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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 09-2460

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Beckon, Inc., *

*

Plaintiff-Appellant, *

*

v. *

*

AMCO Insurance Company, *

*

Defendant-Appellee, *

* Appeal from the United States

AMCO Insurance Company, * District Court for the

* Eastern District of Missouri.

Counter Claimant- *

Appellee, *

*

v. *

*

Beckon, Inc., *

*

Counter Defendant- *

Appellant. *

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Submitted: March 10, 2010

Filed: August 12, 2010

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Before BYE, ARNOLD, and COLLOTON, Circuit Judges.

___________

BYE, Circuit Judge.

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This appeal involves an insurance coverage dispute over the validity of an

insurance policy AMCO Insurance Company issued to Beckon, Inc., insuring the

latter's business operations as well as the building it occupied but did not own. The

district court concluded the entire policy was void on the grounds Beckon lacked an

insurable interest in the building. Beckon appeals the district court's grant of summary

judgment in favor of AMCO. We reverse and remand for further proceedings.

I

Beckon is in the business of repairing industrial machines used in the beverage

container industry. The company started in 1985. In its first several years, Beckon

operated out of the garage of its owner, John Herbst. In September 1992, Beckon

moved into a 22,000 square foot building located at 455 East Clinton Place in

Kirkwood, Missouri (hereinafter the building).

The terms under which Beckon occupies the building are somewhat atypical.

The building is owned by Rosalinda Rosemann, the widow of the founder of RotoDie Company, Inc. Roto-Die occupied the building pursuant to a twenty-year lease

starting in 1977. In the fall of 1990, Roto-Die moved to a new location and vacated

the building even though the twenty-year lease remained in effect. The lease required

Roto-Die "to use reasonable diligence in the care and protection of said premises" and

to keep the building "in good order and repair and free from any nuisance or filth upon

or adjacent thereto." The lease allowed Roto-Die to sublet the building.

During the two years the building was vacant, it was vandalized. In a move that

benefitted both companies, Roto-Die reached an oral agreement with Herbst to allow

Beckon to occupy the building in exchange for acting as its caretaker, i.e., to maintain

the building and prevent it from being vandalized. The agreement also required

Beckon to pay the utilities for the building, which Beckon did, while Roto-Die

continued to pay the real estate taxes and sewer bills. Roto-Die instructed Herbst to

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"treat the building as your own," or words to that effect. Among other things, Herbst

understood this to mean he should insure the building, which he did, unaware that

Roto-Die also continued to insure the building.

When Herbst inquired about purchasing the building, Roto-Die told him a sale

was a possibility sometime in the future. While Herbst was not told as much, the

building was never sold or formally leased to Beckon because Rosemann's interest in

the building was limited to a life tenancy, and the remaindermen who would jointly

own the building upon her death were embroiled in litigation.

After taking possession, Beckon treated the building as its own, making

numerous improvements. Beckon enlarged and replaced the bay doors, remodeled the

offices, remodeled the floors and bathrooms, changed the lighting, painted the

building, expanded the mezzanine, covered the driveway with asphalt, and installed

a large (five ton) hoist. Beckon was not reimbursed for these improvements.

Starting in 1992 and throughout its occupancy of the building, Beckon

purchased insurance covering the building, the contents of the building, and its own

business operations. In 2004, Beckon switched insurers because Zurich, its insurer

at the time, determined Beckon's business operations did not fit within any of Zurich's

underwriting programs. Beckon's insurance agent filed an online application with

AMCO on Beckon's behalf. The underwriting report AMCO obtained while

considering the application listed Beckon as a renter, i.e., "Rents 15,000 sq. ft. in one

story brick building."

In October 2004, AMCO approved the application and issued a policy of

insurance to Beckon. The policy insured Beckon against damage to the building and

its contents, i.e., "business personal property." The policy listed various "Additional

Coverages," for loss of business income, extra expenses, equipment breakdown, etc.

Separate premiums were charged for the building and the business personal property.

