Topp's Mechanical, Inc., a Nebraska Corporation v. Kinsale Insurance Company, an Arkansas Insurance Corporation

United States Court of Appeals
For the Eighth Circuit
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No. 19-1991
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Topp's Mechanical, Inc., a Nebraska Corporation
lllllllllllllllllllllPlaintiff - Appellant
v.
Kinsale Insurance Company, an Arkansas Insurance Corporation
lllllllllllllllllllllDefendant - Appellee
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Appeal from United States District Court
for the District of Nebraska - Omaha
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Submitted: May 12, 2020
Filed: August 4, 2020
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Before COLLOTON and BENTON, Circuit Judges, and WILLIAMS,1 District Judge.
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BENTON, Circuit Judge.
1 The Honorable C.J. Williams, United States District Judge for the Northern
District of Iowa, sitting by designation.

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Topp’s Mechanical, Inc. (TMI) bought a liability insurance policy from Kinsale
Insurance Company. The policy excluded a “pollution incident” unless properly
reported by TMI. After a pollution incident, Kinsale disclaimed coverage. TMI sued
for breach of the policy. The district court2 granted Kinsale’s motion to dismiss.
Having jurisdiction under 28 U.S.C. § 1291, this court affirms.
TMI, a Nebraska corporation, sued Kinsale, an Arkansas corporation, for
breach of the policy, an indemnity policy. The policy had an “Exclusion - Absolute
Pollution and Pollution Related Liability.” This pollution exclusion excluded
coverage for “injury or damage arising directly or indirectly out of, related to, or, in
any way involving” pollution incidents. An exception to the pollution
exclusion—“Time Element Pollution Endorsement”—“modifies coverage under the
Policy” if a pollution incident was: (1) “discovered by [TMI] within [7 days]” and
(2) “reported to [Kinsale] in writing within [45 days].”
During the coverage period, TMI learned that an employee suffered injury from
a pollution incident. Within seven days, a TMI representative called Kinsale about
the incident, specifically asking if TMI should report it. Some unidentified person
in the Kinsale claims department told TMI that it could not yet report the incident as
a claim, and said it should wait until the employee filed a formal demand or lawsuit.
Nearly 18 months later, the injured employee made a formal demand. TMI
forwarded it to Kinsale, requesting indemnification. Six weeks later, Kinsale
disclaimed coverage. TMI sued Kinsale for breach of contract. After Kinsale
removed the case from state court, the district court granted its motion to dismiss.
2 The Honorable Robert F. Rossiter, Jr., United States District Judge for the
District of Nebraska.
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This court reviews de novo the grant of a motion to dismiss for failure to state
a claim under Federal Rule of Civil Procedure 12(b)(6), drawing all reasonable
inferences in favor of the non-moving party. See Gregory v. Dillard’s, Inc., 565 F.3d
464, 474 (8th Cir. 2009) (en banc). The parties agree Nebraska substantive law
applies in this diversity case. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
TMI acknowledges it did not follow the plain language of the contract because
it reported the incident “in writing” more than 45 days afterward. Instead, it invokes
waiver and estoppel because Kinsale told it to withhold reporting a claim until a
formal demand was made or a lawsuit filed. See D&S Realty, Inc. v. Markel Ins.
Co., 789 N.W.2d 1, 17 (Neb. 2010) (explaining that, although waiver and estoppel are
distinct legal concepts, an insurer can be estopped if it waives a policy provision).
Waiver and estoppel do not apply to the type of policy at issue. There is a
“crucial difference between ‘occurrence’ and ‘claims made’ liability insurance
policies.” Lexington v. Saint Louis Univ., 88 F.3d 632, 633 (8th Cir. 1996), later
cited in Countryside Coop. v. Koch, 790 N.W.2d 873, 886 (Neb. 2010) (describing
an “essential difference” between an occurrence policy and a claims-made policy).
