Oak River Ins. Co. v. Truitt

• Citation: 390 F.3d 554
• Decision Date: 03 December 2004
• Docket Number: No. 03-3801.,03-3801.
• Parties: OAK RIVER INSURANCE COMPANY, Plaintiff—Appellee, v. Herman TRUITT; Bob Brawner; William Novinger, County Commissioners of Adair County, Missouri; Adair County, Missouri; Defendants, Taxpayers of Adair County, Missouri, Defendant—Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

390 F.3d 554

OAK RIVER INSURANCE COMPANY, Plaintiff—Appellee, v. Herman TRUITT; Bob Brawner; William Novinger, County Commissioners of Adair County, Missouri; Adair County, Missouri; Defendants, Taxpayers of Adair County, Missouri, Defendant—Appellant.

No. 03-3801.

United States Court of Appeals, Eighth Circuit.

Submitted: September 14, 2004.

Filed: December 3, 2004.

Seth Shumaker, argued, Kirksville, MO (Danieal H. Miller, Columbia, MO, on the brief), for appellant.

Tory M. Bishop, argued, Omaha, NE (Catherine A. Damico, on the brief), for appellee.

Before RILEY, LAY, and SMITH, Circuit Judges.

SMITH, Circuit Judge.

Taxpayers of Adair County ("Taxpayers") appeal from the district court's entry of summary judgment¹ in favor of Oak River Insurance Company. For reversal, Taxpayers argue that the district court erred by enforcing two coverage exclusions contained in the insurance policy covering county officials' errors and omissions. We affirm.

I. Background

Adair County, Missouri purchased an errors and omissions policy from Oak River Insurance Company (Oak River) to cover its employees, including the County Commissioners, for wrongful acts committed during their service.² In January 1997, the Commissioners placed a ballot proposal before the voters of the county for authority to impose a law enforcement sales tax for future expansion of the existing Detention Center. The voters approved this proposal. But the Commissioners, rather than expend the tax revenues solely for Detention Center expansion, expressed their intent to build an entirely new jail.

In September 1997, a lawsuit³ was filed in state court against the Commissioners alleging violation of V.A.M.S. § 67.582. Section 67.582 permits law enforcement sales tax revenue to be used only for capital improvement projects involving existing law enforcement facilities. The state trial court ruled that the county's use of tax revenue to build a new prison facility would not violate state law. Plaintiffs appealed. During the pendency of plaintiffs' appeal, the Commissioners proceeded with construction plans on the new Detention Center using revenue from the law enforcement tax to pay excavation costs. In March 1999, the Missouri Court of Appeals reversed,⁴ holding that the language of the ballot initiative limited the use of funds to expansion of the existing jail. All work on the new jail ceased.

In December 2000, Taxpayers and Adair County filed suit in Missouri circuit court⁵ against the Commissioners for unauthorized use of revenue from the law enforcement tax. The lawsuit alleged that the Commissioners acted negligently, outside of the scope of their authority, and knew or should have known, that expending the revenue from the ballot initiative to construct a new jail was improper. The suit was subsequently designated as a class action on behalf of Taxpayers, and Adair County was dismissed by voluntary non-suit. In fall 2001, the parties signed an Agreement and Stipulated Judgment. This stipulated judgment permitted Taxpayers to seek judgment of $1,180,950.41 against the Commissioners from the proceeds of the Oak River errors and omissions policy.

The Commissioners submitted the stipulated judgment to Oak River for payment, but Oak River denied coverage and filed a petition for declaratory judgment in the United States District Court for the Eastern District of Missouri under 28 U.S.C. § 1332(a). The petition sought a declaration that the errors and omissions policy did not provide coverage for the Commissioners' acts in question. Both parties filed motions for summary judgment. The district court granted Oak River's summary judgment motion based on two policy provisions: exclusion of coverage for claims arising out of any assessment, collection disbursement, or application of any taxes, and exclusion of coverage for claims arising out of willful violations of the law.⁶ This appeal followed.

II. Discussion

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is properly granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The district court reviews the evidence in the light most favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir.1995). The nonmoving party must show the existence of facts on the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir.1995).

Motions for summary judgment are reviewed de novo as to conclusions of law and for clear error as to factual findings. Bhd. of Maint. of Way Employees v. Soo Line R.R., 266 F.3d 907, 909 (8th Cir.2001); Goff v. Dakota, Minn. & Eastern R.R. Corp., 276 F.3d 992, 995 (8th Cir.2002). The interpretation of the terms of an insurance contract is a matter of state law, which is reviewed de novo. Gen. Cas. Ins. Cos. v. Holst Radiator Co., 88 F.3d 670, 671 (8th Cir.1996); Carolina Cas. Ins. Co. v. Burbach, 354 F.3d 929, 931 (8th Cir.2004).