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AMCO renewed the policy for one-year terms in October 2005, and again in October

2006. Beckon paid all premiums.

Between1992 and 2006, Beckon had no insurance claims in connection with the

building. Then, two events occurred within a span of months. On March 4, 2007,

sparks from a welder operated by an independent contractor ignited some insulation

inside the building and caused a fire. The fire damaged the work areas of the building,

and damaged or destroyed many of the building's contents. For example, Beckon

estimated damages of $18,000 alone to the five-ton hoist it had installed in the

building. In order to carry on its business, Beckon rented space in another location

in Fenton, Missouri, while the building was repaired. The cost of renting the

temporary space in Fenton approached $10,000 per month. Beckon's temporary rental

expenses continued for nearly two years until it was finally able to move back into the

building in early 2009. On August 24, 2007, while Beckon waited for AMCO to

respond to its fire claim, part of the building's roof blew off during a wind storm.

Rain water damaged an interior office area. Beckon repaired the roof at a cost of

approximately $35,000, and again reported the loss to AMCO.

Between the time of the fire and the wind storm, AMCO investigated Beckon's

ownership interest in the building. After determining Beckon did not own the

building, AMCO did not cancel the policy or claim it was void based on the

misrepresentation of a material fact. Rather, on April 23, 2007, AMCO continued to

provide insurance to Beckon, and issued a Change of Declarations Endorsement to the

policy which added Rosemann and Roto-Die as additional insureds. AMCO charged

Beckon an increased premium for adding the additional insureds, which Beckon paid.

AMCO failed to accept or deny Beckon's fire claim by September 14, 2007, the

date it was required to do so under the terms of the policy (as extended by agreement

of the parties). Finally, on October 1, 2007, AMCO denied Beckon's claim for the fire

damage to the building on the grounds Beckon lacked an insurable interest in the

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building. On October 16, 2007, AMCO denied Beckon's claim for wind damage to

the building on the same grounds. Later, on November 27, 2007, AMCO paid

$532,810.58 under the separate coverage Beckon had purchased for the business

personal property damaged in the fire.

Shortly thereafter, Beckon filed suit against AMCO in federal district court

asserting claims for breach of contract and vexatious refusal to pay the two building

losses (i.e., the fire loss and the wind loss). AMCO's answer asserted numerous

defenses not previously raised by AMCO in its letters denying Beckon's insurance

claims, including an allegation Beckon made material misrepresentations in the

procurement of the policy. AMCO also brought a counterclaim seeking to recoup the

$532,810.58 it paid Beckon for losses caused by the fire and covered under the

business personal property section of the policy.

AMCO filed a motion for summary judgment. The primary basis for AMCO's

motion was that Beckon allegedly misrepresented that it owned the building in its

2004 application. Secondarily, AMCO argued Beckon lacked an insurable interest in

the building because it had no legal or equitable title to the building.

Without addressing the issue of misrepresentation, the district court granted

summary judgment in favor of AMCO on the grounds Beckon lacked an insurable

interest in the building. The district court concluded it did not need to reach the

question of fraud in the procurement of the policy because the lack of an insurable

interest in the building voided the entire policy. The district court also entered

judgment for AMCO on its counterclaim in the amount of $532,810.58, the amount

AMCO had already paid under the business personal property section of the policy.

Beckon filed a timely appeal.

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II

We review the district court's grant of summary judgment de novo. Rand Corp.

v. Yer Song Moua, 559 F.3d 842, 845 (8th Cir. 2009). We also review de novo the

district court's interpretation of Missouri law. Bockelman v. MCI Worldcom, Inc.,

403 F.3d 528, 531 (8th Cir. 2005).

A

At the outset, we reject AMCO's contention that the lack of an insurable interest

in one of several classes of property insured under a single policy is grounds for

voiding an entire policy. Under Missouri law:

[w]here the policy separates the property insured into distinct classes and

specifies the amount of insurance upon each, the contract is severable

into as many contracts as there are separate classes of property insured

on separate valuations, and the fact that the policy may be void as to the

insurance on one class will not necessarily impair its validity as to

another.

Fager v. Commercial Union Assurance Co., 176 S.W. 1064, 1065 (Mo. Ct. App.

1915).

The policy's limits for the replacement cost of the building were separate from

its limits for the business personal property. See Appellant's Appx. at 100 (setting a

policy limit of $675,000 for the replacement cost of the building, and a policy limit

of $529,500 for the business personal property). In addition, AMCO disclosed

separate premiums for the building and the business personal property in the original

application, id. at 86, reflecting AMCO's ability to evaluate independently the risks

involved with respect to the separate classes of property insured. The coverage

Beckon purchased for its own business personal property was for a separate class of

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property insured on a separate valuation than the coverage Beckon purchased for the

building.

