Barbara Eichholz v. Secura Supreme Insurance Co. , 735 F.3d 822 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-3170
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Barbara Eichholz; Joshua Alan Eichholz; Dakota Ray Gilpin
lllllllllllllllllllll Plaintiffs - Appellees
v.
Secura Supreme Insurance Company
lllllllllllllllllllll Defendant - Appellant
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No. 12-4032
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Barbara Eichholz; Joshua Alan Eichholz; Dakota Ray Gilpin
lllllllllllllllllllll Plaintiffs - Appellants
v.
Secura Supreme Insurance Company
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the Western District of Missouri - Jefferson City
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Submitted: September 26, 2013
Filed: November 14, 2013
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Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.
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MELLOY, Circuit Judge.
Angela and Rodney Gilpin were murdered inside an apartment building owned
and operated by Dennis and Sandra Prenger (collectively, the "Prengers"). Plaintiffs,
survivors of the victims, obtained wrongful death judgments against the Prengers in
state court. The state court found that the Prengers breached their landlord-tenant
duty to provide security to their tenant (Angela) and her guest (Rodney) and awarded
Plaintiffs $4 million in total damages.
In this diversity case, Plaintiffs filed an equitable garnishment action in
Missouri state court, later removed to federal court, to recover insurance proceeds
from one of the Prengers' insurers to satisfy a portion of the wrongful death
judgments. The district court ruled that Plaintiffs were entitled to collect $1 million
in insurance proceeds from the insurer. We reverse and hold that the insurance policy
unambiguously precludes coverage of the wrongful death damages.
I. Background
On September 28, 2009, Angela and Rodney Gilpin were shot and killed by
David Hosier inside the Prengers' apartment building. The Prengers did not live at
the apartment building; they operated it as a business endeavor by collecting rents
from individual tenants like Angela. Angela was separated at the time from her
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husband, Rodney, but he was with Angela in the building as her guest when Hosier
killed them.
The Prengers had hired Hosier to perform occasional maintenance work at the
building and provided him keys. Angela notified the Prengers about one month
before her death that she was afraid of Hosier and that she was concerned for her
safety because he had keys to her building. She wrote a letter to the Prengers one
week before she was killed, again expressing concerns for her safety and notifying
the Prengers that she was seeking a restraining order against Hosier.
Plaintiffs filed wrongful death actions against the Prengers in Missouri state
court in March 2010, alleging that the Prengers' negligence in failing to provide
security to Angela and Rodney contributed to their deaths. The state court entered
judgments in favor of Plaintiffs on December 23, 2010. In separate rulings, the court
concluded that the Prengers owed a duty to provide security to Angela because of the
existence of a landlord-tenant relationship and that they owed a similar duty to
Rodney because he was Angela's guest. The court determined that the Prengers
negligently failed to conduct a background check of Hosier before giving him the
keys to the building.1 The court found that the Prengers were also negligent in failing
to change the exterior locks to Angela's apartment building after learning that Hosier
was a convicted felon and that Angela feared him. The court ruled that the Prengers'
negligence was a contributing cause of the Gilpins' deaths and awarded Plaintiffs $4
million in damages.
On the same day the state court entered the judgments, Plaintiffs and the
Prengers entered into an agreement under Mo. Rev. Stat. § 537.065, which allows
injured parties and tortfeasors to contract to limit recovery to specific assets such as
insurance proceeds. Specifically, Plaintiffs promised to limit satisfaction of the $4
1
Hosier had a prior felony conviction for assault and had served time in an
Indiana state prison.
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million wrongful death damages to the proceeds of two insurance policies the
Prengers held at the time of the killings.
The Prengers possessed a general commercial liability insurance policy from
Farm Bureau Town & Country Insurance Company of Missouri ("Farm Bureau") with
a $500,000 limit. Farm Bureau provided a defense to the Prengers in the wrongful
death suits and later paid its coverage limit to Plaintiffs. The Prengers also held a
personal property and liability insurance policy through Secura Supreme Insurance
Company ("Secura"). The policy included "umbrella coverage" with a $1 million
limit intended to cover liabilities above the limits of the Prengers' other insurance.
In June 2010, Secura wrote a letter to Plaintiffs' attorneys that explained why Secura
did not believe it was required to pay any amounts under the umbrella policy.
