United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 02-1978

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Shelter Mutual *

Insurance Company, *

*

Appellee, *

* Appeal from the United States

v. * District Court for the Western

* District of Arkansas.

Tommy Maples; Bessie Maples, *

*

Appellants, *

*

First National Bank of Berryville, *

*

Defendant. *

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 Submitted: October 24, 2002

 Filed: November 7, 2002

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Before LOKEN, BYE, and RILEY, Circuit Judges.

___________

RILEY, Circuit Judge.

In this diversity action, Tommy and Bessie Maples (Maples) appeal the district

court’s adverse grant of summary judgment in a declaratory judgment action brought

by Shelter Mutual Insurance Company (Shelter). We reverse and remand for further

consideration on the issue of causation.
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I. BACKGROUND

The parties stipulated to the following facts. While residing in Saudi Arabia,

Maples contracted for the construction of a single-family retirement home in

Arkansas. Maples purchased homeowner’s insurance from Shelter, and a policy

issued on November 24, 2000, was in full effect at all times relevant to the case. The

two-story residence –which had a wooden frame and a basement made of concrete –

was largely complete as of November 2000. Maples, who remained in Saudi Arabia,

took reasonable precautions to winterize the residence by leaving a key with the

contractor and asking him to winterize the residence. At some unknown time, a water

pipe froze and burst, and between four to six inches of water stood continuously in

the basement until the contractor discovered the problem in April 2001. While the

standing water caused only minimal structural damage to the basement, the humidity

from the standing water caused mold to form on all of the interior surfaces of the

residence. As a result of the mold, the residence became uninhabitable, requiring

demolition. Maples reported the loss to Shelter, and Shelter thereafter instituted this

action to determine its duty to pay.

As relevant, the insurance policy provided:

PERILS WE INSURE AGAINST-SECTION I

We cover accidental direct physical loss to property covered under

Dwelling and Other Structures Coverages except for losses excluded in

this section. 

. . . 

Under Dwelling and Other Structures Coverages, we do not cover loss

caused by:

1. wear and tear; marring or scratching; deterioration; inherent vice;

latent defect; mechanical breakdown; rust; mold; wet or dry rot;

contamination; smog, smoke from agricultural smudging or industrial

operations; settling, cracking, shrinkage, bulging or expansion of

pavement, patios, foundations, walls, floors, roofs, or ceilings; birds,

vermin, rodents, insects or domestic animals. If, because of any of
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these, water escapes from a plumbing, heating, or air conditioning

system or domestic appliance, we cover loss caused by the water. We

also cover the cost of tearing out and replacing any part of the covered

building necessary to repair the system or appliance. We do cover loss

to the system or appliance from which the water escapes. [Emphasis

added.]

Upon the foregoing stipulated facts, the district court concluded that Shelter

was entitled to summary judgment, reasoning that the policy language clearly

provided that any loss due to mold was not covered. 

II. DISCUSSION

This court reviews de novo the district court’s grant of summary judgment, as

well as its interpretation of Arkansas law. See Allstate Ins. Co. v. Burrough, 120 F.3d

834, 838 (8th Cir. 1997) (standard of review); Vandiver Food Stores, Inc. v. Ins. Co.

of N. Am., 909 F. Supp. 618, 620 (E.D. Ark. 1995) (applying law of principal

location of insured risk). Under Arkansas law, insurance policies are to be construed

liberally in favor of the insured, and exclusionary language that is susceptible to more

than one reasonable interpretation should be construed in favor of the insured. See

Allstate Ins. Co., 120 F.3d at 838 (citing State Farm Fire & Cas. Co. v. Midgett, 892

S.W.2d 469, 471 (Ark. 1995); Noland v. Farmers Ins. Co., 892 S.W.2d 271, 272 (Ark.

1995)). The insurer bears the burden of proving as a matter of law that the insured’s

claim was excluded under the policy. See id. (citing Arkansas Farm Bureau Ins.

Fed'n v. Ryman, 831 S.W.2d 133, 134-35 (Ark. 1992)).

Here, a covered peril, frozen pipes, caused an excluded peril, mold, which

resulted in the loss. The district court concluded that the policy precluded coverage

for mold damage regardless of its cause, relying on the following lead-in language

from the policy: 
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We do not cover loss:

(a) resulting directly or indirectly from any of the following

events;

(b) which would not have occurred in the absence of any of the

following events;

(c) which occurs regardless of the cause of any of the following

events; or

(d) if loss occurs concurrently or in any sequence with any of the

events. 

We disagree with the court’s reading of the policy, because we find this language

leads into a list of ten specified items not including mold, while the mold-exclusion

paragraph is separately numbered and follows the lead-in clause “[u]nder Dwelling

and Other Structures Coverages, we do not cover loss caused by.” Thus, the plain

language of the policy does not automatically preclude coverage. Compare Cooper

v. Am. Family Mut. Ins. Co., 184 F. Supp. 2d 960, 961-63 (D. Ariz. 2002) (no

coverage for mold damage from plumbing leak where lead-in clause excluded losses

regardless of any other contributing cause or event), with West v. Umialik Ins. Co.,

8 P.3d 1135, 1137-41 (Alaska 2000) (settling of house from broken plumbing was

covered loss, where no lead-in clause precluded coverage regardless of cause).

It appears to us, then, that the determinative question is a factual one: whether

the frozen pipe or the mold was the dominant and efficient cause of the loss. See

Lynch v. Travelers Indem. Co., 452 F.2d 1065, 1067 (8th Cir. 1972) (applying

Arkansas law and finding sufficient a jury instruction on dominant, direct, and

efficient cause of loss); 10 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON

INSURANCE §§ 148:60, 148:61 (3d ed. 1998) (where covered and non-covered perils

join to cause a loss, and the covered peril is the efficient and dominant cause, there

is coverage under the policy); 11 COUCH ON INSURANCE § 153:96 (mold exclusions

do not necessarily apply where “efficient proximate cause” of loss was a covered

risk). Because the parties’ factual stipulation does not answer this question, we

conclude a material issue of fact remains, and summary judgment was improper.
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III. CONCLUSION

We remand for further fact finding regarding the dominant cause of Maples’

loss. We note that a January 3, 2002 order indicates the parties waived trial and

wished to submit the case on stipulated facts; thus, it may be proper for the district

court to make factual findings on remand.

Accordingly, we reverse and remand for further consideration of the causation

issue.

A true copy.

Attest:

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