Court Opinion

ID: 3042476
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:08:51.846036+00
Date Added: 2024-06-11T12:11:22.545955
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 06-3601
                                   ___________

J.E. Jones Construction Co.; The     *
Jones Company Custom Homes, Inc.,    *
Now known as REJ Custom Homes,       *
                                     *
      Plaintiffs - Appellants,       *
                                     *
      v.                             * Appeal from the United States
                                     * District Court for the
Chubb & Sons, Inc.,                  * Eastern District of Missouri.
                                     *
      Defendant,                     *
                                     *
Federal Insurance Company; Great     *
Northern Insurance Company,          *
                                     *
      Defendants - Appellees.        *
                                ___________

                             Submitted: March 15, 2007
                                Filed: May 11, 2007
                                 ___________

Before RILEY, BOWMAN, and ARNOLD, Circuit Judges.
                           ___________

BOWMAN, Circuit Judge.

       J.E. Jones Construction Company and Jones Company Custom Homes, Inc.
(collectively, "Jones") filed this suit alleging that Great Northern Insurance Company
and Federal Insurance Company were obligated to indemnify Jones for liability
incurred in an underlying state-court lawsuit. After cross-motions for summary
judgment, the District Court1 granted summary judgment in favor of Great Northern
and Federal, finding that the applicable insurance policies did not provide coverage
for the state-court judgment. For the reasons discussed below, we affirm the judgment
of the District Court.

                                         I.

      Great Northern issued Jones a commercial general liability (CGL) insurance
policy that provided:

      Coverage. Bodily Injury, Property Damage, Advertising Injury, And
      Personal Injury. Subject to the applicable Limits Of Insurance, we will
      pay damages the insured becomes legally obligated to pay by reason of
      liability imposed by law or assumed under an insured contract for:
      bodily injury or property damage to which this insurance applies
      caused by an occurrence . . . .

J.A. at 97 (emphasis in original). The policy defined "occurrence" as "an accident,
including continuous or repeated exposure to substantially the same general harmful
conditions." Id. at 113.

      Federal issued Jones an excess liability insurance policy, which provided both
excess liability coverage and umbrella liability coverage. The excess policy provided
coverage for a loss that exceeded the amount of the CGL policy limit. The excess
policy did not, however, provide coverage for a loss that the CGL policy did not
provide coverage for in the first instance.

      1
       The Honorable Mary Ann L. Medler, United States Magistrate Judge for the
Eastern District of Missouri, to whom the case was referred for final disposition by
consent of the parties pursuant to 28 U.S.C. § 636(c).

                                         -2-
       Jones argues that these policies provide coverage for Jones's liability incurred
in the state-court suit, Twin Chimneys Homeowners Ass'n v. J.E. Jones Construction
Co., 168 S.W.3d 488 (Mo. Ct. App. 2005). In that case, Jones entered into a
partnership with another builder to sell developed lots within a subdivision. The
partnership entered into an Indenture of Trust that governed the subdivision with,
among others, Howard Chilcutt, whereby Chilcutt agreed to serve as a trustee. Under
a separate Subindenture of Trust, the trustees had ownership and control of the
subdivision's common property and were responsible for its maintenance. The
subdivision's homeowners association sued Jones and the trustees, alleging negligence
and breaches of fiduciary duty associated with the construction and maintenance of
the subdivision. The jury found Jones negligent in constructing an entrance
monument and awarded damages in the amount of $13,960. The jury also determined
that Chilcutt breached a fiduciary duty by allowing siltation to flow into lakes and
awarded damages in the amount of $987,940. Jones was held liable for Chilcutt's
breach because Chilcutt was acting within the scope of his employment with Jones.
The trial court entered judgment and the Missouri Court of Appeals affirmed.

       Great Northern indemnified Jones for the damages associated with the
negligence claim, but both Great Northern and Federal denied coverage for damages
associated with the breach-of-fiduciary-duty claim. Jones filed this lawsuit, invoking
the court's diversity jurisdiction, and sought a declaratory judgment that Great
Northern and Federal were obligated to indemnify Jones for the breach-of-fiduciary
duty claim. The District Court held that Great Northern and Federal had no obligation
to indemnify Jones because the underlying breach of fiduciary duty was not an
"occurrence" as defined in the CGL policy; therefore, coverage did not apply. Jones
appeals, contending that the policies do cover the underlying breach of fiduciary duty.
Jones also challenges the District Court's exclusion of two affidavits from the
summary-judgment record.

                                         -3-
                                           II.

