Macheca Transport v. Philadelphia ( 2006 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-3807
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Macheca Transport Company, *
doing business as Gateway Cold *
Storage; David Macheca; *
Starlin Macheca, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Philadelphia Indemnity *
Insurance Company, *
*
Appellee. *
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Submitted: April 21, 2006
Filed: September 22, 2006 (Corrected 10/24/06)
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Before LOKEN, Chief Judge, BOWMAN and BYE, Circuit Judges.
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BYE, Circuit Judge.
Macheca Transport Company (Macheca) appeals the district court's grant of
summary judgment in favor of Philadelphia Indemnity Insurance Company
(Philadelphia) asserting the district court addressed only one of two arguments
Macheca made seeking coverage under an insurance policy issued by Philadelphia.
Macheca also appeals the district court’s determination the term "collapse" was used
unambiguously in the policy. Lastly, Macheca appeals the district court's grant of a
motion to disqualify its counsel. We reverse and remand for further proceedings.
I
Macheca operates a refrigerated warehouse in St. Louis, Missouri. Macheca
purchased an all-risk insurance policy from Philadelphia which provided insurance
coverage for damage to the warehouse and its contents subject to certain exclusions
and limitations. The relevant portions of the policy provide as follows:
Covered Causes of Loss
Covered Causes of Loss means Risks of Direct Physical Loss unless the
"loss" is:
1. Excluded in Section B., Exclusions; or
2. Limited in Section C., Limitations; that follow.
Exclusions
...
2. We will not pay for "loss" caused by or resulting from any of the
following.
...
i. Collapse, except as provided below in the Additional Coverage for
Collapse. But if "loss" by any of the Covered Causes of Loss results at
the described premises, we will pay for the resulting "loss".
j. Discharge, dispersal, seepage, migration, release or escape of
"pollutants". But we will pay for resulting "loss" to Covered Property
when the discharge, dispersal, seepage, migration, release or escape of
"pollutants" is caused by any of the "specified causes of loss".
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...
Limitations
1. We will not pay for "loss" to:
...
c. The interior of any "buildings", or to personal property in "buildings",
caused by or resulting from rain, snow, sleet, ice, sand or dust whether
driven by wind or not, unless:
(1) The "buildings" first sustain damage by a Covered Cause of Loss to
their roof or walls through which the rain, snow, sleet, ice, sand or dust
enters; or
(2) The "loss" is caused by or results from thawing of snow, sleet or ice
on the "buildings".
...
Additional Coverage – Collapse
We will pay for "loss" caused by or resulting from risks of direct
physical "loss" involving collapse of "buildings" or any part of
"buildings" caused only by one or more of the following:
1. The "specified causes of loss" or breakage of building glass, all only
insured against in this form;
...
F. Definitions
...
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8. "Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.
...
11. "Specified Causes of Loss" means the following: fire; lightning;
explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil
commotion; vandalism; leakage from fire extinguishing equipment;
sinkhole collapse; volcanic action; falling objects; weight of snow, ice
or sleet; water damage.
J.A. at 195-201.
On or about November 18, 2001, pipe which was part of the warehouse
refrigeration system ruptured, fell, and leaked ammonia causing damage to the
warehouse and its contents. This occurred when part of the pipe's support system
detached from the ceiling due to the weight of ice accumulating on the pipe. Macheca
notified Philadelphia of the loss on November 26, 2001, and made a claim for
coverage under the policy. An engineer retained by Philadelphia inspected the
warehouse on January 20, 2002. By letter, dated February 13, 2002, Philadelphia
denied Macheca’s claim stating a "covered cause of loss had not occurred." The letter
also stated a copy of the engineer's report was attached.
On April 8, 2003, Mr. Horvath, counsel for Macheca, wrote to Philadelphia
stating Macheca either had not received the engineer's report or had misplaced it, and
he asked that another copy be sent. He repeated this request in letters to Philadelphia
dated April 8, April 29, June 10, and September 5, 2003, and in a phone conversation
on May 23, 2003. On October 21, 2003, Mr. Horvath acknowledged receipt of a copy
of the engineer's report.
