United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-1963
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Donald Raines and Carole Raines, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the Western
* District of Missouri.
Safeco Insurance Company of America, *
*
Appellee. *
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Submitted: January 11, 2011
Filed: March 21, 2011
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Before COLLOTON, GRUENDER, and SHEPHERD, Circuit Judges.
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GRUENDER, Circuit Judge.
On April 23, 2001, Donald and Carole Raines (“the Raineses”) entered into a
contract to sell their house and real property in Overland Park, Kansas (“Overland
Park property”), to Maurya J. Lyons. The closing took place on May 31, 2001. At
the time the Raineses entered into the sales contract, they owned a homeowners’
policy issued by Safeco Insurance Company of America (“Safeco”). This policy,
which provided dwelling and personal property coverage as well as personal liability
coverage, was cancelled effective May 23, 2001. Safeco then issued the Raineses a
personal umbrella insurance policy, with a policy period of May 23, 2001, to May 23,
2002.
Within three months after the closing, Lyons filed a complaint in Kansas state
court against the Raineses (“underlying suit”). The second amended petition for
damages listed three causes of action—fraud, negligent misrepresentation, and breach
of contract—arising from the Raineses’ alleged “statements and concealments”
regarding certain defects in the Overland Park property.1 Specifically, Lyons alleged
that the Raineses misrepresented and failed to disclose incidents of “water leakage
and dampness in the basement and . . . repairs made to the basement.”
The Raineses tendered the underlying suit to Safeco for defense and indemnity
under both the homeowners’ policy and the umbrella policy. Safeco denied coverage
and refused to defend or indemnify the Raineses. Thereafter, the Raineses retained
counsel at their own expense. They prevailed in the underlying suit on summary
judgment and ultimately on appeal. The Raineses then initiated the present action
against Safeco in Missouri state court, alleging breach of the insurance policies for
failure to defend the underlying suit and seeking the fees and other expenses incurred
in their defense of the underlying suit. In addition, they sought an award of attorney’s
fees incurred in the present action pursuant to Kan. Stat. Ann. § 40-256. Safeco
removed the action to federal court, based on diversity jurisdiction. Interpreting the
policies under Kansas law, the district court2 granted Safeco’s motion for summary
judgment. The Raineses now appeal.
“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.” Sipe v. Workhorse Custom
Chassis, LLC, 572 F.3d 525, 528 (8th Cir. 2009) (quoting J.E. Jones Constr. Co. v.
1
Lyons’s petition also included claims, not relevant here, against the realty
company and agents involved in the conveyance.
2
The Honorable Dean Whipple, United States District Judge for the Western
District of Missouri.
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Chubb & Sons, Inc., 486 F.3d 337, 340 (8th Cir. 2007)). We review a district court’s
grant of summary judgment de novo, including its interpretation of state law. St. Paul
Fire & Marine Ins. Co. v. Schrum, 149 F.3d 878, 880 (8th Cir. 1998). The parties do
not dispute that Kansas law governs our interpretation of the policies. When
determining the state-law issue of insurance policy coverage, we are bound in our
construction of Kansas law by the decisions of the state’s supreme court. See id.
Absent controlling Kansas Supreme Court authority, a federal court sitting in
diversity must attempt to predict what that court would decide if it were to address
the issue. See Leonard v. Dorsey & Whitney LLP, 553 F.3d 609, 612 (8th Cir. 2009).
In pursuing this endeavor, we may consider “relevant state precedent, analogous
decisions, considered dicta, . . . and any other reliable data.” Lindsay Mfg. Co. v.
Hartford Accident & Indem. Co., 118 F.3d 1263, 1268 (8th Cir. 1997) (quoting
Ventura v. Titan Sports, Inc., 65 F.3d 725, 729 (8th Cir. 1995)). Thus,
[w]here an intermediate appellate state court rests its considered
judgment upon the rule of law which it announces, that is a datum for
ascertaining state law which is not to be disregarded by a federal court
unless it is convinced by other persuasive data that the highest court of
the state would decide otherwise.
West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237 (1940).