In February 2011, Plaintiffs filed an equitable garnishment action against
Secura in state court. Secura removed the action to federal district court on the basis
of diversity jurisdiction. See 28 U.S.C. § 1441; 28 U.S.C. § 1332(a)(1). The district
court found that Plaintiffs were entitled to recover $1 million in insurance proceeds
from Secura. In a separate order, the court denied Plaintiffs' request for postjudgment
interest on the underlying wrongful death judgments. Secura appeals the district
court's grant of summary judgment in favor of Plaintiffs. Plaintiffs cross appeal,
arguing that the district court erred in denying postjudgment interest. Because we
hold that the Secura umbrella coverage policy unambiguously precludes coverage in
this case, we do not decide the postjudgment interest issue.
II. Discussion
We review de novo a district court's interpretation of an insurance policy and
its grant of summary judgment. See PETCO Animal Supp. Stores, Inc. v. Ins. Co. of
N. Am., 724 F.3d 1025, 1026 (8th Cir. 2013). The parties agree that Missouri law
applies in this case. When reviewing insurance policy terms, a Missouri court
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"applies the meaning which would be attached by an ordinary person of average
understanding if purchasing insurance, and resolves ambiguities in favor of the
insured." Seeck v. Geico Gen. Ins. Co., 212 S.W.3d 129, 132 (Mo. 2007) (en banc)
(internal citation and quotation marks omitted). "Whether an insurance policy is
ambiguous is a question of law." Martin v. U.S. Fid. & Guar. Co., 996 S.W.2d 506,
508 (Mo. 1999) (en banc). If an insurance policy is not ambiguous, it will be
enforced according to its terms. See Rodriguez v. Gen. Accident Ins. Co., 808
S.W.2d 379, 382 (Mo. 1991) (en banc).
A.
Plaintiffs maintain that the Prengers' umbrella coverage policy unambiguously
allows recovery for the Prengers' tortious actions that contributed to the Gilpins'
deaths. In the alternative, Plaintiffs argue that the policy exclusions are ambiguous
and should be construed against Secura. Secura argues that its "Personal Umbrella
Insurance" policy with the Prengers was intended to cover only personal, non-
commercial liabilities and that the policy is subject to two applicable coverage
exclusions—either of which bars Plaintiffs' recovery. The two exclusions in the
Secura policy read as follows:
EXCLUSIONS
We do not cover:
...
7. Business pursuits of an insured unless covered by Personal Liability
primary insurance described in the Declarations. Our coverage is no broader
than the primary insurance except for our liability limit.
...
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8. Damages resulting from the ownership, maintenance or use of business
property of an insured. This exclusion does not apply to:
a. an office, school or studio occupancy located on the insured's residence
premises if covered by primary insurance described in the Declarations;
or
b. a one- to four- family dwelling rented or held for rental to any person
if covered by primary insurance described in the Declarations.
The parties agree that the building at issue had more than four units, that the Prengers
owned the apartment building as a "business property," and that the Prengers operated
the apartment building as a "business pursuit." Accordingly, we must decide whether
the business pursuits or business property exclusion contained in the Secura policy
bars coverage of the damages Plaintiffs sustained in their wrongful death suits against
the Prengers.
B.
We begin our analysis with the "business property" exclusion. The issue is
whether the damages suffered by Plaintiffs in the underlying wrongful death suits are
"[d]amages resulting from the ownership, maintenance or use of business property
of an insured." (emphases in original).
Plaintiffs argue that the exclusion applies when damages are caused by
dangerous or defective conditions of the business property, but that the exclusion
does not bar coverage for the Prengers' personal tortious conduct in failing to conduct
a background check on Hosier and in failing to retrieve the master keys from him or
change the locks after learning of his felony conviction and of the potential danger
he posed to Angela. Plaintiffs rely on Lititz Mutual Insurace Co. v. Branch, 561
S.W.2d 371 (Mo. Ct. App. 1977) and MFA Mutual Insurance Co. v. Nye, 612 S.W.2d
2 (Mo. Ct. App. 1980) for support.
