February 11, 2020
By Kent Bevan
In Westchester Surplus Lines Insurance Company et al. v. Interstate Underground Warehouse, Interstate operated an underground storage facility in a cave that formerly housed a limestone mine near Kansas City, Missouri. Interstate experienced a series of so-called “dome-outs” when layers of rock destabilized, detached and collapsed from above into the cave area.
Westchester sought a declaratory judgment that Interstate’s claimed losses relating to the dome-outs were not covered. Four additional excess insurance carriers also sought a declaration that there was no coverage under the policy they issued to Interstate. Interstate counterclaimed against Westchester, alleging vexatious refusal to pay under the Missouri statute.
The District Court granted summary judgment for the insurance companies on the grounds that the cause of loss was not “building decay” within the meaning of the primary policy and that there was no coverage. This appeal followed to the Eighth Circuit.The opinion sets forth the consistency of the various layers of rock in the Interstate facility. In the case, Interstate described two different features of the earth as a “ceiling” of the facility, while the court referred to it as the “natural ceiling.” Interstate reinforced this natural ceiling by drilling steel bolts into the layers of rock above and securing the bolts in place.
The dome-outs apparently arose from activity relating to a manmade freezer within the Interstate facility, which included two freezers created by isolating and insulating designated spaces and then cooling those spaces. That process also froze the moisture within the rubble zone above the designated freezer spaces. In 2012, one of those freezers was decommissioned, which ultimately resulted in erecting new walls within the malfunctioning freezer and caused a series of freeze-thaw cycles that destabilized the rubble zone above and eventually caused four dome-outs during 2014. The natural ceiling above the facility, along with certain layers of rock, detached and fell into the area below.
Interstate submitted claims to Westchester for these dome-outs. The policy issued to Interstate included coverage for collapse of a building caused by “building decay” under certain circumstances. Westchester investigated and ultimately denied coverage.
The court noted that in Missouri, policy terms are given the meaning that would be attached by an ordinary person of average understanding if purchasing insurance, citing Seeck v. Geico General Insurance Company, and that the insured bears the burden of showing that the claimed loss or damage is covered under the policy. The insurance policy excluded coverage for loss or damage caused by collapse but the exclusion does not apply to a provision entitled “additional coverage-collapse.” That part of the policy establishes coverage for “direct physical loss or damage to covered property, caused by abrupt collapse of a building … if such collapse is caused by … building decay hidden from view, unless the presence of such decay is known to the insured prior to collapse.” Westchester accepted for purposes of this appeal that the Interstate facility is a building within the meaning of the policy and, as applied to this situation, the building is a facility constructed inside the cave.
The appeal turns on whether the collapse that damaged the “building” was caused by a “building decay.” There is no doubt that the relevant “decay” occurred in the rubble zone above the natural ceiling of the cave, so the issue is whether the decay in the rubble zone was “building decay.” The rubble zone above the natural ceiling in this building was secured by Interstate inserting steel bolts through the natural ceiling, through the rubble zone, and into the more stable layers of rock above the rubble. Interstate therefore argues that when it installed reinforcing bolts through the rubble, the rubble zone became part of the building, such that decay in that area qualified as “building decay.” The Eighth Circuit, however, was not convinced that the bolting process converted the rubble zone and other earth around the bolts into part of the “building,” but rather that the bolts reinforced the natural ceiling to support that structure.
The Eighth Circuit concluded that the rubble zone above the natural ceiling of the facility was not part of the building and that because the decay that caused the dome-outs in this case occurred within the rubble zone it follows that the dome-outs were not caused by “building decay” within the meaning of the policy. Therefore, the Eighth Circuit affirmed the judgment of the District Court in determining that no coverage existed.