United States Court of Appeals

For the Eighth Circuit

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No. 12-1786

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Smith Flooring, Inc.

lllllllllllllllllllll Plaintiff - Appellant

v.

Pennsylvania Lumbermens Mutual Insurance Company

lllllllllllllllllllll Defendant - Appellee

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 Appeal from United States District Court 

for the Western District of Missouri - Springfield

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 Submitted: November 13, 2012

 Filed: Apri 26, 2013

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Before SMITH, BEAM, and GRUENDER, Circuit Judges.

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SMITH, Circuit Judge.

Smith Flooring, Inc. ("Smith Flooring") obtained commercial property

insurance coverage from Pennsylvania Lumbermens Mutual Insurance Company

("Pennsylvania Lumbermens") from 2004 to 2009. Each year, Pennsylvania

Lumbermens issued Smith Flooring a new annual policy with endorsements that

excluded certain property fromcoverage. An endorsement excluding certain buildings

from coverage was omitted from the 2007–08 policy and again from the 2008–09
policy. One of those buildings, known as the Pine Warehouse, subsequently

collapsed, and Smith Flooring submitted a claim for the loss, which Pennsylvania

Lumbermens denied. Smith Flooring filed suit, alleging breach of contract and

seeking a declaratory judgment as to the terms of the insurance policy. Pennsylvania

Lumbermens removed the case to the district court and counterclaimed for

1

reformation of the insurance policy. The court submitted the claims for breach of

contract and reformation to a jury, which returned a verdict for Smith Flooring on

both claims. The district court granted Pennsylvania Lumbermens's motion to alter

the jury verdict, but it then ruled that it would treat the jury's verdict as merely

advisory under FederalRule of Civil Procedure 39. The court then substituted its own

findings of fact and conclusions of law for the jury's verdict. The court concluded that

clear, cogent, and convincing evidence showed that the insurance policy did not

accurately set forth the agreement of the parties. The court reformed the policy to

reflect that the Pine Warehouse was not covered. Finding no reversible error, we

affirm.

I. Background

Smith Flooring manufactures and sells hardwood flooring. It operates a

manufacturing facility ("Location 1") near Mountain View, Missouri, which includes

numerous buildings. One of the buildings at Location 1 is known as the Pine

Warehouse.

2

Smith Flooring used Steven Young ("Young") of Wausau Signature Agency

("Wasau") as its insurance agent. Young sought and obtained insurance for Smith

Flooring from Pennsylvania Lumbermens through Woodus K. Humphrey and

The Honorable Dean Whipple, United States District Judge for the Western 1

District of Missouri.

In some documents, the Pine Warehouse is referred to as the Storage Shed.

2

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Company, Inc. ("Woodus Humphrey"), the issuing agent of Pennsylvania

Lumbermens. Each year, Pennsylvania Lumbermens issued Smith Flooring a new

annual policy that became effective on March 1. Each annual policy was issued with

an endorsement titled "ADDITIONAL PROPERTY NOT COVERED." The policies

for years 2004–05, 2005–06, and 2006–07 included an endorsement that excluded

from coverage six buildings at Location 1, including the Pine Warehouse. However,

the 2007–08 and 2008–09 policies did not list an endorsement excluding buildings

at Location 1.

In January 2009, the Pine Warehouse collapsed under the weight of sleet and

ice. Smith Flooring submitted a claim for the loss, which Pennsylvania Lumbermens

denied. Smith Flooring filed suit against Pennsylvania Lumbermens in Missouri state

court, alleging breach of contract and seeking a declaratory judgment as to the terms

of the insurance policy. Pennsylvania Lumbermens removed the case to the district

court and counterclaimed for reformation of the policy.

Pennsylvania Lumbermens filed a motion requesting a bench trial on its

counterclaim for reformation. The court denied the motion and set the case for a jury

trial on all issues. The case went to trial, and a jury found in favor of Smith Flooring

on its breach-of-contract claim, as well as on Pennsylvania Lumbermens's

counterclaimfor reformation. The court issued an order and judgment consistent with

the jury award to Smith Flooring of $300,000 in damages. Pennsylvania Lumbermens

filed a motion to alter the jury verdict and a motion for post-verdict judgment as a

matter of law. The district court granted Pennsylvania Lumbermens's motion to alter

the jury verdict, finding that a $100,000 deductible and a $10,000 limit on debris

removal should be applied to reduce the jury's damage award to $170,000.

