Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-03801/USCOURTS-ca8-03-03801-0/pdf.json

Parties Involved:
Adair County
Not Party
Bob Brawner
Not Party
William Novinger
Not Party
Oak River Insurance Company
Appellee
Taxpayers of Adair County
Appellant
Herman Truitt
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-3801

___________

Oak River Insurance Company, * 

* 

Plaintiff - Appellee, * 

* 

v. * 

* 

Herman Truitt; Bob Brawner; William * Appeal from the United States

Novinger, County Commissioners of * District Court for the

Adair County, Missouri; Adair County, * Eastern District of Missouri.

Missouri; * 

* 

Defendants, * 

* 

Taxpayers of Adair County, Missouri, * 

* 

Defendant - Appellant. *

___________

Submitted: September 14, 2004

 Filed: December 3, 2004

___________

Before RILEY, LAY, and SMITH, Circuit Judges.

___________

SMITH, Circuit Judge.

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1

The Honorable Carol E. Jackson, Chief Judge, United States District Court for

the Eastern District of Missouri.

2

The policy provided coverage for claims made between January 1, 2000 and

January 1, 2001, with a retroactive date of January 1, 1995. On January 1, 2001, the

policy was renewed through January 1, 2002.

3

Armstrong v. Adair County, Case No. CV197-257DR.

-2-

Taxpayers of Adair County ("Taxpayers") appeal from the district court’s entry

of summary judgment1

 in favor of Oak River Insurance Company. For reversal,

Taxpayers argue that the district court erred by enforcing two coverage exclusions

contained in the insurance policy covering county officials' errors and omissions. We

affirm.

I. Background

Adair County, Missouri purchased an errors and omissions policy from Oak

River Insurance Company (Oak River) to cover its employees, including the County

Commissioners, for wrongful acts committed during their service.2

 In January 1997,

the Commissioners placed a ballot proposal before the voters of the county for

authority to impose a law enforcement sales tax for future expansion of the existing

Detention Center. The voters approved this proposal. But the Commissioners, rather

than expend the tax revenues solely for Detention Center expansion, expressed their

intent to build an entirely new jail. 

 In September 1997, a lawsuit3

 was filed in state court against the

Commissioners alleging violation of V.A.M.S. § 67.582. Section 67.582 permits law

enforcement sales tax revenue to be used only for capital improvement projects

involving existing law enforcement facilities. The state trial court ruled that the

county’s use of tax revenue to build a new prison facility would not violate state law.

Plaintiffs appealed. During the pendency of plaintiffs’ appeal, the Commissioners

proceeded with construction plans on the new Detention Center using revenue from

Appellate Case: 03-3801 Page: 2 Date Filed: 12/03/2004 Entry ID: 1840800 
4

Armstrong v. Adair County, 990 S.W.2d 64 (Mo. App. 1999).

5

The Taxpayers of Adair County, Missouri and the County of Adair County,

Missouri v. Herman Truitt, Bob Brawner, and William Novinger, Case No. CV100-

342CC.

-3-

the law enforcement tax to pay excavation costs. In March 1999, the Missouri Court

of Appeals reversed,4

 holding that the language of the ballot initiative limited the use

of funds to expansion of the existing jail. All work on the new jail ceased.

In December 2000, Taxpayers and Adair County filed suit in Missouri circuit

court5

 against the Commissioners for unauthorized use of revenue from the law

enforcement tax. The lawsuit alleged that the Commissioners acted negligently,

outside of the scope of their authority, and knew or should have known, that

expending the revenue from the ballot initiative to construct a new jail was improper.

The suit was subsequently designated as a class action on behalf of Taxpayers, and

Adair County was dismissed by voluntary non-suit. In fall 2001, the parties signed

an Agreement and Stipulated Judgment. This stipulated judgment permitted

Taxpayers to seek judgment of $1,180,950.41 against the Commissioners from the

proceeds of the Oak River errors and omissions policy. 

