                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 02-2119
                                   ___________

Modern Equipment Company,            *
a Nebraska Corporation,              *
                                     *
            Appellant,               *
                                     * Appeal from the United States
      v.                             * District Court for the Southern
                                     * District of Iowa.
Continental Western Insurance        *
Company, Inc., an Iowa Corporation, *
                                     *
            Appellee.                *
                                ___________

                             Submitted: January 16, 2003

                                 Filed: January 28, 2004
                                  ___________

Before HANSEN,1 Chief Judge, BRIGHT and SMITH, Circuit Judges.
                              ___________

SMITH, Circuit Judge.




      1
        The Honorable David R. Hansen stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on March 31,
2003. He has been succeeded by the Honorable James B. Loken.
       Modern Equipment Company ("Modern Equipment") appeals from the district
court's2 grant of summary judgment to Continental Western Insurance Company
("Continental Western") on cross-motions for summary judgment. Modern Equipment
sued Continental Western seeking a declaratory judgment establishing Continental
Western's duty to defend Modern Equipment in an underlying suit brought by
Nebraska Beef Ltd. ("Nebraska Beef") in Nebraska state court. We affirm.

                                       I. Facts
                          3
       Modern Equipment designed a meat storage-rack system that Nebraska Beef
purchased for use in its refrigerated warehouse. Three months after installation, two
rack sections collapsed. Nebraska Beef was forced to dismantle, remove, and replace
the collapsed rack sections. Within months, two more sections of the Modern
Equipment storage-rack system collapsed. These sections were also dismantled and
removed by Nebraska Beef. Neither collapse caused physical damage to Nebraska
Beef's refrigerated warehouse. However, Nebraska Beef replaced the collapsed rack
sections with smaller racks, which ultimately diminished the amount of beef product
which could be stored in the warehouse. Six sections of the original rack system
remained in place for approximately two years, at which time Nebraska Beef
completely replaced Modern Equipment's rack system with a new storage system. The
new system had a lower total-storage capacity than the Modern Equipment system.

     Nebraska Beef sued Modern Equipment in Nebraska state court. In its suit,
Nebraska Beef claimed damages for production and shipping costs, spoilage of



      2
        Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa.
      3
        Modern Equipment is engaged in the business of designing,
manufacturing, and selling various types of storage and shelving equipment, among
other products.

                                        -2-
product, decreased cooler capacity, and loss of sales due to the collapsed racks.4 At
all relevant times, Continental Western insured Modern Equipment under a
commercial general liability policy and a commercial excess policy.5 After learning
that it had been sued, Modern Equipment tendered its defense to Continental Western
and requested an affirmation of coverage.

       Continental Western agreed to defend Modern Equipment, but did so under a
reservation of rights. Continental Western did not dispute its potential exposure for
damage to Nebraska Beef's product–and the resulting spoilation–due to the collapsed
rack system, but expressed its intent to deny coverage for the remaining disputed
damages.6 Modern Equipment then brought the instant action–a declaratory-judgment
action seeking a declaration that the Continental Western insurance policies provided


      4
        According to Nebraska Beef, the specific damages it incurred are as
follows: (1) $134,609 for the dismantling and removal of the damaged rack system
and the cost of outside cold storage; (2) $194,168 for the purchase and installation of
a new rack system; (3) $871,217 for loss of earnings arising from a diminished
production schedule during the removal and installation periods; (4) $2,420,253 for
decreased production because of reduced cooling capacity; (5) $149,386 for damage
to the product stored on the racks at the time of each collapse; (6) $126,625 for
spoilage of product; (7) $314,434 for loss of sales; 8) $588,196 for increased
production and shipping costs; (9) $834,867 in separate damages incurred by Fidelity
& Guaranty Insurance Company for direct and indirect costs of removal and
replacement of the racks, installation of the replacement racks, and business
interruption; (10) $6,036,853 for the loss of a cattle-processing agreement for sixty-
six weeks.
      5
       The commercial-liability policy provides for up to $2 million in property
damages, and the commercial-excess policy provides for an additional $5 million in
coverage for the same property damages, after the initial $2 million in coverage is
exhausted.
      6
       Continental Western also denied coverage for damages claimed by
Nebraska Beef for Modern Equipment's alleged breach of contract.