Subsequently, the district court granted Pennsylvania Lumbermens's motion

for judgment as a matter of law. The court found that it had erred in denying

Pennsylvania Lumbermens's pretrial motion requesting a bench trial on its

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counterclaim for reformation. The court ruled that it would treat the jury's verdict as

merely advisory under Federal Rule of Civil Procedure 39. The court found that a

new trial would be unnecessary and inefficient, as the court had already heard the

evidence. It vacated the jury's verdict and, in accordance with Federal Rule of Civil

Procedure 52(a), the court made its own findings of fact and conclusions of law,

which it substituted for the jury's verdict. The court found that clear, cogent, and

convincing evidence demonstrated that the insurance policy did not accurately set

forth the agreement of the parties, and it reformed the 2008–09 policy to reflect that

the Pine Warehouse was not covered under the policy. The district court then ruled

that, as a consequence, Smith Flooring's breach-of-contract claim failed.

Smith Flooring appeals the district court's grants of (1) Pennsylvania

Lumbermens's motion for judgment as a matter of law on its breach-of-contract claim

and (2) Pennsylvania Lumbermens's motion to reduce the jury's damage award by

applying a $100,000 deductible and a $10,000 limit on debris removal.

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II. Discussion

A. Common Issues

"'Whether a party has a right to trial by jury in federal court is a question of law

subject to de novo review.'" Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d

958, 968 (8th Cir. 2005) (quoting Ind. Lumbermens Mut. Ins. Co. v. Timberland

Pallet & Lumber Co., 195 F.3d 368, 374 (8th Cir.1999)). The Seventh Amendment

provides, in pertinent part, that "[i]n Suits at common law, where the value in

controversy shall exceed twenty dollars, the right of trial by jury shall be preserved."

U.S. Const. amend. VII. Because the Seventh Amendment applies only to "[s]uits at

common law," id., not every cause of action implicates this right.

Because we affirm the district court's grant of Pennsylvania Lumbermens's 3

motion for judgment as a matter of law, we do not reach the issue of whether the court

abused its discretion in reducing the jury verdict by finding a $100,000 deductible

and a $10,000 limit on debris removal damages.

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"[S]uits for damages for breach of contract . . . were suits at common law with

the issues of the making of the contract and its breach to be decided by a jury . . . ."

Atlas Roofing Co., Inc. v. Occupational Safety & Health Review Comm'n, 430 U.S.

442, 459 (1977). However, "[a]n action to reform a written instrument in accordance

with the intent of the parties was exclusively equitable, thus a claim for reformation

under the Federal Rules istriable to the court." Great Atl. Ins. Co. v. Liberty Mut. Ins.

Co., 773 F.2d 976, 978 (8th Cir. 1985). Here, Smith Flooring's claim for breach of

contract is a claim at law, whereas Pennsylvania Lumbermens's counterclaim for

reformation is in equity. Therefore, the Seventh Amendment right to a jury trial

attaches to Smith Flooring's breach-of-contract claim.

The constitutional right to a jury trial must be preserved when the litigation

involves legal and equitable claims with common issues. Dairy Queen, Inc. v. Wood,

369 U.S. 469, 472–73 (1962)(citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500,

510–11 (1959)). "[T]he normal practice isto try both claims to a jury. In this way, the

jury's verdict will conclusively settle these common issues, and only issues peculiar

to the equitable claim will be left to be decided by the judge." Brownlee v. Yellow

Freight Sys., Inc., 921 F.2d 745, 749 (8th Cir. 1990) (citations omitted).

Here, in granting Pennsylvania Lumbermens's post-verdict motion for

judgment as a matter of law, the district court found that there were no issues

common to both the legal and equitable claims. The court noted Pennsylvania

Lumbermens's acknowledgment that the policy, as written, provided coverage for the

Pine Warehouse. The court also noted that Pennsylvania Lumbermens agreed that if

the policy were not reformed, Smith Flooring would prevail on its breach-of-contract

claim. Consequently, the court found that the dispositive issue at trial was whether

the insurance policy should be reformed based on mutual mistake, which is an

exclusively equitable remedy. As such, the court ruled that it had erred in its pretrial

finding that the case must be tried to a jury, and it declared that Pennsylvania

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Lumbermens's counterclaim for reformation of the policy should have been tried to

the court.

The district court's ruling notwithstanding, we find that the breach of contract

and reformation claims do involve a common issue, namely, what the terms of the

intended contract actually were. Missouri law considers "the existence and terms of

a contract" to be essential elements of a breach-of-contract action. Keveney v.