The Commissioners submitted the stipulated judgment to Oak River for

payment, but Oak River denied coverage and filed a petition for declaratory judgment

in the United States District Court for the Eastern District of Missouri under 28

U.S.C. § 1332(a). The petition sought a declaration that the errors and omissions

policy did not provide coverage for the Commissioners’ acts in question. Both parties

filed motions for summary judgment. The district court granted Oak River’s summary

judgment motion based on two policy provisions: exclusion of coverage for claims

arising out of any assessment, collection, disbursement, or application of any taxes,

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6

The policy contained exclusions: (1) for any damage arising out of willful

violation of any federal, state, or local statute, ordinance, rule or regulations

committed by or with the knowledge of or consent of any insured; (2) for any damage

arising out of or based upon any act or any liability of any insured in connection with

(a) any tax assessment, tax penalties, or tax adjustments, (b) collection, refund,

disbursement, or application of any taxes, (c) tax revenue shortfalls, or (d) any debt

financing, including but not limited to bonds, notes, debentures, and guarantees of

debt or the formulation of tax rates, the collection of taxes and/or the disbursement

of tax refunds. 

-4-

and exclusion of coverage for claims arising out of willful violations of the law.6

 This

appeal followed. 

II. Discussion

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary

judgment is properly granted when there is no genuine issue of material fact and the

moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477

U.S. 317, 323 (1986). The district court reviews the evidence in the light most

favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir.

1995). The nonmoving party must show the existence of facts on the record which

create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th

Cir. 1995).

Motions for summary judgment are reviewed de novo as to conclusions of law

and for clear error as to factual findings. Bhd. of Maint. of Way Employees v. Soo Line

R.R., 266 F.3d 907, 909 (8th Cir. 2001); Goff v. Dakota, Minn. & Eastern R.R. Corp.,

276 F.3d 992, 995 (8th Cir. 2002). The interpretation of the terms of an insurance

contract is a matter of state law, which is reviewed de novo. Gen. Cas. Ins. Cos. v.

Holst Radiator Co., 88 F.3d 670, 671 (8th Cir. 1996); Carolina Cas. Ins. Co. v.

Burbach, 354 F.3d 929, 931 (8th Cir. 2004).

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7

In their reply brief, Taxpayers indicate that not every Commissioner's act, but

acts relating to “primary and everyday functions,” are negated. 

-5-

A. Exclusion for Claims Arising from Assessment, Collection, 

Disbursement, or Application of Taxes

Taxpayers contend that the exclusions in the errors and omissions policy create

an ambiguity by negating all coverage for the Commissioners, since every act7

 of a

Commissioner affects assessment, collection, disbursement, or application of taxes.

Taxpayers base this argument on Section I(A) of the policy that covers losses due to

wrongful acts and Section I(B)(13) of the policy that excludes coverage for acts

arising out of a tax assessment, tax penalty, collection, refund, disbursement,

application of taxes, revenue shortfall, and debt financing. Taxpayers maintain that

coverage applies when a policy both includes and excludes an act of the insured,

Braxton v. United States Fire Ins. Co., 651 S.W.2d 616, 619 (Mo. Ct. App.

1983)(holding that a court must apply the construction most favorable to the insured

when the policy is reasonably susceptible to two interpretations), and that insurance

contracts must be interpreted to grant, rather than defeat coverage. Centermark Props.

v. Home Indemnity Co., 897 S.W.2d 98, 100 (Mo. Ct. App. 1995). 

The district court correctly determined the errors and omissions policy to be

unambiguous. The Missouri test for ambiguity is clear. The policy must be read as a

whole to determine the parties’ intent. Kyte v. Am. Family Mut. Ins. Co., 92 S.W.3d

295, 298–99 (Mo. Ct. App. 2002); Stotts v. Progressive Classic Ins., 118 S.W.3d 655,

662 (Mo. Ct. App. 2003). The words of a policy are given their ordinary meaning

unless it is obvious that a technical meaning was intended. Krombach v. Mayflower

Ins. Co. Ltd., 785 S.W.2d 728, 731 (Mo. Ct. App. 1990); Herpel v. Farmers Ins. Co.

