Oakdale Mall Associates v. Cincinnati Insurance Company , 702 F.3d 1119 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-1148
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Oakdale Mall Associates, a Minnesota Limited Partnership
lllllllllllllllllllll Plaintiff - Appellant
v.
Cincinnati Insurance Company
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: October 17, 2012
Filed: January 10, 2013
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Before RILEY, Chief Judge, COLLOTON and GRUENDER, Circuit Judges.
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RILEY, Chief Judge.
Oakdale Mall Associates (Oakdale), a Minnesota limited partnership, and
Cincinnati Insurance Company (Cincinnati), an Ohio corporation, dispute whether the
commercial property insurance policy Oakdale purchased from Cincinnati covers a
loss Oakdale suffered on August 4, 2009. On cross-motions for summary judgment
regarding coverage, the district court1 denied Oakdale’s motion for summary
judgment and granted judgment to Cincinnati, concluding the policy excluded
Oakdale’s damages. Oakdale appeals, and we affirm.
I. BACKGROUND
Oakdale owned and operated the Oakdale Mall, a commercial shopping center
in Oakdale, Minnesota. Oakdale purchased a commercial property insurance policy
from Cincinnati covering direct physical loss or damage to the mall, subject to certain
terms and exclusions.
On August 4, 2009, an Oakdale employee discovered thieves had stolen the
copper coils contained inside eleven rooftop heating, ventilation, and air conditioning
units at the mall. Oakdale filed a claim with Cincinnati for $159,000 to replace the
units. Cincinnati denied the claim based upon a policy provision that excluded
coverage for any damage resulting from vandalism, theft, or attempted theft if the
mall were “vacant for more than 60 consecutive days before that loss or damage.”
Under the terms of the policy, the mall was deemed vacant “unless at least 31%
of its total square footage [was]:
1) Rented to a lessee or sub-lessee and used by them to conduct their
customary operations; or
2) Used by the building owner to conduct customary operations.
The mall had a total area of 180,000 sq. ft., meaning at least 55,800 sq. ft. of the mall
had to be occupied for coverage to apply.
1
The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota.
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The parties agree that, at the relevant time, the mall had at least four tenants
occupying a total of 18,715 sq. ft.: Deb Shops of Minnesota, Inc. (8,515 sq. ft.);
Animal Emergency Clinic, P.A. (3,700 sq. ft.); Bridal Center, Inc. (4,000 sq. ft.); and
Wellspring Chiropractic, Ltd. (2,500 sq. ft.). Oakdale maintained it had two
additional qualifying tenants: China House Chinese Cuisine (China House) (2,000
sq. ft.) and My Dog Gone Daycare (Dog Gone) (1,931 sq. ft.). Cincinnati challenged
the inclusion of those tenants for occupancy because, although both may still have
been nominal tenants, neither had been using their leased space to conduct operations
for more than a year before the loss.
The parties also disputed the size of the mall’s office space and the size of the
mall’s common areas, both of which constituted space used by Oakdale to conduct
its customary operations under the policy. Oakdale contended the mall’s office
occupied 1,500 sq. ft. and that common areas occupied at least 34,595 sq. ft. Oakdale
also argued one of its former tenants, Globe College, during its tenancy, had
expanded the common area of the mall beyond 34,595 sq. ft. by erecting additional
hallways and common areas in its leased space. Lastly, Oakdale suggested the space
for which Oakdale was actively seeking tenants should qualify as occupied space.
Cincinnati calculated the management office at 1,000 sq. ft. and the common
area at 25,530 sq. ft. In denying Oakdale’s claim, Cincinnati based its calculations
on a March 2009 appraisal and rent rolls Oakdale used for other purposes, rather than
the information Oakdale provided in filing its claim. Having determined the mall was
not 31% occupied at the time of the loss, Cincinnati denied coverage.