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On December 23, 2003, Macheca filed suit against Philadelphia in Missouri
state court for breach of insurance contract and vexatious refusal to pay. Philadelphia
removed the case to federal court. In federal court, Macheca filed a motion for partial
summary judgment on the breach of contract issue. In its memorandum in support of
partial summary judgment, Macheca advanced and developed the same two theories
for coverage it advanced in a letter sent to Philadelphia on June 10, 2003. Namely,
that the loss was covered under (1) the exception to certain exclusions for the
"specified causes of loss" for "weight of ice," and (2) the additional coverage Macheca
purchased for "collapse." Philadelphia filed a cross motion for summary judgment
contending Macheca's loss was not covered by the policy. Philadelphia also filed a
motion to disqualify Mr. Horvath as Macheca’s counsel under Rule 4-3.7 of the
Missouri Supreme Court Rules of Professional Conduct, claiming he would be a
necessary witness for Macheca's vexatious refusal to pay claim.1
The district court granted the motion to disqualify Mr. Horvath as Macheca's
counsel, concluding his communications with Philadelphia were relevant in
determining whether the refusal to pay Macheca's claim was willful and without
reasonable cause at the time the refusal was made. The district court also granted
1
Rule 4-3.7 provides:
A lawyer shall not act as advocate at a trial in which the lawyer is likely
to be a necessary witness except where:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal
services rendered in the case; or
(3) disqualification of the lawyer would work substantial
hardship on the client.
Mo. S. Ct. R. 4-3.7.
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Philadelphia's motion for summary judgment and denied Macheca's motion for partial
summary judgment, but failed to address Macheca's claim the loss was covered under
the exception to certain exclusions for the "specified causes of loss" for "weight of
ice." Rather, the district court addressed Philadelphia's contention the policy limited
coverage for "loss" to the "interior of any building or to personal property in the
building caused by or resulting from . . . ice," (referring to this provision as an
exclusion rather than a limitation on coverage). The district court interpreted the
limitation in Macheca's favor, concluding the limitation referred to "ice" as an element
of the weather, because it was within a list of items solely related to the weather. As
such, Philadelphia could not limit coverage under this provision of the policy because
the ice at issue was not weather related.
The district court then addressed Macheca's contention the collapse of the
ammonia pipe was covered under the "additional coverage - collapse" provision of the
policy. Referring to Missouri Court of Appeals' cases which recognize a collapse only
when there is an entire "falling or reduction [of a structure] to a flattened form or
rubble," the district court determined the term was not ambiguous, and the pipes had
not collapsed. See Williams v. State Farm and Cas. Co., 514 S.W.2d 856, 859 (Mo.
Ct. App. 1974); Eagelstein v. Pac. Nat'l Fire Ins. Co., 377 S.W.2d 540, 544 (Mo. Ct.
App. 1965).
On September 26, 2005, Macheca filed a motion for reconsideration of the
district court's order, noting the court failed to address its primary argument that the
loss was covered under the exception to certain exclusions for the "specified causes
of loss" for "weight of ice." Macheca called the court's attention to the argument in
its original memorandum in support of partial summary judgment, specifically stating
"[t]his coverage argument is also a completely separate basis for coverage from the
'additional coverage-collapse' argument on which This Court's judgment is based."
On September 29, 2005, the district court denied the motion for reconsideration
without comment.
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Macheca filed a timely appeal of the district court's order granting
Philadelphia's motion for summary judgment and the order granting the motion to
disqualify Mr. Horvath as Macheca's counsel.
II
We review the district court's grant of summary judgment de novo, Dayton Dev.
Co. v. Gilman Fin. Servs., Inc., 419 F.3d 852, 855 (8th Cir. 2005), as well as its
interpretation of the terms of an insurance policy. Am. Simmental Ass'n v. Coregis
Ins. Co., 282 F.3d 582, 586 (8th Cir. 2002).
Macheca argues the district court erroneously granted summary judgment in
favor of Philadelphia without considering its argument for coverage under the
exception to certain exclusions for the "specified causes of loss" for "weight of ice."
Philadelphia contends Macheca only claimed coverage under the "additional coverage
- collapse" provision of the policy, and during the summary judgment proceedings
"recast" its claim by making a second claim implicating coverage for a loss due to the
weight of snow and ice under the "specified causes of loss" provision of the policy.
Philadelphia further argues this is an attempt by Macheca "to expand its basis of
recovery beyond those previously asserted in its Petition [Complaint] [and] should not
be condoned." We disagree.
