State Auto Property & Cas. Ins. v. Boardwalk Apts.

• Decision Date: 14 July 2009
• Docket Number: No. 08-2167.,08-2167.
• Citation: 572 F.3d 511
• Parties: STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. BOARDWALK APARTMENTS, L.C., Defendant-Appellant. Boardwalk Apartments, L.C., Third Party Plaintiff-Appellant, v. T.S.A., Inc., doing business as The Sloan Agency, Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

572 F.3d 511

STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. BOARDWALK APARTMENTS, L.C., Defendant-Appellant.

Boardwalk Apartments, L.C., Third Party Plaintiff-Appellant, v. T.S.A., Inc., doing business as The Sloan Agency, Third Party Defendant-Appellee.

No. 08-2167.

United States Court of Appeals, Eighth Circuit.

Submitted: December 10, 2008.

Filed: July 14, 2009.

Michael Thompson, argued, Lori Jane Sellers, Kansas City, MO, on the brief, for appellant.

Robert W. Cockerham, argued, St. Louis, MO, for State Auto Property & Cas. Ins. Co.

Stanley Michael Thomas, argued, Kansas City, MO, for T.S.A., Inc.

Before MELLOY, BENTON, and DOTY.¹ Circuit Judges.

BENTON, Circuit Judge.

State Auto Property and Casualty Insurance Company sued for a declaratory judgment that it had met its obligations under a fire policy issued to Boardwalk Apartments. Boardwalk counterclaimed for indemnity proceeds. Boardwalk also sued The Sloan Agency (Sloan), the independent insurance agency that secured the policy for Boardwalk.

The district court granted summary judgment to Sloan, ruling it did not have an expanded agency relationship with Boardwalk. The district court granted partial summary judgment to Boardwalk on its counterclaim against State Auto, ruling Boardwalk has a right to replace one building and repair another building in the apartment complex. State Auto was, however, granted partial summary judgment, based on the district court's reasoning that Kansas's Valued Policy Statute did not apply to Boardwalk's loss, the coinsurance provision did apply to reduce Boardwalk's recovery, the term "value" in the policy means "actual cash value," and certain policy provisions (excluding reimbursement for extra costs incurred by the insured to comply with laws or ordinances) were not void against public policy. The district court found that Boardwalk was not entitled to attorney fees under Kansas law because State Auto had not yet breached the contract.

Boardwalk appeals. Having jurisdiction under 28 U.S.C. § 1291, this court affirms in part and reverses in part.

I.

Boardwalk, a Kansas limited liability company, owned a complex of eight apartment buildings and a storage building in Lawrence, Kansas. Buildings 1 and 4 are the subjects of this litigation. The complex was built in 1963. In 1994, a bank loan appraisal showed a projected replacement cost of $7,560,029. Terrace Management Services, LLC, manages the complex. The Boardwalk-Terrace management agreement provided that insurance coverage would be procured on an annual basis and in such amounts as acceptable to the owner. Terrace directed Sloan, a Missouri corporation, to procure 100% replacement insurance for the complex. Richard Moseley (Terrace's president) and David Moseley (his son, and the Sloan agent working on the policy) reviewed the coverage limits annually. Richard Sloan, a principal of Sloan, also was involved with Terrace's transactions for Boardwalk.

Before the 1996-97 insurance term, Sloan received four pages of the 1994 bank loan appraisal, not including the replacement-cost figure. There is no evidence Sloan ever received the replacement-cost figure. The information provided Sloan did not include square footage of certain areas of the complex (balconies, breezeways and the pool house). Each renewal included a 4 percent inflation increase in the coverage amount. For years, Terrace, through Sloan, arranged Boardwalk's insurance from different companies, first acquiring it from State Auto for the 2004-05 term. The 2004 application to State Auto reflected a value of $2.1 million for Building 1. For the 2004-05 policy, the Statement of Values given State Auto provided $6.93 million as the aggregate replacement-cost valuation for whole complex. State Auto, through Terrace, renewed Boardwalk's insurance coverage through 2005-06. The 2005-06 policy renewal was to continue the "blanket" replacement-cost coverage feature. State Auto charged Boardwalk an additional premium for blanket coverage.

On October 7, 2005, fire destroyed Building 1, an apartment building, and partially damaged Building 4, the storage building. The 2005-06 policy provided an aggregate coverage limit of $7,207,200, with a 4 percent inflation guard. Building 1's value of $2.1 million was reflected only on the Statement of Values. On January 20, 2006, a State Auto adjuster estimated the replacement cost of Building 1 as $4,091,054.78, and the replacement cost for the whole complex as $14,690,321.04.

State Auto argues its maximum exposure to loss for Building 1 is $2,240,124.17 (including demolition, cleanup costs and business interruption), as limited by Kansas's Valued Policy Law. State Auto paid Boardwalk this amount. Boardwalk asserts it is entitled to the coverage limit for the blanket policy, $7,387,000 (including the 4 percent inflation guard).