There is no dispute Beckon had an insurable interest in its own business

personal property. Thus, even assuming the building coverage was void due to

Beckon's lack of an insurable interest in the building, it does not follow that the

validity of the insurance Beckon purchased for its own business personal property was

impaired. See Fager, 176 S.W. at 1065; see also Raney v. Home Ins. Co., 246 S.W.

57, 58 (Mo. Ct. App. 1922) (noting the insurer paid and did not appeal a claim for

personal property destroyed in a house fire even though it claimed the insured lacked

an insurable interest in the house itself); Sun State Roofing Co., Inc. v. Cotton States

Mut. Ins. Co., 400 So.2d 842, 844 (Fla. Dist. Ct. App. 1981) (concluding, in a suit

brought for coverage under a fire policy, "the trial court erred when it found [the

insured's] entire cause of action failed for lack of an insurable interest" because the

insured had an uncontested insurable interest in the personal property destroyed in the

fire). 

As a result, AMCO was not entitled to have the entire policy voided even

assuming Beckon lacked an insurable interest in the building. The district court

therefore erred when it granted summary judgment on AMCO's counterclaim and

ordered Beckon to return the $532,810.58 AMCO paid under the business personal

property section of the policy.

Contrary to AMCO's contentions at oral argument, our decision does not

conflict with Patterson v. State Automobile Mutual Insurance Co., 105 F.3d 1251 (8th

Cir. 1997) (applying Missouri law), where we affirmed the forfeiture of an entire

policy. Patterson did not turn upon the lack of an insurable interest, but rather upon

a specific misrepresentation provision in that policy, coupled with a jury's

determination the insured made a material misrepresentation with regard to one of

multiple coverages provided in the policy. See id. at 1253-54. Here, neither the

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district court nor a jury has yet considered whether Beckon made a material

misrepresentation in procuring the policy. Thus, while fraud may be grounds for

voiding an entire policy under the provisions of a particular policy, the lack of an

insurable interest with respect to one of several classes of insured property, standing

alone, is not a basis for voiding an entire policy.

B

We next decide whether Beckon had an insurable interest in the building itself.

Missouri strongly favors finding an insurable interest, indicating its courts should

"make every effort to find insurable interest, and to sustain coverage, when there is

any substantial possibility that the insured will suffer loss from the destruction of the

property." Dimmitt v. Progressive Cas. Ins. Co., 92 S.W.3d 789, 792 (Mo. 2003)

(quoting G.M. Battery & Boat Co. v. L.K.N. Corp., 747 S.W.2d 624, 627 (Mo. 1988)).

In general, a person has an insurable interest in the subject matter insured

where he has such a relation or concern in such subject matter that he

will derive pecuniary benefit or advantage from its preservation, or will

suffer pecuniary loss or damage from its destruction, termination, or

injury by happening of the event insured against.

Dimmitt, 92 S.W.3d at 792 (quoting G.M. Battery, 747 S.W.2d at 626).

Under Missouri law, the lack of title is immaterial to determining whether a

party has an insurable interest. See G.M. Battery, 747 S.W.2d at 627 ("The material

circumstance in determining insurable interest is not title, but possibility of loss.").

As a result, neither Beckon's lack of title to the building, nor the somewhat atypical

agreement giving rise to its use and occupation of the building, is particularly relevant

in determining whether Beckon had an insurable interest in the building. Our concern

is with whether Beckon derived a pecuniary benefit from the building's preservation,

or suffered a pecuniary loss from its destruction.

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Applying Missouri's broad definition of insurable interest, we conclude Beckon

had an insurable interest in the building under the facts of this case. Beckon's

agreement with Roto-Die gave Beckon the right to occupy and use the building. As

a result of the fire, Beckon temporarily lost its use of the building and had to rent

space in another location to carry on its business operations. Beckon incurred

approximately $10,000 per month in rental expenses for nearly two years. Thus, the

possession and use of the building clearly had a pecuniary value to Beckon. See

DeWitt v. Am. Family Mut. Ins. Co., 667 S.W.2d 700, 705 (Mo. 1984) ("[A]n

insurable interest may be derived from possession, enjoyment, or profits of the

property." (internal quotations and citation omitted)); G.M. Battery, 747 S.W.2d at

627 (concluding the loss of the remaining six-month term of a lease, together with

several other potential consequences, were "very real possibilities for loss" that

established an insurable interest).

