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"stt_transcript": "Case 26-1719, Eastern District of Missouri, Royal Waterbeds, et al. v. Union Insurance Company May it please the Court, I'm Matt Darrow. I represent Appellants, Royal Waterbeds, and Boyd St. Louis. This is an insurance dispute decided on summary judgment by the District Court in favor of the Appley Union Insurance Company. Just so you know, I'm not sure if it was explained in the record, both Royal Waterbeds and Boyd St. Louis are insured, so there's no dispute on the policy. Royal Waterbeds owned the stock which was destroyed by the water. There's no dispute with water involved. Boyd St. Louis owned the real property, so both are insured. There's no dispute about a lot of the issues in this case. There's no dispute here that it's a de novo review of a summary judgment. The Court knows the summary judgment standards very well. I won't repeat them. I think we agree on the rules of policy construction. I'll point out three of them that are pertinent material here. You construe the policy as a whole to give meaning to all the provisions in the policy. Exclusions are construed strictly, narrowly in favor of coverage. If there's an ambiguity in the policy because there are two reasonable interpretations, the ambiguity is construed in favor of coverage. I think we also agree that Missouri law controls and Missouri law, like most states, says that the burden to show coverage in the first instance, meaning a triggering of the policy satisfaction of the insuring agreement, is on the insured. The burden to show the application of exclusionary provisions or limitations is on the insured. Just to explain briefly, the property policies, there's basically two types. There's some in between as far as sort of the insuring agreement and what needs to be satisfied. A specified peril policy is one that only insures specific perils, maybe like fire, lightning, wind, something like that. I'm sorry. We've got the coverage form, we've got the exclusion, and we've got the endorsement, right? It's confusing to me. Will you walk me through where the magistrate judge went wrong here, specifically given those three provisions of the contract? You have the three parts that are pertinent are the base form, which is the building and personal property form. That form just sets out the types of properties that are covered. I don't think there's a dispute that you've properly invoked the policy under that section. Is that correct? That part references, it cross-references the causes of loss special form, which is the second form part I was going to talk about. That one is the one, the special form is the type of policy that's an all-risk policy. It's a bit of a misnomer, but they call it that. It covers all risks that are otherwise excluded. That cause of loss form says exactly that, and then it has a bunch of exclusions in it. Then you have a part of the policy that I will call the enhancement. The enhancement is intended to enhance the policy for the insurer, to improve it, to make it better, to broaden definitions, to expand coverage, to add additional insurance, to limit exclusions. It does all those things. Within the enhancement, you've got the exclusion and the cause of loss form. There's a bunch of exclusions. Let's talk about that real quick. The exclusion, one of the big ones, is water. It is water. Boy, it sure seems to me to cover every possible way water could be a cause of loss. Therefore, don't we start with it being excluded, and then we look to the enhancement. The enhancement allows it to be covered if it's from sewer or sump pumps with a limit of $10,000, and they paid you $10,000. In fact, probably it's less than crystal clear that it came from a sump pump, but you still got the $10,000. Judge Grunder, I understand. It looks open and close to me. Tell me what I'm missing. I understand what you're saying here. There is a water exclusion. That exclusion defines and enumerates certain types of water. I understand what you're saying when you look at it. There are all kinds of issues with all those different types, and there needs to be an issue of where it came from, and then we can fight about those other types. That exclusion was not put at issue in either the defenses, in the case. That's because Union thought and continues to think that the endorsement or the enhancement provided coverage, so they didn't have to assert the exclusion, right? Well, I still think that they couldn't do that, and they did in their counterclaim and their affirmative defenses. But if they're going to rely on other parts of the exclusion, they need to be asserted. They were not put at issue in the summary judgment. We didn't argue about those other parts. We didn't brief those other parts. We didn't discuss those other parts. How might it not fall under the exclusion? How might the water damage in this case not fall under it? You would have to go through each of the enumerated exclusion provisions. You have to know what they are saying, how the water is caused, and then we would have to apply and argue