Missouri Military Acad., 304 S.W.3d 98, 104 (Mo. 2010) (en banc). Similarly, a

"party seeking reformation must show that the writing fails to accurately set forth the

terms of the actual agreement or fails to incorporate the true prior intentions of the

parties." Brown v. Mickelson, 220 S.W.3d 442, 448–49 (Mo. Ct. App. 2007)

(quotation and citation omitted); see also Black's Law Dictionary (9th ed. 2009),

defining reformation as "[a]n equitable remedy by which a court will modify a written

agreement to reflect the actual intent of the parties." It isimpossible for Pennsylvania

Lumbermens to "show that the writing fails to accurately set forth the terms of the

actual agreement" without first establishing what "the terms of the actual agreement"

are. Brown, 220 S.W.3d at 448–49 (quotation and citation omitted). But establishing 4

what the "terms of the actual agreement" are is likewise essential to Smith Flooring's

breach-of-contract claim.

The district court's order cited Giant Eagle, Inc. v. Federal Insurance Co., 884

F. Supp. 979 (W.D. Pa. 1995), for the proposition that a damages claim and a

reformation claim do not share common issues. But in Giant Eagle the parties

stipulated that the sole issue to be litigated wasthe insurer's claim for reformation. Id.

at 983–85. Here there was no such stipulation. Smith Flooring pursued its breach-ofThe district court stated in ¶ 8 of its conclusions of law that the 2008–09

4

"policy does not accurately set forth the agreement between Smith Flooring and

Pennsylvania Lumbermens that the Pine Warehouse be excluded from coverage."

This conclusion only follows if the court determined what the terms of the intended

contract were.

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contract claim all the way to a favorable jury verdict. Even presuming that

Pennsylvania Lumbermens stipulated that the incomplete written policy provided

coverage for the Pine Warehouse, that stipulation left in controversy the terms of the

intended agreement—an essential element of Smith Flooring's breach-of-contract

claim.Furthermore,Pennsylvania Lumbermens counterclaimed for reformation ofthe

written policy, thereby contending that the terms of the written policy were different

from those of the intended agreement. Indeed, Pennsylvania Lumbermens's own

pleading alleged that "[i]f there is coverage for . . . the Pine Warehouse under [the

2008–09 policy], then it . . . does not state the terms of the agreement between and the

true prior intentions of plaintiff and defendant." We also note that Pennsylvania

Lumbermens twice moved for judgment as a matter of law on Smith Flooring's

breach-of-contract claim, once stating that "we don't believe that the plaintiffs have

made a case, presented sufficient evidence to support their claim for breach of

contract in this matter." The reformation and breach-of-contract claims were both in

controversy here, so the present case is distinguishable from Giant Eagle.

Even with both claims in controversy and the common element of establishing

the terms of the intended contract, it could still be that no common issue exists

because the admissible proof differs in each instance. With respect to the breach-ofcontract claim, the parol evidence rule bars admission of extrinsic evidence to vary

or contradict the terms of an unambiguous and completely integrated written

agreement. N. Am. Sav. Bank v. Resolution Trust Corp., 65 F.3d 111, 114 (8th Cir.

1995) (applying Missouri law); Craig v. Jo B. Gardner, Inc., 586 S.W.2d 316, 324

(Mo. 1979) (en banc). Nevertheless, Missouri's parol evidence rule includes

exceptions for mutual mistake, accident, or erroneous omission. Craig, 586 S.W.2d

at 324 ("Parol evidence may not be used to vary or contradict terms of an

unambiguous and complete written instrument absent fraud, common mistake,

accident or erroneous omission."); accord N. Am. Sav. Bank, 65 F.3d at 114. We are

confident that this case falls into one of those exceptions. Thus, Missouri's parol

evidence rule would not bar the jury fromconsidering the same extrinsic evidence for

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the breach-of-contract claim as would be available for the reformation claim when

deciding what the terms of the intended contract are. Consequently, the breach-ofcontract and reformation claims involve a common issue.

The district court erred in finding that there were no issues common to the

parties' legal and equitable claims. We conclude that Smith Flooring had a Seventh

Amendment right to a trial by jury on the common issue of what the terms of the

intended contract were. The district court also erred in treating the jury's verdict as

merely advisory under Federal Rule of Civil Procedure 39 insofar as this issue is

concerned.

However, the district court's error does not necessitate reversal of its granting

post-verdict judgment as a matter of law to Pennsylvania Lumbermens. First, "it is

settled that Rule 50(b) [judgment as a matter of law] does not violate the Seventh

Amendment's guarantee of a jury trial." Neely v. Martin K. Eby Constr. Co., 386 U.S.

317, 321 (1967) (citing Montgomery Ward & Co. v. Duncan, 311 U.S. 243 (1940)).