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Contrary to Plainitffs' assertions, Lititz and Nye fail to support the proposition
that the business property exclusion does not apply in this case. First, the policy
language at issue in both cases discussed coverage for injuries "arising out of any
premises." Nye, 612 S.W.2d at 3; Lititz, 561 S.W.2d at 372 n.1. Each case involved
personal tortious conduct by an insured: for example, in Lititz, the insured's dog bit
and injured a child while the dog was tethered to a leash on the insured's business
property. 561 S.W.2d at 372. In Nye, a person was injured when she was struck by
a riding lawn mower driven by an insured. 612 S.W.2d at 3. Based on the language
of the policies and the fact that each case involved personal tortious conduct, the
respective courts interpreted the policy language to exclude coverage only for injuries
arising out of the physical conditions of the property itself. See Lititz, 561 S.W.2d
at 374 (finding that the policy excluded coverage for "conditions which cause injury
on other uninsured land," but that the policy did not exclude "liability incurred by the
insured personally because of his tortious personal conduct . . . which may occur at
any place on or off the insured premises") (internal quotation marks omitted); Nye,
612 S.W.2d at 4 (concluding the policy contained "floating coverage for the insured
wherever he might be, but coverage for defects in the land are excluded").
Unlike the policy language in Lititz and Nye, Secura's business property
exclusion is broader: it precludes coverage for damages "resulting from the
ownership, maintenance or use of business property." (emphasis added). If Secura's
policy simply stated it excluded coverage for damages "resulting from the business
property," Plaintiffs might have a stronger basis to claim that the business property
exclusion does not apply in this case. But the language of Secura's policy by its terms
contemplates damages resulting not just from the business property itself, but from
various uses of that property as well. We hold that Plaintifs' damages did result from,
at a minimum, the Prengers' ownership and maintenance of the apartment building,
precluding coverage under the Secura policy.
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First, Plaintiffs' damages resulted from the Prengers' ownership of the
apartment building. In the wrongful death judgments, the state court found that the
Prengers breached a legal duty to provide security to Angela and Rodney. The
existence of this legal duty necessarily required the presence of a landlord-tenant
relationship. See, e.g., Letsinger v. Drury Coll., 68 S.W.3d 408, 411 (Mo. 2002) (en
banc) (per curiam) (noting that whether the owner of a fraternity house has a legal
duty to provide security to a person injured at the house depends on "the existence (or
non-existence) of a landlord/tenant relationship"). In other words, absent ownership
of the building, the Prengers would have owed no duty to provide security to Angela
and Rodney and thus would not have been liable for their deaths.
Second, Plaintiffs' damages resulted from the Prengers' maintenance of the
business property. In this case, the state court found that the Prengers had hired
Hosier to perform maintenance tasks at the apartment building (i.e., the business
property). As part of Hosier's responsibilities, the Prengers provided him keys. Thus,
damages in the underlying wrongful death judgments resulted from the Prengers'
negligent maintenance of the business property itself—in failing to conduct a
background check of Hosier (a maintenance worker), and in failing to retrieve the
keys from Hosier or to change the locks after learning that Hosier posed a threat to
Angela.
While Missouri case law dictates that we resolve ambiguous insurance
provisions in favor of coverage and against the insurer, Poage v. State Farm Fire &
Cas. Co., 203 S.W.3d 781, 784 (Mo. Ct. App. 2006), we will not "unreasonably
distort the language of a policy or exercise inventive powers for the purpose of
creating an ambiguity when none exists," Todd v. Mo. United Sch. Ins. Council, 223
S.W.3d 156, 163 (Mo. 2007) (en banc). The Secura policy unambiguously precludes
coverage for the wrongful death damages Plaintiffs sustained.
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C.
Plaintiffs offer a separate textual argument for why the business property
exclusion does not apply. Specifically, Plaintiffs claim the phrase "resulting from"
in Secura's policy is restrictive—that is, the phrase requires something approaching
proximate causation between Plaintiffs' damages and the business property. Plaintiffs
contend that because the causal nexus between the business property and the damages
in this case is too attenuated, Secura's use of the phrase "resulting from" renders the
exclusion inapplicable. For support, Plaintiffs cite Missouri cases that have discussed
the effects phrases such as "arising out of" and "resulting from" have when they are
used in insurance contracts. See, eg., State Farm Mut. Auto. Ins. Co. v. Flanary, 879
S.W.2d 720, 723 (Mo. Ct. App. 1994) (citing Schmidt v. Util. Ins. Co., 182 S.W.3d
181, 183 (Mo. 1944)).