those provisions. It is not an exclusion that says all water is excluded. That is simple to write if that was the reason. It states enumerated reasons. I understand what you're saying, that they seem broad and they encompass a lot, but you have to deal with each one, and I'd have to go through if it was asserted, if it was raised, if it was at issue in the case, if the discovery related to it because it was at issue, then we have to go through each of the ones, how they say it was happened, and whether those enumerated parts that define the water exclusion applies. None of that happens. I would bet in preparing this case you've given that a fair amount of thought. Give me a plausible situation where water causes the loss that's not covered by this exclusion. One situation would be, and I'm not saying there's evidence of this, but if there is something within the building, a pipe breaks and water pours down the conveyor belt that goes from the top floor into the basement and floods the basement, that is not excluded in the enumerated exceptions. There could be other hypothetical situations that are covered. That would not fall within any of the enumerated parts of the water exclusion. And where the court went wrong here is it was not focused on those other parts because it was not at issue in the summary judgment. It was looking at what the defendant, the appellee said, which is the way that this is dealt with on summary judgment is within what we declare is within the 10,000 because it is a discharge from the sumps. So explain to me why that's wrong because is there a factual dispute about the discharge? Is that what the fight is? There's no proof that there was a discharge from the pumps. There's nothing in the record that proves there was a discharge of water from the sumps. That's the language in the enhancement. So the adjuster found that the sump pump enclosure filled with water. Yes. Isn't that then flooded the basement? Why isn't that a discharge from the sump? Because water, the sumps have pits with pumps in them. Water can come from the outside of the building into those pits and is extricated by the pumps pumping it out. Water can flood the basement in the interior through other means. It goes into the pumps. Then the pumps extricate that water as well. I think there's a slant down to where those pumps are. So the water can come from both sides. So the fact that the pumps weren't working is true. They weren't. They went out because of an electrical outlet fail. But just because the pumps weren't working doesn't mean there was a discharge from the pumps. Well, there was a discharge from the sump, right? No. So the sump is only the pump? No, no. The sump would be, I believe, the pit. But there's no discharge from it. Well, I mean the adjuster maybe disagrees with you here, right? I mean the sump pump filled with water then flooded the basement. Isn't that coming up out of the pump? And why isn't that a discharge? No, I don't agree with that, Your Honor. With what? What don't you agree with? The adjuster? I don't agree that that language means that there was a discharge from the pump. I didn't say the pump. I said the sump. I'm sorry. From the sump. You're correct. No disrespect, Your Honor, but I think if there's a pit or area and the pumps aren't working and the water is coming from the inside and it fills up to there and then there's nowhere else for the rest of the water to go so the basement is flooded, that doesn't mean the water that damaged the property discharged from the sump. So when the district court said, as I understand it, that there was no dispute, water caused this damage, and so even if your burden-shifting sort of argument, I was going to say carry water. That didn't seem quite right. Even if that was true, it was just an undisputed fact in the record. You disagree with that conclusion that the district court made? That water caused the damage? Yeah, that everybody agreed that water caused the damage and therefore it's undisputed that the exclusion applies. No, I agree with the first part, that water caused the damage. I do not agree, and I know that the district court said that in my response to the motion for reconsideration. At the end, I don't know that they exactly said that in the original decision on summary judgment because the exclusion was not something raised and argued. It wasn't raised in the case, it wasn't raised on summary judgment. The other parts of the exclusion, other than the backup, which is discharge from water. At the end of the day, it is really about burdens and who has the burden to show how the water came in. This defendant admitted in 30B-6 that it didn't know where the water came from. All we have is the little note about that the pump stopped. That was stated in the note that was based on, we know they weren't working and that's part of it that he said they weren't working when he got there. But the other part as to how he thought it happened came from a Rapid Dry employee who was down there who gave him information. That's hearsay that's inadmissible. There's really nothing