Sfh, Inc. v. Millard Refrigerated Services, Inc.

• Decision Date: 12 August 2003
• Docket Number: No. 02-2489.,No. 02-3442.,No. 02-2330.,02-2330.,02-2489.,02-3442.
• Citation: 339 F.3d 738
• Parties: SFH, INC., Plaintiff-Appellant/Cross-Appellee, v. MILLARD REFRIGERATED SERVICES, INC., Defendant-Appellee, Larsen Realty Company, Defendant-Appellee/Cross-Appellant. The Travelers Indemnity Company of Illinois, Plaintiff-Appellant, v. Millard Refrigerated Services, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

339 F.3d 738

SFH, INC., Plaintiff-Appellant/Cross-Appellee, v. MILLARD REFRIGERATED SERVICES, INC., Defendant-Appellee, Larsen Realty Company, Defendant-Appellee/Cross-Appellant.

The Travelers Indemnity Company of Illinois, Plaintiff-Appellant, v. Millard Refrigerated Services, Inc., Defendant-Appellee.

No. 02-2330.

No. 02-2489.

No. 02-3442.

United States Court of Appeals, Eighth Circuit.

Submitted: March 10, 2003.

Filed: August 12, 2003.

Petitions for Rehearing Denied: October 7, 2003.

The petitions for rehearing by the panel filed by Appellant SFH, Inc. and Appellant Travelers Indemnity Company are denied.

COPYRIGHT MATERIAL OMITTED

Michael C. McCarthy, argued, Minneapolis, MN (David F. Herr, Minneapolis, MN, Paul T. Falk and Steven R. Johnson, Chicago, IL, and Rex A. Rezac, Omaha, NE, on the brief), for appellant/cross-appellee in 02-2330/02-2489. David T. Schultz, argued, Minneapolis, MN (Thomas M. Sipkins and Matthew E. Johnson, Minneapolis, MN, and Douglas J. Peterson, Lincoln, NE, on the brief), for appellant Travelers Indemnity Company of Illinois in 02-3442.

William R. Johnson, argued, Omaha, NE (Raymond E. Walden, Omaha, NE, on the brief), for appellee Millard Refrigerated Services in Case No. 02-2330. Mark A. Christensen, argued, Lincoln, NE, for Appellee/Cross-Appellant Larsen Realty in Case Nos. 02-2330/02-2489. David D. Ernst, argued and briefed, Omaha, NE, for appellee Millard Refrigerated Services in Case No. 02-3442.

Before McMILLIAN, FAGG, and LOKEN,^* Circuit Judges.

LOKEN, Chief Judge.

We have consolidated these appeals in two diversity actions brought to establish the parties' respective liabilities for a January 1998 fire that destroyed the Signature Foods processing business of SFH, Inc. ("Signature"). The fire started in the portion of an Omaha warehouse that Signature leased from Millard Refrigerated Services, Inc. ("Millard"). Millard managed the warehouse under an agreement with the building's owner, Larsen Realty Co. ("Larsen").

The lease required Signature to maintain not less than $1,000,000 of comprehensive general liability (CGL) insurance and to include Millard as an additional insured. Signature purchased a $1,000,000 CGL policy from The Travelers Indemnity Co. ("Travelers"). The policy included an additional insured endorsement for "Managers or Lessors of Premises." Signature also purchased a $25,000,000 excess liability policy from Travelers. After the fire, Travelers indemnified Signature under both policies for $9,861,143 of Signature's losses. The amount of loss covered by the Travelers policies is not in dispute.

Signature filed the first suit in Nebraska state court to recover damages for Millard's alleged gross negligence in failing to properly maintain the warehouse sprinkler system.¹ Millard removed the case to federal court. Signature filed an amended complaint adding Larsen and a third defendant who later settled by paying Signature $750,000. Meanwhile, Millard demanded that Travelers defend Millard as an additional insured under the Travelers policies. Travelers refused and filed the second action for a declaratory judgment that it need not defend or indemnify Millard. The two actions proceeded separately before different district judges.

In the first action, after a trial of Signature's claims, the jury found that the fire was caused by Millard's gross negligence and by Larsen's negligence. The jury awarded Signature damages of $11,962,753, assigning seventy percent of the fault to Millard and thirty percent to Larsen. The district court² reduced the award by the $750,000 Signature received in the settlement and entered judgment against Millard and Larsen in the amount of $11,212,573. Following this ruling, the district court in the declaratory judgment action³ granted summary judgment to Millard, concluding that Travelers had a duty to defend and indemnify Millard against Signature's lawsuit. The district court in the first action then reduced the judgment in favor of Signature by (1) the $9,861,143 Signature received from Travelers for the insured losses, and (2) the $200,000 Signature received from a post-fire salvage sale. The court denied Signature's motion for prejudgment interest and entered an Amended Judgment of $1,151,430, the amount of Signature's uninsured losses.

