Farm Bureau Mutual Insurance v. Wilcox , 500 F.3d 823 ( 2007 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 06-3982
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Farm Bureau Mutual Insurance *
Company, *
*
Plaintiff - Appellee, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
*
David Wilcox, *
*
Defendant - Appellant. *
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Submitted: June 13, 2007
Filed: August 28, 2007
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Before LOKEN, Chief Judge, ARNOLD and COLLOTON, Circuit Judges.
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LOKEN, Chief Judge.
David Wilcox owned and rented a house and outbuildings in Dodge County,
Minnesota. Farm Bureau Mutual Insurance Company (Farm Bureau) insured the
properties against fire and other perils. The tenants moved out unexpectedly in June
2004. Wilcox removed all their possessions by early August and undertook various
repairs. On November 21, 2004, Wilcox discovered that water running from an open
faucet into a stopped sink in an upstairs bathroom had overflowed and extensively
damaged the house. Wilcox filed a claim for the loss. Farm Bureau commenced this
diversity action, seeking a declaratory judgment of no coverage because the loss was
governed either by a policy provision excluding loss caused by vandalism to a house
vacant more than thirty days, or by the provision in Minnesota's statutory Standard
Fire Policy excluding loss to a house vacant and unoccupied more than sixty days.
The district court granted summary judgment to Farm Bureau. The court
concluded that whether the loss was caused by vandalism is a disputed issue of fact
but granted summary judgment because the property was vacant and unoccupied for
more than sixty days when the loss occurred, and the sixty-day vacancy/unoccupancy
provision in the Standard Fire Policy applies and excludes the loss from coverage.
Reviewing the grant of summary judgment de novo, we conclude that Farm Bureau
failed to bring a governing policy provision to the district court's attention and
therefore remand.
No fire insurance policy may be issued in Minnesota “unless it shall provide the
specified coverage and conform as to all provisions” with the statutory Standard Fire
Policy. Minn. Stat. § 65A.01, subd. 1. The statute “was enacted to do away with the
evils arising from the insertion in policies of insurance of conditions ingeniously
worded, which . . . gave the insured less protection than he might naturally suppose
he was getting under his contract.” Heim v. Am. Alliance Ins. Co. of N.Y., 180 N.W.
225, 226 (Minn. 1920). The Standard Fire Policy guarantees a minimum level of
coverage. “Insurance companies may, however, incorporate additional or different
terms into their policies that offer more than the statutory minimum.” Watson v.
United Serv. Auto Ass’n, 566 N.W.2d 683, 690 (Minn. 1997) (citations omitted); see
Krueger v. State Farm Fire & Cas. Co., 510 N.W.2d 204, 209 (Minn. App. 1993).
In its declaratory judgment complaint, Farm Bureau alleged that Wilcox's loss
fell within an exclusion in the statutory Standard Fire Policy provisions:
Unless otherwise provided [in the policy, the insurer] shall not be liable
for loss occurring . . . while the described premises, whether intended for
occupancy by owner or tenant, are vacant or unoccupied beyond a period
of 60 consecutive days.
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Minn. Stat. § 65A.01, subd. 3. In arguing Farm Bureau's motion for summary
judgment to the district court, the parties represented that the Farm Bureau policy
contained no general vacancy/unoccupied provision, only a more limited exclusion:
Vandalism and Malicious Mischief
There is no coverage for loss arising out of vandalism or malicious
mischief, or any ensuing loss caused by any intentional and wrongful act
committed in the course of the vandalism or malicious mischief, to a
dwelling or its contents if the dwelling has been “vacant” or
“unoccupied” for more than 30 consecutive days immediately before the
loss.
Wilcox argued that the Farm Bureau policy provided more coverage than the statutory
minimum because the policy's vacancy exclusion was limited to losses arising out of
vandalism or malicious mischief. The district court rejected this contention. Relying
on an alternative ground in Krueger v. State Farm Fire & Casualty Co., No. C0-94-
557, 1994 WL 440258 (Minn. App. Aug. 16, 1994) (unpublished), the district court
concluded that “under Minnesota law, the Vacancy/Vandalism clause does not afford
greater coverage than the Standard Vacancy/Unoccupancy Clause and the Standard
[Fire] Policy must apply.”
