Mt. Hawley Insurance Company v. City of Richmond Heights, Missouri

United States Court of Appeals
For the Eighth Circuit
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No. 23-1701
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Mt. Hawley Insurance Company
Plaintiff - Appellee
v.
City of Richmond Heights, Missouri
Defendant - Appellant
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Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
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Submitted: January 10, 2024
Filed: February 12, 2024
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Before BENTON, ERICKSON, and KOBES, Circuit Judges.
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BENTON, Circuit Judge.
The City of Richmond Heights filed a claim with Mt. Hawley Insurance
Company seeking coverage, under a commercial property policy, for losses of tax
revenue due to government-mandated COVID-19 closures. Mt. Hawley denied the
claim and sued for a declaratory judgment that it was not obligated to cover the

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losses. Richmond Heights counterclaimed. The district court1 dismissed the
counterclaims, denied amendments to two of them, and granted declaratory
judgment to Mt. Hawley. Having jurisdiction under 28 U.S.C. § 1291, this court
affirms.
I.
Richmond Heights, a city in St. Louis County, Missouri, purchased a
commercial property insurance policy from Mt. Hawley to protect against losses of
“business income”—sales-tax revenue from five retail centers. Richmond Heights
has had similar policies with Mt. Hawley since 1999.
In 2020, St. Louis County ordered “all non-essential businesses” closed,
causing losses of sales-tax revenue for Richmond Heights. It made a claim under
the policy, which Mt. Hawley denied.
Mt. Hawley sued for a declaratory judgment that it was not obligated to cover
the COVID-19 losses because the policy required “direct physical loss of or damage
to property.” In a five-count counterclaim, the city alleged (1) breach of contract,
(2) vexatious refusal to pay, (3) fraudulent inducement and misrepresentation, (4)
negligent misrepresentation, and (5) breach of fiduciary duty. Mt. Hawley moved
to dismiss the counterclaims. The city sought leave to amend only counts 1 and 2.
Denying the motion to amend, the district court dismissed all five counts on the
pleadings, awarding declaratory judgment. Richmond Heights appeals.
II.
In counts 1 and 2, the city asserts breach of contract and vexatious refusal to
pay its COVID-19 tax losses. This Court reviews de novo a grant of Rule 12(b)(6)
1 The Honorable Sarah E. Pitlyk, United States District Judge for the Eastern
District of Missouri.

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dismissal or a Rule 12(c) judgment on the pleadings. Sletten & Brettin
Orthodontics, LLC v. Continental Cas. Co., 782 F.3d 931, 934 (8th Cir. 2015). This
diversity action is governed by Missouri law.
The city’s policy covers losses of “Business Income.”:
A. Coverage
1. Business Income
Business Income means:
a. Sales Tax revenue that would have been earned
We will pay for the actual loss of Business Income you sustain due to
the necessary “suspension” of “operations” during the “period of
restoration”. The “suspension” must be caused by direct physical loss
of or damage to property at premises which are described in the
Declarations and for which a Business Income Limit of Insurance is
shown in the Declarations. The loss or damage must be caused by or
result from a Covered Cause of Loss.
(emphasis added). The policy defines “Period of Restoration”:
2. “Period of restoration” means the period of time that:
a. Begins 72 hours after the time of direct physical loss or damage
caused by or resulting from any Covered Cause of Loss at the described
premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should
be repaired, rebuilt or replaced with reasonable speed and similar
quality; or
(2) The date when business is resumed at a new permanent
location.

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The parties recognize that losses due to COVID-19 shutdowns are not
“physical” losses. See, e.g., Lindenwood Female Coll. v. Zurich Am. Ins. Co., 61
F.4th 572, 573 (8th Cir. 2023) (“Our Court and many others have rejected this type
of claim, holding COVID-19 business interruptions were due to changed conditions
and circumstances that did not result from, or cause, qualifying property loss or
damage.”); Monday Restaurants v. Intrepid Ins. Co., 32 F.4th 656, 658 (8th Cir.
2022) (applying Missouri law to a similar COVID-19 business interruption claim,
this court held, “Ultimately the trigger has to be a ‘physical loss,’ which the
businesses here fail to allege.”); Planet Sub Holdings, Inc. v. State Auto Prop. &
Cas. Ins. Co., Inc., 36 F.4th 772, 775 (8th Cir. 2022) (applying Missouri law to hold
that “’direct physical loss of or damage to property’ is not triggered here. . . ‘[T]here
must be some physicality to the loss or damage of property—e.g., a physical
alteration, physical contamination, or physical destruction.’”), quoting Oral
Surgeons P.C. v. Cincinnati Ins. Co., 2 F.4th 1141, 1144 (8th Cir. 2021).
Invoking the “Additional Covered Property Endorsement,” the city argues
that the policy is endorsed to remove the “physical damage or loss” requirement for
losses of sales tax revenues. The ACPE states in full:
This Policy is changed to include the following even though the item(s)
listed may be excluded elsewhere in this policy: Sales Tax Revenue.
Under Missouri law, “the interpretation of an insurance policy is a question
of law.” Mendota Ins. Co. v. Lawson, 456 S.W.3d 898, 903 (Mo. App. 2015).
Insurance contracts are read “as a whole [to] determine the intent of the parties,
giving effect to that intent by enforcing the contract as written.” Thiemann v.
Columbia Pub. Sch. Dist., 338 S.W.3d 835, 839–840 (Mo. App. 2011). “Policy
terms are given the meaning which would be attached by an ordinary person of
average understanding if purchasing insurance.” Vogt v. State Farm Life Ins. Co.,
963 F.3d 753, 763 (8th Cir. 2020) (applying Missouri law). “The central issue in
interpreting contract language is determining whether any ambiguity exists, which
occurs ‘where there is duplicity, indistinctness, or uncertainty in the meaning of the

