Topp's Mechanical v. Kinsale Insurance Company ( 2020 )


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  •                  United States Court of Appeals
    For the Eighth Circuit
    ___________________________
    No. 19-1991
    ___________________________
    Topp's Mechanical, Inc., a Nebraska Corporation
    lllllllllllllllllllllPlaintiff - Appellant
    v.
    Kinsale Insurance Company, an Arkansas Insurance Corporation
    lllllllllllllllllllllDefendant - Appellee
    ____________
    Appeal from United States District Court
    for the District of Nebraska - Omaha
    ____________
    Submitted: May 12, 2020
    Filed: August 4, 2020
    ____________
    Before COLLOTON and BENTON, Circuit Judges, and WILLIAMS,1 District Judge.
    __________
    BENTON, Circuit Judge.
    1
    The Honorable C.J. Williams, United States District Judge for the Northern
    District of Iowa, sitting by designation.
    Topp’s Mechanical, Inc. (TMI) bought a liability insurance policy from Kinsale
    Insurance Company. The policy excluded a “pollution incident” unless properly
    reported by TMI. After a pollution incident, Kinsale disclaimed coverage. TMI sued
    for breach of the policy. The district court2 granted Kinsale’s motion to dismiss.
    Having jurisdiction under 28 U.S.C. § 1291, this court affirms.
    TMI, a Nebraska corporation, sued Kinsale, an Arkansas corporation, for
    breach of the policy, an indemnity policy. The policy had an “Exclusion - Absolute
    Pollution and Pollution Related Liability.” This pollution exclusion excluded
    coverage for “injury or damage arising directly or indirectly out of, related to, or, in
    any way involving” pollution incidents.           An exception to the pollution
    exclusion—“Time Element Pollution Endorsement”—“modifies coverage under the
    Policy” if a pollution incident was: (1) “discovered by [TMI] within [7 days]” and
    (2) “reported to [Kinsale] in writing within [45 days].”
    During the coverage period, TMI learned that an employee suffered injury from
    a pollution incident. Within seven days, a TMI representative called Kinsale about
    the incident, specifically asking if TMI should report it. Some unidentified person
    in the Kinsale claims department told TMI that it could not yet report the incident as
    a claim, and said it should wait until the employee filed a formal demand or lawsuit.
    Nearly 18 months later, the injured employee made a formal demand. TMI
    forwarded it to Kinsale, requesting indemnification. Six weeks later, Kinsale
    disclaimed coverage. TMI sued Kinsale for breach of contract. After Kinsale
    removed the case from state court, the district court granted its motion to dismiss.
    2
    The Honorable Robert F. Rossiter, Jr., United States District Judge for the
    District of Nebraska.
    -2-
    This court reviews de novo the grant of a motion to dismiss for failure to state
    a claim under Federal Rule of Civil Procedure 12(b)(6), drawing all reasonable
    inferences in favor of the non-moving party. See Gregory v. Dillard’s, Inc., 
    565 F.3d 464
    , 474 (8th Cir. 2009) (en banc). The parties agree Nebraska substantive law
    applies in this diversity case. See Erie R. Co. v. Tompkins, 
    304 U.S. 64
    , 78 (1938).
    TMI acknowledges it did not follow the plain language of the contract because
    it reported the incident “in writing” more than 45 days afterward. Instead, it invokes
    waiver and estoppel because Kinsale told it to withhold reporting a claim until a
    formal demand was made or a lawsuit filed. See D&S Realty, Inc. v. Markel Ins.
    Co., 
    789 N.W.2d 1
    , 17 (Neb. 2010) (explaining that, although waiver and estoppel are
    distinct legal concepts, an insurer can be estopped if it waives a policy provision).
    Waiver and estoppel do not apply to the type of policy at issue. There is a
    “crucial difference between ‘occurrence’ and ‘claims made’ liability insurance
    policies.” Lexington v. Saint Louis Univ., 
    88 F.3d 632
    , 633 (8th Cir. 1996), later
    cited in Countryside Coop. v. Koch, 
    790 N.W.2d 873
    , 886 (Neb. 2010) (describing
    an “essential difference” between an occurrence policy and a claims-made policy).
    “Both types of policies require the insured to promptly notify the insurer of possible
    covered losses. With a claims made policy, however, that notice is not simply part
    of the insured’s duty to cooperate. It defines the limits of the insurer’s obligation—if
    there is no timely notice, there is no coverage.” 
    Lexington, 88 F.3d at 634
    , later
    quoted in Countryside 
    Coop., 790 N.W.2d at 886
    . “Under a claims-made policy, ‘the
    very description of the risk covered includes the requirement that claims be both
    made and reported within the policy period.’” Countryside 
    Coop., 790 N.W.2d at 886
    , quoting Esmailzadeh v. Speakman, 
    869 F.2d 422
    , 425 (8th Cir. 1989).
    TMI and Kinsale agreed to a claims made policy. It excludes pollution
    incidents. But it “modifies coverage” under the Time Element Pollution
    Endorsement, for incidents discovered within 7 days and reported within 45 days in
    -3-
    writing. In the policy, notice “defines the limit of the insurer’s obligation—if there
    is no timely notice, there is no coverage” for pollution incidents. 
    Lexington, 88 F.3d at 634
    . See Countryside 
    Coop., 790 N.W.2d at 886
    (“the very description of the risk
    covered includes the requirement that claims be both made and reported within the
    policy period”).
    Because the Nebraska Supreme Court has not specifically ruled whether waiver
    and estoppel apply to claims made policies, this court “must try to predict how [it]
    would do so and decide the case accordingly.” Lindhold v. BMW of N. Am., LLC,
    
