in its policy. Only a careful reading of the endorsement (side by side with the policy jacket's pollution exclusion) reveals that it removes the hostile fire exception from the earlier pollution exclusion. At the top of the page, the endorsement itself stated the following: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. TOTAL POLLUTION EXCLUSION--UMBRELLA POLICY EXCLUSION J IS REPLACED BY THE FOLLOWING." This language did not describe the substance of the change wrought by Endorsement No. 3. Further, Westchester provided no other indication to Hawkins that its coverage was being reduced.

When Westchester denied coverage of the claims arising from the warehouse fire, Hawkins brought this suit. The district court ruled in favor of Hawkins in several respects. First, it ruled that Westchester's endorsement had created a "substantial change" in Hawkins's coverage and that Hawkins had received inadequate notice of this change under Minnesota law. Alternatively, the court found Westchester's attempted modification of the insurance contract to be unsupported by consideration and thus unenforceable. Third, it awarded Hawkins attorneys' fees in this action for establishing Westchester's breach of the duty to defend Hawkins.

I.

Both North River and Westchester appeal the district court's grant of summary judgment to Hawkins. We review de novo a grant of summary judgment. Kaler v. Craig (In re Craig), 144 F.3d 593, 595 (8th Cir.1998). In so doing, we view the facts and all inferences drawn from them in the light most favorable to the non-moving party. Barker v. Ceridian Corp., 122 F.3d 628, 632 (8th Cir.1997). The district court may grant summary judgment only if the case presents no genuine issue of material fact and if the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). We also review de novo the district court's interpretations of state law, without deference. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

II.

North River contends that an insurer's failure to file an insurance form does not render the policy void under Minnesota law; that Hawkins lacks a "private right of action" to enforce the State's insurance regulations; and that North River complied with Minnesota's regulatory scheme in any event. We address these arguments in turn.

We last addressed North River's first argument some twenty-five years ago. We held then that an insurance policy or provision not filed with the Commissioner of Insurance is unenforceable. See Miller v. National Farmers Union Property & Cas. Co., 470 F.2d 700, 704 (8th Cir.1972) (construing Minn.Stat. § 70.38 (1968) (later repealed and reenacted as sections 70A.06 and 70A.07)). North River claims that subsequent changes in Minnesota law undermine Miller 's holding. Minnesota's courts and legislature are of course free to reject our reading of state law, and we are bound by any such rejection. We nevertheless conclude that Minnesota law has embraced Miller and that Miller 's reasoning determines the validity of the policy provision at issue. See Anderson v. Minnesota Ins. Guar. Ass'n, 520 N.W.2d 155, 160 (Minn.Ct.App.1994) (citing Miller favorably and noting that unfiled or unapproved policy provision is void), rev'd on other grounds, 534 N.W.2d 706 (Minn.1995); In re State Farm Mut. Auto. Ins. Co., 392 N.W.2d 558, 564 (Mi...