Inc., 795 S.W.2d 508, 510 (Mo. Ct. App. 1990). Courts cannot create an ambiguity

to enforce a particular construction. Rodriguez v. Gen. Accident Ins. Co., 808 S.W.2d

379, 382 (Mo. 1991) (en banc); Am. Family Mut. Ins. Co. v. Van Gerpen, 151 F.3d

886, 888 (8th Cir. 1998). 

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Insurance policy language is ambiguous when it is reasonably open to different

constructions. Lincoln County Ambulance v. Pac. Employers Ins., 15 S.W.3d 739, 743

(Mo. Ct. App. 1998); Stotts, 118 S.W.3d at 662. An ambiguity arises if there is

duplicity, indistinctness, or uncertainty in the meaning of the contractual terms.

Lumbermens Mut. Ins. Co. v. Timberland Pallet & Lumber Co., 195 F.3d 368, 377

(8th Cir. 1999); Cincinnati Ins. Co. v. Television Eng’g Corp., 265 F. Supp. 2d 1078,

1081 (E.D. Mo. 2003). An insurance policy that promises something at one point and

then takes it away at another is ambiguous. Behr v. Blue Cross Hosp. Serv. Inc., 715

S.W.2d 251, 256 (Mo. 1986) (en banc); Maxon v. Farmers Ins. Co. Inc., 791 S.W.2d

437, 438 (Mo. Ct. App. 1990). 

Ambiguous language is construed against the insurer. Peters v. Employers Mut.

Cas. Co., 853 S.W.2d 300, 302 (Mo. 1993) (en banc); State Farm Mut. Ins. Co v.

Shahan, 141 F.3d 819 (8th Cir. 1998). Likewise, so is limiting language. Brugioni v.

Maryland Cas. Co., 382 S.W.2d 707, 711 (Mo. 1964); Chase Resorts Inc. v. Safety

Mut. Cas. Corp., 869 S.W.2d 145, 150 (Mo. Ct. App. 1993). If an ambiguity exists,

the policy language will be interpreted as understood by the lay person who

purchased it. Hawkeye-Sec. Ins. Co. v. Davis, 6 S.W.3d 419, 424 (Mo. Ct. App 1999);

Stotts, 118 S.W.3d at 662. Courts should not adopt an interpretation neutralizing a

policy provision if another interpretation gives it effect. Sommer v. New Amsterdam

Cas. Co., 171 F. Supp. 84 (E.D. Mo. 1959). 

When a policy defines a term, that definition controls “unless the context

clearly requires otherwise.” Enterprise Tools, Inc. v. Export-Import Bank, 799 F.2d

437, 439 (8th Cir. 1986); Shaffner v. Farmers Mut. Fire Ins. Co. of St. Clair County,

859 S.W.2d 902, 907 (Mo. Ct. App. 1993). Overly technical, unrealistic,

unreasonable or absurd interpretations are to be avoided. Basore v. Allstate Ins. Co.,

374 S.W.2d 626, 630 (Mo. Ct. App. 1963). The rules of construction are inapplicable

to an unambiguous policy. Kyte, 92 S.W.3d at 298; Stotts, 118 S.W.3d at 662.

Appellate Case: 03-3801 Page: 6 Date Filed: 12/03/2004 Entry ID: 1840800 
8

Braxton was decided on other grounds. In Braxton, Respondent sued the

owner of a gas station where he was shot and obtained a judgment for $100,000. The

owner’s liability insurance carrier denied coverage. Respondent sued the insurer who

argued “the plain language of the firearm exclusion [of the insurance policy]

disclaimed coverage for all liability resulting from the ownership or use of firearms

regardless of the theory on which such liability was based.” Id. at 618. The trial court

ruled for Respondent and the insurer appealed. The appellate court affirmed citing

Cochran v. Standard Accident Ins. Co. of Detroit, 271 S.W. 1011 (1925), as factually

similar. Cochran involved an accident policy which excluded coverage for injuries

sustained from firearms. Insured was shot and killed by an insane man. The court held

coverage applied, reading the policy to only exclude coverage while the insured was

handling firearms. Id. at 1013. “Because the language in the policy at issue was

reasonably susceptible to two interpretations, the court was required to apply the

construction most favorable to the insured and this is especially true when the clause

in question attempts to limit or exclude coverage under the policy.” Braxton, 651

S.W.2d at 619 (citations omitted). See Brugioni, 382 S.W.2d at 711. But this case

does not involve a clause reasonably susceptible to two interpretations.

