Electric Power Systems International, Inc. v. Zurich American Insurance Co. , 880 F.3d 1007 ( 2018 )

United States Court of Appeals
For the Eighth Circuit
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No. 16-3927
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Electric Power Systems International, Inc.
lllllllllllllllllllll Plaintiff - Appellant
v.
Zurich American Insurance Company
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
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Submitted: September 21, 2017
Filed: January 26, 2018
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Before COLLOTON, BENTON, and KELLY, Circuit Judges.
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KELLY, Circuit Judge.
Electric Power Systems International (EPS) appeals the district court’s1 grant
of summary judgment to Zurich American Insurance Company (Zurich). EPS asserts
the court erred in concluding that the commercial general liability policy issued by
1
The Honorable Catherine D. Perry, United States District Judge for the Eastern
District of Missouri.
Zurich to EPS did not provide coverage for damage EPS caused to an electrical
transformer while working on it. Having jurisdiction under 28 U.S.C. § 1291, we
affirm.
I.
Louisville Gas and Electric Company (LGE) contracted to purchase a used
electrical transformer from American Transmission Company. The transformer was
a large piece of electrical equipment, weighing 403,000 pounds. It consisted of
“many devices, such as bushings, the radiators, the tank, the core and coil, insulating
wards, control panel, CT’s control wiring, monitoring devices, gauges, [and] many
components that make up a device that’s able to either step up or step down voltage
so electricity can operate in a efficient manner.” LGE is located in Kentucky and the
transformer was located in Wisconsin. In order to relocate the transformer to
Kentucky, LGE hired EPS, a Missouri corporation, “to disassemble, transport, re-
assemble, and test” the transformer. LGE arranged for an internal inspection of the
transformer by a third party, but EPS agreed to “assist in the inspection from the
outside of the unit.” As part of its work to disassemble the transformer, EPS was to
“remove all parts necessary to relocate the transformer[,] including but not limited to
the . . . HV, LV & TV bushings.” A bushing is the conduit through which electrical
current flows.
The bottom of each bushing was bolted to a lead cable located inside the
transformer that in turn was attached to the transformer’s internal core and coil. The
top portion of the bushing extended about nine feet above the top of the transformer.
To remove a bushing from the transformer, it had to be disconnected from the lead
cable, which required someone to go inside the transformer and remove all the bolts
that attached the components. In attempting to remove the first bushing, EPS failed
to remove one of the bolts connecting the bushing to the lead cable. When EPS
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attempted to lift the bushing with a crane, the lead cable was pulled upward, which
in turn pulled on the core and coil, damaging it.
After LGE asserted a claim against EPS for the damage to the core and coil,
EPS tendered the claim to Zurich. Zurich denied coverage based on three exclusions
in EPS’s policy, two of which are relevant here: the j(4) “care, custody, or control”
exclusion and the j(6) “particular part” exclusion. EPS sued Zurich in state court on
theories of breach of contract, vexatious delay, and bad faith refusal to settle. Zurich
removed the case to federal court based on diversity jurisdiction. Concluding that
exclusion j(6) precluded coverage, the district court granted summary judgment to
Zurich. This appeal followed.
II.
“This court reviews de novo a grant of summary judgment, construing all facts
and making all reasonable inferences favorable to the nonmovant.” Spirtas Co. v.
Nautilus Ins. Co., 715 F.3d 667, 670 (8th Cir. 2013) (quoting General Mills
Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th Cir.
2013)). “Summary judgment is proper ‘if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.’” Id. (quoting Fed. R. Civ. P. 56(a)).
The parties agree that Missouri law applies in this diversity case. Under
Missouri law, “the interpretation of an insurance contract is generally a question of
law, particularly in reference to the question of coverage.” D.R. Sherry Constr., Ltd.
v. Am. Family Mut. Ins. Co., 316 S.W.3d 899, 902 (Mo. banc 2010). It is the
insured’s burden to establish coverage under the policy and the insurer’s burden to
show that an exclusion to coverage applies. Taylor v. Bar Plan Mut. Ins. Co., 457
S.W.3d 340, 344 (Mo. banc 2015). Missouri courts strictly construe exclusionary
clauses against the insurer. Id.
