Macheca Transp. Co. v. Philadelphia Indem. Ins. Co.

• Decision Date: 09 August 2011
• Docket Number: No. 10–1482.,10–1482.
• Citation: 649 F.3d 661
• Parties: MACHECA TRANSPORT Company, doing business as Gateway Cold Storage; David Macheca; Starlin Macheca, Appellants,v.PHILADELPHIA INDEMNITY INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

649 F.3d 661

MACHECA TRANSPORT Company, doing business as Gateway Cold Storage; David Macheca; Starlin Macheca, Appellants,
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY, Appellee.

No. 10–1482.

United States Court of Appeals, Eighth Circuit.

Submitted: Jan. 11, 2011.Filed: Aug. 9, 2011.

[649 F.3d 663]

John F. Horvath, argued, Chicago, IL, for appellants.Martin John Buckley, argued, Adrian Phillip Sulser and David Scott Davis, on the brief, St. Louis, MO, for appellee.Before MURPHY, BYE, and MELLOY, Circuit Judges.BYE, Circuit Judge.

Macheca Transport Company and David and Starlin Macheca (Macheca) sued Philadelphia Indemnity Insurance Company (Philadelphia) seeking insurance coverage for damages resulting from a pipe rupture in Macheca's refrigerated warehouse. After we reversed the original grant of summary judgment in favor of Philadelphia, see Macheca Transp. Co. v. Phila. Indem. Ins. Co., 463 F.3d 827 (8th Cir.2006) ( Macheca I ), the district court granted Philadelphia's renewed motion for summary judgment on one of two coverage theories advanced by Macheca, and dismissed Macheca's vexatious refusal to pay claim. The case proceeded to trial on the remaining theory of coverage, which a jury resolved in Philadelphia's favor.

Macheca appeals challenging the district court's grant of Philadelphia's motion for summary judgment on Macheca's first coverage theory and the dismissal of Macheca's vexatious refusal to pay claim. Macheca also raises several claims of error

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with respect to the second theory of coverage submitted to the jury, including a claim of instructional error. We affirm in part, reverse in part, and remand.I

Macheca operates a refrigerated warehouse in St. Louis, Missouri. On November 18, 2001, an ammonia leak occurred on the sixth floor of the warehouse after a refrigeration pipe ruptured. The pipe ruptured when the ceiling support system, from which the pipes were suspended, failed. The weight of ice which had accumulated on the pipe contributed to the failure. The refrigeration pipe fell and landed on pallets of product inside the warehouse. Ammonia leaked from the ruptured pipe and caused damage to the warehouse floors and walls, as well as the product stored inside the warehouse.

Prior to the pipe rupture, Macheca had purchased an all-risk insurance policy from Philadelphia which provided coverage for damage to the warehouse and its contents, subject to certain exclusions and limitations. Macheca notified Philadelphia of the pipe rupture/ammonia leak and made a claim for coverage. Philadelphia hired an engineer to investigate the claim. Based upon the engineer's report, Philadelphia denied Macheca's claim. Although the initial denial letter set forth what Philadelphia referred to as “pertinent sections” of the policy, the letter did not give a specific reason for the denial, stating only, “[w]e regret to advise that a Covered Cause of Loss has not occurred, as defined in the contract, as outlined in the investigative details stated above.”

After receiving the denial letter, Macheca hired attorney John Horvath. In April 2003, Horvath wrote to Philadelphia asking for the engineer's report. Philadelphia did not respond. Horvath then faxed a letter to Philadelphia requesting a copy of the engineer's report. Three weeks later, when Philadelphia still had not responded, Horvath phoned the company requesting a copy of the engineer's report for a third time. According to Macheca, Philadelphia refused to provide a copy of the engineer's report, and demanded Macheca put its coverage position in writing.

On June 10, 2003, Horvath put Macheca's coverage position in writing and requested prompt reconsideration of Philadelphia's denial. After explaining how the pipe rupture occurred, the letter pointed out a loss was a “Covered Cause of Loss” unless specifically excluded. The letter noted the policy contained two categories of exclusions—some of which applied irrespective of whether a covered event contributed to the loss, and others of which were rendered inapplicable if a covered event contributed to the loss. Macheca claimed coverage under two policy provisions. The first was an exception to the exclusions for “specified causes of loss,” which included “weight of snow, ice or sleet.” Macheca also claimed the loss was covered under the additional coverage Macheca purchased for “collapse.”