On appeal, Wilcox again argues that the policy's narrow thirty-day exclusion
for loss due to vandalism or malicious mischief offers more coverage than the sixty-
day vacancy exclusion in the Standard Fire Policy. Therefore, the sixty-day exclusion
does not apply and this loss was covered. Farm Bureau responds that the thirty-day
vacancy/vandalism provision is distinct from a general exclusion for loss occurring
while a house is vacant and unoccupied. Therefore, the policy is silent, and the sixty-
day Standard Fire Policy provision applies. This is not an easy issue. Krueger was
an unpublished opinion of Minnesota's intermediate appellate court, so it is not
controlling precedent. Moreover, the ruling in Krueger that the Standard Fire Policy
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exclusion applies when the policy is silent was an alternative ground -- the fire loss
was due to arson so the policy's express thirty-day vacancy/vandalism exclusion also
applied. Similarly, in Vennemann v. Badger Mut. Ins. Co., 334 F.3d 772, 773 & n.3
(8th Cir. 2003), the fire loss was caused by arson, so we applied the policy's thirty-day
vacancy/vandalism exclusion, enlarging the vacancy period to sixty days consistent
with the Standard Fire Policy's mandatory minimum coverage.
The district court's application of the sixty-day exclusion results in an insurer
using the Standard Fire Policy as a sword, and an insured losing coverage to a hidden
statutory exclusion. Our review of the relevant Minnesota statutes casts grave doubt
on this result. The above-quoted § 65A.01, subd. 1, further provides that a policy
covering fire and other perils -
may be issued without incorporating the exact language of the Minnesota
standard fire insurance policy, provided: Such policy or contract shall,
with respect to the peril of fire, afford the insured all the rights and
benefits of the Minnesota standard fire insurance policy . . .; such policy
or contract is complete as to its terms of coverage; and the commissioner
is satisfied such policy or contract complies with the provisions hereof.
(Emphasis added.) The subdivision setting forth the mandatory provisions of the
Standard Fire Policy, § 65A.01, subd. 3, provides that “the following provisions and
subject matter shall be stated in the following words and in the following sequence”
(emphasis added). The Minnesota insurance statutes further provide that “[n]o policy
form” may be issued unless it has been filed for approval with the Commissioner of
Insurance. Minn. Stat. § 70A.06, subd. 2. If there is compliance with these statutes
and careful review of filed policy forms by the Commissioner, no policy covering the
peril of fire should be issued in Minnesota unless it either expressly informs the
insured that the sixty-day vacancy exclusion contained in the Standard Fire Policy
applies, or contains the insurer's vacancy provision or some other provision offering
more generous coverage.
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In fact, as Wilcox's attorneys belatedly discovered and raised for the first time
on appeal, the Farm Bureau policy contains such a provision. The Property Section
of Wilcox's Personal Package Policy includes a Payment for Loss subpart that adds
the following provision “with respect to coverage provided by this section”:
Except where specifically limited elsewhere in this policy, coverage on
buildings will not be affected by being “vacant” or “unoccupied” unless
the “vacancy” or “unoccupancy” lasts more than 180 consecutive days.
In the event of loss to buildings “vacant” or “unoccupied” for more than
180 consecutive days we will pay 50% of the amount we would have
paid if the building had not been “vacant” or “unoccupied.”
Obviously, this is more generous coverage of vacant buildings than the sixty-day
exclusion in the Standard Fire Policy. Therefore, Wilcox argues, the 180-day
provision applies. As the water damage discovered in November 2004 occurred less
than 180 days after the tenants vacated the house, it was a covered loss.
On appeal, Farm Bureau first argues that we should not consider the effect of
the 180-day provision because it was not raised in the district court. That is of course
the general rule. But it is subject to exceptions, for example, “where injustice might
otherwise result, or when the argument involves a purely legal issue in which no
additional evidence or argument would affect the outcome of the case.” Universal
Title Ins. Co. v. United States, 942 F.2d 1311, 1314-15 (8th Cir. 1991) (citations and
quotation omitted). Here, the 180-day provision is in the record on appeal, and its
interpretation is, at least in most instances. an issue of law for the court. See Noran
Neurological Clinic, P.A., v. Travelers Indem. Co., 229 F.3d 707, 709-10 (8th Cir.
