Opinion ID: 69778
Heading Depth: 1
Heading Rank: 4

Heading: The Letter, Settlement, and Cause of Action

Text: Maverick contends that the district court erred in finding that Westchester did not need to provide coverage for the settlement with Dominion. Maverick argues that the text and context of the November 29 letter refers not only to Maverick's published warranty but also discusses the release of all claims. Further, Maverick argues that because the letter identified the four components of recovery and because investigations were still ongoing when the letter was written, the claim was not limited solely to the breach of warranty claim. Maverick stresses that had Dominion wanted to recover on the sole ground of Maverick's warranty, the letter would have only had one component of recoverythe cost of the casingbecause the warranty only covered the purchase price of a product and not additional damages. Moreover, no formal list of causes of actions by Dominion in the form of a complaint or petition was advanced. Westchester asserts that the letter only discusses recovery under a breach of warranty theory and that because Dominion never asserted a claim for negligence or another tort, Westchester correctly denied coverage. In essence, Westchester argues that Maverick's only evidence of a claim is Dominion's letter, and the letter's only mention of legal recovery theories used the word warranty; however, Westchester cites to no authority suggesting that a demand letter can or should be used as the sole indicator of whether a claim is covered. Concerning the settlement, Maverick argues that the settlement agreement's language is the evidence that provides additional facts that initiates Westchester's duty to indemnify. The agreement itself excludes the purchase price of the P-110 casing and mentions that all matters relating to the Incident are resolved. [4] The settlement language mirrors the warranty agreement language that strictly limit[s the damages] to the purchase price of the [g]oods paid. Westchester disagrees that the settlement agreement should be considered. Westchester's reasoning suggests that had Dominion filed a lawsuit that used the word negligence or products liability it would pay for the damages because the facts support this claim. But one important difference should be notedno formal complaint by Dominion was ever filed. Thus, the resolution by the Eighth Circuit in Spirco Environmental, Inc. v. American International Specialty Lines Insurance Co., 555 F.3d 637 (8th Cir.2009) is helpful in interpreting the facts of the instant case. In Spirco, American refused to reimburse the arbitration fee paid by Spirco because the recovering party had characterized the settlement as a breach of contract claim. Id. at 639. But Spirco's attorney advanced the property-damage nature of the claim from the beginning of the arbitration due to the findings made by the arbitrator and the positions of the parties. Id. at 640. Because the damage occurred after Spirco had finished its contract, the claim was not limited to the completion of the contract; instead, the claim focused on the property damages that occurred later. Id. The court determined that a property damage claim existed based on the factual assertions, substance of the claims, and arbitrator's findings, and not on the label chosen by the property owner. Id. Likewise, in Missouri Terrazzo Co. v. Iowa National Mutual Insurance Co., 740 F.2d 647 (8th Cir.1984), the Eighth Circuit decided that the facts behind a property damage claim and not the label as a diminution in value cause of action was dispositive in applying Missouri insurance law. Id. at 650. In Missouri Terrazzo, the sub-contractor improperly installed flooring that cracked and discolored in a short amount of time. Id. at 649. The sub-contractor settled with the party and then sought coverage from its insurer. Id. The court noted that the flooring suffered physical damage to tangible property, which met the definition of property damage under the insurance policy; thus, the insurer had a duty to indemnify the insured for the settlement amount. Id. at 650, 653. These two Eighth Circuit cases are instructive to this Court's consideration because they dealt with an arbitration award and settlement award, instead of a lawsuit, and examined the underlying facts of the claim to characterize the cause(s) of action at issue. See Spirco, 555 F.3d at 640-41 (examining the factual assertions, substance of claims, and findings rather than the label the injured party decides to attach to its claim); Missouri Terrazzo, 740 F.2d at 650 (imposing a duty to indemnify for the settlement amount because of the physical damage to tangible property alleged by the insured). Missouri insurance law focuses on the relevant facts and their relation to possible causes of action. The letter by the property owner in Spirco only characterized its arbitration counterclaim as a breach of contract claim, but the court focused on the substance of the property owner's claim to find a property damage claim. Similarly, the Missouri Court of Appeals in Columbia Mutual Insurance Co. v. Epstein, 239 S.W.3d 667, 671 (Mo.Ct.App. 2007) noted that the underlying facts of any one event could belong to more than one cause of action and stated that the facts alleged expound not only on the breach of contract claim, but also on a products liability claim. [5] Thus, this Court may examine the underlying facts of the event, the causes of action alleged, the supporting facts, and the ultimate settlement of the case to decide these legal issues. In examining the facts, Appellants' petition successfully supports a products liability cause of action. To prove products liability, a plaintiff must show four elements: 1) the product was sold in the course of business, 2) the product was in a defective condition and unreasonably dangerous at the time it was put to a reasonably anticipated use, 3) the product was used as reasonably anticipated, and 4) damage occurred as a direct result of the defective condition that existed at the time of sale. Keener v. Dayton Electric Manufacturing Co., 445 S.W.2d 362, 364 (Mo. 1969) (citing Restatement (Second) of Torts, Section 402A); see also Fahy v. Dresser Indus., 740 S.W.2d 635, 637 (Mo. 1987) (en banc). Section 2 of the Restatement (Third) of Torts notes that a product is defective when, at time of sale or distribution, it contains a manufacturing defect and when it departs from its intended design even though all possible care was exercised. Restatement (Third) of Torts, § 2 (1998). Here, Dominion entered into a contract with Maverick for the purchase of P-110 casing. Maverick purchased the casing for Dominion's gas wells from Tubos. The P-110 casing was defective at the time of sale due to the defect in Tubos' chain-link conveyer system, and Maverick did not intend for the casing to be defective. Dominion reasonably used the casing for its intended use in its gas wells. The P-110 casing was defective as to the design which caused the casing to be in a dangerous and defective condition which was unsafe for its intended use. As a direct cause of the defective casing, Dominion suffered a total loss of four gas wells and had to start drilling in new locations.