United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 02-2330

No. 02-2489

___________

SFH, Inc.,

*

Plaintiff - Appellant/ *

Cross-Appellee, *

*

v. *

*

Millard Refrigerated Services, Inc., *

*

Defendant - Appellee, *

*

Larsen Realty Company, *

* Appeals from the United States

Defendant - Appellee/ * District Court for the

Cross-Appellant. * District of Nebraska.

___________

No. 02-3442

___________

The Travelers Indemnity Company *

of Illinois, *

*

Plaintiff - Appellant, *

*

v. *

*

Millard Refrigerated Services, Inc., *

*

Defendant - Appellee. *
*

The Honorable James B. Loken became Chief Judge of the United States

Court of Appeals for the Eighth Circuit on April 1, 2003.

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___________

Submitted: March 10, 2003

Filed: August 12, 2003

___________

Before McMILLIAN, FAGG, and LOKEN,*

 Circuit Judges.

___________

LOKEN, Chief Judge.

We have consolidated these appeals in two diversity actions brought to

establish the parties’ respective liabilities for a January 1998 fire that destroyed the

Signature Foods processing business of SFH, Inc. (“Signature”). The fire started in

the portion of an Omaha warehouse that Signature leased from Millard Refrigerated

Services, Inc. (“Millard”). Millard managed the warehouse under an agreement with

the building’s owner, Larsen Realty Co. (“Larsen”). 

The lease required Signature to maintain not less than $1,000,000 of

comprehensive general liability (CGL) insurance and to include Millard as an

additional insured. Signature purchased a $1,000,000 CGL policy from The

Travelers Indemnity Co. (“Travelers”). The policy included an additional insured

endorsement for “Managers or Lessors of Premises.” Signature also purchased a

$25,000,000 excess liability policy from Travelers. After the fire, Travelers

indemnified Signature under both policies for $9,861,143 of Signature’s losses. The

amount of loss covered by the Travelers policies is not in dispute. 

Signature filed the first suit in Nebraska state court to recover damages for

Millard’s alleged gross negligence in failing to properly maintain the warehouse
1

A few days before the fire, a Millard employee turned off the water to the

sprinkler system, so the sprinklers in Signature’s portion of the premises did not

activate when the fire began. 

2

The HONORABLE LYLE E. STROM, United States District Judge for the

District of Nebraska.

3

The HONORABLE JOSEPH F. BATAILLON, United States District Judge

for the District of Nebraska.

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sprinkler system.1

 Millard removed the case to federal court. Signature filed an

amended complaint adding Larsen and a third defendant who later settled by paying

Signature $750,000. Meanwhile, Millard demanded that Travelers defend Millard as

an additional insured under the Travelers policies. Travelers refused and filed the

second action for a declaratory judgment that it need not defend or indemnify Millard.

The two actions proceeded separately before different district judges. 

In the first action, after a trial of Signature’s claims, the jury found that the fire

was caused by Millard’s gross negligence and by Larsen’s negligence. The jury

awarded Signature damages of $11,962,753, assigning seventy percent of the fault to

Millard and thirty percent to Larsen. The district court2

 reduced the award by the

$750,000 Signature received in the settlement and entered judgment against Millard

and Larsen in the amount of $11,212,573. Following this ruling, the district court in

the declaratory judgment action3

 granted summary judgment to Millard, concluding

that Travelers had a duty to defend and indemnify Millard against Signature’s

lawsuit. The district court in the first action then reduced the judgment in favor of

Signature by (1) the $9,861,143 Signature received from Travelers for the insured

losses, and (2) the $200,000 Signature received from a post-fire salvage sale. The

court denied Signature’s motion for prejudgment interest and entered an Amended

Judgment of $1,151,430, the amount of Signature’s uninsured losses. 
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In the first action, Signature appeals the district court’s decision to reduce the

judgment by the $9,861,143 paid by Travelers, raising distinct issues as to Millard

and Larsen. Signature also appeals the reduction for the amount recovered in the

post-fire sale and the denial of prejudgment interest. Larsen cross-appeals the

judgment that it was negligent. In the declaratory judgment action, Travelers appeals

the district court’s conclusion that Travelers must defend and indemnify Millard as

an additional insured under the liability policies. We will first discuss the appeal by

Travelers because our decision that Millard has coverage as an additional insured

makes it unnecessary to address a number of issues raised by the cross-appeals in the

Signature case. In the end, we affirm both district courts in all respects.

I. The Travelers Appeal.

A. The Duty To Indemnify. On appeal, Travelers first argues the district

court erred in concluding that Travelers must indemnify Millard under both the CGL

and excess policies for Signature’s insured losses. This contention requires a

somewhat different analysis for each policy. The law of Nebraska controls our

analysis and requires that we construe the policies as contracts, giving effect to the

parties’ intentions at the time the contract was made. Home Ins. Co. v. Aetna Ins.