“Both types of policies require the insured to promptly notify the insurer of possible
covered losses. With a claims made policy, however, that notice is not simply part
of the insured’s duty to cooperate. It defines the limits of the insurer’s obligation—if
there is no timely notice, there is no coverage.” Lexington, 88 F.3d at 634, later
quoted in Countryside Coop., 790 N.W.2d at 886. “Under a claims-made policy, ‘the
very description of the risk covered includes the requirement that claims be both
made and reported within the policy period.’” Countryside Coop., 790 N.W.2d at
886, quoting Esmailzadeh v. Speakman, 869 F.2d 422, 425 (8th Cir. 1989).
TMI and Kinsale agreed to a claims made policy. It excludes pollution
incidents. But it “modifies coverage” under the Time Element Pollution
Endorsement, for incidents discovered within 7 days and reported within 45 days in
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writing. In the policy, notice “defines the limit of the insurer’s obligation—if there
is no timely notice, there is no coverage” for pollution incidents. Lexington, 88 F.3d
at 634. See Countryside Coop., 790 N.W.2d at 886 (“the very description of the risk
covered includes the requirement that claims be both made and reported within the
policy period”).
Because the Nebraska Supreme Court has not specifically ruled whether waiver
and estoppel apply to claims made policies, this court “must try to predict how [it]
would do so and decide the case accordingly.” Lindhold v. BMW of N. Am., LLC,
862 F.3d 648, 651 (8th Cir. 2017). The Nebraska Supreme Court says that “waiver
and estoppel are not available to broaden the coverage of a policy so as to protect the
insured against risks not included therein or expressly excluded therefrom.” Design
Data Corp. v. Maryland Cas. Co., 503 N.W.2d 552, 559 (Neb. 1993), quoting Lee
v. Evergreen Coop., 390 N.W.2d 183, 185-86 (Mich. Ct. App. 1986). “Estoppel
cannot be invoked to expand insurance coverage or the scope of an insurance
contract.” Id. at 560, quoting ABCD Vision, Inc. v. Fireman’s Fund Ins. Co., 744
P.2d 998, 1001-02 (Ore. 1987). TMI cannot invoke waiver and estoppel that
broadens—or as the policy here states, “modifies”—coverage.
A Fifth Circuit case applying Texas law is instructive. There, the policy had
a pollution exclusion clause, but contained an endorsement that covered pollution
incidents if discovered within 7 days and reported to the insurer within 30 days. See
Matador Petro. Co. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 655-56 (5th
Cir. 1999). The insured reported a pollution incident late, but alleged waiver and
estoppel. Id. The court did not permit waiver and estoppel for two reasons. First,
the policy, because of the endorsement, was a claims made policy. Id. at 659.
Second, Texas law stated: “waiver and estoppel cannot enlarge the risks covered by
a policy and cannot be used to create a new and different contract with respect to the
risk covered and the insurance extended.” Id. at 660, citing The Minnesota Mut. Life
Ins. Co. v. Morse, 487 S.W.2d 317, 320 (Tex. 1972). Compare Design Data, 503
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N.W.2d at 560 (“Estoppel cannot be invoked to expand insurance coverage or the
scope of an insurance contract.”).
TMI contends that Nebraska law permits waiver and estoppel for breach-of-
contract of insurance policies. But TMI relies on cases with occurrence policies, not
claims made policies. In Keene, the insurance policy covered the fire, and the insurer
had told the insured not to worry about reporting it until he received the bill. See
Keene Coop. Grain & Supply Co. v. Farmers Union Ind. Mut. Ins. Co., 128 N.W.2d
773, 777 (Neb. 1964). Likewise, in Morris, the insurance policy covered the fire, and
the parties contested whether the insurer’s participation in negotiations constituted
waiver. See Morris v. American & Foreign Ins. Co., 35 N.W.2d 832, 833-35 (Neb.
1949). In both cases, the policies were occurrence policies because they already
covered the risks—e.g., the fires. The insureds had a duty to provide notice, but
notice did not determine coverage. See Lexington, 88 F.3d at 634; Countryside
Coop., 790 N.W.2d at 886. See also D&S Realty, 789 N.W.2d at 6, 17-18 (insurance
covered water damage, and parties contested whether insured waived a disclaimer
clause for buildings that sat vacant).
In this case, on the other hand, timely notice “modifies coverage” to include
pollution incidents, so it is a claims made policy. TMI, therefore, cannot invoke
waiver and estoppel.
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The judgment is affirmed.
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