On March 22, 2011, Cincinnati sought declaratory relief in the United States
District Court for the District of Minnesota. On April 14, 2011, Oakdale sued
Cincinnati in Missouri state court, alleging breach of contract and seeking costs and
attorney fees under Minnesota law. The District Court for the District of Minnesota
denied Oakdale’s motion to dismiss or stay Cincinnati’s declaratory judgment action.
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Cincinnati removed Oakdale’s suit to the United States District Court for the Western
District of Missouri, which transferred the case to the District of Minnesota. The
District Court for the District of Minnesota then denied Oakdale’s renewed motion
to dismiss and consolidated the cases.
On cross-motions for summary judgment, the district court denied Oakdale’s
motion and granted Cincinnati’s motion, concluding the mall was vacant as a matter
of law. Examining the vacancy provision, the district court determined China House
and Dog Gone should not be included in the tenant occupied square footage because
neither was conducting “customary operations” at the time of the loss. The district
court also rejected Oakdale’s contentions that the mall was not vacant because
(1) China House and Dog Gone still had lease obligations, and (2) Oakdale was trying
to lease the vacant space. The district court found Oakdale’s interpretation of the
policy would render the vacancy provision meaningless.
Starting with a tenant occupied space of 18,715 sq. ft., the district court added
the square footage Oakdale provided during summary judgment for office space
(1,500 sq. ft.) and common area (34,595 sq. ft.) for a total of 54,810 sq. ft. of
occupied space. Because that total was only 30.45% of the mall’s total square
footage (180,000 sq. ft.), the district court determined the mall was vacant under the
terms of the policy.
On January 12, 2012, Oakdale sought relief from the judgment, arguing the
district court miscalculated the common area because it ignored the additional
hallways added by Globe College. The district court denied Oakdale’s post-trial
motions, and Oakdale appeals.
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II. DISCUSSION
A. Standard of Review
We review de novo “the district court’s interpretation of the terms of the
insurance policy and its” summary judgment decisions. Corn Plus Coop. v. Cont’l
Cas. Co., 516 F.3d 674, 678 (8th Cir. 2008). Summary judgment is required “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.” Fed. R. Civ. P. 56(a).
B. Minnesota Law
In light of the absence of a valid choice-of-law provision in the policy, see
Allianz Ins. Co. of Canada v. Sanftleben, 454 F.3d 853, 855 (8th Cir. 2006) (citing
Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980)), and
the lack of any conflict in the law of the contact states, see Platte Valley Bank v. Tetra
Fin. Grp., LLC, 682 F.3d 1078, 1083 (8th Cir. 2012); Hague v. Allstate Ins. Co., 289
N.W.2d 43, 46-47 (Minn. 1978), we apply Minnesota substantive law to this diversity
action, see Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). “Under Minnesota law,
the insured bears the initial burden of establishing that coverage exists, at which point
the insurer then carries the burden of demonstrating that a policy exclusion applies.”
Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 951 (8th Cir. 2012) (citing Travelers
Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006)).
“Interpretation of an insurance contract, including whether provisions in a
policy are ambiguous, is a legal question subject to de novo review.” Latterell v.
Progressive N. Ins. Co., 801 N.W.2d 917, 920 (Minn. 2011). “Insurance policy
provisions are ambiguous only when they are ‘reasonably subject to more than one
interpretation.’” Id. (quoting Am. Commerce Ins. Brokers, Inc. v. Minn. Mut. Fire
and Cas. Co., 551 N.W.2d 224, 227 (Minn. 1996)). “Ambiguity in a policy will be
construed against the insurer, but ‘the court has no right to read an ambiguity into the
plain language of an insurance policy.’” Friedberg, 691 F.3d at 951 (quoting State
Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn. 1992)). The courts “must
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fastidiously guard against the invitation to create ambiguities where none exist.”
Latterell, 801 N.W.2d at 921 (quoting Columbia Heights Motors, Inc. v. Allstate Ins.
Co., 275 N.W.2d 32, 36 (Minn. 1979)) (internal quotation marks omitted).