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words used in the contract.’” Id., quoting Peters v. Employers Mut. Cas. Co., 853
S.W.2d 300, 302 (Mo. banc 1993).
Richmond Heights contends that “except for the ACPE all the coverage
language in the policy is ambiguous, circuitous and difficult to interpret,” and that
“an ordinary person would read the ACPE and give it the plain meaning of the words
stated, i.e., that it ‘changes’ the Policy to provide insurance for lost ‘Sales Tax
Revenues,’ and that those revenues are the insured property under the Policy.”
As the district court correctly noted, “the City’s proposed reading . . .would
create a conflict between the ACPE and the [coverage provisions]” and “would
render those very clear coverage limitations nugatory.” Mt. Hawley Ins. Co. v. City
of Richmond Heights, 2022 WL 767069, at *6 (E.D. Mo. Mar. 14, 2022). “In
constructing contractual provisions, this court is to avoid an interpretation that
renders other provisions meaningless.” Gohagan v. Cincinnati Ins. Co., 809 F.3d
1012, 1015 (8th Cir. 2016), quoting Nodaway Valley Bank v. E.L. Crawford
Constr., Inc., 126 S.W.3d 820, 827 (Mo. App. 2004).
Richmond Heights contends that if the ACPE conflicts with general
provisions, it should prevail. See Warden v. Shelter Mut. Ins. Co., 480 S.W.3d 403,
410 (Mo. App. 2016) (“If the language of the endorsement and the general provisions
of the policy conflict, the endorsement will prevail, and the policy remains in effect
as altered by the endorsement.”) (quotation omitted) (emphasis added). “The policy
of insurance and an endorsement must be read together where there is a dispute as
to its meaning, and they should be construed together unless they are in such conflict
they cannot be reconciled.” Abco Tank & Mfg. Co. v. Fed. Ins. Co., 550 S.W.2d
193, 198 (Mo. banc 1977).
Here, the ACPE and the physical damage or loss restrictions do not conflict.
As the district court properly noted, “[as] vindicated by the plain text, the ACPE
merely makes the Policy’s exclusions inoperative if they might apply to sales tax
revenues otherwise meeting the requirements imposed by the coverage provisions.”

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Mt. Hawley Ins. Co., WL 767069, at *6. This interpretation does not conflict with
the rest of the policy, unlike the City’s interpretation, which would render
meaningless the explicit physical loss or damage limitation. Interpreting the ACPE
to eliminate the “physical loss or damage” requirement is not reasonable.
The district court did not err in dismissing counts 1 and 2, the city’s breach of
contract and vexatious refusal claims.2
III.
The city also argues that the district court improperly dismissed count 3 (fraud
in the inducement and fraudulent misrepresentation), count 4 (negligent
misrepresentation), and count 5 (breach of fiduciary duty).
In counts 3 and 4, the city alleges that Mt. Hawley, at the initial issuance and
at each renewal, stated that the policy covered losses of sales-tax revenue, regardless
of the cause of the loss, and that this statement was proven false by Mt. Hawley’s
denial of the claim. The district court dismissed counts 3 and 4 as “not independent
from the City’s breach of contract claim.”
“[A]n insurance company's denial of coverage itself is actionable only as a
breach of contract and, where appropriate, a claim for vexatious refusal to pay.”
Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62, 69 (Mo. banc 2000) (denying
fraud and negligent misrepresentation claims where the insured’s claims were
“based on [the insurer’s] refusal to pay”). See Wiles v. Capitol Indem. Corp., 280
F.3d 868, 870 (8th Cir. 2002) (“An insured cannot recast a contract claim as a
conspiracy tort under Missouri law.”), citing Meeker v. Shelter Mut. Ins. Co., 766
S.W.2d 733, 742–43 (Mo. App. 1989). “Appellant is foreclosed from asserting
[fraud and misrepresentation] claims against [the insurer] because the facts pled in
2 Similarly, the city’s arguments for liability under the policy’s “Civil
Authority” coverage fail, as it has the same “physical loss or damage” requirement.