-7-

Missouri law requires an unambiguous policy be given its plain meaning. Killian v.

Tharp, 919 S.W.2d 19, 21 (Mo. Ct. App. 1996); St. Paul Fire & Marine Ins. Co. v.

Lippincott, 287 F.3d 703, 705 (8th Cir. 2002).

The policy in the present case is clear and unambiguous as to coverage and

exclusions. While the policy covers wrongful acts of county officials, a sub-category

of those acts is expressly excluded (acts arising out of a tax assessment, tax penalty,

collection, refund, disbursement, application of taxes, revenue shortfall, and debt

financing). Despite this clarity, Taxpayers assert that the contract is ambiguous

because “one cannot purport to insure a party in one section of a policy and then

exclude coverage for all possible claims against that party in another section.”

Taxpayers erroneously rely on Braxton, 651 S.W.2d at 619.8

 Taxpayers’ argument

fails because the Oak River exclusion does not negate all, or even most, policy

coverage for employee or commissioner malfeasance. Many such claims are readily

conceivable. Missouri's code provides ample proof that the exclusion for tax, but not

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9

The following is a list of non-treasury related county commissioner duties for

third class counties such as Adair County: filing reports on all funds received from

the United States and representing the county on all regional councils that encompass

that county (V.A.M.S. § 49.098); issuing process and examining parties and witnesses

(V.A.M.S. § 49.210); permissible certifying and transferring proceedings to circuit

court (V.A.M.S. § 49.220); granting easements to watershed districts (V.A.M.S. §

49.264); authorizing the closing of county offices (V.A.M.S. § 49.265); controlling

and managing county property both real and personal (V.A.M.S. § 49.270); providing

law enforcement (V.A.M.S. § 49.276); permissible appointing of an ex officio

commissioner to sell county lands (V.A.M.S. § 49.280); institution of condemnation

proceedings (V.A.M.S. § 49.300); appointing a person to superintend the erection of

county buildings (V.A.M.S. § 49.330); and designation of the site for county

buildings (V.A.M.S. § 49.370). Other commissioner actions involve the treasury but

not the excluded tax functions. See, e.g., V.A.M.S. § 49.260 (ascertaining by

examination and counting the balances in the hands of county officers); V.A.M.S. §

50.160 (auditing adjusting, and settling all accounts to which the county is a party,

enforcing collection of money due the county and ordering the prosecuting attorney

to bring suit on the bond of any delinquent).

-8-

all activities, does not neutralize the entire errors and omissions policy.9

Taxpayers correctly cite the legal principle found in Behr, 715 S.W.2d at 256.

The Supreme Court of Missouri stated “if a contract promises something at one point

and takes it away at another there is ambiguity.” Id. However, what is given and what

is taken away must be the same thing. The Behr court stated, “[h]ere certain

provisions, relied on by the Behrs, provide pregnancy benefits to members in good

standing once the waiting period has expired; other provisions cited by appellants

attempt to negate this coverage.” Id. Nowhere in the Adair County errors and

omissions policy is coverage for “wrongful acts” negated. Consequently, Behr is

inapposite.

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B. Exclusion for Claims Arising from Willful Violations of the Law

Taxpayers also argue that because the insurance policy covers malfeasance

which is a willful act under Missouri law, but excludes willful actions, the policy is

ambiguous. The district court disagreed, stating, “[t]he problem with the Taxpayers’

position is that the cited exclusion applies to the narrower class of ‘willful violations’

of law, not to all willful acts generally.” We agree with the district court's assessment

of Taxpayers' argument. Taxpayers have not shown an ambiguity in the Oak River

policy. 

For the foregoing reasons, we affirm the district court’s grant of summary

judgment.

______________________________

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