We disagree that the use of "resulting from" in the business property exclusion
renders the exclusion inapplicable based on the facts in this case. This court has
previously interpreted the phrase "resulting from" in the context of Missouri
insurance cases. See Spirco Envtl., Inc. v. Am. Int'l Specialty Lines Ins. Co., 555
F.3d 637, 641–42 (8th Cir. 2009). In Spirco, we concluded that Missouri courts
interpret the phrase "resulting from" to require a "causative link between a harm and
a covered occurrence or event to be 'reasonably apparent' such that the harm could be
considered a 'natural and reasonable incident or consequence'" of the covered event
or occurrence. Id. at 642 (quoting Poage, 203 S.W.3d at 787). While Spirco
interpreted the phrase in the context of a coverage dispute, the analysis of the
provision remains the same for assessing whether the business property exclusion
applies.
In this case, then, the correct inquiry is whether the wrongful death damages
were a natural and probable consequence of the negligent ownership, maintenance or
use of the apartment building. As discussed above in Part II.B., the answer to that
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question is yes: the Prengers' ownership of the apartment building gave rise to their
legal duty to provide adequate security to Angela. Moreover, the Prengers' breach of
the landlord-tenant duty stemmed in part from their negligent maintenance of the
property. In other words, the causal nexus between the damages incurred by
Plaintiffs in their wrongful death actions and the Prengers' ownership and
maintenance of the apartment building is "reasonably apparent" because the damages
were a "natural and reasonable incident or consequence" of running an apartment
leasing business. Spirco, 555 F.3d at 642. Importantly, the murders themselves did
not have to be foreseeable. It was the existence of a landlord-tenant relationship, and
the corresponding legal duty to provide security, that was foreseeable to the Prengers.
Breaching this foreseeable duty created the damages in this case. Thus, even
construing narrowly the effect of "resulting from" in the business property exclusion,
we still conclude that the causation standard from Missouri case law that we
articulated in Spirco is satisfied. See id.
D.
Finally, the business property exclusion is not ambiguous. Missouri courts are
instructed to give an insurance policy's terms its plain meaning, even if the terms are
located in a restrictive portion of a policy. See, eg., Harrison v. MFA Mut. Ins. Co.,
607 S.W.2d 137, 142 (Mo. 1980) (en banc). In the present case, the district court
found the business property exclusion was ambiguous because it did not "necessarily
presuppose preclusion of personal liability for tortious conduct by the insureds which
is only tangentially related to the business property." Eichholz, et al. v. Secura
Supreme Ins. Co., Nos. 12-3170, 12-4032 at *13 (W.D. Mo. filed August 10, 2012).
We disagree. As discussed above, the "tortious conduct" of the Prengers was more
than "tangentially related to the business property," the conduct "result[ed] from" the
Prengers' negligent ownership and maintenance of the apartment building.
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Plaintiffs separately argue that the district court was correct in finding the
business property exclusion ambiguous because it conflicts with the exception to the
business pursuits exclusion. See id. at *14 (quoting Burns v. Smith, 303 S.W.3d 505,
512 (Mo. 2010) (en banc)) ("If a contract promises something at one point and takes
it away at another, there is an ambiguity."). The district court reasoned that the
business property exclusion conflicts with the exception to the business pursuits
exclusion because "where negligent acts resulting from the pursuit of a business are
covered under the exception, they would be precluded when they were related in any
way to the Prengers' corresponding business property." Id. at *14.
We disagree. The exception to the business pursuits exclusion does not
promise coverage; it says only that business pursuits "covered by Personal Liability
primary insurance described in the Declarations" are not otherwise precluded by the
business pursuits exclusion. Rather than promising coverage, the provision simply
renders inapplicable one particular exclusion. Importantly, any coverage by the
umbrella policy is still subject to any other applicable exclusion, such as the business
property exclusion. Indeed, accepting the district court's rationale on this point would
in effect mean that no exclusion in an insurance policy is ever enforceable in a given
case unless every other exclusion applies. We do not believe "an ordinary person of
average understanding" would construe the insurance policy in this manner. Seeck,
212 S.W.3d at 132.
III.
For the reasons discussed above, we hold that the business property exclusion
unambiguously precludes coverage of the wrongful death judgments Plaintiffs
obtained against the Prengers. Accordingly, we reverse and remand to the district
court for entry of judgment for the defendant, Secura Supreme Insurance Company.
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