In addition, Beckon made numerous improvements to the building, such as

enlarging and replacing the bay doors, remodeling the offices, remodeling the floors

and bathrooms, changing the lighting, expanding the mezzanine, and installing a fiveton hoist. As a result of the fire, Beckon estimated damages of $18,000 to its hoist

alone. To whatever extent the fire damaged or destroyed any of the improvements

Beckon made to the building, Beckon's consequent pecuniary loss would give rise to

an insurable interest in the building. See Studio Frames Ltd. v. Standard Fire Ins. Co.,

483 F.3d 239, 245 (4th Cir. 2007) (applying the same test as Missouri's for

establishing an insurable interest, and holding a tenant had an insurable interest in a

building where it spent its own money on improvements to the building and thus

"stood to suffer a loss if the building was damaged or destroyed.").

In an attempt to persuade us Beckon did not have an insurable interest, AMCO

relies on two cases, Raney and Lumbermens Mutual Insurance Co. v. Edmister, 412

F.2d 351 (8th Cir. 1969) (applying Missouri law). We are not persuaded by either.

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Raney, decided in 1922 by the Missouri Court of Appeals, involved an

insurance claim made by the occupant of a home, Wm. M. Raney, who had transferred

title to his nine-year-old son in order to defeat a possible judgment against him by a

third party. After transferring title, Raney used the home as his own, improved it with

his own means, and collected rent on the property. When the home was destroyed by

fire, Raney made an insurance claim. 246 S.W. at 58-59. The court held Raney did

not have an insurable interest in the home, focusing on his lack of title. Id. at 59. The

court also emphasized Raney's "fraudulent purpose" in transferring title to his minor

son to avoid a judgment. Id. at 60. Significantly, Raney never addressed or discussed

the standard the Supreme Court of Missouri now follows to determine an insurable

interest, under which title to the property is immaterial and the focus is upon whether

the insured "will derive pecuniary benefit or advantage from [a building's]

preservation, or will suffer pecuniary loss or damage from its destruction, termination,

or injury by happening of the event insured against." Dimmitt, 92 S.W.3d at 792.

We are "bound by decisions of the highest state court when interpreting state

law." Progressive N. Ins. Co. v. McDonough, 608 F.3d 388, 390 (8th Cir. 2010). The

Missouri Court of Appeals did not discuss or address in Raney the standard the

Supreme Court of Missouri subsequently articulated and now follows to determine an

insurable interest. We therefore do not find AMCO's reliance on Raney persuasive.

We are likewise unpersuaded by AMCO's reliance upon Edmister, a case

decided by this court in 1969, prior to the Supreme Court of Missouri's decisions in

DeWitt, G.M. Battery, and Dimmitt. Edmister, like Raney, involved a claim brought

by insureds who remained in possession of, and continued to insure, a dwelling after

transferring title to it. After a fire destroyed the property, the insureds claimed an

insurable interest based upon their occupancy of the property, its use as a business

headquarters, and approximately $1,500 spent on improvements. 412 F.2d at 352-53.

The court held neither the insureds' status as tenants, nor the use of the dwelling as a

business headquarters, nor the improvements made to the property, were "sufficient

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to constitute an insurable interest under the defendant's policy covering this property."

Id. at 354. The court, however, also focused upon the fact the policy was issued when

the insureds were still fee owners of the property, and the subsequent transfer in

ownership was not disclosed. The court stated "full disclosure should have been made

to the insurer by the assureds" after "the drastic change in the insurable interest[.]" Id.

at 356. The court determined the lack of disclosure was a material misrepresentation

and the insurer was "certainly misled in allowing the policy to remain in effect." Id.

at 357.

A respected insurance treatise has criticized the insurable interest reasoning in

Edmister, stating "the court makes an assumption, not justified from the facts

presented in the opinion, that the plaintiffs were reasonably aware that their occupancy

of the premises did not give them a valuable insurable interest – to them the

occupancy might have been very valuable." 4 J. Appleman, Insurance Law & Practice

§ 2241, at 84 (Supp. 2008). The treatise also suggests "[i]n attempting to reach a

desirable result, the court fell into the 'hard cases make bad law' trap" and warns

practitioners to "be cautious at taking many of the court's statements at face value."

