Court Opinion

ID: 4195157
Source: CourtListenerOpinion
Date Created: 2017-08-11 15:01:11.983615+00
Date Added: 2024-06-11T14:40:24.982786
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 16-2632
                         ___________________________

                      McShane Construction Company, LLC

                        lllllllllllllllllllll Plaintiff - Appellant

                                            v.

                            Gotham Insurance Company

                        lllllllllllllllllllll Defendant - Appellee
                                       ____________

                     Appeal from United States District Court
                       for the District of Nebraska - Omaha
                                  ____________

                              Submitted: May 10, 2017
                               Filed: August 11, 2017
                                   ____________

Before RILEY, BEAM, and SHEPHERD, Circuit Judges.
                            ____________

SHEPHERD, Circuit Judge.

        McShane Construction, LLC (McShane), a general contractor, sued Gotham
Insurance Company (Gotham) directly for failing to pay its insurance claim related
to the alleged improper installation of a fire protection and suppression system by one
of McShane’s subcontractors, Mallory Fire Protection Services (Mallory)—whom
McShane has sued separately in Nebraska state court. The district court1 granted
Gotham’s Federal Rule of Civil Procedure 12(b)(6) motion to dismiss for failure to
state a claim upon which relief can be granted, and McShane now appeals. Having
jurisdiction under 28 U.S.C. § 1291, we affirm.

                                 I. Background

       In 2012, McShane began general contract work on the construction of a 196-
unit, $15 million apartment complex (Project) in Omaha, Nebraska. McShane hired
Mallory as a subcontractor to design and install a fire suppression and protection
system for the Project.

      McShane and Mallory executed a subcontract on June 8, 2012, that included
a provision requiring Mallory to obtain insurance policies and to list McShane as an
Additional Insured on the Commercial General Liability (CGL) insurance policy.
Mallory subsequently purchased and Gotham issued on September 15, 2012, Gotham
Policy No. GL2012FSC00451(Policy) to fulfill this requirement. The “Additional
Insured” endorsement modified the insurance provided under the “Commercial
General Liability Coverage Part.” It listed “Blanket where required by written
contract”—which includes McShane since it contracted with Mallory—as the
Additional Insured, and Gotham provided McShane with a Certificate of Liability
Insurance verifying McShane as an Additional Insured.

      1
      The Honorable John M. Gerrard, United States District Judge for the District
of Nebraska.

                                        -2-
       Under its subcontract with McShane, Mallory designed and installed a fire
suppression and protection system, which McShane determined was faulty. To
replace the faulty system, McShane removed previously installed drywall and
installation leading to damages and losses that McShane alleges exceed $614,291.17.

      Mallory and McShane each filed independent claims with Gotham to cover the
damages and losses. Gotham eventually combined the two claims into a single claim
with Mallory listed as the insured. After a comprehensive adjustment process
including McShane, Gotham’s primary adjuster for this claim sent a final report
recommending payment of $499,453.57 “for payment of the claim relating to the
improper installation of the fire sprinkler system.” Gotham subsequently stopped
communicating with McShane other than through an attorney and ultimately refused
to provide McShane with a formal coverage determination.

       McShane filed this lawsuit on December 23, 2014, asserting eight causes of
action including (in the order asserted by McShane) violation of the Nebraska Unfair
Insurance Trade Practices Act (Count 1), violation of the Nebraska Unfair Insurance
Claims Settlement Practices Act (Count 2), violation of the implied covenant of good
faith and fair dealing (Count 3), a claim for attorney’s fees under Neb. Rev. Stat.
§ 44-359 (Count 4), breach of contract (Count 5), waiver and estoppel (Count 6), a
claim under the rescue doctrine (Count 7), and declaratory relief (Count 8).

      On March 29, 2016, the district court granted Gotham’s motion to dismiss all
counts. McShane subsequently filed a Federal Rule of Civil Procedure 59(e) motion
to reconsider and vacate the judgment, which the district court denied on May 9,
2016. McShane now appeals.2

      2
          McShane has not appealed dismissal of counts 4 and 8.

                                         -3-
                                      II. Analysis

       We review de novo the district court’s grant of a motion to dismiss, “accepting
as true the complaint’s factual allegations and granting all reasonable inferences to
the non-moving party.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 591 (8th Cir.
2009).