Philadelphia did not respond to the coverage position letter. Horvath again contacted Philadelphia by phone on June 30, and was informed the matter had been referred to outside counsel for a coverage opinion. On August 15, 2003, after two additional letters and a phone call, Philadelphia sent Macheca a letter reiterating its earlier denial. This letter referred to a limitation on coverage for loss to the “interior of any building or to personal property in buildings caused by or resulting from ... ice,” taking the position the limitation referred to the artificial ice generated in the process of cooling a cold storage facility. Philadelphia also contended, however, the weight of ice referenced in the specified causes of loss was not intended to

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cover artificial ice generated in the process of cooling a cold storage facility. The letter also referred to exclusion 3.c.4 for “Maintenance.” In September 2003, one more round of correspondence took place between Horvath and Philadelphia in which Horvath accused Philadelphia of bad faith in its handling of Macheca's claim, and Philadelphia defended its denial. Horvath again requested the engineer's report. Philadelphia finally provided the engineer's report in a letter dated October 2, 2003.

On December 23, 2003, Macheca filed suit against Philadelphia in the Circuit Court of the City of St. Louis. The complaint alleged breach of the insurance contract, and vexatious refusal to pay. The vexatious refusal to pay claim outlined the correspondence that took place between Philadelphia and Horvath between April 2003 and October 2003. In stating the factual basis for the claim, Macheca alleged in part, “[t]he ammonia pipe collapsed as a result of the weight of ice on the pipe coupled with the hidden decay of oakum which held the hangers, supporting the ammonia pipes, in place.” Appellant's App. at 15.

Philadelphia removed the case to federal court. In federal court, Macheca filed a motion for partial summary judgment on the coverage issue. Macheca relied upon the same two theories of coverage it had in the letter sent to Philadelphia on June 10, 2003, namely: (1) the specified cause of loss for weight of ice; and (2) the additional coverage for collapse. Philadelphia filed a cross-motion for summary judgment contending the loss was not covered. Philadelphia also filed a motion to disqualify Horvath as Macheca's counsel under Rule 4–3.7 of the Missouri Supreme Court Rules of Professional Conduct.¹ Philadelphia contended Horvath would be a necessary witness for Macheca's vexatious refusal to pay claim, arguing the parties disagreed upon the matters discussed during the phone calls between Horvath and Philadelphia during Horvath's attempts to obtain the engineer's report and to get Philadelphia to explain the bases for its denial.

The district court granted the motion to disqualify Horvath as Macheca's counsel, concluding Horvath was likely to be a necessary witness because his communications with Philadelphia were relevant to determining whether Philadelphia's refusal to pay was willful and without reasonable cause. The district court also granted Philadelphia's motion for summary judgment, and denied Macheca's motion for partial summary judgment. In doing so, the district court only addressed one of Macheca's two arguments in support of coverage—the contention the loss was covered under the additional coverage for collapse. The district court failed to address Macheca's claim the loss was covered under the exception to certain exclusions for the specified cause of loss for weight of ice. With respect to the collapse issue, the district court determined Missouri law, as interpreted by the Missouri appellate courts, only recognized a “collapse” when there was an entire “falling or reduction [of a structure] to a flattened form or rubble.” The district court concluded the refrigeration pipes had not collapsed under this definition and therefore the loss was

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not covered. Macheca filed a motion for reconsideration of the district court's order, noting the court failed to address Macheca's primary argument for coverage, that is, the argument the loss was caused by weight of ice. The district court denied the motion for reconsideration without comment.

Macheca appealed both the district court's order granting Philadelphia's motion for summary judgment and the order granting the motion to disqualify Horvath as Macheca's counsel. Macheca argued the district court incorrectly applied Missouri law with respect to the collapse issue, suggesting the Missouri Supreme Court would follow the modern trend which recognizes a collapse when there is substantial impairment to the structural integrity of a building or a part of a building. Macheca also contended the district court failed to address its weight-of-ice claim. Finally, Macheca contended the district court erred in disqualifying Horvath as plaintiff's counsel.

On appeal, we reversed. Macheca I, 463 F.3d at 834. We remanded the case because the district court failed to address the weight-of-ice claim advanced by Macheca. Id. at 832. We further held the district court abused its discretion when it disqualified attorney Horvath without first determining whether he would be the only witness who could testify to events surrounding the alleged vexatious refusal to pay claim. Id. at 833–34. In addition, we declined to address the ruling on collapse coverage, indicating Macheca was free to ask the district court to reconsider its holding on remand. Id. at 832 n. 2.

After the case was...