    862 F.3d 648
    , 651 (8th Cir. 2017). The Nebraska Supreme Court says that “waiver
    and estoppel are not available to broaden the coverage of a policy so as to protect the
    insured against risks not included therein or expressly excluded therefrom.” Design
    Data Corp. v. Maryland Cas. Co., 
    503 N.W.2d 552
    , 559 (Neb. 1993), quoting Lee
    v. Evergreen Coop., 
    390 N.W.2d 183
    , 185-86 (Mich. Ct. App. 1986). “Estoppel
    cannot be invoked to expand insurance coverage or the scope of an insurance
    contract.”
    Id. at 560,
    quoting ABCD Vision, Inc. v. Fireman’s Fund Ins. Co., 
    744 P.2d 998
    , 1001-02 (Ore. 1987). TMI cannot invoke waiver and estoppel that
    broadens—or as the policy here states, “modifies”—coverage.
    A Fifth Circuit case applying Texas law is instructive. There, the policy had
    a pollution exclusion clause, but contained an endorsement that covered pollution
    incidents if discovered within 7 days and reported to the insurer within 30 days. See
    Matador Petro. Co. v. St. Paul Surplus Lines Ins. Co., 
    174 F.3d 653
    , 655-56 (5th
    Cir. 1999). The insured reported a pollution incident late, but alleged waiver and
    estoppel.
    Id. The court did
    not permit waiver and estoppel for two reasons. First,
    the policy, because of the endorsement, was a claims made policy.
    Id. at 659.
    Second, Texas law stated: “waiver and estoppel cannot enlarge the risks covered by
    a policy and cannot be used to create a new and different contract with respect to the
    risk covered and the insurance extended.”
    Id. at 660,
    citing The Minnesota Mut. Life
    Ins. Co. v. Morse, 
    487 S.W.2d 317
    , 320 (Tex. 1972). Compare Design Data, 503
    -4-
    N.W.2d at 560 (“Estoppel cannot be invoked to expand insurance coverage or the
    scope of an insurance contract.”).
    TMI contends that Nebraska law permits waiver and estoppel for breach-of-
    contract of insurance policies. But TMI relies on cases with occurrence policies, not
    claims made policies. In Keene, the insurance policy covered the fire, and the insurer
    had told the insured not to worry about reporting it until he received the bill. See
    Keene Coop. Grain & Supply Co. v. Farmers Union Ind. Mut. Ins. Co., 
    128 N.W.2d 773
    , 777 (Neb. 1964). Likewise, in Morris, the insurance policy covered the fire, and
    the parties contested whether the insurer’s participation in negotiations constituted
    waiver. See Morris v. American & Foreign Ins. Co., 
    35 N.W.2d 832
    , 833-35 (Neb.
    1949). In both cases, the policies were occurrence policies because they already
    covered the risks—e.g., the fires. The insureds had a duty to provide notice, but
    notice did not determine coverage. See 
    Lexington, 88 F.3d at 634
    ; Countryside
    
    Coop., 790 N.W.2d at 886
    . See also D&S 
    Realty, 789 N.W.2d at 6
    , 17-18 (insurance
    covered water damage, and parties contested whether insured waived a disclaimer
    clause for buildings that sat vacant).
    In this case, on the other hand, timely notice “modifies coverage” to include
    pollution incidents, so it is a claims made policy. TMI, therefore, cannot invoke
    waiver and estoppel.
    *******
    The judgment is affirmed.
    ______________________________
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