        To survive a 12(b)(6) motion to dismiss, “a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). The
complaint must provide “more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Two working
principles underlie the analysis: (1) the court’s obligation to accept the non-movant’s
allegations as true “is inapplicable to legal conclusions,” such that “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice”; and (2) “only a complaint that states a plausible claim for
relief survives a motion to dismiss, . . . [and] [d]etermining whether a complaint states
a plausible claim for relief . . . [is] a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.” Id. at 678-79.

      We find that the district court’s dismissal of all counts was proper. To explain,
we will group McShane’s six remaining causes of action into (A) statutory claims, (B)
those pertaining to breach of contract, and (C) waiver and estoppel.

                                            -4-
                                  A. Statutory Claims

       Two of McShane’s claims are based upon Nebraska statutes that provide no
private right of action and thus, are subject to dismissal for failing to state a claim
upon which relief can be granted. In asserting its claim under Nebraska’s Unfair
Insurance Trade Practices Act, McShane alleges that Gotham has “not been
forthright, truthful, or timely in its adjustment of . . . the [] claims,” and alleges that
Gotham has acted in bad faith in violation of Neb. Rev. Stat. § 44-1525(9). In
asserting its claim under Nebraska’s Unfair Insurance Claims Settlement Practices
Act, McShane alleges that Gotham violated Neb. Rev. Stat. § 44-1540 which lists
numerous acts or practices that may be considered unfair claims settlement practices
under Nebraska law.

        However, neither of these statutes provides McShane with a private right of
action. In Nebraska, “[w]hether a statute creates a private right of action depends on
the statute’s purpose and whether the Legislature intended to create a private right of
action.” Prof’l Mgmt. Midwest, Inc. v. Lund Co., 826 N.W.2d 225, 233 (Neb. 2012).
The Nebraska Unfair Insurance Trade Practices Act “does not contemplate private
suits, but instead vests powers and duties in the State Director of Insurance, who is
empowered to enjoin and penalize certain prohibited acts.” Allied Fin. Servs., Inc.
v. Foremost Ins. Co., 418 F. Supp. 157, 162 (D. Neb. 1976). Likewise, “[t]he purpose
of the Unfair Insurance Claims Settlement Practices Act is to set forth standards for
the investigation and disposition of claims arising under policies issued to residents
of this state,” and no private right of action is provided by the Nebraska legislature
under this statute. Neb. Rev. Stat. § 44-1537. Therefore, both of these claims were
properly dismissed because neither rests upon a private right of action and thus, both
fail to state a claim upon which relief can be granted.

                                           -5-
                     B. Breach of Contract and Related Claims

       McShane asserts four claims arising from the insurance agreements including
(1) breach of contract, (2) breach of the implied covenant of good faith and fair
dealing, (3) failure to recognize third-party beneficiary status, and (4) mitigation.
McShane argues that “[t]here is an absence of a reasonable basis for [Gotham’s]
failure to assume and pay for damages . . . sustained by McShane” and alleges that
Gotham “breached its obligations and duties [under the Policy] to McShane as an
Additional Insured . . . and/or [as] a Third Party Beneficiary.”

                                1. Breach of Contract

       In Nebraska, “[t]he meaning of an insurance policy is a question of law, in
connection with which an appellate court has an obligation to reach its own
conclusions independently of the determination made by the lower court.”
Auto-Owners Ins. Co. v. Home Pride Cos., 684 N.W.2d 571, 575 (Neb. 2004). “In
construing insurance policy provisions, a court must determine from the clear
language of the policy whether the insurer in fact insured against the risk involved.”
Id. “In an appellate review of an insurance policy, the court construes the policy as
any other contract to give effect to the parties’ intentions at the time the writing was
made.” Id. “Where the terms of a contract are clear, they are to be accorded their
plain and ordinary meaning.” Id.