Under Kansas law, insurance policies are “construed according to the sense and
meaning of the terms used, and if the language is clear and unambiguous, it must be
taken in its plain, ordinary, and popular sense.” First Fin. Ins. Co. v. Bugg, 962 P.2d
515, 519 (Kan. 1998). “[C]ourts should not strain to create an ambiguity where, in
common sense, there is none.” Id. An insurer’s duty to defend and its obligation to
provide coverage under the policy are not necessarily coextensive. Spivey v. Safeco
Ins. Co., 865 P.2d 182, 188 (Kan. 1993). The duty to defend is broader, arising
“whenever there is a ‘potential of liability’ under the policy.” Id. Whether the
possibility of coverage exists “must be determined by a good-faith analysis of all
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information known to the insured or all information reasonably ascertainable by
inquiry and investigation.” Spruill Motors, Inc. v. Universal Underwriters Ins. Co.,
512 P.2d 403, 407 (Kan. 1973). However, the insured has the burden of proving that
the alleged loss falls within the general coverage provisions of the policy, Harris v.
Richards, 867 P.2d 325, 328 (Kan. 1994), and where a petition alleges an act that
clearly is not covered, there is no potential of liability and thus no duty to defend,
Spivey, 865 P.2d at 188.
The Personal Liability Coverage section of the Raineses’ homeowners’ policy
provides, in relevant part:
If a claim is made or a suit is brought against any insured for damages
because of . . . property damage caused by an occurrence to which
this coverage applies, we will:
1. pay up to our limit of liability for the damages for which
the insured is legally liable; and
2. provide a defense at our expense by counsel of our choice
even if the allegations are groundless, false or fraudulent.
(emphasis added). The homeowners’ policy defines “occurrence” as “an accident,
including exposure to conditions[,] which results in: . . . property damage.” In turn,
“property damage” is defined as “physical damage to or destruction of tangible
property, including loss of use of this property.” Neither party argues that the terms
of the Raineses’ umbrella policy are materially different from those of their
homeowners’ policy, and, following the parties’ lead, we subject the two policies to
the same analysis.3
3
The umbrella policy provides that Safeco “will pay on behalf of the insured
for the ultimate net loss in excess of the retained limit which the insured is legally
obligated to pay as damages because of covered personal injury or property damage
caused by an occurrence.” “Occurrence” is defined as “an accident, including
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Because the undisputed facts in the present case do not suggest even a remote
possibility of coverage under Kansas law, we agree with the district court that, as a
matter of law, Safeco did not breach the policies by declining to defend the Raineses
in the underlying suit. The policies’ language unambiguously cabins Safeco’s duty
to defend and indemnify to cases where the insured is exposed to liability for
“property damage” caused by an “occurrence.” The Raineses argue that the
definition of “occurrence” is ambiguous because it defines the term as “an accident”
but leaves “accident” undefined. Thus, they assert, the definition should be construed
favorably to include the wrongdoing alleged in the underlying suit. Although at least
one federal district court interpreting Kansas law has held squarely that “negligent
misrepresentation does not constitute an ‘accident,’” U.S. Fid. and Guar. Co. v.
Dealers Leasing, Inc., 137 F. Supp. 2d 1257, 1262 (D. Kan. 2001), we need not
decide that issue because, in any event, Lyons did not seek to hold the Raineses liable
for “property damage” caused by their alleged wrongful conduct, see St. Paul Fire &
Marine Co. v. Lippincott, 287 F.3d 703, 705 (8th Cir. 2002) (declining to address
whether “negligent misrepresentation . . . qualifies as an ‘occurrence’” under
Missouri law “because the [underlying] judgment was clearly not a recovery for
‘property damage’ under the policies”). Rather, each of Lyons’s three claims sought
damages for economic harm arising from the Raineses’ alleged “statements and
concealments” concerning the property’s condition. Second Am. Pet. Dam. ¶ 29,
Lyons v. Raines, No. 01-05511 (Dist. Ct. of Johnson Cnty., Kan. June 19, 2002)
(fraud claim); see also id. ¶¶ 32-35 (pleading negligent misrepresentation and
alleging “[a]s a direct and proximate result of defendants’ false
representations . . . , [Lyons] has suffered considerable damages”); id. ¶¶ 39-42
(pleading breach of contract on the basis of the Raineses’ alleged failure to disclose
continuous or repeated exposure to substantially the same general harmful conditions,
which results, during the coverage period, in . . . property damage.” “Property
damage” is defined as “physical injury to or destruction of tangible property including
loss of its use.”