“In interpreting the policy language, a court is to give the terms ‘their plain,
ordinary, and popular meaning.’” Columbia Heights Motors, Inc., 275 N.W.2d at 34
(quoting Ostendorf v. Arrow Ins. Co., 182 N.W.2d 190, 192 (Minn. 1970)). “The
policy’s language ‘should be construed, if possible, so as to give effect to all
provisions.’” Friedberg, 691 F.3d at 951 (quoting Bobich v. Oja, 104 N.W.2d 19, 24
(Minn. 1960)).
C. Common Area
The vacancy clause in the Cincinnati policy stated the mall would be deemed
vacant “unless at least 31% of its total square footage [was]: 1) Rented to a lessee or
sub-lessee and used by them to conduct their customary operations; or 2) Used by the
building owner to conduct customary operations.” In its briefs supporting its
summary judgment motion, Oakdale stated, “34,595 square feet of the mall made up
the common area that was open and available to the public. This area included
hallways, corridors, and toilets.” Oakdale further stated, “In total, [Oakdale] was
using 36,095 square feet in conducting its customary operations”—1,500 sq. ft. of
office space and 34,595 sq. ft. of common area. Oakdale also provided the district
court with detailed occupancy calculations, all of which used 34,595 sq. ft. of
common area.
In its reply supporting summary judgment, Oakdale declared, “the appropriate
amount of common area at the time the loss occurred was 34,595 square feet.”
Although Oakdale repeatedly described 34,595 sq. ft. as the total common area and
provided the district court with specific calculations based on that figure, Oakdale
also generally asserted Globe College added several thousand square feet of hallways
“not included in the previous computation.” Oakdale argued the areas would increase
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the occupied square footage well beyond 31%, but did not provide any actual
measurements or alternative calculations.2
In opposing Cincinnati’s summary judgment motion, Oakdale again repeatedly
referred to 34,595 sq. ft. as the correct amount of common area and provided
calculations based on that figure. Oakdale’s calculations indicated the 34,595 sq. ft.
of common area included the common hallways maintained by Globe College.
Oakdale again vaguely referred to thousands of feet of additional hallways not
included in its calculations that put the mall “well above the occupancy requirement,”
but did not provide any actual square footage or alternative calculations.
Based on the figures Oakdale provided, the district court determined “[e]ven
using Oakdale’s calculations for common space and office space, Oakdale has failed
to establish that the mall was at least 31% occupied at the time of the theft at issue.”
Oakdale claims this was error because the district court failed to include the
“additional hallways of unspecified size” in the former Globe College space. We
disagree.
While a disagreement about the size of any additional hallways and the total
common area could create a genuine dispute of material fact under different
circumstances,3 we conclude the district court was entitled to rely on Oakdale’s
2
On appeal, for the first time, Oakdale asserts “those additional hallways
erected by Globe College . . . measured approximately 2,293 feet,” raising the
occupancy to 31.7% and putting “Oakdale in a position where it meets the insurance
policy’s occupancy requirements.” Oakdale’s self-described “illustrative”
measurements are not part of the record on appeal, and we must not consider them.
See Fed. R. App. P. 10(a); McNamara v. Yellow Transp., Inc., 570 F.3d 950, 955 (8th
Cir. 2009).
3
In reviewing the record, we suspect Oakdale’s recent assertion—the Globe
College hallways added thousands of additional common area square
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specific calculations and repeated statements that the total common area was 34,595
sq. ft. See Delapaz v. Richardson, 634 F.3d 895, 899-90 (7th Cir. 2011) (rejecting
plaintiffs’ claimed error based upon conflicting paragraphs in their summary
judgment response because the district court could rely on the plaintiffs’ admissions).
Oakdale vaguely referred to the “bonus hallways” in its briefs, but never
provided a sufficient basis to support a different calculation than the one Oakdale
repeatedly urged the district court to use. “It was not the District Court’s
responsibility to sift through the record to see if, perhaps, there was an issue of fact.”
