## The Honorable Stephen N. Limbaugh, Senior United States District Judge for 1 

## the Eastern District of Missouri.



# United States Court of Appeals FOR THE EIGHTH CIRCUIT

_____________ No. 96-3893

____________ United States Fidelity and * Guaranty Company, * * Appellee, * * Appeal from the United States v. * District Court for the
* Eastern District of Missouri First State Bank and Trust Company; * Bank of Hayti, * * Appellants. *

____________ Submitted: April 10, 1997 Filed: October 2, 1997

____________ Before McMILLIAN, FLOYD R. GIBSON, and JOHN R. GIBSON, Circuit Judges.

____________ McMILLIAN, Circuit Judge.

Ap pellants First State Bank and Trust Company and Bank of Hayti , Inc., appe al from a final order entered in the United States Distric t Court for the Eastern District of Missouri declaring that dama ge resulting

1 from an incident at an industrial plant did

## -2-

not arise from a cause of loss covered under an insurance policy issued by United States Fidelity and Guaranty Company (USFG). United State s Fide lity& Guar. Co. v. First State Bank & Trust Co. , 941 F. Supp. 10 1 (E.D

. Mo. 1996) ( United States Fidelity & Guar. Co. ). For reversal , appellants argue that the district court erred i n holding that (1) no fire occurred during the i ncident and (2) “smoke” has a different meaning from “va por.” For the reasons discussed below, we affirm the order of th e district court.

Jurisdic tionwas proper in the district court based upon 28 U.S.C

. §§ 1332 and 2201-2202. Jurisdiction on appeal is proper based upon 2 8 U.S.C. § 1291. The notice of appeal was timely filed under Fed. R. App. P. 4(a).
I. Background

The following facts are taken primarily from the district cour t order. United States Fidelity & Guar. Co. , 941 F. Supp. at 103-05. At th e time of the events giving rise to this lawsuit, appellants owned a metal building in Caruthersville, Missouri. Appellants leased the building to Missouri Fabricated Products (MFP), a subsidiary of Gleason Corporatio n (Gleason). Appellants subsequently sold the building and assigned their rights under the insurance policy at issue to Gleason, which is the real party in interest to this lawsuit.

MFP use s the building as an industrial plant for the production o f metal lawn and garden wheels. The production process involves stamping th e wheel par ts out of flat coil steel, washing the parts, welding the m togethe r, painting the metal parts, and mounting tires on the wheels

. Afte r the process is complete, MFP ships the assembled wheels to it s customers.

In the ea rly stages of the production process, the coil steel i s protected by a heavy grease that must be removed before the wheel parts ar e painted and assembled.

## -3-

The grease is removed in a machine called a “Det rex Degreaser,” consisting of a large, square vat which is partially filled with liqui d trichloroethane (TCE) and has electrical coils in the bottom. When th e machine is started, t he electrical coils are activated and begin to warm. The heat from the ele ctrical coils causes the TCE to boil, evaporate, and create a vapor in the top portion of the vat. Around the top of the vat is a pipe containing cold water that causes the vaporized TCE to condense and fall back to the bottom of the vat to be re-heated by the coils. The machine is equipped w ith a ventilator system to pull off any stray vapors tha t escape from the vat. The wheel parts are placed in a basket an d suspended in the vapo rized TCE. A metal grate above the electrical coils in the b ottom of the vat prevents any objects that might fall from th e basket from landing o n the electrical coils. The vaporized TCE dissolves the grease, and the grease falls to the bottom o f the vat and is suspended in the liquid TCE. Every four to six weeks, the machine must be cleaned and the T CE containing the suspended oil must be cleaned out of th e machine.
At the end of a work day, the electr ical coils are turned off first. After the TCE has coo led to a point where the vapor is no longer present, the operator turns off the water to the condensing ring. Then th e ventilator fans are shut off. A roll top covers the vat to keep objects from falling into it.

On Saturday, August 14, 1993, the plant closed around 12:30 p.m

. Late r that evening, MFP employee Adam Babcock drove by the plant an d noticed that the lights were left on in the temporary office set up in a constructi on trailer in front of the building. Babcock went into th e plant, noticed that it was “smoky,” and ran to the trailer to call the fir e department.
Within minutes, the fire fighters searched the plant to be sure there were no open flames a nd instructed Babcock to open the windows and doors. Babcock also activated the exhaust fans. The fire fighters determined tha t the degreaser was the source of the “smoke,” and, after it was shut off, the “smoke” dissipated. The fire chief testified that

## -4-

he did not see any open flames and that no water , hoses, or any other type of fire fighting equipment was used during the incident. He also testifie d that th e “smoke” was not very dense and had an unusual odor. Babcock’ s testimonywas similar. Although the parties disagree on what caused the incident, they agree that the degreaser overheated and emitted a vapo r cloud containing hydr ochloric acid which damaged the inside of the plant. They a lso disagree on whether the damage is a covered loss under th e insurance policy issued by USFG.