In the first action, Signature appeals the district court's decision to reduce the judgment by the $9,861,143 paid by Travelers, raising distinct issues as to Millard and Larsen. Signature also appeals the reduction for the amount recovered in the post-fire sale and the denial of prejudgment interest. Larsen cross-appeals the judgment that it was negligent. In the declaratory judgment action, Travelers appeals the district court's conclusion that Travelers must defend and indemnify Millard as an additional insured under the liability policies. We will first discuss the appeal by Travelers because our decision that Millard has coverage as an additional insured makes it unnecessary to address a number of issues raised by the cross-appeals in the Signature case. In the end, we affirm both district courts in all respects.

I. The Travelers Appeal.

A. The Duty To Indemnify. On appeal, Travelers first argues the district court erred in concluding that Travelers must indemnify Millard under both the CGL and excess policies for Signature's insured losses. This contention requires a somewhat different analysis for each policy. The law of Nebraska controls our analysis and requires that we construe the policies as contracts, giving effect to the parties' intentions at the time the contract was made. Home Ins. Co. v. Aetna Ins. Co., 236 F.3d 927, 929 (8th Cir.2001).

1. The CGL Policy. The lease agreement between Millard and Signature required Signature to obtain CGL insurance protecting both Signature and Millard "as their interests may appear ... in an amount not less than One Million Dollars... in a form and issued by a company or companies satisfactory to [Millard]." Consistent with that obligation, Signature purchased a CGL policy from Travelers that included an endorsement defining as an Additional Insured "[a]ny manager or lessor of premises with whom you have agreed in a written contract, executed prior to loss to name as an additional insured.... but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you." Millard was a "manager or lessor of premises" that Signature had agreed "to name as an additional insured." If the CGL policy therefore covered Millard's liability for this loss, as the district court concluded, the result seems at first blush anomalous — Travelers must indemnify Millard, an additional insured, for loss its negligence caused Signature, the named insured. But the result is not anomalous when considered in light of paragraph 14 of the lease, which provided in relevant part:

WAIVER OF RIGHTS IN INSURED LOSSES. [Millard] and [Signature] agree that neither shall be liable to the other for damages to the premises or to any of the contents of the premises... by perils insured against by the party owning such damaged property.... Each party hereto shall provide the other party with documentary evidence of the concurrence of their respective insurance carriers with the provisions of this clause.

In other words, Millard and Signature as landlord and tenant agreed that, in the event of property damage, each would look to its own insurance rather than to the other party to the lease, and Signature agreed to obtain Travelers's concurrence in that contractual arrangement.⁴

Though conceding Millard as lessor was an additional insured, Travelers argues that the loss was not covered because Millard's liability did not arise out of ownership, maintenance, or use of the leased premises. Like the district court, we disagree. The Nebraska courts have not interpreted this phrase in a CGL policy. But the Nebraska Supreme Court has broadly construed "arising out of" language in an automobile liability policy to require only "some causal relationship between the injury and the use of the vehicle." Farmers Union Coop. Ins. Co. v. Allied Prop. & Cas. Ins. Co., 253 Neb. 177, 569 N.W.2d 436, 439 (1997). Similarly, courts in other jurisdictions have broadly construed "arising out of" language in commercial liability policies. See Colony Ins. Co. v. Pinewoods Enters., Inc., 29 F.Supp.2d 1079, 1083 (E.D.Mo.1998) ("[A] simple causal relationship must exist between the accident or injury and the activity of the insured."); Hormel Foods Corp. v. Northbrook Prop. & Cas. Ins. Co., 938 F.Supp. 555, 557 (D.Minn.1996) ("`[B]ut for' causation satisfies the requirements of an insurance policy which specifies that only liabilities `arising out of the use' are covered."); Maryland Cas. Co. v. Chicago & N.W. Transp. Co., 126 Ill.App.3d 150, 81 Ill.Dec. 289, 466 N.E.2d 1091, 1094 (1984). In construing an insurance policy, the Supreme Court of Nebraska is guided "by judicial opinions rendered by other courts which have considered the meaning of these terms." Katskee v. Blue Cross/Blue Shield, 245 Neb. 808, 515 N.W.2d 645, 649-50 (1994).

Construing the "arising out of" language broadly, we conclude that Millard's liability arose out of its maintenance of the leased premises. The fire started within the portion of the warehouse leased by Signature and injured Signature's property located in the leased premises. Signature's loss was caused, or significantly increased, by the conduct of the Millard employee who shut off the water to the building's sprinkler system. As the district court stated, "the deactivation of the sprinkler system is related to and causally connected to [Millard's] maintenance of the sprinkler system located within the confines of the premises leased to Signature." Thus, although the shut-off valve was located in another part of the warehouse, this case is distinguishable from those on which Travelers relies, where...