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Exclusion j(6) of the policy excludes coverage for “property damage” to “[t]hat
particular part of any property that must be restored, repaired or replaced because
‘your work’ was incorrectly performed on it.” Put another way, exclusion j(6)
excludes coverage for property damage to a particular part of any property on which
EPS performed work if EPS’s work was incorrectly performed on that particular part.
See Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 81 (Mo. banc 1998) (holding
that a similar exclusion “denies coverage for property damage to the particular part
of the real property that is the subject of the insured’s work at the time of the damage,
if the damage arises out of those operations”). The district court concluded that at the
time the coil was damaged, the particular part of the transformer on which EPS was
working included the bushing, lead cable, and coil. Because the damage to the coil
was caused by EPS’s incorrect performance of its work—failing to detach the lead
cable from the bushing—the court concluded exclusion j(6) applied to exclude
coverage for the damage to the coil.
EPS argues the district court misapplied Missouri law by including the core and
coil as a component of the “particular part” of the transformer on which EPS was
working. According to EPS, Missouri law supports a narrow interpretation of the
“particular part” exclusion. See id. at 80 (construing similar exclusion with respect
to real property to “bar[] coverage only for the particular part of the real property on
which the insured is performing operations”). EPS notes Missouri courts apply this
exclusion “with great specificity.” Id. According to EPS, the precise part of the
property on which it was working at the time of the occurrence was the bushing, not
the core and coil. EPS argues that in construing the scope of the “particular part”
exclusion to exclude coverage for damage to any part of the transformer besides the
bushing, the district court failed to recognize that the bushing, lead cable, and coil are
separate and distinct components of the transformer.
The interpretation urged by EPS is too narrow. In Schauf, a painter
subcontracted to paint, stain, or lacquer all interior and exterior surfaces of a newly
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constructed house. Id. at 76. The painter accidentally started a fire while cleaning
the equipment he had used to apply lacquer to kitchen cabinets thirty minutes earlier.
Id. at 79. The fire damaged the cabinets and other parts of the house. Id. at 76. The
painter argued that the “particular part” exclusion did not apply because he was not
performing operations on real property at the time—he was cleaning his equipment,
not painting the house. Id. at 79. While acknowledging that the painter was not
directly performing operations on the real property when he started the fire, the
Supreme Court of Missouri nonetheless rejected the painter’s construction of the
exclusion as too narrow. Id. As the court observed, “[i]t would not be reasonable to
conclude, for example, that an insured is performing operations on real property when
touching a paint brush to the wall, but is not performing operations on real property
when dipping that brush into the can of paint.” Id. The court found that the damage
to the kitchen cabinets fell within the exclusion because cleaning the equipment was
the last step in the job of lacquering the kitchen cabinets but that the damage to the
rest of the house did not fall within the exception. Id. at 81.
Similarly here, we conclude that a Missouri court would find that the
“particular part” of the transformer on which EPS was working included the core and
coil. Disconnecting the bushing from the lead cable and core and coil was the first
step of the job of disassembling the bushing, and it was an integral part of the job.
See Brake Landscaping & Lawncare, Inc. v. Hawkeye-Sec. Ins. Co., 625 F.3d 1019,
1021–23 (8th Cir. 2010) (construing the same exclusion to preclude coverage for a
landscaping company that applied a non-selective herbicide that killed lawns as well
as weeds); see also Spirtas, 715 F.3d at 672 (concluding that “particular part of real
property” exclusion precluded coverage for removing section of bridge from river
when demolition did not go as planned because “dropping the bridge span into the
river was an integral part of the demolition” and so “both the bridge and river were
the ‘particular part of real property’ on which Spirtas’s operations occurred”).
Because the damage to the coil was caused by EPS’s faulty performance of its work
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in detaching the lead cable from the bushing, we agree with the district court that
exclusion j(6) applies and there is no coverage for the claimed damage.2
III.
Accordingly, we affirm the decision of the district court.
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2
Because we find exclusion j(6) applies, we need not reach Zurich’s argument
that exclusion j(4) applies.
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