2000); Watson, 566 N.W.2d at 688. Farm Bureau beginning with its complaint
alleged to the district court that the only provisions relevant to coverage were the
thirty-day vacancy/vandalism provision in the policy and the sixty-day vacancy
exclusion in the Standard Fire Policy. Although counsel for Wilcox should not have
overlooked the 180-day policy provision in the district court, we think injustice would
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result if an insurance company were permitted to prevail in a coverage dispute by
failing to advise the trial court of a relevant provision in its complex policy form.
Thus, we will exercise our discretion to consider the 180-day provision.
Turning to the merits of that provision, Farm Bureau argues that Wilcox's
policy included a “Dwelling Module” and that, properly construed, the 180-day
provision applies to “buildings” but not to “dwellings.” This contention is without
merit. “[T]he terms of an insurance policy . . . not specifically defined . . . must be
given their plain, ordinary, or popular meaning.” Smith v. St. Paul Fire & Marine Ins.
Co., 353 N.W.2d 130, 132 (Minn. 1984). As a matter of plain meaning, a dwelling
is one type of building.1 Moreover, the Dwelling Module on which Farm Bureau
relies is part of the Property Section of the policy and its Payment for Loss subpart
expressly provides, “The Payment for Loss provisions in . . . the Property Section
apply.” That cross-reference includes the 180-day provision. Finally, Farm Bureau's
proposed interpretation would leave the Dwelling Module without a general vacancy
exclusion, contrary to the statutory mandates that the policy be “complete as to its
terms of coverage” and include each “subject” addressed in the Standard Fire Policy
provisions. When Farm Bureau filed this policy form for approval, we have no doubt
that the Minnesota official who reviewed it for statutory compliance construed the
180-day vacancy provision as applying to dwellings, as well as to other buildings.
Because the policy's 180-day vacancy provision applies to the circumstances
of this loss and clearly provides broader coverage, the district court erred in applying
the statutory sixty-day exclusion. See Krueger, 510 N.W.2d at 209. In addition,
because the 180-day provision applies to all perils covered by the policy, it renders
moot another issue Wilcox raises for the first time on appeal -- whether the sixty-day
1
The policy's glossary defined vacancy as, “For a dwelling or other building,
when it is empty, containing nothing of significant value,” and defined unoccupied as,
“For a dwelling, when it is no longer used as a residence. For a building other than
a dwelling, when it is not significantly utilized.” (Emphasis added).
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vacancy exclusion in the Standard Fire Policy applies only to fire losses, and therefore
not to the water damage loss here at issue. Given the wording of Minn. Stat.
§ 65A.01, subd. 1 -- that a multi-peril policy must incorporate the provisions of the
Standard Fire Policy “with respect to the peril of fire” -- this appears to be a serious
unresolved issue of Minnesota law. We need not consider it in this case.
However, even if the policy's 180-day provision applies, it does not fully
resolve the coverage question. If the water damage was caused by vandalism or by
malicious mischief, the resulting loss is excluded by the policy's thirty-day vacancy/
vandalism provision (even with vandalism coverage increased to sixty days in
accordance with Minn. Stat. § 65A.01, subd. 1, as construed in Vennemann, 334 F.3d
at 773 n.3). The summary judgment record included conflicting evidence on this
issue, and the district court declined to decide it. Wilcox initially testified that, in his
opinion, someone intentionally turned on the faucet in an effort to damage the house.
But in opposing summary judgment, he submitted an affidavit by his wife suggesting
an accidental cause of the water damage -- in late October 2004, she turned on the
upstairs faucet and did not turn it off when no water came out; a workman could later
have turned the water back on, not knowing the faucet was open. We must remand
to allow the district court to take up this issue in the first instance.
The judgment of the district court is reversed and the case is remanded for
further proceedings not inconsistent with this opinion. Farm Bureau's motion to
supplement the record on appeal is granted.
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