                    United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 02-1978
                                     ___________

Shelter Mutual                           *
Insurance Company,                       *
                                         *
            Appellee,                    *
                                         *   Appeal from the United States
      v.                                 *   District Court for the Western
                                         *   District of Arkansas.
Tommy Maples; Bessie Maples,             *
                                         *
            Appellants,                  *
                                         *
First National Bank of Berryville,       *
                                         *
            Defendant.                   *

                                     ___________

                          Submitted: October 24, 2002
                              Filed: November 7, 2002
                                   ___________

Before LOKEN, BYE, and RILEY, Circuit Judges.
                            ___________

RILEY, Circuit Judge.

      In this diversity action, Tommy and Bessie Maples (Maples) appeal the district
court’s adverse grant of summary judgment in a declaratory judgment action brought
by Shelter Mutual Insurance Company (Shelter). We reverse and remand for further
consideration on the issue of causation.
I.     BACKGROUND
       The parties stipulated to the following facts. While residing in Saudi Arabia,
Maples contracted for the construction of a single-family retirement home in
Arkansas. Maples purchased homeowner’s insurance from Shelter, and a policy
issued on November 24, 2000, was in full effect at all times relevant to the case. The
two-story residence –which had a wooden frame and a basement made of concrete –
was largely complete as of November 2000. Maples, who remained in Saudi Arabia,
took reasonable precautions to winterize the residence by leaving a key with the
contractor and asking him to winterize the residence. At some unknown time, a water
pipe froze and burst, and between four to six inches of water stood continuously in
the basement until the contractor discovered the problem in April 2001. While the
standing water caused only minimal structural damage to the basement, the humidity
from the standing water caused mold to form on all of the interior surfaces of the
residence. As a result of the mold, the residence became uninhabitable, requiring
demolition. Maples reported the loss to Shelter, and Shelter thereafter instituted this
action to determine its duty to pay.

      As relevant, the insurance policy provided:

      PERILS WE INSURE AGAINST-SECTION I
      We cover accidental direct physical loss to property covered under
      Dwelling and Other Structures Coverages except for losses excluded in
      this section.
      ...
      Under Dwelling and Other Structures Coverages, we do not cover loss
      caused by:
      1. wear and tear; marring or scratching; deterioration; inherent vice;
      latent defect; mechanical breakdown; rust; mold; wet or dry rot;
      contamination; smog, smoke from agricultural smudging or industrial
      operations; settling, cracking, shrinkage, bulging or expansion of
      pavement, patios, foundations, walls, floors, roofs, or ceilings; birds,
      vermin, rodents, insects or domestic animals. If, because of any of

                                          -2-
      these, water escapes from a plumbing, heating, or air conditioning
      system or domestic appliance, we cover loss caused by the water. We
      also cover the cost of tearing out and replacing any part of the covered
      building necessary to repair the system or appliance. We do cover loss
      to the system or appliance from which the water escapes. [Emphasis
      added.]

      Upon the foregoing stipulated facts, the district court concluded that Shelter
was entitled to summary judgment, reasoning that the policy language clearly
provided that any loss due to mold was not covered.

II.    DISCUSSION
       This court reviews de novo the district court’s grant of summary judgment, as
well as its interpretation of Arkansas law. See Allstate Ins. Co. v. Burrough, 120 F.3d
834, 838 (8th Cir. 1997) (standard of review); Vandiver Food Stores, Inc. v. Ins. Co.
of N. Am., 909 F. Supp. 618, 620 (E.D. Ark. 1995) (applying law of principal
location of insured risk). Under Arkansas law, insurance policies are to be construed
liberally in favor of the insured, and exclusionary language that is susceptible to more
than one reasonable interpretation should be construed in favor of the insured. See
Allstate Ins. Co., 120 F.3d at 838 (citing State Farm Fire & Cas. Co. v. Midgett, 892
S.W.2d 469, 471 (Ark. 1995); Noland v. Farmers Ins. Co., 892 S.W.2d 271, 272 (Ark.
1995)). The insurer bears the burden of proving as a matter of law that the insured’s
claim was excluded under the policy. See id. (citing Arkansas Farm Bureau Ins.
Fed'n v. Ryman, 831 S.W.2d 133, 134-35 (Ark. 1992)).

       Here, a covered peril, frozen pipes, caused an excluded peril, mold, which
resulted in the loss. The district court concluded that the policy precluded coverage
for mold damage regardless of its cause, relying on the following lead-in language
from the policy:




                                          -3-
             We do not cover loss:
             (a) resulting directly or indirectly from any of the following
             events;
             (b) which would not have occurred in the absence of any of the
             following events;
             (c) which occurs regardless of the cause of any of the following
             events; or
             (d) if loss occurs concurrently or in any sequence with any of the
             events.

We disagree with the court’s reading of the policy, because we find this language
leads into a list of ten specified items not including mold, while the mold-exclusion
paragraph is separately numbered and follows the lead-in clause “[u]nder Dwelling
and Other Structures Coverages, we do not cover loss caused by.” Thus, the plain
language of the policy does not automatically preclude coverage. Compare Cooper
v. Am. Family Mut. Ins. Co., 184 F. Supp. 2d 960, 961-63 (D. Ariz. 2002) (no
coverage for mold damage from plumbing leak where lead-in clause excluded losses
regardless of any other contributing cause or event), with West v. Umialik Ins. Co.,
8 P.3d 1135, 1137-41 (Alaska 2000) (settling of house from broken plumbing was
covered loss, where no lead-in clause precluded coverage regardless of cause).

       It appears to us, then, that the determinative question is a factual one: whether
the frozen pipe or the mold was the dominant and efficient cause of the loss. See
Lynch v. Travelers Indem. Co., 452 F.2d 1065, 1067 (8th Cir. 1972) (applying
Arkansas law and finding sufficient a jury instruction on dominant, direct, and
efficient cause of loss); 10 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON
INSURANCE §§ 148:60, 148:61 (3d ed. 1998) (where covered and non-covered perils
join to cause a loss, and the covered peril is the efficient and dominant cause, there
is coverage under the policy); 11 COUCH ON INSURANCE § 153:96 (mold exclusions
do not necessarily apply where “efficient proximate cause” of loss was a covered
risk). Because the parties’ factual stipulation does not answer this question, we
conclude a material issue of fact remains, and summary judgment was improper.

                                          -4-
III.   CONCLUSION
       We remand for further fact finding regarding the dominant cause of Maples’
loss. We note that a January 3, 2002 order indicates the parties waived trial and
wished to submit the case on stipulated facts; thus, it may be proper for the district
court to make factual findings on remand.

         Accordingly, we reverse and remand for further consideration of the causation
issue.

         A true copy.

               Attest:

                        CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                          -5-
