                 United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 11-3603
                        ___________________________

                      Joseph Friedberg; Carolyn Friedberg

                      lllllllllllllllllllll Plaintiffs - Appellants

                                           v.

            Chubb & Son, Inc.; Chubb Indemnity Insurance Company

                     lllllllllllllllllllll Defendants - Appellees
                                      ____________

                    Appeal from United States District Court
                   for the District of Minnesota - Minneapolis
                                  ____________

                             Submitted: June 13, 2012
                             Filed: September 7, 2012
                                 _____________

Before MURPHY, MELLOY, and COLLOTON, Circuit Judges.
                         _____________

COLLOTON, Circuit Judge.

      Joseph and Carolyn Friedberg sought coverage from their insurer, Chubb &
Son, Inc. (“Chubb”), for damage sustained to their home. After Chubb denied their
claim, the Friedbergs sued for declaratory relief. The district court1 granted Chubb’s
motion for summary judgment, and the Friedbergs appeal. We affirm.

                                          I.

       The Friedbergs’ house was built in 1989, and the exterior of the home was
coated with an Exterior Insulation Finish System (“EIFS”) manufactured by Dryvit
Systems, Inc. The Friedbergs insured their home under Chubb’s “Masterpiece”
policy, which covers “all risk of physical loss” to their home “unless stated otherwise
or an exclusion applies.” In December 2006, the Friedbergs spotted a woodpecker
hole in a vertical pillar supporting the home’s light bridge and called Donnelly Stucco
to repair the damage. Tom Donnelly responded to the call, but suspecting more
widespread damage to the house, he recommended an inspection. A subsequent
forensic investigation revealed extensive water damage to the house.

       The Friedbergs notified Chubb of the loss in January 2007. Scott Bestland, the
adjuster assigned to the Friedbergs’ claim, retained expert Dr. Lawrence Gubbe to
inspect the home. Gubbe visited the Friedbergs’ home on January 31, 2007. Gubbe
concluded that defective construction had enabled water to enter the wall and beam
systems. After a second inspection in April 2007, Gubbe attributed the damage to the
beams and walls below the beams to a failure to install control joints. He believed
that this failure, in turn, caused cracking in the beams, thereby allowing water to
penetrate the EIFS cladding. In his investigation report, he noted that the damage had
accumulated steadily over the course of several years and that it was not linked to any
single event, like a storm.




      1
      The Honorable David S. Doty, United States District Judge for the District of
Minnesota.

                                         -2-
      Chubb rejected the Friedbergs’ claim on August 7, 2007, citing policy
exclusions for “Gradual or sudden loss,” “Structural movement,” “Fungi and mold,”
and “Faulty planning, construction or maintenance.” In particular, the last of these
exclusions provides: “Faulty planning, construction or maintenance. We do not
cover any loss caused by the faulty acts, errors or omissions of you or any other
person in planning, construction or maintenance. . . . But we do insure ensuing
covered loss unless another exclusion applies.”



        The Friedbergs sued Chubb in state court, and Chubb removed the case to
federal court. Both parties filed motions for summary judgment, with each offering
a different theory of the cause of damage to the Friedbergs’ home. Chubb cited
Gubbe’s determination that damage due to water infiltration occurred because of the
failure to install control joints. The Friedbergs relied on their own expert, Dr. M.
Steven Doggett, who inspected their home in June 2010 and reviewed over 1600
photographs. Doggett testified that the roof was the primary point of entry for the
water that damaged the upper banding of the Friedbergs’ home, and that water
infiltration below the upper banding occurred through terminations in the EIFS, rough
openings of windows, and flashing details. He also opined that the observed cracks
were the result of water infiltration rather than its initial cause. The district court
granted summary judgment in favor of Chubb, ruling that even under the Friedbergs’
theory, the water damage was a loss caused by faulty construction and therefore
excluded under the policy.

      On appeal, the Friedbergs challenge the district court’s interpretation of the
policy’s faulty-construction exclusion. We review de novo the district court’s grant
of summary judgment, as well as its interpretation of the insurance policy. R&J
Enterprizes v. Gen. Cas. Co. of Wis., 627 F.3d 723, 726 (8th Cir. 2010). Summary
judgment is appropriate if there is no genuine dispute of material fact and the movant



                                         -3-
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986).

                                          II.

       The parties agree that Minnesota law governs this diversity action. We must
predict how the Supreme Court of Minnesota would rule, and we follow decisions of
the intermediate state court when they are the best evidence of Minnesota law. Miller
v. Redwood Toxicology Lab., Inc., No. 11-3073, 2012 WL 3600279, at *6 (8th Cir.
Aug. 23, 2012). Under Minnesota law, the insured bears the initial burden of
establishing that coverage exists, at which point the insurer then carries the burden
of demonstrating that a policy exclusion applies. See Travelers Indem. Co. v.
Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006). Ambiguity in
a policy will be construed against the insurer, but “the court has no right to read an
ambiguity into the plain language of an insurance policy.” State Farm Ins. Cos. v.
Seefeld, 481 N.W.2d 62, 64 (Minn. 1992). The policy’s language “should be
construed, if possible, so as to give effect to all provisions.” Bobich v. Oja, 104
N.W.2d 19, 24 (Minn. 1960).