      Here, McShane is listed as an “Additional Insured” under the Policy. In
Nebraska, “[s]ubject to restrictions in the additional insured endorsement, an
additional insured has the same coverage rights and obligations as the principal
insured under the policy.” Federated Serv. Ins. Co. v. Alliance Constr., LLC, 805
N.W.2d 468, 476 (Neb. 2011). Thus, McShane has the same liability coverage as
Mallory under the parts of the Policy applicable to McShane. The Additional Insured

                                          -6-
endorsement includes McShane as an Additional Insured “only with respect to
liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’
caused . . . by . . . [Mallory’s] acts or omissions or . . . acts or omissions of those
acting on [Mallory’s] behalf.” (emphasis added).

       The nature of the Policy as a third-party liability policy is evident in its
language. “A ‘first-party insurance’ policy protects the insured from his or her own
losses, while a ‘third-party’ policy provides liability insurance that protects the
insured from claims resulting from the losses of others.” Metro Renovation, Inc. v.
Allied Grp., Inc., 389 F. Supp. 2d 1131, 1132 n.2 (D. Neb. 2005) (citing Douglas R.
Richmond, Trust Me: Insurers Are Not Fiduciaries to Their Insureds, 88 Ky. L.J. 1,
2 (2000)). “In the third-party situation, the insurance company will typically have the
power to defend and control litigation regarding the claims of strangers asserted
against the insured.” Id. Here, the Policy states, “We will pay those sums that the
insured becomes legally obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies.” (emphasis added). Likewise, the
“Additional Insured” endorsement says that the additional insureds are covered “only
with respect to liability.” (emphasis added). Thus, the policy covers liability to third
parties, not first-party losses.

       The Nebraska Supreme Court has determined in a case involving an insurance
contract with similar language that the insurance company “[did] not have an
obligation to pay for all acts committed by the insured even though the act by the
insured may produce an injury covered by the policy” because “until it is determined
that [the insured] is legally obligated to pay . . . , the question of [the insurance
company’s] obligation is uncertain and contingent.” Allstate Ins. Co. v. Novak, 313
N.W.2d 636, 639 (Neb. 1981). Here, McShane fails to plausibly allege that any third
party obtained a judgment denoting a legal obligation for McShane to pay. Because
McShane failed to allege a legal obligation to pay covered under the terms of the
Policy, the district court properly granted Gotham’s motion to dismiss.

                                          -7-
                          2. Good Faith and Fair Dealing

        McShane accuses Gotham of “an act or series of acts performed in bad faith.”
The Nebraska Supreme Court has stated that “in order to establish a claim for bad
faith, a plaintiff must show an absence of a reasonable basis for denying the benefits
of the insurance policy and the insurer’s knowledge or reckless disregard of the lack
of a reasonable basis for denying the claim.” LeRette v. Am. Med. Sec., Inc., 705
N.W.2d 41, 47-48 (Neb. 2005) (internal quotation marks omitted). Here, McShane
fails to allege that Gotham lacked a reasonable basis for denying benefits because it
failed to state a plausible claim that McShane was legally obligated to pay damages
covered under the Policy. Therefore, McShane failed to plausibly claim the absence
of a reasonable basis for denying the benefits, so its claim of bad faith is properly
dismissed.

                            3. Third-Party Beneficiary

       In addition to its claims as an Additional Insured, McShane claims that it is a
third-party beneficiary to other parts of the Policy not covered by the Additional
Insured endorsement. “In order for those not named as parties to a contract to recover
thereunder as third-party beneficiaries, it must appear by express stipulation or by
reasonable intendment that the rights and interests of such unnamed parties were
contemplated and provision was made for them.” Props. Inv. Grp. of Mid-Am. v.
Applied Commc’ns, Inc., 495 N.W.2d 483, 488 (Neb. 1993). “A third-party
beneficiary’s rights depend upon, and are measured by, the terms of the contract
between the promisor and promisee.” Haakinson & Beaty Co. v. Inland Ins. Co., 344
N.W.2d 454, 458 (Neb. 1984) (internal quotation marks omitted). “The right of a
third party benefitted by a contract to sue thereon rests upon the liability of the
promisor, which must affirmatively appear from the language of the instrument when

                                         -8-
properly interpreted or construed . . . .” Osmond State Bank v. Uecker Grain, Inc.,
419 N.W.2d 518, 520 (Neb. 1988) (internal quotation marks omitted).