in the record to show how the union admitted in the 30B-6 they didn't know how the water got there, they didn't know any of the specifics. So just under your understanding, if there had been rainwater that flooded through a window or so, filled the sump pump and then the sump pump failed, that would not trigger the exclusion. But had it been groundwater that rose up as a result of the rain and the sump pump failed, that arguably would have triggered the exclusion. Is that a distinction you're making? The discharge from sewer sumps, exclusion and the enhancement has to require the water to come in and then come out of the sump. It has to be discharged from the sump, water discharged from the sump. So it had to be water coming in from the outside of the sump and up through the sump. Your Honor, if there's no further questions now, I'm going to reserve the last couple of minutes. Very well, thank you. May it please the Court, John Cooney for Union Insurance Company. The district court was correct in granting summary judgment in this case. Plaintiff at the trial court stage provided no evidence or argument that they were entitled to additional coverage beyond the $10,000 that was paid by my client. First, I'd like to address the burden shifting argument that was made and heavily relied upon. Plaintiffs are misapplying the burden. The plaintiffs filed this lawsuit for breach of contract. It was their burden to prove that they were entitled to additional coverage beyond the $10,000 that they received. Plaintiffs presented absolutely no evidence of breach whatsoever by my client. It's important to note that the claim was not denied, as the court referenced. My client found coverage, paid the $10,000, and it was then their burden to prove that there was or present evidence that they were entitled to additional coverage. A claim is either covered or it's not. Frankly, the burden shifting argument was somewhat difficult to follow, but the key piece is the policy must be construed as a whole, and the plaintiffs are not doing that. The endorsement changes the policy. He refers to it as enhances the policy, and the name of the endorsement is Premier Choice Enhancement. But it changes the policy. You can't just look at the insuring agreement and ignore the enhancement. You can't just look at the insuring agreement and ignore the exclusions. In any insurance coverage dispute, the plaintiff's burden is to present evidence that the claim falls within, is covered by the policy. The exclusion references that are made with respect to the water exclusion, my client is not relying on an exclusion, and the district court didn't grant summary judgment on the basis of an exclusion because that's not what was invoked. What was invoked is covered, and it was the plaintiff's burden to somehow show additional coverage, and they haven't done it. Every case relied upon by the plaintiffs in their briefs is a case in which the claim was denied. Everyone. And that's not the case here. The claim was paid under the endorsement. Even in these cases cited by the plaintiff in which the claim was denied, it was still the plaintiff's burden if they filed suit, if they were the plaintiff, to present a case that the claim was covered. Generally speaking, though, isn't it the insurer's burden to show an exclusion applies? Well, yes, if that's what they're relying on as an affirmative defense. Oftentimes, the insurer is the plaintiff, as well as in the cases cited by the plaintiffs, filing declaratory judgment action. If they're seeking to disclaim coverage on the basis of an exclusion, then it would be their burden. Yes, Your Honor. One thing that's very important to note here, and I think it's almost an elephant in the room, is that nowhere in the record, or today, the plaintiffs have never made even an argument that their claim is covered in any way under this policy. Yeah, what they want to do is say it's your burden and you haven't carried it. That's what they want to do. That's right. They want to file a lawsuit, and they truly did not present any evidence on either side of the coin, either that they're entitled to additional coverage, or even if their burden-shifting argument were correct, to rebut the evidence that we put forth as to the applicability of the $10,000. That's the thing about this that's interesting. Well, a big part of the reason, I mean, I think you are, in fact, relying on the exclusion, because a big part of the reason you didn't pay more than $10,000 is the exclusion, right? Well, no, Your Honor, I would say that, and that is interesting. Had there been no endorsement, then that very well may have been the result. But the policy must be construed as a whole, and so there is an endorsement, and we can't pretend like there's not, saying the court is doing that, but that's it. So, no, I wouldn't say that that's right. I mean, you have to look at the policy as a whole. I think what the plaintiffs are doing is perhaps conflating how a policyholder might read the policy to ultimately determine what the coverage is, as opposed to what the plaintiff's burden