In this diversity case, a federal court applies the state law as declared by the legislature or highest court. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

The standard of review for summary judgment is de novo. Menz v. New Holland N. Am., Inc., 507 F.3d 1107, 1110 (8th Cir.2007). The district court will be affirmed if there are no material issues of fact and the prevailing party is entitled to judgment as a matter of law. Peitzmeier v. Hennessy Indus., Inc., 97 F.3d 293, 298 (8th Cir.1996).

II.

Boardwalk appeals the grant of summary judgment to Sloan. Boardwalk and Sloan agree that the insurance agent's duty is governed by Missouri law, which imposes a general duty on an agent to use reasonable care and diligence. Hall v. Charlton, 447 S.W.2d 5, 9 (Mo.Ct.App. 1969). Boardwalk argues that, in this case, this general duty of an insurance agent is expanded because of a special relationship or expanded agency agreement between the parties. Boardwalk relies on conversations regarding "100% replacement cost coverage." The parties agree that Boardwalk requested Sloan procure 100 percent replacement-cost coverage but never designated a specific amount.

Boardwalk invokes Hall, where an agent assured the insured that an insurance policy covered flights to Alaska. Id. The policy, however, specifically excluded coverage in Alaska. Id. at 7. The agent completed the application for the policy. Id. at 8-9. The application asked if coverage for Alaska was requested. Id. The agent checked "no" in response. Id. The insured received the policy but never read it. Id. at 7-9. The insured said he could not understand insurance policies, so he always sought out someone skilled in the insurance business. Id. at 7, 9. The Missouri court held that under these circumstances (1) the insured's failure to read was not grounds for estoppel, and (2) it is reasonable for the principal to rely on the insurance agent for negligent failure to procure insurance. Id. at 9.

The Hall case is distinguishable. The agent there was the person who completed the application form, marking "no" about coverage in Alaska. Id. at 8-9. The agent, knowing that the insured was relying on him, could have reviewed the policy to determine coverage in Alaska, and then told the insured that Alaskan flights were not covered. Here, all parties understood that the policy had replacement coverage; only the coverage limit is at issue.

Boardwalk did not review the 2005-06 policy after receiving it. In Missouri, an insured has a duty promptly to examine its policy. Jenkad Enters., Inc. v. Transp. Ins. Co., 18 S.W.3d 34, 38 (Mo.Ct. App.2000). See also Secura Ins. v. Saunders, 227 F.3d 1077, 1081 (8th Cir.2000) (court relied on the obligation-to-examine as an alternative reason to affirm district court). But see American States Ins. Co. v. Boycom Cable Vision, Inc., 336 F.Supp.2d 950, 954 (E.D.Mo.2004) (an agent is the agent of the insured when he is told to shop around for insurance among multiple companies; the court did not discuss expanded agency). Boardwalk did not review the coverage limits and admits if it had reviewed the policy, that it would have recognized the amount was inadequate.

Missouri requires an insurance broker or agent to perform with reasonable care and diligence. Hall, 447 S.W.2d at 9; Manzella v. Gilbert-Magill Co., 965 S.W.2d 221, 225 (Mo.Ct.App.1998). In Manzella, the insured sought insurance coverage for a delicatessen through an insurance agent. Id. at 222. The insured did not provide a coverage amount to the agent. Id. Throughout, the agent made several mistaken representations to the insured about the exact coverage amount. Id. at 222-23. The deli suffered a fire; insurance coverage was insufficient. Id. at 223. After a jury verdict for the insured, the agent received a judgment notwithstanding the verdict because Missouri law does not require an insurance agent to appraise and evaluate its customers' businesses. Id. at 224. Affirming, the appellate court in Manzella addresses the possibility of an expanded agency relationship resulting in an expanded duty, but states "no Missouri cases have adopted the expanded agency agreement concept." Id. at 228.

Boardwalk tries to distinguish Manzella, citing decisions from other states. See, e.g., Free v. Republic Ins. Co., 8 Cal. App.4th 1726, 11 Cal.Rptr.2d 296, 297-98 (1992) (agent assumed special duty by responses to homeowner's annual inquiries about "sufficient coverage to rebuild the property"). Boardwalk claims Free is "just like" the present case. To the contrary, Free applies California law, concerns an individual homeowner, and is not applicable on this issue governed by Missouri law.

In Missouri, an insurance agent does not have an affirmative duty to advise insureds of their insurance needs. See Blevins v. State Farm Fire & Cas. Co., 961 S.W.2d 946, 951(Mo.Ct.App.1998). Sloan did secure "100% replacement cost" coverage—the type of insurance Boardwalk requested. Boardwalk never specified particular limits of coverage. It is the responsibility of the...