Macheca clearly made a claim in the district court under the exception to
certain exclusions for the "specified causes of loss" for "weight of ice." Macheca's
Petition specifically referred to the "Specified Causes of Loss," including coverage for
"weight of snow, ice or sleet." Macheca's Petition stated "an ammonia leak occurred
in . . . the Subject Building" and "[t]he ammonia pipe collapsed as a result of the
weight of ice on the pipe . . .." The parties do not dispute ammonia is a "pollutant"
under the terms of the policy, and the policy covers property loss "when the discharge,
dispersal, seepage, migration, release or escape of 'pollutants' is caused by any of the
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'specified causes of loss.'" In addition, attached to Macheca's Petition was the letter
it sent to Philadelphia on June 10, 2003, which addressed two theories for coverage
under (1) the exception to certain exclusions for the "specified causes of loss" for
"weight of ice," and (2) the additional coverage Macheca purchased for "collapse."
In its memorandum in support of partial summary judgment, Macheca advanced and
further developed the same two theories for coverage it addressed in its letter of June
10, 2003.
The essential function of Macheca's Petition was to put Philadelphia on notice
of the nature and basis of its claim, and to give Philadelphia a general indication of the
type of litigation involved. Redland Ins. Co. v. Shelter Gen. Ins. Cos., 121 F.3d 443,
446 (8th Cir. 1997). Well pleaded facts, not theories of recovery, state a cause of
action and put a party on notice. Econ. Hous. Co. v. Cont'l Forest Prods., Inc., 757
F.2d 200, 203 (8th Cir. 1985). Macheca's Petition clearly set forth sufficient facts
regarding the discharge of ammonia caused by the weight of ice to put Philadelphia
on notice that coverage may be triggered by the exceptions to the policy's exclusions
for specified causes of loss.
Philadelphia further contends the district court disposed of Macheca's "weight
of ice" claim because it addressed the meaning of the term "ice" in the limitations
provision of the policy. The district court determined "ice" as used in the coverage
limitation referred only to ice as an element of the weather. Philadelphia contends the
district court's analysis necessarily means the term "ice" as used in the "specified
causes of loss" provision is also limited to ice as an element of the weather, and thus
a loss resulting from ice generated by Macheca's refrigeration system would be
excluded. We disagree.
Philadelphia’s argument runs counter to well-accepted principles of insurance
law. In addressing a limitation on coverage, the district court appropriately construed
the term "ice" against the insurer. See Brugioni v. Md. Cas. Co., 382 S.W.2d 707,
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710-11 (Mo. 1964) ("[A]n insurance policy being a contract designed to furnish
protection will, if reasonably possible, be interpreted so as to accomplish that object
and not to defeat it, and, if terms of the contract are susceptible of two possible
interpretations and there is room for construction, the provisions limiting or cutting
down on the coverage of the policy, or avoiding liability therefor, will be construed
most strongly against the insurer."). Philadelphia contends the same narrow
construction should be construed against Macheca when used in an exception to an
exclusion. But in that context, the term is again construed against the insurer, not the
insured. See Century Fire Sprinklers, Inc. v. CNA/Transp. Ins. Co., 23 S.W.3d 874,
877 n.1 (Mo. Ct. App. 2000) ("With regard to construction of an insurance contract,
an insurer claiming applicability of an exclusion clause has the duty to prove
application, and such clauses are strictly construed against the insurer."). If there is
any ambiguity in the policy, it inures to the benefit of the insured, not the insurer.
See, e.g., Oak River Ins. Co. v. Truitt, 390 F.3d 554, 558 (8th Cir. 2004) (citing Peters
v. Employers Mut. Cas. Co., 853 S.W.2d 300, 302 (Mo. 1993)).
As a consequence, the district court's analysis of the coverage limitation
provision did not dispose of Macheca's "weight of ice" claim, because that claim turns
on the analysis of an exception to an exclusion. For coverage purposes, the term "ice"
may have a different meaning when used in that context. Cf. Cicciarella v. Amica
Mut. Ins. Co., 66 F.3d 764, 770 (5th Cir. 1995) (noting, for insurance purposes, the
same term can have different meanings "depending on the context and usage"); see
also Shell Oil Co. v. Iowa Dept. of Revenue, 488 U.S. 19, 25 (1988) ("[T]he meaning
of words depends on their context."); United States v. Consol. Edison Co. of New
York, Inc., 366 U.S. 380, 391 (1961) (indicating a particular word "may have many
meanings depending on the sense and context in which it is used").