USFG brought this declaratory judgment action, seeking a determ inationof its rights and obligations under the insurance polic y issued by USFG to appellants covering the building used by MFP. On July 21, 1995, USFG presented its case, including live testimony from thre e expert wi tnesses, to the district court sitting without a jury. Due t o scheduling problems, the district court agreed to hear appellants’ case, consisting solely of testimony from one expert witness, at a later date. Afte r additional scheduling problems, appellants, with leave of court , submitted the testimony by deposition.

The insu rance policy at issue is a peril policy providing coverag e for loss or damage to covered property if the loss or damage stems from a covered cause of loss. The relevant policy provisions provide:

A. COVERED CAUSES OF LOSS
Whe nBasic is shown in the Declarations, Covere d Causes of Loss means the following:

. . . . 1. Fire

. . . .

## -5- 5. Smokecausing sudden and accidental los s or damage. This ca use of loss does not include smoke from agricultura l smudging or industrial operations.
At trial, the dispute focused mainly on whether or not the incident in question constituted a fire. USFG’s experts agreed that there had been

no fire. They testified that the incident in question was nothing mor e than an exothermic chemical reaction caused by the unstable condition of the degre aser. They concluded that, in closing the facility, the col d water pipe above the degreaser had been turned off, but the heating elemen t in the vat had inadve rtently been left on and, as a result, the vaporized TCE continued to rise, escaped the vat, reached the atmosphere, an d combined with hydrogen and oxygen in the air to form hydrochloric acid.

By contrast, appellants’ expert testified that there had been afire. He opined that the degreaser’s heating element burned off so much of the TCE that the heating coils became exposed and reached a level of suc h extreme heat that the oil deposits in the base of the vat combusted. He suggested that the fire was not very big and had extinguished itself befor e anyone arrived on the scene.

US FGalso presented evidence that, whether or not the damage wa s caused by smoke, the incident is still excluded under the policy because it r esulted from industrial operations. However, appellants presente d evidence that the damage should be covered under the policy because it was caused by smoke -- th e vapor cloud -- that was not a result of industrial operations.

## -6- After reviewing all of the evidence, the district court conclude d that, as a matter of fact, there had been no fire in the building during the incident and, as a corollary, that the emissions caused by the chemica l reaction were gas vapors and not wood-burning or oil-burning smoke. Unite d States Fi delity & Guar. Co. , 941 F. Supp. at 105. The district cour t further concluded that, as a matter of law, “gas vapors” does not mea n “smoke” to the ordinary lay person. Id. The district court thus held tha t the relevant policy language regarding damage fr om “fire” and “smoke” does not cover the damages to the building resulting from the August 14, 1993, incident. Id. This appeal followed.

II. Discussion

A. “ Fire ”
Appellants argue that the district c ourt’s finding that there was no fire involved in the August 14, 1993, incident must be reversed as clear error because it is against the weight of credib le evidence, not supported by substantial evidence, and contrary to law. A ppellants contend that the most coherent and logical account of the events was provided by appellants ’ expert, Robert Lowe. Appellants claim that the district court clearl y erred in rejecting Lowe’s theory that there was a fire because his was the only version of the incident which took into account the undispute d presence of certain combustible materials in and on the degreaser vat.

Appellants also argue that the distr ict court’s finding was contrary to law because, under Missouri law, the words in an insurance policy must be given their

## -7-

ordinary meaning. Appellants claim that the ord inary meaning of “fire” is “[a] rapid, persistent chemical reaction that releases heat and light, esp

. the exothermic combination of a combustible subs tance with oxygen.” Brief for Ap pellants at 19, quoting Webster’s II New Riverside Universit y Dictionary

480 (1984) ( Webster’s II ). Appellants contend that a flame is not required to satis fy the ordinary meaning of the word “fire.” Rather, contend appellants, t he incident satisfies the ordinary meaning of “fire” because a “rapid, persistent chemical reaction,” which was in fact a n “exothermic” reaction, occurred. Appellants mai ntain that the presence of certa in elements -- i.e., light from the glow of the electrical coils ; combustible materials, including cutting oil residue and paint; and oxygen , or at least an oxidizer -- combined to create a “fire.”

We disagr ee and hold that the district court did not err i n concludin g that what occurred in this case does not come within th e ordinary meaning of “fire” as defined by the district court or b y appellants. Appellants failed to present evidence that a flame had been present. United Stat es Fidelity & Guar. Co. , 941 F. Supp. at 104. There

was also no evidence of charring or smoke stains above the degreaser o r anywhere in the plant , and, in fact, the only damage appeared to be rust. Id. Based on the evidence presented at trial, the district court’s findin g that there was no fire is not clearly erroneous. Ap plying, without adopting, appellants’ definition of “fire,” w e reject appellants’ contention that the “glow” of the electrical coils fall s withi n the definition of fire. In any event, although an “exothermic ”
reac tion apparently occurred, USFG’s experts’ testimony that no oxyge n could have entered the vat during the incident was sufficient

## -8-

to s upport the district court’s conclusion that the reaction did no t involve oxygen, as is required under appellants’ proffered definition of fire.