                                         -3-
coverage for the disputed damages. Following cross-motions for summary judgment,
the district court concluded that Continental Western properly excluded coverage for
all of the disputed damages and granted summary judgment in its favor.

                    II. Standard of Review and Legal Standards7
       A summary judgment is reviewed de novo. Darby v. Bratch, 287 F.3d 673, 678
(8th Cir. 2002). Summary judgment is inappropriate if there is a genuine dispute
about a material fact. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). Insurance disputes are particularly well suited for summary
judgment because the proper construction of an insurance contract is always an issue
of law for the court. Iowa Comprehensive Petroleum Underground Storage Tank
Fund Bd. v. Federated Mut. Ins. Co., 596 N.W.2d 546, 550 (Iowa 1999). We do not
apply the rules of construction if an insurance contract is unambiguous. Kirwan v.
Chicago Title Ins. Co., 612 N.W. 2d 515, 523 (Neb. Ct. App. 2000). When the words
of an insurance contract are unambiguous, the intent of the parties is determined by
the language of the policy itself. A.Y. McDonald Indus., Inc. v. Ins. Co. North
America, 842 F.Supp. 1166, 1170 (N.D. Iowa 1993), aff'd 48 F.3d 1223 (8th Cir.
1995). If the terms of an insurance contract are clear, they are to be accorded their
plain and ordinary meaning. Farm Bureau Ins. Co. of Nebraska v. Bierschenk, 548
N.W.2d 322, 324 (1996). These standards apply equally to exclusions. Farm and City
Ins. Co. v. Gilmore, 539 N.W.2d 154, 157 (Iowa 1995).




      7
        We note the discord between the parties regarding which state's law should
govern this dispute. Continental Western argues that Nebraska law should govern;
Modern Equipment argues that Iowa law should govern. However, we note–and the
parties agree–that the insurance laws of these two states are not substantially
different. If there is not a true conflict between the laws of Nebraska and Iowa on the
pertinent issue, then no choice-of-law is required. Nesladek v. Ford Motor Co., 46
F.3d 734, 736 (8th Cir. 1995). Accordingly, we will not make a choice of law
determination.

                                         -4-
        Modern Equipment does not claim, and we do not find, that either the policy's
definitions or its exclusions are ambiguous. Hence, we will not resort to rules of
construction. Farm & City Ins. Co. v. Anderson, 509 N.W.2d 487, 490–91 (Iowa
1993). Accordingly, Modern Equipment is not entitled to have the policy construed
in its favor. Rather, we will attempt to ascertain the intention of the parties from the
plain meaning of the policy. Ploen v. Union Ins. Co., 573 N.W.2d 436, 442 (Neb.
1998).

                                  III. Policy Language
        To establish its claim against Continental Western, Modern Equipment has the
initial burden of proving that Nebraska Beef's disputed claims are "comprehended by
the policy's general coverage provisions." A.Y. McDonald, 842 F. Supp. at 1171.
Once this burden is met, Continental Western must in turn prove the "applicability
of any exclusion which allegedly precludes coverage." Id. The burden then shifts back
to Modern Equipment to prove, if applicable, any exception to the exclusion. Id.

      To begin our analysis we consider the language contained in the commercial
general liability policy8 issued by Continental Western. The policy states in relevant
part:

      a. We will pay those sums that the insured becomes legally obligated to
      pay as damages because of . . . "property damage"[9] to which this


      8
        Both the general liability policy and the excess policy contain the same
exclusion for impaired property or property not physically injured. In the liability
policy it is excluded under part (m); in the excess policy it is excluded under part (l).

      9
          "Property damage" is defined in the policy as:

               a. Physical injury to tangible property, including all resulting loss
               of use of that property. All such loss of use shall be deemed to

                                            -5-
       insurance applies. We will have the right and duty to defend any "suit"
       seeking those damages. We may at our discretion investigate any
       "occurrence"[10] and settle any claim or "suit" that may result.

It is undisputed that physical injury occurred to tangible property (the Nebraska Beef
food products stored on the racks) when several sections of Modern Equipment's
storage-rack system collapsed. Continental Western concedes coverage for that
injury, but does not concede the amount of the damage incurred. Modern Equipment
bases its further coverage claim on the conclusion that the diminished use of
Nebraska Beef's warehouse constitutes property damage within the meaning of the
policy. We agree with this conclusion, and find that Modern Equipment has satisfied
its initial burden of establishing that Nebraska Beef incurred "property damage." The
burden now shifts to Continental Western to establish that a policy exclusion applies.