Co., 236 F.3d 927, 929 (8th Cir. 2001). 

1. The CGL Policy. The lease agreement between Millard and Signature

required Signature to obtain CGL insurance protecting both Signature and Millard “as

their interests may appear . . . in an amount not less than One Million Dollars . . . in

a form and issued by a company or companies satisfactory to [Millard].” Consistent

with that obligation, Signature purchased a CGL policy from Travelers that included

an endorsement defining as an Additional Insured “[a]ny manager or lessor of

premises with whom you have agreed in a written contract, executed prior to loss to

name as an additional insured . . . . but only with respect to liability arising out of the

ownership, maintenance or use of that part of the premises leased to you.” Millard
4

An additional insured’s own negligence is covered under this type of

additional insured endorsement. See Marathon Ashland Pipe Line LLC v. Md. Cas.

Co., 243 F.3d 1232, 1240 (10th Cir. 2001), and cases cited.

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was a “manager or lessor of premises” that Signature had agreed “to name as an

additional insured.” If the CGL policy therefore covered Millard’s liability for this

loss, as the district court concluded, the result seems at first blush anomalous --

Travelers must indemnify Millard, an additional insured, for loss its negligence

caused Signature, the named insured. But the result is not anomalous when

considered in light of paragraph 14 of the lease, which provided in relevant part: 

WAIVER OF RIGHTS IN INSURED LOSSES. [Millard] and [Signature]

agree that neither shall be liable to the other for damages to the premises

or to any of the contents of the premises . . . by perils insured against by

the party owning such damaged property . . . . Each party hereto shall

provide the other party with documentary evidence of the concurrence

of their respective insurance carriers with the provisions of this clause.

In other words, Millard and Signature as landlord and tenant agreed that, in the event

of property damage, each would look to its own insurance rather than to the other

party to the lease, and Signature agreed to obtain Travelers’s concurrence in that

contractual arrangement.4

Though conceding Millard as lessor was an additional insured, Travelers

argues that the loss was not covered because Millard’s liability did not arise out of

ownership, maintenance, or use of the leased premises. Like the district court, we

disagree. The Nebraska courts have not interpreted this phrase in a CGL policy. But

the Nebraska Supreme Court has broadly construed “arising out of” language in an

automobile liability policy to require only “some causal relationship between the

injury and the use of the vehicle.” Farmers Union Coop. Ins. Co. v. Allied Prop. &

Cas. Ins. Co., 569 N.W.2d 436, 439 (Neb. 1997). Similarly, courts in other
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jurisdictions have broadly construed “arising out of” language in commercial liability

policies. See Colony Ins. Co. v. Pinewoods Enters., Inc., 29 F. Supp. 2d 1079, 1083

(E.D. Mo. 1998) (“[A] simple causal relationship must exist between the accident or

injury and the activity of the insured.”); Hormel Foods Corp. v. Northbrook Prop. &

Cas. Ins. Co., 938 F. Supp. 555, 557 (D. Minn. 1996) (“‘[B]ut for’ causation satisfies

the requirements of an insurance policy which specifies that only liabilities ‘arising

out of the use’ are covered.”); Maryland Cas. Co. v. Chicago & N. W. Transp. Co.,

466 N.E.2d 1091, 1094 (Ill. App. 1984). In construing an insurance policy, the

Supreme Court of Nebraska is guided “by judicial opinions rendered by other courts

which have considered the meaning of these terms.” Katskee v. Blue Cross/Blue

Shield, 515 N.W.2d 645, 649-50 (Neb. 1994). 

Construing the “arising out of” language broadly, we conclude that Millard’s

liability arose out of its maintenance of the leased premises. The fire started within

the portion of the warehouse leased by Signature and injured Signature’s property

located in the leased premises. Signature’s loss was caused, or significantly

increased, by the conduct of the Millard employee who shut off the water to the

building’s sprinkler system. As the district court stated, “the deactivation of the

sprinkler system is related to and causally connected to [Millard’s] maintenance of

the sprinkler system located within the confines of the premises leased to Signature.”

Thus, although the shut-off valve was located in another part of the warehouse, this

case is distinguishable from those on which Travelers relies, where the landlord was

denied additional insured coverage for liability arising from incidents that occurred

entirely outside the leased premises, such as U.S. Fid. & Guar. v. Drazic, 877 S.W.2d

140, 143 (Mo. App. 1994). There was coverage under the Travelers CGL policy. 

2. The Excess Policy. The excess policy did not contain an additional insured

endorsement. Rather, it defined the insured to include “[a]ny other person or

organization insured under any policy of the ‘underlying insurance.’” The Travelers

CGL policy was “underlying insurance.” See Maryland Cas., 466 N.E.2d at 1095.
5

In its reply brief, Travelers argued for the first time that coverage was

excluded because Millard controlled the property of its tenant, Signature. The

argument strikes us as factually unsound. In any event, it was not timely raised.