Satcher v. Univ. of Ark. at Pine Bluff Bd. of Trs., 558 F.3d 731, 735 (8th Cir. 2009).
The district court did not err in accepting Oakdale’s specific calculations of common
area and deciding they were insufficient to allow a reasonable jury to find the vacancy
provision was met.
D. Space Oakdale Sought to Lease
Oakdale faults the district court for failing to include in its calculation of the
mall’s “[o]ccupied space . . . that space for which Oakdale was actively seeking
tenants.” Oakdale contends “[t]he language of the policy should be interpreted, with
regard to a shopping center, to define ‘vacancy’ as a shopping center that has no
tenants and is not seeking new tenants.” In Oakdale’s view, by posting “a large sign
outside the mall advertising available space for rent” and “seeking out new tenants,
[Oakdale] was using the property to conduct normal business operations” in
satisfaction of the vacancy provision.
We agree with the district court that Oakdale’s interpretation of the policy
“would render the vacancy clause of the policy meaningless.” The primary purpose
of the vacancy provision is to reduce the risk of loss by requiring a physical presence
footage—results from a double counting of those areas and already is included in the
34,595 sq. ft. of common area calculation.
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at the property to help secure the property from vandals and thieves. Under
Oakdale’s interpretation of the policy—“[a] shopping center may not be ‘vacant’ if
the owner is trying to rent the space”—the mall could be completely vacant, but
would be deemed fully occupied for purposes of the vacancy provision if the owner
simply posted a sign outside or placed an advertisement online or in the newspaper.
Oakdale’s interpretation is unreasonable, bordering on the absurd.
E. Space Under Lease to China House and Dog Gone
Oakdale next proposes the district court erred in excluding space once occupied
by China House and Dog Gone from the mall’s occupancy calculations because China
House had a valid lease and Dog Gone was a tenant at will, both with rights to use
their respective spaces. Oakdale acknowledges China House stopped doing business
at the mall and was not using the space to conduct its customary operations, but
argues China House still had a valid lease and had not notified Oakdale it had stopped
using or otherwise surrendered the premises at the time of the theft. According to
Oakdale, because China House still had a lease and the right to occupy the property,
“Oakdale was very clearly using the China House space as part of [Oakdale’s]
customary business operations”—leasing mall space to tenants.
With respect to Dog Gone, Oakdale maintains it was “irrelevant whether Dog
Gone was using the premises as part of its customary business operations because
Oakdale was.” Oakdale asserts the lack of a definition of “customary operations” in
the policy means the phrase is ambiguous and can be interpreted “any number of
ways” when applied to a mall, including an interpretation that would encompass
Oakdale simply leasing the property.
We again reject Oakdale’s strained interpretation of the policy. Not only is
Oakdale’s interpretation contrary to the purpose of the vacancy provision, it also
creates a conflict between the first and second clauses of that provision. The first
clause has two parts: (1) the space be rented to a lessee or sub-lessee, and (2) the
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space be “used by them to conduct their customary operations.” The second clause
includes the space used in Oakdale’s customary operations as occupied.
Oakdale’s interpretation of the second clause—a valid lease satisfies the
vacancy provision because leasing space is Oakdale’s customary operation—would
render the requirements in the first clause—the space be both rented and used by the
tenant to be occupied—without effect. Oakdale’s interpretation of the vacancy
provision is unreasonable, and the district court did not err in rejecting it. See Mut.
Serv. Cas. Ins. Co. v. Wilson Twp., 603 N.W.2d 151, 153 (Minn. Ct. App. 1999) (“If
a phrase is subject to two interpretations, one reasonable and the other unreasonable
in the context of the policy, the reasonable construction will control and no ambiguity
exists.”); see also Noran Neurological Clinic, P.A. v. Travelers Indem. Co., 229 F.3d
707, 709 (8th Cir. 2000) (explaining, under Minnesota law, the reasonable
construction of a policy controls over an unreasonable interpretation).
III. CONCLUSION
We affirm.
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