       We first consider the District Court's exclusion of the affidavits. In support of
its motion for summary judgment, Jones offered the affidavits of Chilcutt and of
Jones's attorney, J. Vincent Keady. The District Court excluded Chilcutt's affidavit
on the ground that it was irrelevant to this case. The court excluded Keady's affidavit
on the grounds that it was irrelevant to this case and that it contained inadmissible
evidence of settlement negotiations, see Fed. R. Evid. 408. We review the District
Court's exclusion of this evidence for abuse of discretion. Yates v. Rexton, Inc., 267
F.3d 793, 802 (8th Cir. 2001).

       "'Relevant evidence' means evidence having any tendency to make the existence
of any fact that is of consequence to the determination of the action more probable or
less probable than it would be without the evidence." Fed. R. Evid. 401. "Evidence
which is not relevant is not admissible." Fed R. Evid. 402.

       In Chilcutt's affidavit, he stated that another trustee had the "day to day
responsibility for addressing subdivision concerns . . . resolved all issues raised by
homeowners . . . [and] had the authority to make decisions regarding homeowner
complaints and issues without seeking approval or ratification of his decision from the
other three trustees." J.A. at 272–73. Chilcutt also stated that he "never directly
received any complaints from the homeowners regarding the lakes and/or siltation,"
and that he did not "intend to inflict harm or injury to the Twin Chimneys residents
or property." Id. at 273. We agree with the District Court that these statements
merely attempt to re-litigate whether Chilcutt breached his fiduciary duty, an issue that
was decided in the underlying litigation. See Twin Chimneys, 168 S.W.3d at 499.
We also agree that the statements are not relevant to the issue in this case—whether
the policies cover the underlying breach of fiduciary duty. Accordingly, we hold that
the District Court did not abuse its discretion in excluding Chilcutt's affidavit.

                                          -4-
       In Keady's affidavit, he stated that Great Northern and Federal made a
settlement offer during the underlying suit. While Jones argues that this evidence
should not be excluded by Rule 408, Jones fails to explain how this evidence is
relevant to this case. We cannot discern how this evidence is relevant to the coverage
issue; therefore, we hold that the District Court did not abuse its discretion in
excluding Keady's affidavit.

                                         III.

       We now turn to the merits of the parties' cross-motions for summary judgment.
We review the grant of summary judgment de novo. Bradley v. James, 479 F.3d 536,
537 (8th Cir. 2007). Summary judgment is appropriate when, viewing the facts in the
light most favorable to the non-movant, there are no genuine issues of material fact
and the movant is entitled to judgment as a matter of law. Id.

       The parties disagree about what the issue is in this case. Jones argues that the
issue is whether the lake siltation constitutes an "occurrence." Great Northern and
Federal argue that the issue is whether the breach of fiduciary duty constitutes an
"occurrence." Jones's argument that the siltation should be considered the
"occurrence" confuses the injury ("property damage") with the cause ("occurrence"),
contrary to the CGL policy language ("property damage to which this insurance
applies caused by an occurrence," J.A. at 97 (emphasis added)). The plain language
of this policy and the facts of the underlying case show that the siltation is the
"property damage" that obligated Jones to pay damages. See Twin Chimneys, 168
S.W.3d at 499. And in the underlying case, Chilcutt's breach caused this damage. Id.
Thus, the issue in this case is whether the siltation was caused by an "occurrence" as
defined by the policy, i.e., whether the breach of fiduciary duty qualifies as an
"occurrence."

                                         -5-
        State law controls the construction of insurance policies when a federal court
has jurisdiction based on diversity of citizenship. Langley v. Allstate Ins. Co., 995
F.2d 841, 844 (8th Cir. 1993). The parties do not dispute that Missouri law applies
to this case. Under Missouri law, the claimant has the burden to show that the policy
covers the loss. Am. States Ins. Co. v. Mathis, 974 S.W.2d 647, 649 (Mo. Ct. App.
1998). Missouri courts interpret insurance policies according to their plain meaning,
giving words the meaning that would ordinarily be understood by a layperson who
purchased the policy. Ware v. Geico Gen. Ins. Co., 84 S.W.3d 99, 102 (Mo. Ct. App.
2002). Where an insurance policy defines an "occurrence" as meaning an "accident,"
the term "accident" is given its common meaning:

      An event that takes place without one's foresight or expectation; an
      undesigned, sudden and unexpected event. Hence, often, an undesigned
      and unforseen occurrence of an afflictive or unfortunate character; a
      mishap resulting in injury to a person or damage to a thing; a casualty;
      as to die by an accident.