       Here, McShane claims third-party beneficiary status under Part D of the Policy,
in which Mallory is the promisee and Gotham the promisor. Part D is an endorsement
modifying the CGL coverage and titled “Coverage D—Errors and Omissions
Liability.” Part D says Gotham will pay “those sums that the insured becomes legally
obligated to pay as damages because of errors or omissions committed by the Insured
resulting from the services provided in the declarations.” The “declarations” lists
“fire suppression” as the “form of business.”

        McShane fails to plausibly allege that its rights and interests were contemplated
when Mallory and Gotham entered into the portion of the Policy agreement pertaining
to Mallory’s errors or design liability. McShane alleges no “express stipulation” that
it is included in Part D—even though McShane is expressly included in other parts
of the Policy. Instead, the Additional Insured endorsement includes McShane as an
Additional Insured using language that corresponds to coverage provided only under
Section I, Parts A and B of the Policy—not Part D. The language does not mention
coverage for Mallory’s “errors,” for which Mallory has coverage under the “Errors
and Omissions Coverage Extension” endorsement in Part D. Therefore, McShane
fails to plausibly allege that the terms of the Policy demonstrate a “reasonable
intendment” to include McShane in Mallory’s Errors and Omissions coverage or
allege that such coverage “affirmatively appear[s] from the language of the [Policy],”
so Gotham’s motion to dismiss was properly granted. Id.; Applied Commc’ns, 495
N.W.2d at 488.

                                     4. Mitigation

    McShane’s mitigation claim was first framed under the rescue doctrine.
McShane’s claim under the rescue doctrine is without merit because the rescue

                                          -9-
doctrine is inapplicable to the facts of this case. “The rescue doctrine contemplates
a voluntary act by one who, in an emergency and prompted by spontaneous human
motives to save human life, attempts a rescue which he had no duty to attempt by
virtue of a legal obligation or duty fastened on him by his employment.” Buchanan
v. Prickett & Son, Inc., 279 N.W.2d 855, 858 (Neb. 1979). Here, no facts alleging
an “emergency . . . prompt[ing] . . . spontaneous human motives to save human life”
were cited by McShane.

       Apparently recognizing that the rescue doctrine is inapplicable, McShane
argues that it meant to claim mitigation of damages and that the claim was mislabeled
in the complaint. McShane cites a case that we decided under Missouri law, Slay
Warehousing Co. v. Reliance Insurance Co., 471 F.2d 1364 (8th Cir. 1973), for the
proposition that it should be compensated for mitigation of damages. However, Slay
provides no help to McShane, because the Slay policy included language expressly
requiring mitigation by the insured, while McShane fails to identify any similar
express language in the Gotham Policy. Id. at 1365. “Even assuming [McShane] had
an implied duty to mitigate or prevent damages, the [Gotham] policy expressly placed
the burden of such costs on [McShane].” Clarinet, LLC v. Essex Ins. Co., 712 F.3d
1246, 1250 (8th Cir. 2013). Specifically, the Policy expressly states, “No insured
will, except at the insured’s own cost, voluntarily make a payment, assume an
obligation, or incur any expense, other than for first aid, without our consent.”
(emphasis added). From a policy standpoint, this makes sense as a business decision
of the insurance company to prevent the insured from uncontrolled expenditures in
the name of mitigation without the insurance company’s input.