                                          A.

        The Friedbergs argue that their insurance policy covers the water damage to
their home because the loss resulted from the combination of both faulty construction
and the presence of water. They contend that under Minnesota’s “concurrent
causation” doctrine, when a loss results from both a covered peril and an excluded
peril, coverage exists unless the excluded peril is the “overriding cause” of the loss.
Even though the policy defines “caused by” as “any loss that is contributed to, made
worse by, or in any way results from that peril,” and it is indisputable that faulty
construction at least “contributed to” the loss, the Friedbergs contend that the
concurrent causation doctrines supersedes the policy language.

                                         -4-
       The Friedbergs base their understanding of Minnesota’s concurrent causation
doctrine on Henning Nelson Construction Co. v. Fireman’s Fund American Life
Insurance Co., 383 N.W.2d 645 (Minn. 1986). In Henning, an insurer denied the
plaintiff coverage for the collapse of the foundational wall of a construction project.
See id. at 648. The court rejected the insurer’s argument to apply any of three
exclusions, including one that excluded coverage if loss was “caused by, resulting
from, contributed to, or aggravated by” water below the surface of the ground. But
the court also held in the alternative that “[e]ven if one of the three causes discussed
above had been established,” the insurer could not deny coverage, because “the
testimony established there were eight possible causes of the collapse, but no one
factor was considered to be the overriding cause.” Id. at 653.

        Henning did not define “overriding cause,” but it cited Fawcett House, Inc. v.
Great Central Insurance Co., 159 N.W.2d 268 (Minn. 1968), and Anderson v.
Connecticut Fire Ins. Co., 43 N.W.2d 807 (Minn. 1950), as authority for the rule it
applied. See 383 N.W.2d at 653. Fawcett House involved an insurance claim arising
from destruction of the plaintiff’s heating and plumbing system after vandals had
entered and turned off the electricity. The vandalism caused a “freeze-up” of the
system. 159 N.W.2d at 269. The plaintiff’s policy covered “direct loss by Vandalism
and Malicious Mischief” but excluded “any loss resulting from change in temperature
or humidity.” Id. at 269-70. The Supreme Court of Minnesota held that the exclusion
did not apply, and reasoned that “loss from ‘change in temperature or humidity’
encompasse[s] only losses directly caused by such changes, not those incidentally
aggravated by a change in temperature but which would not have occurred except for
acts of vandalism.” Id. at 270. Anderson turned on whether a building was damaged
by a windstorm, a covered peril, or a blizzard, an excluded cause. See 45 N.W.2d at
810. The Minnesota court concluded that coverage applied because a jury reasonably
could have found the windstorm to be the “efficient and proximate cause” of the
building’s collapse. Although wind was “not the sole cause,” the windstorm



                                          -5-
weakened the building and resulted in a “collapse [that] would not have taken place
had not the structure first been weakened by the wind.” Id. at 812.

        Fawcett House and Anderson illustrate what the court in Henning meant by
“overriding cause.” According to Henning, the earlier decisions hold that even where
an excluded peril “contributed to the loss,” an insured may recover if a covered peril
is what Anderson called “the efficient and proximate cause” of the loss. Conversely,
it follows that if an excluded peril is the efficient and proximate cause of the loss,
then coverage is excluded. An “efficient and proximate cause,” in other words, is an
“overriding cause.” The faulty construction of the Friedbergs’ house, like the vandals
in Fawcett House and the windstorm in Anderson, was the efficient and proximate
cause of the loss. But for the faulty construction, the water damage would not have
taken place. Once the house was plagued with faulty construction, it was a
foreseeable and natural consequence that water would enter. Although water
intrusion played an essential role in the damage to the Friedbergs’ house, it was not
an independent and efficient cause of the loss. The water’s role was comparable to
the temperature change in Fawcett House and the snowfall in Anderson, neither of
which precluded the coexistence of an efficient and proximate cause. We therefore
conclude that the policy exclusion for “any loss caused by” faulty construction does
apply. See Koskovich v. Am. Family Mut. Ins. Co., No. A11-2206, 2012 WL
2369001, at *3 (Minn. Ct. App. June 25, 2012) (unpublished) (endorsing the decision
of the district court in this case, and holding that “as in Friedberg, the policy
language in this case unambiguously excludes losses resulting from the named
exclusions, regardless of whether other causes contributed concurrently to those
losses”).

                                         B.

      The Friedbergs assert that even if their loss is caused by faulty construction,
and thus encompassed by the exclusion, coverage is restored by the “ensuing loss

                                         -6-
clause.” After describing what is not covered, the exclusion for faulty construction
continues to say: “But we do insure ensuing covered loss unless another exclusion
applies.” The Friedbergs contend that the damage caused by the intrusion of water
into their home is “an ensuing covered loss” for which they are due coverage.