Hawkeye-Security Ins. Co. v. Davis, 6 S.W.3d 419, 425 (Mo. Ct. App. 1999)
(citations and quotations omitted).

       Courts applying Missouri law have not addressed whether a breach of fiduciary
duty constitutes an "occurrence" according to this framework. Courts have
consistently held, however, that where the underlying cause of loss is a breach of
contract, the breach of contract is not an "occurrence" according to the applicable
definition of "occurrence." See, e.g., Hartford Ins. Co. of the Midwest v. Wyllie, 396
F. Supp. 2d 1033, 1038 (E.D. Mo. 2005); Davis, 6 S.W.3d at 426; Mathis, 974 S.W.2d
at 650 (collecting cases). The rationale for these decisions is that because the
performance of a contract is within the insured's control, a breach of that contract
cannot qualify as an "accident" and therefore cannot be an "occurrence." Davis, 6
S.W.3d at 426; Mathis, 974 S.W.3d at 650. A Missouri court has also held that a
breach of warranty is not an occurrence where the insured's failure to perform was

                                         -6-
within his control. Davis, 6 S.W.3d at 426. Conversely, Missouri courts have held
that negligent acts may qualify as "occurrences." See Wood v. Safeco Ins. Co. of
Am., 980 S.W.2d 43, 49–50 (Mo. Ct. App. 1998) (collecting cases); but see Cincinnati
Ins. Co. v. Venetian Terazzo, Inc, 198 F. Supp. 2d 1074, 1079 (E.D. Mo. 2001)
(holding that insured's negligence was not an "occurrence").

        In the circumstances of this case, we hold that the underlying breach of
fiduciary duty was not an "accident" and therefore not an "occurrence" within the
meaning of the CGL policy.2 The applicable jury instruction in the underlying action
is instructive:

             Your verdict must be for Plaintiff Twin Chimneys Homeowners
      Association and against Defendant Howard Chilcutt on Plaintiff's claim
      of breach of fiduciary duty if you believe:
             First, Defendant Chilcutt was a subdivision trustee with control
      over and responsibility for maintaining, repairing, and rebuilding the
      common elements of the subdivision, specifically the lakes, entrance
      monument lighting and irrigation system, and
             Second, either Defendant Chilcutt failed to exercise control with
      respect to the maintenance, repair or rebuilding of the lakes and siltation
      controls, or Defendant Chilcutt failed to exercise control with respect to
      the maintenance, repair or rebuilding of the entrance monument lighting,
      or Defendant Chilcutt failed to exercise control with respect to the
      maintenance, repair or rebuilding of the irrigation system, and
             Third, Defendant Chilcutt in any one or more of the respects
      submitted in paragraph Second, thereby failed to act in the best interests
      of the homeowners or failed to act in a manner which placed the interest
      of the homeowners above those of his employer, and
             Fourth, as a direct result Plaintiff sustained damage.

      2
       We express no opinion on whether other breaches of fiduciary duty may
qualify as an "occurrence" under this policy language.

                                         -7-
Twin Chimneys, 168 S.W.3d at 498 (emphasis added). The Missouri Court of
Appeals held that this instruction "adequately followed the substantive law on breach
of fiduciary duty . . . " and that "Chilcutt failed in his fiduciary duty as trustee, as set
out in the Subindenture Agreement, to maintain and repair the common areas,
specifically the lakes, irrigation system, and/or monuments." Id. Since Chilcutt was
acting in his capacity as agent, Jones was held liable for this breach. Id. at 500.

       Because the fiduciary breach was based on Chilcutt's duties as set forth in the
Subindenture of Trust, this breach was the result of deficient performance that was
within his control. And because Chilcutt had agreed to maintain the lakes, his failure
to do so was not an "unforseen" or "unexpected event." This breach therefore was not
an "accident" or an "occurrence."3 Thus, Jones cannot meet its burden of proving
coverage under the policies.

                                            IV.

       For the reasons discussed, the judgment of the District Court is affirmed.
                        ______________________________

       3
        Jones, citing N. W. Electric Power Cooperative, Inc. v. American Motorists
Insurance Co., 451 S.W.2d 356 (Mo. Ct. App. 1969), contends that because no intent
to injure has been shown in this case, the resulting harm was caused by an "accident."
That case is distinguishable, however, as it involved policy language different from
the policy language in this case and limited its holding to its circumstances. Id. at 359,
362.

                                            -8-