        Continental Western limited its coverage by two relevant exclusions: Exclusion
(k)–titled "Damage to Your Product"–and Exclusion (m)–titled "Damage to Impaired
Property or Property Not Physically Injured." Continental Western bases its coverage
denial on Exclusion (k). Exclusion (k) prohibits recovery for "property damage" to
"'[the insured's] product' arising out of it or any part of it." Essentially, this exclusion
prevents coverage for harm occurring to the rack system itself, because of its own
defects or performance deficiencies. According to the policy, "warranties or
representations made at any time with respect to the fitness, quality, durability,
performance or use of [Modern Equipment's storage-rack system]" are a part of the



                occur at the time of the physical injury that caused it; or

                b. Loss of use of tangible property that is not physically injured.
                All such loss of use shall be deemed to occur at the time of the
                "occurrence" that caused it.
       10
            "Occurrence" is defined in the policy as "an accident . . . ."

                                             -6-
insured's "product." This exclusion also eliminates coverage for any "loss of use" of
the racks.

      A separate exclusion–Exclusion (m)–extinguishes coverage for "property
damage to 'impaired property' or property that has not been physically injured arising
out of: (1) A defect, deficiency, inadequacy or dangerous condition" in Modern
Equipment's storage-rack system. However, Exclusion (m) does not apply if the
property damage is a result of "sudden and accidental physical injury to '[the
insured's] product' or '[the insured's] work' after it has been put to its intended use."

       Thus, Exclusion (k)'s effect is to exclude coverage for damages to Modern
Equipment's rack system caused by its own defects including any damages for the
loss of use of the rack system. Exclusion (m)'s effect is to exclude damages for the
loss of use of property–other than the insured's product–that is less useful because of
a defect in the insured's product, except when the loss of use is caused by a sudden
accident after the insured's product is put to its intended use. In sum, any damages
flowing from a loss of use of Modern Equipment's storage-rack system are not
covered, but any loss of use of Nebraska Beef's warehouse (attributable to the
collapse of the rack system) is covered. This conclusion is consistent with the purpose
of a commercial general liability policy, which is to provide coverage for tort liability
for physical damage to others, and not to insulate an insured from economic losses
flowing from breach of its contractual duties.

                                     IV. Analysis
       Continental Western's duty to defend depends upon the cause of the disputed
damages. If the damages flow from the loss of the use of Modern's rack system due
to the inadequacy of the rack system designed by Modern Equipment then coverage
is excluded. If the claimed damages instead flow from Nebraska Beef's inability to
use the interior space of its warehouse, coverage exists, and Continental must defend
Modern Equipment. Predictably, Continental Western argues that the damages arise

                                          -7-
solely from the failed rack system and are thereby–under the language of Exclusion
(k)–excluded from coverage. Modern Equipment responds that the damages flow
from an impairment to the warehouse, and thus the claim should be analyzed under
Exclusion (m), as opposed to Exclusion (k). Specifically, Modern Equipment argues
that the damages are covered because the Modern Equipment rack system had been
put to its intended use and the warehouse became "impaired property" due to the
"sudden and accidental" fall of several rack sections.

       Both parties cite to Ellsworth-Williams Co-op Co. v. United Fire & Cas. Co.,
478 N.W.2d 77 (Iowa App. 1991) as support (or distinction) for their respective
positions. In Ellsworth, coverage was sought–under a substantially similar policy–for
lost revenues resulting from a loss of use of seven grain-storage bins. Four of the bins
and an overhead conveying system–constructed by the insured–failed. The overhead
conveying system was a required operational component of the three preexisting bins,
which were not constructed by the insured. The owner of the bins brought an action
against the insured to recover for losses sustained from the loss of use of the four
negligently-constructed bins and the three preexisting bins.