of proof is in filing a breach of contract lawsuit. Well, the initial, the covered property covers everything, and then there's the exclusion. So when you say you have to look at the policy as a whole, the endorsement, the exclusion, you have to look at the general policy, so I think that kind of cuts both ways, doesn't it? They're saying, look, it's covered property. And you say, well, wait a minute, it's excluded, and that's your burden, right, to prove the exclusion. Well, again, I understand what the court is saying. I would say that that is how, logically, you would read the policy to reach the ultimate conclusion, what the court is saying. When you say everything is covered and then the exclusion, I mean, that's all contained within one policy form. But the fact of the matter is once the endorsement is added, it's as if that policy form, if it changes the policy, then it's as if that policy form doesn't exist. It changes the policy. And so that's, again, you have to read it as a whole. So, no, Your Honor, I would not say that my client is relying on an exclusion here. It's relying on the endorsement to afford the maximum coverage that the policy can, which is $10,000. But wouldn't the endorsement only kick in if the exclusion applies? Well, I suppose when you say the exclusion applies, that's the part that I'm struggling with, only because the exclusion either excludes coverage or it doesn't. The endorsement modifies the policy. Let's pause there because I think that there's a disagreement on whether you've proven that the exclusion applies here, right, that they're saying, well, there could be some other cause of the water loss that wouldn't be excluded. So that's still in dispute. And if that's the case, if there were another source or, I guess, source or reason that the water came in that's not excluded, then the endorsement never pops up, does it? If it was something other than discharged from sewers, drains, or sumps, I suppose. Well, I guess I'm thinking even more broadly. You've got an exclusion for water. His argument is there might be a source of water that isn't excluded, okay, so it would be covered, right? Then is the endorsement even relevant anymore? The endorsement in this, well, there's all sorts of things in the endorsement, but the portion on which my client afforded coverage, the discharge from sewers, drains, or sumps, if the plaintiff had presented evidence of water that was not that, such that they're entitled to more coverage than what they got, then we wouldn't be here right now. But that's the point. I'm sorry. Yeah, I guess what I'm trying to say, if water damage is not, you're almost saying like the endorsement narrows it again. I'm saying if he's right that there's some other source of the water that wouldn't be excluded, that the loss from that source of water would not be excluded, then it's covered. There may have been a world, a set of facts that could have been presented. And then in that world of facts, even if you don't agree that that world of facts exists, then would the endorsement even be relevant? The endorsement modifies those sections of the policy or changes those sections of the policy that it says that it does. So would the endorsement be relevant? I would say the endorsement's always relevant because it's part of the policy. So then it's factual. But in this case, again, I don't know. My client is entitled to summary judgment on both sides because I don't think we get to the issue of where the water came from because the plaintiffs filed the lawsuit, and they had the burden to prove that they're entitled to additional coverage, and they put on no evidence whatsoever, no expert testimony, no even argument that they're entitled to more coverage. Then if you want to do it the other way, because we did have a counterclaim, Your Honor, and our counterclaim was that we paid out the maximum coverage of this policy because the water came from the sewer discharge from the sump. My client presented evidence that's in the record from the adjuster. There's evidence that the sumps had failed. There's evidence that the plaintiff put forth no evidence to controvert that whatsoever. I heard from Mr. Plaintiff's counsel hypothesizing things that could have happened. There is no evidence on the record of any of that. The facts that we did put forth as to why the $10,000 was appropriate were undisputed. Again, the adjuster's testimony, the report, my client's corporate rep deposition, the fact that the sumps were deemed or found to be inoperable. Was your evidence sufficient to show a discharge, though? Counsel and I had a conversation about what discharge means. I take it his view is that the evidence in the record is insufficient to show discharge. I heard that today, and my response would be exactly what the court said, which is that the adjuster specifically said the sumps filled with water and flooded the basement, a discharge. So, yes, there is evidence of a discharge. There was also evidence from the plaintiff's employee of her belief that that's what occurred. There was nothing presented in