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Accordingly, Millard was an additional insured under the excess policy. However,

an endorsement to the excess policy stated that its coverage did not apply to “property

you own, rent or occupy [or] property in your care, custody or control.” Travelers

argues that this endorsement excludes Millard’s coverage claim because the policy

expressly defines the word “you” as the named insured, Signature, and Millard seeks

coverage for damage to property owned and controlled by Signature.5

 

The most relevant case the parties have brought to our attention supports the

district court’s decision. In Wyner v. North American Specialty Insurance Co., 78

F.3d 752, 756 (1st Cir. 1996), the landlord as an additional insured sought coverage

under the tenant’s CGL policy for damage to the landlord’s property. The First

Circuit affirmed the denial of coverage, construing the word “you” in the exclusion

for property “you own, rent or occupy” to mean the property of the party seeking

coverage, whether that party was a named insured or an additional insured. This

construction was necessary, concluded the court, because the purpose of an additional

insured provision is to extend the policy coverage to others, “not to change the nature

of the coverage nor to change declarations nor to remove exclusions.” 78 F.3d at 756

(quotation omitted). This reasoning was adopted by the court in Marathon Ashland

Pipe Line LLC v. Maryland Casualty Co., 243 F.3d 1232, 1241 (10th Cir. 2001). 

On appeal, Travelers seeks to turn this principle to its advantage, arguing the

district court “extended the policy coverage” by granting Millard as additional

insured coverage for damage to the named insured’s property. We disagree. The

purpose of the exclusion is to deny coverage under a liability policy for damage to the

insured’s own property. Millard has coverage as an additional insured. The issue is

whether the exclusion bars coverage for damage to its property or to Signature’s
6

At a minimum, we conclude that the meaning of the term “you” in this

exclusion is ambiguous. Under Nebraska law, a contract is ambiguous “when a word,

phrase, or provision in the contract has, or is susceptible of, at least two reasonable

but conflicting interpretations or meanings.” Volquardson v. Hartford Ins. Co., 647

N.W.2d 599, 604 (Neb. 2002). If the policy is not ambiguous, the court accords its

terms “their plain and ordinary meaning as the ordinary or reasonable person would

understand them.” If the policy is ambiguous, “then the court may employ rules of

construction and look beyond the language of the policy to ascertain the intention of

the parties,” and may use the general principle of construction “that an ambiguous

policy will be construed in favor of the insured.” Katskee, 515 N.W.2d at 649. 

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property. Granting coverage for damage to the additional insured’s own property

would turn the liability policy into a form of first-party insurance. That would truly

be a change or extension in the policy’s coverage. On the other hand, construing the

exclusion so that the additional insured’s coverage is limited to damage caused to

another person’s property, including the named insured’s property, is consistent with

the purpose of the exclusion. Thus, we agree with the district court that Millard’s

liability to Signature is covered by the excess policy as well.6

 

B. The Duty to Defend. Travelers also appealed the district court’s decision

to award damages for Travelers’s refusal to defend Millard against Signature’s

damage claims in the underlying action. However, Travelers concedes that “the

question whether Travelers had a duty to defend Millard against Signature Foods’

lawsuit hinges on whether Millard is entitled to indemnification under Signature

Foods’ CGL and excess policies.” Thus, our conclusion that Travelers must

indemnify Millard under both the CGL and excess policies means that the award of

damages for breach of the duty to defend must also be affirmed. 

II. Signature’s Appeal.

A. The Claim Against Millard for Insured Losses. Signature concedes that

it may not recover its $9,861,143 of insured losses from Millard if Travelers’s CGL
7

Larsen further argues that Signature may not recover even its uninsured fire

loss because Signature in paragraph 14 waived “any and all right of recovery from

Lessor for loss caused by the perils of fire.” Larsen first raised this issue in its post-

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and excess policies provided coverage for those losses to Millard as an additional

insured. The concession is proper. When Travelers paid Signature’s insured losses,

it became subrogated to this portion of Signature’s claims. “Although an insurance

company has the right to recover against a wrongdoer whose negligence has subjected

the insurance company to liability, no right of subrogation can arise in favor of an

insurer against its own insured.” Jindra v. Clayton, 529 N.W.2d 523, 526 (Neb.

1995). Thus, we need not consider whether the district court in the first action acted

contrary to Nebraska public policy in ruling that paragraph 14 of the lease

contractually limited Millard’s liability to Signature for Millard’s gross negligence.