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those counts are already within its causes of action for breach of contract and
vexatious refusal to pay.” Ryann Spencer Grp., Inc. v. Assurance Co. of Am., 275
S.W.3d 284, 290 (Mo. App. 2008). Cf. Overcast, 11 S.W.3d at 68 (Missouri
Supreme Court holding that a policyholder could bring a defamation claim against
an insurer where it “is based on conduct quite distinct from conduct that merely
constituted a breach of contract.”).
Here, the city relies on Mt. Hawley’s denial of payment—the basis of its
contract claim—to prove the falsity of its representations. Richmond Heights’s
inducement and misrepresentation claims were not “based on conduct quite distinct
from” the underlying breach of contract allegation. Id. The district court did not err
in dismissing counts 3 and 4.
In count 5, the city alleges that Mt. Hawley owed it a fiduciary duty due to its
“greater knowledge and power with respect to the insurance industry,” and breached
this duty by providing a policy that did not meet the city’s needs. “[A]n insurer
generally does not owe fiduciary duties to its insured when the insured is making a
first party claim against the insurer.” Pool v. Farm Bureau Town & Country Ins.
Co. of Missouri, 311 S.W.3d 895, 905–906 (Mo. App. 2010). “[A] fiduciary
relationship is notably absent in claims by an insured against an insurer under
policies of property and related types of insurance.” Id. at 907, quoting Duncan v.
Andrew County Mut. Ins. Co., 665 S.W.2d 13, 19 (Mo. App. 1983). “In first party
claims by insureds against insurers under policies affording coverage for loss or
damage to property and related types of insurance, the parties occupy a contractually
adversary or creditor-debtor status as opposed to standing in a fiduciary
relationship.” Id.
Here, the city brought a first party claim against Mt. Hawley under a policy
affording coverage for loss or damage to property. The district court correctly
dismissed this claim, finding that a fiduciary duty did not exist under Missouri law.

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IV.
The city challenges the district court’s denial, on futility grounds, of leave to
amend counts 1 and 2.
“Generally, we review the denial of leave to amend a complaint under an
abuse of discretion standard; however, when the district court bases its denial on the
futility of the proposed amendments, we review the underlying legal conclusions de
novo.” Jackson v. Riebold, 815 F.3d 1114, 1122 (8th Cir. 2016) (quotation omitted).
“A district court's denial of leave to amend a complaint may be justified if the
amendment would be futile.” Hillesheim v. Myron's Cards & Gifts, Inc., 897 F.3d
953, 955 (8th Cir. 2018) (quotation omitted). “An amendment is futile if the
amended claim could not withstand a motion to dismiss under Rule 12(b)(6).” Id.
(quotation omitted).
In its proposed amendment, the city alleged that COVID-19 was present on
the premises and constituted “physical damage.” This court has cast doubt on this
theory of “physical damage.” See Lindenwood, 61 F.4th at 574 (“[W]e harbor
serious doubt that Lindenwood's ‘viral presence’ theory satisfies the physicality
requirement or that the current factual allegations satisfy Iqbal’s plausibility
standard.”). Other circuits have rejected this theory. See, e.g., Santo's Italian Cafe
LLC v. Acuity Ins. Co., 15 F.4th 398, 402 (6th Cir. 2021) (“The novel coronavirus
did not physically affect the property in the way, say, fire or water damage would. .
. . A loss of use simply is not the same as a physical loss.”); Gilreath Family &
Cosm. Dentistry, Inc. v. Cincinnati Ins. Co., 2021 WL 3870697, at *2 (11th Cir.
Aug. 31, 2021) (per curiam) (“[W]e do not see how the presence of [COVID-19]
particles would cause physical damage or loss to the property. Gilreath thus has
failed to state a claim that Cincinnati Insurance breached the policy's ‘Business
Income’ or ‘Extra Expense’ provisions.”).

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Because the city’s proposed amendment did not plead a physical loss or
damage, the district court properly denied leave to amend counts 1 and 2.3
* * * * * * *
The judgment is affirmed.
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3 Richmond Heights never filed a proposed amended counterclaim for counts
3–5. On appeal, it contends that the district court improperly foreclosed any
amendment of counts 3–5. (Its proposed amendment, submitted with its motion to
amend, only addressed counts 1 and 2.) “A district court does not abuse its discretion
in denying leave to amend when a plaintiff has not submitted a proposed amended
pleading in accord with a local procedural rule.” United States ex rel. Raynor v.
Nat'l Rural Utilities Co-op. Fin., Corp., 690 F.3d 951, 958 (8th Cir. 2012). See
Local Rule 4.07. The district court did not improperly foreclose any amendment to
counts 3–5.

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