Second, as we shall now discuss, the evidence in this case was not sufficient to

support the jury's verdict in Smith Flooring's favor.

B. Sufficiency of the Evidence

"In reviewing the sufficiency of the evidence to support the jury's verdict, we

interpret the record in a light most favorable to the prevailing party, affirming unless

no reasonable juror could have reached the same conclusion." Structural Polymer

Grp., Ltd. v. Zoltek Corp., 543 F.3d 987, 991 (8th Cir. 2008) (citing Anderson Mktg,

Inc. v. Maple Chase Co., 241 F.3d 1063, 1065 (8th Cir. 2001)).

The district court found that "clear, cogent and convincing evidence

demonstrates that the policy does not accurately set forth the agreement between

Smith Flooring and Pennsylvania Lumbermens that the Pine Warehouse be excluded

fromcoverage." The court noted that "'[c]lear, cogent and convincing evidence isthat

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which instantly tilts the scales in the affirmative when weighed against evidence in

opposition; evidence which clearly convinces the fact finder of the truth of the

proposition to be proved.'" (Quoting In Interest of J.A.J., 652 S.W.2d 745, 748 (Mo.

Ct. App. 1983).) We agree with the district court's assessment. In fact, we find that

the evidence in favor of Pennsylvania Lumbermens is so clear, cogent, and

convincing that no reasonable juror could have reached the opposite conclusion.

Young, an employee of Wausau, was Smith Flooring'sinsurance agent. Young

testified that none of the documents associated with Smith Flooring's policies

included a value for the Pine Warehouse because, in his "understanding, it was

always excluded." He testified that the absence of a value for a building was

"inten[ded] to show [that it] w[as] excluded from coverage." He explained that "[w]e

would've assigned a value—or a value would've needed to be assigned to that in order

to obtain coverage." Young testified that his "intention and understanding [of the

2007–08 policy] was the same as all previous policy years," namely that "[t]here was

no coverage . . . ." of the Pine Warehouse. He affirmed that neither "Mr. Smith [n]or

anybody from Smith Flooring ever asked [him] or directed [him] to obtain coverage

for those buildings that had been excluded." Young did note that in January or

February of 2008 he discussed with Jon Smith ("Smith"), the owner of Smith

Flooring, the possibility of adding coverage for the Pine Warehouse. Nevertheless,

he testified that it was only sometime after March 1, 2008, the effective date of the

2008–09 policy, that Smith "requested or agreed . . . we should add coverage for that

particular building." Young affirmed that, "when the policy period began for [the

2008–09 policy] on March 1st, 2008, at that time it was [his] intention and

understanding that the [P]ine [W]arehouse was still to be excluded from coverage

under the policy."

Mary Henke ("Henke") was Wausau's account manager for the Smith Flooring

account. Her job responsibilities included communicating via email with Woodus

Humphrey regarding changes in Smith Flooring's insurance coverage. Henke testified

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that if Young had asked her to obtain coverage for the Pine Warehouse, she would

have received "either a note or e-mail asking [her] to make the change. And then from

there, [she] would have sent it off to the carrier, in this case, Woodus [Humphrey]."

Henke explained that if she had sent a message to Woodus Humphrey regarding a

change to Smith Flooring's coverage, "[i]t should have been part of [Wausau's] file"

on Smith Flooring's coverage. Furthermore, she testified that a change in coverage

would have necessitated an email discussion between her and Woodus Humphrey

regarding the effect on premiums and other changes. Nevertheless, Henke had no

"recollection that [she] sent or received e-mails . . . to and from Woodus Humphrey

at the direction of Steve Young."

Lora Roberts ("Roberts") was a customer service representative for Woodus

Humphrey. Roberts prepared Smith Flooring's 2007–08 insurance policy using

information from the previous year's policy, as well as information that Henke

supplied to her. During direct examination, Roberts observed that the endorsements

in the 2007–08 policy differed from those in the 2006–07 policy. She noted that "the

. . . buildings at [L]ocation 1 that were not covered were not included on th[e]

endorsement" for the 2007–08 policy. Roberts acknowledged that she had prepared

the endorsements for the 2007–08 policy and that she had "intend[ed] to put [the

endorsements] on there," but she simply "overlooked typing themon." She stated that

the endorsements for the buildings at Location 1 were not included in the 2008–09

policy either. To account for that omission, she explained, "I would have had the

previous year's policy in front of me as I was typing the new one and saw there was

nothing on it and didn't attach it to this policy." Her intention was "to exclude those

buildings from coverage [by putting them] on the endorsement." She testified further

that she did not "receive a request from Mary Henke or anyone else from Wausau

Agency" to add coverage for the Pine Warehouse. Furthermore, she explained that if

she had "received such a request, [there] would . . . have been a record in [her] file,"

yet she had examined her file "[n]umerous times" and had "found nothing."