B. The Claim Against Larsen for Insured Losses. The district court found,

and the parties agree, that Larsen was Millard’s undisclosed principal on the lease

with Signature. Therefore, Signature argues, Larsen is liable for Signature’s insured

losses, even if Millard as Travelers’s additional insured is not, because (1) Larsen was

not an additional insured so it may be liable in Travelers’s subrogation action; and (2)

Larsen is limited to Millard’s contractual defenses so, as a matter of Nebraska public

policy, Millard’s gross negligence precludes Larsen from relying on paragraph 14 of

the lease as a contractual defense to liability. Like Millard, Larson contests

Signature’s interpretation of Nebraska public policy. In addition, Larsen argues that,

as Millard’s undisclosed principal, it is entitled to the same defenses contained in the

lease as Millard. See Lenart v. Ragsdale, 385 N.W.2d 282, 284 (Mich. App. 1986);

RESTATEMENT (SECOND) OF AGENCY §§ 186, 203 (1958). Therefore, as Larsen’s

liability is based upon ordinary negligence, not gross negligence, Signature’s claim

for insured losses is barred by paragraph 14 of the lease. See Bedrosky v. Hiner, 430

N.W.2d 535, 540-41 (Neb. 1988) (holding a lease provision exempting a lessor from

liability for ordinary negligence was not contrary to public policy).7

 
verdict motion for judgment as a matter of law. Accordingly, it was not properly

preserved for appeal. See Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1057 (8th

Cir. 2002). 

8

Larsen cross-appealed the district court’s instructions and the sufficiency of

the evidence supporting the jury’s finding that it was negligent. At oral argument,

Larsen conceded the cross-appeal is moot because Millard has paid the full amount

of damages awarded for Signature’s uninsured loss. 

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The public policy issue, and the issue whether Larsen’s defense under

paragraph 14 is limited by Millard’s gross negligence, are novel and interesting, but

we need not address them. Signature concedes that Larsen as owner of the warehouse

was the undisclosed principal of Millard. Therefore, in the words of the district court,

Larsen “is bound by the terms of the lease and can assert any defenses or immunities

that arise out of the lease.” The additional insured endorsement in the Travelers CGL

policy applies to “[a]ny manager or lessor with whom [Signature] agreed . . . to name

as an additional insured.” Thus, Larsen as well as Millard was an additional insured

under the CGL policy. As we have explained, that made Larsen an additional insured

under the excess policy as well, so Signature is barred from asserting a subrogation

claim for its insured losses against both Larsen and Millard.8

 

C. The Claim for Salvage Sale Proceeds. The district court instructed the

jury, without objection, that the proper measure of Signature’s damages “is the market

value of the business before the fire . . . less any sums plaintiff has received for the

sale of its tangible or intangible assets following the fire and plus any mitigation

expenses.” When the jury returned its verdict, the court asked the foreman whether

the damage award included a deduction for the $200,000 post-fire salvage sale

proceeds. The foreman responded, “We believed that to be in the calculation.” The

award of $11,962,573 was precisely the market value of Signature’s business as

estimated by Signature’s expert. Accordingly, when defendants satisfied the court

that the expert’s valuation did not include the salvage sale proceeds, the court reduced

the judgment by the amount of those proceeds.
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On appeal, Signature argues the district court erred because the jury verdict did

not reflect a manifest error of fact or law and therefore relief was not warranted under

Rule 59(e) of the Federal Rules of Civil Procedure. However, a district court has

broad discretion to alter or amend a judgment under Rule 59(e), and we will reverse

only for a clear abuse of discretion. See Innovative Home Health Care, Inc. v. P.T.-

O.T. Assocs., 141 F.3d 1284, 1286 (8th Cir. 1998). Here, the court heard the

evidence and concluded Signature failed to establish that its expert accounted for the

salvage sale proceeds. Thus, the court’s decision to amend the judgment was not a

clear abuse of discretion. See Howells Elevator, Inc. v. Stanco Farm Supply Co., 455

N.W.2d 777, 782 (Neb. 1990) (holding that a plaintiff must offer sufficient evidence

of the property’s market value before and after an accident). 

D. Prejudgment Interest. Signature appeals the district court’s denial of

prejudgment interest but admits it is entitled to prejudgment interest only if we

reinstate the insured portion of the jury’s award of damages. Once again, the

concession is appropriate. Signature’s claim for the uninsured portion of its loss was

contested and unliquidated. See 45 Neb. Rev. Stat. § 45-103.02; Lincoln Benefit Life

Co. v. Edwards, 243 F.3d 457, 462 (8th Cir. 2001) (per curiam). Signature may not

recover prejudgment interest on this unliquidated claim because its initial settlement

offer was $7.9 million, well in excess of the damages awarded. See 45 Neb. Rev.

Stat. § 45-103.02(1).

For the foregoing reasons, the judgments of the district courts are affirmed.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.