       The Ellsworth court analyzed the damages attributable to the negligent
construction of the four newest bins under a contract provision mirroring Exclusion
(k). The court determined that this exclusion "explicitly exclude[s] liability for
property damage to the insured's products and to work performed by the insured." Id.
at 82. The court, however, concluded that the loss of use damage to the preexisting
grain bins, resulting from their dependence on the defective conveying system, was
covered under language almost identical to the exception language of Exclusion (m).
The court reasoned that 1) the preexisting bins were not built by the insured, and thus
qualified as "other tangible property"; 2) the physical injury to the insured's product
(the overhead conveying system) was "sudden and accidental"; and 3) the injury
occurred after the conveying system had been put to "use by any other person or



                                          -8-
organization other than an insured"–in this case, by Ellsworth. Ellsworth-Williams
Co-op, Co., 478 N.W.2d at 81.

        The facts of this case are fundamentally different than those presented in
Ellsworth. First, the storage racks were not an integral component of Nebraska Beef's
freezer and cooler warehouse. Certainly, the analysis would be different if the
insured's product had been an air-conditioning unit or a door seal, the failure of which
would impair the whole of the warehouse by not allowing it to function as a freezer
and a chiller. Second, unlike the preexisting bins in Ellsworth, the Nebraska Beef
warehouse was not rendered inoperable. The racks' collapse did not prohibit the
freezer from operating as a freezer. Third, Nebraska Beef continued to use its
warehouse and much of the Modern Equipment rack system. Modern Equipment
argues that there is "no legally appropriate or correct reasoning" to require that the
warehouse be "totally inoperable." We agree that circumstances could exist where a
"sudden and accidental" event could cause a loss of use so severe that the warehouse
is rendered practically inoperable. For example, in this case, had the racks collapsed
in a position that prohibited ingress or egress from the warehouse area, while not
literally inoperable, we would consider the warehouse to be inoperable in a practical
sense. In such a scenario, the mitigation required for the freezer to once again become
"operable" would presumably be as immediate as the accident causing the loss of use
in the first place. However, in this case the alleged loss of use, i.e., the ability to store
the same amount of beef product in it after the collapse as before the collapse
occurred, was limited, thereby allowing a significant level of use of the majority of
the warehouse space. If we were to consider a marginally less useful warehouse to be
"inoperable," the damages flowing from the "sudden and accidental" failure of a
portion of the shelving unit could accrue at Nebraska Beef's leisure–here, over a time
period in excess of two years.

     An examination of the damages claimed by Nebraska Beef illustrate this point.
The majority of the damages that it claims are not attributable to the loss of use of its

                                            -9-
warehouse during the time period that the damaged racks were dismantled and
removed. Instead, the bulk of the damages flow from the diminished shelving
capacity of the freezer–beginning at the date of the first collapse, November of 1995,
and continuing until December of 1997 (when the Modern Equipment system was
finally removed). In our view, had Nebraska Beef's warehouse been "suddenly and
accident[ally]" rendered inoperable (even if only in a practical sense), the exigency
of the circumstances would have required immediate mitigation. Therefore, we
conclude that because Nebraska Beef's warehouse was not rendered inoperable by a
"sudden and accidental" physical injury, the exception to Exclusion (m) does not
apply. In any event, even the limited loss of use of its warehouse allegedly
experienced by Nebraska Beef was due to the loss of the use of Modern Equipment's
rack system, not from the loss of the use of the warehouse's functional freezing and
cooling capacity, nor from a diminution of its available total cold storage cubage.

                                   V. Conclusion
       Nebraska Beef did not lose the use of its warehouse space, rather it lost only
the use of a portion of the Modern Equipment rack system. After the racks collapsed,
the dimensions of the warehouse's functioning refrigerator and freezer space remained
precisely the same. The warehouse's storage capacity was reduced because the
shelving system it purchased from Modern Equipment did not perform as promised.
Nebraska Beef acquired replacement racks–and eventually an entirely new
system–which had a claim of maximum-storage capacity less than that of the failed
system. The alleged reduced warehouse capacity resulted from a substitution of
shelving systems because the insured's shelving product did not perform as it had
been warrantied. Thus, Exclusion (k) of the policy precludes any duty on Continental
Western's part to defend Modern Equipment against the disputed claims contained in
Nebraska Beef's lawsuit. Accordingly, the district court's grant of summary judgment
in Continental Western's favor is affirmed.




                                        -10-
BRIGHT, Circuit Judge, concurring.



     I concur in the result.
                      ______________________________




                                     -11-