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Finally, Smith testified that Young had the authority to act for Smith Flooring

to obtain insurance. He testified that no person other than Young ever contacted

Woodus Humphrey or Pennsylvania Lumbermens to request coverage for the Pine

Warehouse. Smith stated that he "assumed that[the buildings] were all covered under

the blanket provision of the policy." Furthermore, Smith testified as follows:

Q. And do you remember any specific conversations with Steve

Young in 2006 or 2007 about coverage?

A. I do remember one—one conversation when we were talking

about coverages and were mentioning some of the buildings, and I said,

"Well, they're all covered under the blanket provision of the policy."

And I'm not sure exactly what his response was, but it was

something like, Well, that's—we'll make thatso or it isso, orsomething.

I don't remember exactly how the conversation went. But we did talk

about those things, and we talked about my understanding of what the

blanket provision of the policy meant.

Q. All right. And what was your understanding of how the blanket

coverage provision worked?

A. That we had a blanket coverage that covered all the buildings on

the property. If they were—there were years where they were listed as

excluded or not listed orsomething. We had $100,000 deductible. It was

my understanding that that meant that those buildings were probably

worth less than $100,000.

"[I]nterpret[ing] the record in a light most favorable to the prevailing party,"

Structural Polymer Grp., Ltd., 543 F.3d at 991, we agree with the district court that

no reasonable juror could have found that the 2008–09 policy "accurately set[s] forth

the agreement between Smith Flooring and Pennsylvania Lumbermens that the Pine

Warehouse be excluded from coverage." Employees of the agents of both Smith

Flooring and Pennsylvania Lumbermens presented unequivocal and uncontradicted

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testimony sufficient to support findingsthat the absence ofthe exclusion endorsement

for the buildings at Location 1 in the 2007–08 and 2008–09 policies were inadvertent

omissions. Smith's testimony regarding his assumptions and "understanding of how

the blanket coverage provision worked" are not sufficient to enable a reasonable juror

to conclude otherwise. The clear intent of the parties originally was to exclude the

Pine Warehouse from coverage. The inadvertent omission of an exclusion

endorsement created only the appearance of coverage; it did not provide proof of a

request for coverage or of payment therefor. The provisions of the written policy sans

endorsement did not reflect the agreement of the parties that there was no coverage

for the Pine Warehouse in January 2009.

C. Breach of Contract

Under Missouri law, "[a] breach of contract action includes the following

essential elements: (1) the existence and terms of a contract; (2) that plaintiff

performed or tendered performance pursuant to the contract; (3) breach of the

contract by the defendant; and (4) damages suffered by the plaintiff." Keveney, 304

S.W.3d at 104. Because there was no coverage for the Pine Warehouse, it followsthat

Pennsylvania Lumbermens did not breach its contract in denying Smith Flooring's

proof of loss. See, e.g., id. With no breach, Pennsylvania Lumbermens owes Smith

Flooring no damages.

D. Reformation

Under Missouri law, "[a] mutual mistake occurs when both parties, at the time

of contracting, share a misconception about a basic assumption of vital fact upon

which they based their bargain. Clear, cogent, and convincing evidence is required

to support reformation for mutual mistake." Hunt v. Estate of Hunt, 348 S.W.3d 103,

115 (Mo. Ct. App. 2011) (quotation and citations omitted). Furthermore,

A court may reform a written contract when the writing evidencing the

contract failsto correctly reflect the agreement. . . . The party must show

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the written contract does not accurately set forth the terms of the

agreement actually made, or does not incorporate the true prior

intentions of the parties. Moreland v. State Farm Fire and Casualty Co.,

662 S.W.2d 556, 561 (Mo. App. 1983); Restatement (Second) of

Contracts § 155 (1981).

Kopff v. Econ. Radiator Serv., 838 S.W.2d 449, 452 (Mo. Ct. App. 1992).

We hold that the district court was correct to find that "clear, cogent and

convincing evidence demonstrates that the policy does not accurately set forth the

agreement between Smith Flooring and Pennsylvania Lumbermens that the Pine

Warehouse be excluded from coverage." Consequently, the district court did not err

in reforming the policy.

III. Conclusion

Because we conclude that the district court did not err in granting judgment as

a matter of law to Pennsylvania Lumbermens on the breach of contract and

reformation claims, we affirm.

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