Busch Properties, Inc. v. National Union Fire Insurance
815 F.3d 1123
8th Cir.2016Background
- Busch Properties managed the Kingsmill Resort condos under contracts with unit owners and condo associations, obligating Busch to maintain units and common areas in exchange for rental revenue.
- Busch discovered widespread mold in 2003 linked to installed vinyl wallpaper and decided to remediate the entire resort, paying costs and obtaining owner consent forms that promised Busch would pay but disclaimed liability and did not release owners’ claims.
- Busch began remediation in late 2003 and substantially completed it by mid-2004; no owners sued or obtained settlements or judgments against Busch before or during remediation.
- Busch notified its umbrella insurer, National Union, which issued CGL-type umbrella policies covering amounts the insured “becomes legally obligated to pay by reason of liability imposed by law” or for “liability assumed by the Insured under contract.”
- National Union denied coverage, asserting Busch was not legally obligated by law (no judgment/settlement) and had not assumed third-party indemnity obligations; Busch sued for breach and vexatious refusal; district court granted summary judgment for National Union.
Issues
| Issue | Busch's Argument | National Union's Argument | Held |
|---|---|---|---|
| Whether remediation costs are covered as sums Busch “became legally obligated to pay by reason of liability imposed by law” | Busch: its preexisting contractual and tort duties created legal obligations to remediate; form of enforcement (settlement/judgment) not required | National Union: policy covers obligations imposed by law (tort/judgment/settlement), not voluntary contractual maintenance duties | Court: No coverage — Busch’s obligation arose from its maintenance contracts (voluntary), not liability "imposed by law." |
| Whether Busch’s consent/maintenance agreements qualify as "liability assumed by the Insured under contract" under the 1994 policy | Busch: its contracts and consent assumed liability and thus trigger contract-based coverage | National Union: that phrase covers indemnity/hold-harmless obligations (assumption of third-party liability), not ordinary contractual duties | Court: No coverage — language interpreted to cover contractual indemnification, which Busch did not show. |
| Whether a settlement or judgment is required to show a legal obligation | Busch: policy language does not require settlement/judgment; preexisting duties suffice | National Union: practical effect is that settlement or judgment evidences an obligation imposed by law | Court: Did not decide definitively whether Missouri requires settlement/judgment, but affirmed on alternative ground that Busch’s obligations were contractual, so no need to resolve estoppel/settlement question. |
| Whether equitable estoppel prevents National Union from denying coverage based on its later position | Busch: insurer should be estopped from denying coverage due to prior conduct | National Union: contested; insurer raised coverage defenses | Court: Busch did not present evidence establishing equitable estoppel; court did not rely on estoppel to decide coverage. |
Key Cases Cited
- D.R. Sherry Constr., Ltd. v. Am. Family Mut. Ins. Co., 316 S.W.3d 899 (Mo. 2010) (settlement agreement can create a legally enforceable obligation constituting a covered "legally obligated" payment)
- Ferrell v. West Bend Mut. Ins. Co., 393 F.3d 786 (8th Cir. 2005) (contract "assumption of liability" language applies to indemnity/hold-harmless agreements, not all contractual liabilities)
- Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis.2d 16 (Wis. 2004) (similar construction: assumption-of-liability language applies to contracts where insured assumes another’s liability)
- Lopez & Medina Corp. v. Marsh USA, Inc., 667 F.3d 58 (1st Cir. 2012) (CGL phrase "legally obligated to pay as damages" generally applies to tort, not contractual liability)