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“all material defects, conditions and facts . . . which may materially affect the value
of the property”).
In near-identical circumstances, the Kansas Court of Appeals has held that an
underlying claim alleging negligent misrepresentation exposes the defendant to
liability for economic loss, not damage to tangible property. In Bush v. Shoemaker-
Beal, 987 P.2d 1103 (Kan. Ct. App. 1999), purchasers of a residence with undisclosed
termite damage brought an action claiming negligent misrepresentation against the
sellers, and they obtained a default judgment. Id. at 1104. The purchasers
subsequently commenced garnishment proceedings against the issuer of the sellers’
rental dwelling policy. Interpreting policy terms indistinguishable from those at issue
here, the Kansas Court of Appeals concluded that an action claiming negligent
misrepresentation fell outside the policy’s coverage because the property’s damaged
condition “was not caused by the negligent misrepresentations.” Id. at 1105 (“[T]here
is no coverage because [the purchaser] seeks economic damages, not property
damages.”); see also Dealers Leasing, Inc., 137 F. Supp. 2d at 1261; Lininger v. State
Farm Fire and Cas. Co., 1998 WL 684239, at *3 (D. Kan. Sept. 11, 1998); Safeco
Ins. Co. of Am. v. Tozier, 1994 WL 476304, at *3-4 (D. Kan. Aug. 16, 1994). Given
the coincident facts and policy terms at issue in Bush, we find the reasoning of the
Kansas Court of Appeals to supply particularly apposite guidance in the present case.
Accordingly, in the absence of “persuasive data that the highest court of the state
would decide otherwise,” West, 311 U.S. at 237, we conclude that the Kansas
Supreme Court would hold that Lyons’s underlying suit did not seek damages for
covered “property damage.”
The Raineses endeavor to counter Bush and its accompanying host of federal
district court authority by asserting that Lyons sought more than damages for
economic harm because she included “allegations of extensive damage to the
property.” We disagree. The notion that Lyons’s reference to the property’s
condition converts her claim into one seeking recompense for “property damage” is
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implausible, particularly in light of her allegations that she was injured by
misstatements concerning the property’s value. More importantly, this theory was
flatly rejected by the District Court for the Southern District of Mississippi in a case
later expressly approved by the Kansas Court of Appeals in Bush. See State Farm
Fire and Cas. Co. v. Brewer, 914 F. Supp. 140 (S.D. Miss. 1996), cited in Bush, 987
P.2d at 1105; see also Tozier, 1994 WL 476304, at *4. The insured home sellers in
Brewer argued that a suit alleging misrepresentation and fraud sought damages for
covered property damage, “point[ing] to the fact that the [purchasers] complain of a
home irreparably damaged by termites.” 914 F. Supp. at 142. The court determined,
however, that “the claims sound in negligent and intentional misrepresentation and
fraud,” and, accordingly, that the damages sought “have no basis in property
damage . . . and as such do not fall within the scope of coverage.” Id. Likewise here,
the Raineses cannot transform an action seeking damages for economic loss into one
seeking damages for harm to tangible property by mere ipse dixit.4
For the foregoing reasons, we affirm the district court’s grant of summary
judgment to Safeco.
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4
We also reiterate that whether the water leakage at the Overland Park property
constitutes “property damage” is not at issue in this case because it is not the harm for
which Lyons sought to hold the Raineses liable. Again, Lyons sought damages for
economic loss resulting from alleged misstatements and concealments concerning the
property’s condition, see Second Am. Pet. Dam. ¶¶ 30, 35, 42, Lyons v. Raines, No.
01-05511, not for “physical damage to or destruction of” the property.
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