B. “ Smoke ”

Appellants argue that the term “smoke” is not defined in th e insura nce policy and should thus be interpreted, under its ordinar y meanin g, to include the gaseous by-product of the exothermic chemica l reaction described by the expert witnesses. App ellants define “smoke” as:

1. Vapor made up of smal l particles of carbonaceous matter in the air, resulting chiefly fro m inc omplete combustion of organic material, such a s wood or c oal. 2. A suspension of particles in a gaseous medium. 3. A cloud of fine particles.

Brief for Appellants at 21, quoting Webster’s II at 1098. Appellant s def ine “vapor” as “[b]arely visible or cloudy diffused matter, as mist , fumes, or smoke, suspended in the air.” Id. at 22, quoting Webster’s II at 1276. Appellants maintain that the policy covers the incident because the active agent, which was released from the degreaser and damaged th e metal surfaces of the facility’s interior, “was a chemical substanc e produced by a rapid, exothermic reaction, and was suspended as fin e particles in a gas or vapor,” id. at 23, and thus falls within th e ordinary meaning of “smoke.” Appellants contend that to narrowly interpre t “smoke” as the by-product of burning wood or oil ignores the technology of today’s industrial wo rld. Appellants argue that the district court erred in exc luding gaseous vapors from its interpretation of “smoke” and , therefore, this case should be remanded to the d istrict court to determine whether the vapor or smoke resulted from industrial operations.

## -9- We disagr ee with appellants’ definition of the term “smoke” because
a term’s ordinary meaning is derived from the interpretation of lay person s rather th an the definition provided in a dictionary. See Robin v. Blu e Cross Hosp. Serv., Inc. , 637 S.W.2d 695, 698 (Mo. banc 1982); see als o Cantrel v. Farm Bureau Town & Country Ins. , 876 S.W.2d 660, 664-65 (Mo. Ct

. App. 1994) (per curiam) (rejecting dictionary definition of “contamination ” in favor of a reasonable person’s interpretation). Missouri cases have no t define d “smoke” as used in insurance policies, and other jurisdiction s whic hhave addressed the issue have developed varying interpretations

. See, e.g. , K & Lee Corp. v. Scottsdale Ins. Co. , 769 F. Supp. 870, 87 4 (E.D. Pa. 1991) (holding that invisible chemical vapor is not ordinarily and commonly understood to be “smoke”), aff’d , 953 F.2d 1380 (3d Cir. 1992 ) (table); Henri Food Prods. Co. v. Home Ins. Co. , 474 F. Supp. 889, 89 3 (E.D. Wis. 1979) (holding that a vapor which lef t a residue on plaintiff’s goods was smoke); Capital Bank & Trust Co. v. Equitable Life Assuranc e Soc’yof the United States , 542 So. 2d 494, 496 (La. 1989) (holding that
a person of average understanding would not regard “smoke” as a gas o r vapor); State v. Mundet Cork Corp. , 86 A.2d 1, 4 (N.J.) (defining smoke to include “visible prod ucts of combustion in the normally accepted sense”), cert. denied , 344 U.S. 819 (1952); Aubertel v. Consolidated Edison Co. , 11 6 N.Y.S.2d 555, 558 (Mun. Ct. 1952) (generally def ining “smoke” as a visible exhalation from burni ng material); cf. Farmers Ins. Co. v. Trutanich , 858 P.2d 1332 , 1336 (Or. Ct. App. 1993) (declining to decided whether, as a matter of law, smoke includes vapor). We need not develop a definitio n under M issouri law because, under appellants’ proffered definition o f “smoke ,” the vapor involved, hydrogen chloride, did not contain an y particulate matter and, therefore, does not cons titute “smoke.” The vapor prod uced by the boiling liquid TCE is analogous to steam produced b y boi ling water, which most people would not consider “smoke” despite it s smoky appearance.

Furthe rmore, even if we were to hold that the chemical vapor wa s “smoke” within the meaning of the policy, it was the result of th e degreaser’s malfunctioning.

## -10-

Because the operationof the degreaser is an “industrial operation,” this incident is specifically excluded from coverage under the terms of th e peril policy.

III. Conclusion

Based upon the testimony presented at trial, the district court’ s finding that a fire did not occur is not clearly erroneous. As a matter of law, th e district court did not err in distinguishing “vapor” fro m “smoke.” In any event, the vapor or smoke resulted from an industria l operation and therefo re does not qualify as a covered cause of loss under the policy. Accordingly, the order of the district court is affirmed.
A true copy.

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