Because the district court did not analyze the policy provisions upon which
Macheca's "weight of ice" claim turns, we remand this case. See Younts v. Fremont
County, Iowa, 370 F.3d 748, 754 (8th Cir. 2004) (remanding on appeal from a grant
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of summary judgment when the district court failed to address a claim adequately
brought before it). "If we addressed [Macheca's] argument on this issue on appeal
without giving the district court the opportunity to review it, we would essentially be
usurping the district court's role on summary judgment, which we have no desire to
do." Id. Ultimately, we express no opinion on the merits of Macheca’s claim for
coverage, or on the interpretation of the term "ice" in the "specified causes of loss"
provision of the policy, leaving that for the district court.2
III
The grant of a motion to disqualify an attorney as trial counsel is reviewed for
an abuse of discretion. United States v. Poe, 428 F.3d 1119, 1123 (8th Cir. 2005).
An abuse of discretion . . . can occur in three principal ways: when a
relevant factor that should have been given significant weight is not
considered; when an irrelevant or improper factor is considered and
given significant weight; and when all proper factors, and no improper
ones, are considered, but the court, in weighing those factors, commits
a clear error of judgment.
Kern v. TXO Prod. Corp., 738 F.2d 968, 970 (8th Cir. 1984).
"Because of the potential for abuse by opposing counsel, 'disqualification
motions should be subjected to particularly strict scrutiny.'" Harker v.
Commissioner, 82 F.3d 806, 808 (8th Cir. 1996) (quoting Optyl Eyewear Fashion Int'l
Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985)). "A party's right to select
its own counsel is an important public right and a vital freedom that should be
preserved; the extreme measure of disqualifying a party's counsel of choice should be
2
Since remand is necessary on one of Macheca's two claims, we decline to
consider the "collapse" issue. Macheca is free to ask the district court to reconsider
the "collapse" issue in light of the additional authority cited by Macheca on appeal.
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imposed only when absolutely necessary." Banque Arabe Et Internationale
D'Investissement v. Ameritrust Corp., 690 F. Supp. 607, 613 (S.D. Ohio 1988) (citing
Melamed v. ITT Cont'l Banking Co., 592 F.2d 290, 293 (6th Cir. 1979)).
Macheca argues the district court erroneously granted Philadelphia's motion
to disqualify its counsel because Philadelphia failed to identify any relevant contested
issues requiring Mr. Horvath's testimony at trial. Macheca further contends it would
not call Mr. Horvath to testify. Based upon conflicting representations of the content
of written and oral communications, Philadelphia argues it has identified relevant
contested issues requiring Mr. Horvath's testimony. We disagree.
Rule 4-3.7 of the Missouri Supreme Court Rules of Professional Conduct has
been interpreted to mean an attorney is a "necessary witness" only if "there are things
to which he will be the only one available to testify." State ex rel. Wallace v. Munton,
989 S.W.2d 641, 646 (Mo. Ct. App. 1999) (citing State v. Werneke, 958 S.W.2d 314,
321 (Mo. Ct. App. 1997); State v. Mason, 862 S.W.2d 519, 521 (Mo. Ct. App. 1993)).
The district court disqualified Mr. Horvath as Macheca's counsel after
concluding his "communications with [Philadelphia] are relevant to determining
whether defendant's refusal to pay plaintiffs' claim was willful and without reasonable
cause." Add. at 5. Testimony may be relevant and even highly useful, but still not
strictly necessary. Blanket allegations that an attorney's testimony is relevant to a
party's claim is an insufficient basis upon which to discern whether the attorney "will
truly be a 'necessary witness' in the sense that there are things to which he will be the
only one available to testify." Munton, 989 S.W.2d at 646. In the district court, and
on appeal, Philadelphia not only failed to identify the things to which Mr. Horvath
would be the only one available to testify, but also failed to identify whether anyone
would even call him as a witness. Macheca has expressly stated it does not intend to
call Mr. Horvath as a witness to present its vexatious refusal to pay claim. See Banque
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Arabe, 690 F. Supp. at 613-14 (finding disqualification inappropriate where plaintiffs
made an informed decision to forego calling their attorney as a witness).
By considering only whether Mr. Horvath's testimony was relevant, and failing
to consider whether Mr. Horvath was the only witness available to testify in support
of Macheca's claim, the district court abused its discretion when it disqualified Mr.
Horvath as Macheca's counsel.
IV
For the reasons discussed, we reverse and remand for further proceedings.
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