      Likewise, McShane’s decision to proceed with repairs prior to the
determination of any legal obligation or entry of judgment was a business decision.
McShane may be right that it was required to comply with building codes and
contractually obligated to the owner of the Project. But McShane’s remedy is to sue
Mallory, not the insurance company directly. McShane is properly a claimant, not an

                                        -10-
insured under the Policy for Mallory’s errors and omissions. Further, the Policy does
not cover contractual liability saying, “This insurance does not apply to . . . ‘property
damage’ for which the insured is obligated to pay damages by reason of the
assumption of liability in a contract or agreement.” McShane can and has sued
Mallory to recover its losses. McShane has failed to state a basis for which its alleged
mitigation could give it the right to successfully sue Mallory’s insurance company
directly for Mallory’s alleged errors.

        For the reasons stated above, McShane has failed to state a claim for which
relief can be granted with regard to its breach of contract theories, and we affirm the
district court’s dismissal of those counts.

                               C. Waiver and Estoppel

       McShane alleges that Gotham waived denial of coverage or should be estopped
from denying coverage to McShane under the Policy because McShane detrimentally
relied upon Gotham and the Policy in its decision to hire Mallory. McShane also
argues reliance because Gotham engaged in a long claim-adjustment process with
McShane delaying its lawsuit against Mallory, caused McShane to expend resources
during the prolonged adjustment, and engaged in “other related conduct” indicating
Gotham did not dispute the claim during the adjustment process.

      The complaint fails to plausibly allege waiver here. The Nebraska Supreme
Court has stated:

      A waiver is a voluntary and intentional relinquishment of a known right,
      privilege, or claim, and may be demonstrated by or inferred from a
      person’s conduct. We have long held that an insurer may waive any
      provision of a policy that is for the insurer’s benefit, including vacancy
      provisions. Ordinarily, to establish a waiver of a legal right, there must
      be a clear, unequivocal, and decisive act of a party showing such a

                                          -11-
      purpose, or acts amounting to an estoppel on his or her part. A party
      may waive a written contract in whole or in part, either directly or
      inferentially. A party may prove the waiver by (1) a party’s express
      declarations manifesting the intent not to claim an advantage or (2) a
      party’s neglecting and failing to act so as to induce the belief that it
      intended to waive.

D & S Realty, Inc. v. Markel Ins. Co., 789 N.W.2d 1, 17-18 (Neb. 2010) (emphases
added).

        Here, McShane does not plausibly allege that Gotham waived its rights under
the Policy. First, there is no allegation of an express declaration by Gotham waiving
its right to deny McShane’s claim. Second, while McShane may have believed that
Gotham intended to pay for McShane’s damages, McShane alleges no clear,
unequivocal, and decisive acts by Gotham indicating that it intended to waive its right
to deny the claim. To be sure, Gotham did engage in a comprehensive adjustment
process investigating the reasonableness of McShane’s claimed costs. However,
Gotham’s communications indicate that it was defending Mallory, with Mallory being
named as the “Insured” in the communications and with the claim being consolidated
into the claim number with Mallory listed as the “Insured.” For example, the “Final
Report” letter that resulted from the adjustment process and recommending
$499,453.57 in payment clearly lists Mallory as the “Insured,” not McShane. As
another example, McShane’s May 20, 2013, demand letter to Mallory says Mallory
should submit the costs for reimbursement on “[Mallory’s] general liability policy.”
McShane thus understood that the adjustment process was occurring under Mallory’s
policy. Finding no plausible allegation in the complaint of a clear, unequivocal, and
decisive act by Gotham to justify any assumptions McShane may have made
regarding Gotham’s intent to waive its right to deny the claim, we affirm the district
court’s dismissal of the waiver claim.