       The better view of Minnesota law, however, is that the ensuing-loss provision
“exclude[s] from coverage the normal results” of defective construction, and applies
only to “distinct, separable, ensuing losses.” Sentinel Mgmt. Co. v. N.H. Ins. Co., 563
N.W.2d 296, 302 (Minn. Ct. App. 1997), rev’d in part on other grounds by 615
N.W.2d 819 (Minn. 2000). Applying this rule to circumstances like ours, the
Minnesota Court of Appeals concluded that damage due to faulty construction and
resulting water intrusion were not “separable and distinct perils.” Bloom v. W. Nat’l
Mut. Ins. Co., No. A05-2093, 2006 WL 1806415, at *5 (Minn. Ct. App. 2006)
(unpublished). The court held that “when water enters a home because of defective
design, faulty workmanship, or faulty materials furnished in connection with
construction or remodeling and causes damages, . . . the damages are excluded from
coverage under . . . the ‘errors, omissions, and defects’ . . . exclusion[]”—an
exclusion that encompassed errors relating to construction or workmanship. Id. at *6.
Just recently, the Minnesota Court of Appeals endorsed the reasoning of the district
court in this case, while holding that water damage to a home was not distinct from
excluded mold-and-rot related loss. Koskovich, 2012 WL 2369001, at *4 (citing
Friedberg v. Chubb & Son, Inc. 832 F. Supp. 2d 1049 (D. Minn. 2011)). The court
in Koskovich reasoned that to read the ensuing loss clause of the policy to cover loss
due to water damage “would nullify the exclusion for mold or rot because no mold
or wet rot would ever occur without moisture.” Id.

      The Friedbergs contend that Bloom and Koskovich, both unpublished opinions
from Minnesota’s intermediate court, are inconsistent with the state supreme court’s
decision in Caledonia Community Hospital v. St. Paul Fire & Marine Insurance Co.,



                                         -7-
239 N.W.2d 768 (Minn. 1976). Caledonia involved an insurance policy that
excluded coverage for:

      loss caused by, resulting from, contributed to or aggravated by . . . water
      below the surface of the ground including that which exerts pressure on
      . . . foundations, walls . . . Unless loss by explosion as insured against
      hereunder ensues, and then this Company shall be liable for only such
      ensuing loss.

Id. at 769-70 (emphasis added). The court held that the insured could recover based
on “loss by explosion,” even though “the evidence was uncontroverted that the cause
was external lateral pressure against the foundation of the north wall created by the
moisture in the soil.” Id. at 769. The court reasoned that the explosion need not be
a separate event from the water pressure against the foundation, and that coverage
applied even where the explosion ensued from the water pressure. Id. at 770.

      We think Caledonia can be reconciled with the “distinct” and “separable”
requirement for ensuing losses that was described in Sentinel Management and
applied in Bloom and Koskovich. The policy in Caledonia was worded differently
from the polices in Bloom and in this case. The language in Caledonia—“[u]nless
loss by explosion . . . ensues”—indicated that the clause carved out a specific
exception to the water pressure exclusion in that case. In Bloom, after saying that the
insurer would not pay for loss if an exclusion applies, the policy stated: “However,
‘we’ do pay for an ensuing loss that is otherwise covered by this policy.” 2006 WL
1806415, at *4 (emphases added). Similarly, the Friedbergs’ policy declares that the
insurer does not cover loss caused by faulty construction, and then adds: “But we do
insure ensuing covered loss.” Add. 38 (emphases added). The use of “However we
do” or “But we do,” followed by a general references to ensuing loss, does not create
an exception to the exclusion, but rather clarifies that the exclusion ought not be
applied beyond its terms—“that what is not excluded is covered.” TMW Enters., Inc.
v. Fed. Ins. Co., 619 F.3d 574, 577 (6th Cir. 2010).

                                         -8-
       The ensuing loss clause in Caledonia was much narrower than the provision
at issue here. The Caledonia clause applied only to an ensuing loss due to an
explosion. 239 N.W.2d at 769-70. The Minnesota court’s interpretation of that
policy thus effected only a modest exception to the water pressure exclusion. The
Friedbergs’ reading of their ensuing-loss clause, by contrast, would dramatically limit
their policy’s faulty-construction exclusion, because almost “any loss caused by”
faulty construction could also be characterized as an ensuing loss under an all-risk
policy. The Friedbergs’ interpretation might not entirely nullify the exclusion, as it
would still apply to the cost of remedying the construction defects themselves, but
their broad view of the ensuing loss clause would nonetheless “nearly destroy” the
exclusion. See Aetna Cas. & Sur. Co. v. Yates, 344 F.2d 939, 941 (5th Cir. 1965)
(Friendly, J., sitting by designation). To define a loss that is “contributed to, made
worse by, or in any way results from” faulty construction as only the cost of
remedying the construction defect itself would be an unnatural reading of the
language. Especially in light of the more recent decisions of the Minnesota
intermediate courts, we do not think the state supreme court would extend Caledonia
to adopt the Friedbergs’ interpretation.

                                   *      *       *

      The judgment of the district court is affirmed.
                     ______________________________




                                         -9-