Id. In G.M. Battery, the Supreme Court of Missouri characterized the "denial of

recovery" in Edmister as turning on the fact the insured "misled the insurance

company as to the state of his title." 747 S.W.2d at 627. See also DeWitt, 667

S.W.2d at 707 n.5 (distinguishing Edmister as a case which turns upon a material

misrepresentation, and noting the "critical" treatment its insurable interest reasoning

has received). Thus, we believe the highest court of Missouri has cabined Edmister

as a material misrepresentation case, rather than one which turns upon the lack of an

insurable interest.

AMCO also suggests Edmister stands for the proposition that a policy can be

voided as an illegal gambling contract when an insured only holds a limited or

qualified insurable interest (such as a tenant's occupancy, or an insured's interest in

improvements to the property), and yet the policy provides coverage for the entire

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property. See AMCO's Brief at 19. In G.M. Battery, however, the Supreme Court of

Missouri did not void a policy on the grounds that an insurer provided more coverage

than that which was commensurate with the limited or qualified interest held by an

insured. Instead, the court noted:

[Missouri law] places the risk of overinsurance on the insurer rather than

on the insured. The insurer may protect itself by strictly defining the

interest covered by its policy, or by obtaining representations or

warranties about the state of the title, if it deems this information

important. What it cannot do is to issue a policy, collect the premiums,

and then argue that the value of the insured's insurable interest in the

property is less than the coverage it underwrites.

G.M. Battery, 747 S.W.2d at 627-28 (emphasis added). Similarly, in DeWitt, the

Supreme Court of Missouri placed the burden upon insurers to provide coverage

which corresponds to a limited or qualified interest held by an insured:

Absent fraud, misrepresentation or collusion the valuation in the policy

is conclusive upon the parties. An insurer has an obligation to attempt

to ascertain the basis of an insured's interest in the property prior to

contracting to insure the property. In some cases this may require actual

inspection of the property, in other cases such as the instant one, merely

making a verbal attempt to ascertain the insured's status will be

sufficient. The record before us reveals no evidence of the insurer's

attempt to ascertain from the insured her interest in the property. Where

the plaintiff had a reasonable and justifiable basis for believing she had

an insurable interest in the property, the insurer cannot issue a policy and

collect premiums thereunder and later complain that the insured's interest

was overvalued if the insurer never attempted to ascertain that interest

through reasonable inquiry. Thus, if the insured's valuation is accepted

without investigation, the insurer cannot thereafter contend that there

was fraudulent overvaluation.

DeWitt, 667 S.W.2d at 708 (internal quotations and citation omitted).

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"When the highest court of a state disposes of an issue of state law contrary to

the resolution of the issue theretofore suggested by a federal court, the latter ruling

must give way." Smith v. F.W. Morse & Co., Inc., 76 F.3d 413, 429 n.12 (1st Cir.

1996); see also Kinnison v. Houghton, 432 F.2d 1274, 1277 (10th Cir. 1970)

(indicating federal courts, in a diversity case, must follow an intervening state court

decision even when a prior federal appellate decision cannot be harmonized with the

state court decision).

We are bound by the Supreme Court of Missouri's interpretation of state law.

At least as to the points of law for which AMCO relies upon Edmister, we believe

Edmister is inconsistent with the current state of Missouri law. We therefore decline

to consider it.

C

Finally, AMCO asks us to affirm the district court on the alternative ground that

Beckon made false and material misrepresentations in the procurement of the policy,

and the policy should be voided in its entirety on that ground. Beckon asks us not to

affirm on this alternative ground because it was not addressed by the district court and

is "rife with disputed facts." Beckon's Reply Brief at 21.

We decline to affirm on this alternative ground. The issue of misrepresentation

was "not considered by the district court, and we leave [it] to be addressed in the first

instance on remand, without expressing any view as to [its] merit." Discovery Group

LLC v. Chapel Dev., LLC, 574 F.3d 986, 990 (8th Cir. 2009).

III

We reverse and remand for further proceedings consistent with this opinion.

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