                                         -12-
       Likewise, we find that McShane has failed to sufficiently allege that Gotham
should be estopped from denying McShane’s claim. Estoppel in Nebraska is defined
generally by six elements: (1) calculated false representation or concealment of
material facts, (2) intention or expectation that the other party will act upon or be
influenced by the first element, (3) knowledge of the real facts, (4) lack of knowledge
(or means of knowledge) of the truth as to the real facts, (5) good faith reliance upon
the conduct or statements of the party to be estopped, and (6) resulting change in the
position or status of the party claiming estoppel. Am. Family Mut. Ins. Co. v. Regent
Ins. Co., 846 N.W.2d 170, 192-93 (Neb. 2014). “[E]stoppel cannot be invoked to
expand the scope of coverage of an insurance contract absent a showing of
detrimental good faith reliance upon statements or conduct of the party against whom
estoppel is invoked which reasonably led an insured to believe coverage was
present.” Design Data Corp. v. Md. Cas. Co., 503 N.W.2d 552, 560 (Neb. 1993)
(emphasis added). “As a general rule, the doctrine of estoppel may not be used to
bring within the coverage of a policy risks not covered by its terms, or risks expressly
excluded therefrom.” First United Bank of Bellevue v. First Am. Title Ins. Co., 496
N.W.2d 474, 480 (Neb. 1993) (emphasis added). Here, as noted above, Part D of the
Policy covering Mallory’s errors and omissions expressly excluded the property
damage claimed by McShane from coverage.

       “A widely recognized exception to the general estoppel rule is that when an
insurance company assumes the defense of an action against its insured, without
reservation of rights, and,with knowledge, actual or presumed, of facts which would
have permitted it to deny coverage, it may be estopped from subsequently raising the
defense of non-coverage.” Id. (emphasis added). “The exception to the general
estoppel rule applies when an insured is able to show (1) that the insurer had
sufficient knowledge of facts or circumstances indicating non-coverage, (2) that the
insurer assumed or continued defense of the insured without obtaining an effective
reservation of rights agreement, and (3) that the insured suffered some type of harm
or prejudice.” Id. (emphasis added).

                                         -13-
       Here, McShane does not plausibly allege that Gotham assumed or continued
defense of any claim against McShane. As noted above, Gotham’s communications
internally and with McShane indicated that it was defending Mallory. Upon receipt
of a demand letter from McShane, Mallory tendered defense of the action to Gotham
leading Gotham to open a claim file into which it eventually merged McShane’s
claim—indicating that Gotham was treating McShane’s claim as one directed against
Mallory by McShane, and not one covering McShane as an Additional Insured.
McShane’s May 20, 2013, demand letter to Mallory instructed Mallory to submit the
costs on “[Mallory’s] general liability policy”—not under McShane’s Additional
Insured policy. Likewise, communications between McShane and Gotham did not
assert the claim based upon McShane’s status as an Additional Insured. Instead, the
demand letter clearly says that McShane is making a claim against Mallory for
damages due to design errors committed by Mallory and covered under Mallory’s
general liability policy. McShane fails to allege that Gotham assumed its defense
qualifying for an exception to the general estoppel rule. Id. Thus, McShane fails to
plausibly allege that it relied, in good faith, on any promises by Gotham, and is
therefore not entitled to estoppel.

      For the reasons stated above, McShane failed to state a claim upon which relief
can be granted based upon waiver or estoppel, so those counts were properly
dismissed.

                                 III. Conclusion

       After giving all reasonable inferences to McShane and accepting the factual
allegations as true while drawing on our judicial experience and common sense, we
find that McShane has failed to state a claim upon which relief can be granted.
Therefore, we affirm the district court’s grant of Gotham’s Federal Rule of Civil
Procedure 12(b)(6) motion to dismiss.

                                        -14-
BEAM, Circuit Judge, concurring in the judgment.

      It is my view that McShane Construction Company, LLC, as an endorsed
"Additional Insured" under the Gotham insurance policy, enjoys such insurance
coverage as is provided by the policy's "Commercial General Liability" part. This
would include, absent presently unstated limitations, coverage for any actionable
claims McShane may have against its subcontractor Mallory. Thus, within the time
frame of an applicable statute of limitations, McShane may state a cause of action
against Mallory, if any exists. To date, McShane has not done so.

      Accordingly, as the court points out, Nebraska law prevents McShane from
seeking redress within this litigation. See, e.g., Allstate Ins. Co. v. Novak, 313
N.W.2d 636, 639 (Neb. 1981).
                      ______________________________

                                      -15-