A. Exclusion for Claims Arising from Assessment, Collection, Disbursement, or Application of Taxes

Taxpayers contend that the exclusions in the errors and omissions policy create an ambiguity by negating all coverage for the Commissioners, since every act⁷ of a Commissioner affects assessment, collection, disbursement, or application of taxes. Taxpayers base this argument on Section I(A) of the policy that covers losses due to wrongful acts and Section I(B)(13) of the policy that excludes coverage for acts arising out of a tax assessment, tax penalty, collection, refund, disbursement, application of taxes, revenue shortfall, and debt financing. Taxpayers maintain that coverage applies when a policy both includes and excludes an act of the insured, Braxton v. United States Fire Ins. Co., 651 S.W.2d 616, 619 (Mo.Ct.App.1983)(holding that a court must apply the construction most favorable to the insured when the policy is reasonably susceptible to two interpretations), and that insurance contracts must be interpreted to grant, rather than defeat coverage. Centermark Props. v. Home Indemnity Co., 897 S.W.2d 98, 100 (Mo.Ct.App.1995).

The district court correctly determined the errors and omissions policy to be unambiguous. The Missouri test for ambiguity is clear. The policy must be read as a whole to determine the parties' intent. Kyte v. Am. Family Mut. Ins. Co., 92 S.W.3d 295, 298-99 (Mo.Ct.App.2002); Stotts v. Progressive Classic Ins., 118 S.W.3d 655, 662 (Mo.Ct.App.2003). The words of a policy are given their ordinary meaning unless it is obvious that a technical meaning was intended. Krombach v. Mayflower Ins. Co. Ltd., 785 S.W.2d 728, 731 (Mo.Ct.App.1990); Herpel v. Farmers Ins. Co. Inc., 795 S.W.2d 508, 510 (Mo.Ct.App.1990). Courts cannot create an ambiguity to enforce a particular construction. Rodriguez v. Gen. Accident Ins. Co., 808 S.W.2d 379, 382 (Mo.1991) (en banc); Am. Family Mut. Ins. Co. v. Van Gerpen, 151 F.3d 886, 888 (8th Cir.1998).

Insurance policy language is ambiguous when it is reasonably open to different constructions. Lincoln County Ambulance v. Pac. Employers Ins., 15 S.W.3d 739, 743 (Mo.Ct.App.1998); Stotts, 118 S.W.3d at 662. An ambiguity arises if there is duplicity, indistinctness, or uncertainty in the meaning of the contractual terms. Lumbermens Mut. Ins. Co. v. Timberland Pallet & Lumber Co., 195 F.3d 368, 377 (8th Cir.1999); Cincinnati Ins. Co. v. Television Eng'g Corp., 265 F.Supp.2d 1078, 1081 (E.D.Mo.2003). An insurance policy that promises something at one point and then takes it away at another is ambiguous. Behr v. Blue Cross Hosp. Serv. Inc., 715 S.W.2d 251, 256 (Mo.1986) (en banc); Maxon v. Farmers Ins. Co. Inc., 791 S.W.2d 437, 438 (Mo.Ct.App.1990).

Ambiguous language is construed against the insurer. Peters v. Employers Mut. Cas. Co., 853 S.W.2d 300, 302 (Mo.1993) (en banc); State Farm Mut. Ins. Co. v. Shahan, 141 F.3d 819 (8th Cir.1998). Likewise, so is limiting language. Brugioni v. Maryland Cas. Co., 382 S.W.2d 707, 711 (Mo.1964); Chase Resorts Inc. v. Safety Mut. Cas. Corp., 869 S.W.2d 145, 150 (Mo.Ct.App.1993). If an ambiguity exists, the policy language will be interpreted as understood by the lay person who purchased it. Hawkeye-Security Ins. Co. v. Davis, 6 S.W.3d 419, 424 (Mo.Ct.App.1999); Stotts, 118 S.W.3d at 662. Courts should not adopt an interpretation neutralizing a policy provision if another interpretation gives it effect. Sommer v. New Amsterdam Cas. Co., 171 F.Supp. 84 (E.D.Mo.1959).

When a policy defines a term, that definition controls "unless the context clearly requires otherwise." Enterprise Tools, Inc. v. Export-Import Bank, 799 F.2d 437, 439 (8th Cir.1986); Shaffner v. Farmers Mut. Fire Ins. Co. of St. Clair County, 859 S.W.2d 902, 907 (Mo.Ct.App.1993). Overly technical, unrealistic, unreasonable or absurd interpretations are to be avoided. Basore v. Allstate Ins. Co., 374 S.W.2d 626, 630 (Mo.Ct.App.1963). The rules of construction are inapplicable to an unambiguous policy. Kyte, 92 S.W.3d at 298; Stotts, 118 S.W.3d at 662. Missouri law requires an unambiguous policy be given its plain meaning. Killian v. Tharp, 919 S.W.2d 19, 21 (Mo.Ct.App.1996); St. Paul Fire & Marine Ins. Co. v. Lippincott, 287 F.3d 703, 705 (8th Cir.2002).

The policy in the present case is clear and unambiguous as to coverage and exclusions. While the policy covers wrongful acts of county officials, a sub-category of those acts is expressly excluded (acts arising out of a tax assessment, tax penalty, collection, refund, disbursement, application of taxes, revenue shortfall, and debt financing). Despite this clarity, Taxpayers assert that the contract is ambiguous because "one cannot purport to insure a party in one section of a policy and then exclude coverage for all possible claims against that party in another section." Taxpayers erroneously rely on Braxton, ...