response to dispute, either of those facts. So, again, I don't know that, in my opinion, the burden is on the plaintiff, but even if you adopt their burden-shifting argument, it was incumbent on them, once we filed summary judgment and set forth undisputed facts, to dispute those facts. You can't just sit on your hands and say, well, maybe this could have happened, maybe that. The time was then to have presented it. Discovery was closed, and they didn't do it. And so that was, I think, addressed more in the denial of the reconsideration order. And then the initial summary judgment order focused on what I'm saying, which is that it was the plaintiff's burden to provide evidence of breach, and that simply didn't happen. The most analogous case, and I said I won't go through plaintiff's cases one by one, but they all stem from a denial, and this is not what we had in this case, or a situation where the insurer did have the burden to prove an exclusion, and that's not what we have here. The district court order, or district court case that I cited in our brief, tolling is pretty well right on point with what we're talking about. The plaintiffs raised that, well, facts were not disputed in that case, and I would argue that facts were not disputed in this case either, but it was the same where the court found that the undisputed facts held that the discharge from sewers, drains, and sumps endorsement applied, such that the $10,000 was the maximum coverage available. So, again, I think the key here, and as Mr. Darrow said, the cause of the loss is undisputed. Plaintiffs, in the sense that it was water, the policy must be construed as a whole, and doing that must give effect to the endorsement, which is the claim was not denied. Coverage was afforded of $10,000, and to date, the plaintiffs have the burden, as we've cited, to present evidence that their claim falls within the purview of the policy and is covered, and they've never done it, still today, have not. So if there's no further questions from the court, I'd ask the court, district court, I'm sorry, I'd ask this court to affirm the summary judgment in favor of my client, Union, and I'll proceed the rest of my time. Thank you. Hearing none, thank you, Mr. Cooney. Thank you, Your Honor. Mr. Darrow. Yes. How do you respond toward the end of the argument, essentially, even if they had the burden to show the exclusion, they presented evidence, I think their adjuster said that it was a discharge from the sump, which clearly fits the exclusion, and you presented no evidence to the contrary. Isn't that ballgame? Your Honor, first of all, they did not present any evidence from an adjuster that said it was a discharge from the sump. They presented the evidence as just what the judge read, that the sump pumps failed, the sumps filled up, and then the basement flooded. As I explained, that can happen from the front without a discharge of all that water that causes the damage coming from the sump. So they did not provide sufficient evidence. Wait a minute, wait, wait, wait, wait. The exclusion says water that backs up or overflows or is otherwise discharged from a sewer drain sump pump. Isn't it backing up and overflowing? Isn't that the evidence that was presented? Your Honor, I was mistaken because you were looking at the exclusion, and I'm looking at the language in the enhancement, which was the issue that was presented. But you're arguing that they have the burden to prove that the exclusion applies, and I think what he was arguing is we carried it. And you didn't present anything contrary. I don't think that is backing up, overflowing, or discharging from the sump. And I've tried a case in this district court on this exact issue where the insurer made the argument. But once the union has evidence in the record, they arguably have met their prima facie case. You have no evidence in the record supporting your theory. Is that correct? I have evidence in the record from their corporate representative, who's a 30B6 deponent, who says they have no idea how the water got in the basement. They don't know if it came up from the sump or it came from the top. That is evidence that is contrary to this concept that it all came out of the sump. Well, no, he just says he doesn't know, and the adjuster says I do know, right? No, the corporate representative on behalf of union says that union does not know. An independent adjuster just said only what is in the note, and the corporate representative knows anything else of how they came to those decisions other than what's in the note that Grant Effer from Rapid Dry told him that the sumps failed and they filled up. And so that's what he put. And as I said, it could fill up from the top. It can fill up from the bottom. If it fills up from the top, it's not overflowing out of the sump, backing up or discharging out of the sump, out of the drain. Very well. Thank you, Mr. Durham. Thanks to both counsel for your appearance and argument. It was helpful. We will submit the case and issue an opinion in due course."
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