KAAPA Ethanol owned and managed an ethanol production plant. KAAPA bought an "All Risk" Property Insurance Policy from Affiliated FM Insurance Company.
Right after ethanol production began, the KAAPA plant stopped producing ethanol. "[S]torage tanks began to lean, their foundations began showing visible signs of distress, and their supporting concrete walls sunk into the ground." KAAPA Ethanol, LLC v. Affiliated FM Insurance Co., 2011 WL 5217207 *1 (8th Cir., Opinion Filed November 3, 2011), Download KAAPA Ethanol, LLC v. Affiliated FM Insurance Co. (8th Cir. Case Nos. 10.1929, 10.2071, Opinion Filed Nov. 3, 2011) PUBLIC ACCESS. KAAPA claimed Insurance Coverage including Business Interruption Coverage. Affiliated denied the entire claim, "citing the faulty workmanship and settling exclusions." Id. at *2.
At Trial, a Jury awarded KAAPA $4 Million for its repair costs and other claimed losses, but gave KAAPA a zero on the Business Interruption Claim. Id. at *1.
Both KAAPA and Affiliated appealed to the Eighth Circuit Court of Appeals. The Federal Appellate Court addressed only "collapse" issues of Insurance Coverage under All Risks Property Insurance Policies governed by Nebraska law.
The District Judge instructed the Nebraska Insurance Coverage Jury in that case as follows:
16. The insurance policy provides coverage for loss or damage caused by collapse. “Collapse” means substantial impairment of the structural integrity of a building or any part of a building. A structure or part of a structure does not need to fall down or be in imminent danger of falling down in order for it to have “collapsed,” nor do you need to find that the structure was either abandoned or taken out of use.
Id. at *2. [Emphasis added.] Affiliated objected to the italicized sentence in the Trial Court's Jury Instruction 16. Affiliated argued that this was not a correct statement of Nebraska law on the subject of when a covered collapse takes place. The appellate court agreed that this Jury Instruction was erroneous. Further, the appellate court held that the Trial Court's error "prejudiced Affiliated's defense of this critical coverage issue; therefore, a new trial is necessary." Id. at *4.
According to the Eighth Circuit panel in this case, Nebraska already follows the majority view that a covered "collapse" under an All Risks Property Insurance Policy requires "material impairment." Id. Noting that collapse coverage has appeared in First-Party Insurance Policies for more than half a century, Courts have split over whether collapse coverages should include an "imminence" requirement. The Courts that impose an "imminence" requirement on collapse coverage hold that "that requirement 'is consistent with the policy language and the reasonable expectations of the insured' and 'avoids both the absurdity of requiring an insured to wait for a seriously damaged building to fall and the improper extension of coverage' that would convert the policy 'into a maintenance agreement.'” Id. at *5, quoting a California Court and thereafter citing to cases decided in New Jersey, the Ninth Circuit, the Third Circuit, and Delaware.
In KAAPA Ethanol, a diversity case, the Eighth Circuit predicted that the Nebraska Supreme Court "would adopt some sort of imminence requirement in applying the material impairment standard" to determine whether there was a covered "collapse" under All Risks Property Insurance Policies. Accordingly, the Appellate Court reversed and remanded for a New Trial on Collapse Coverage Issues in that case. Id. at *6.
PACER, the Online Docket of the Federal Courts, reflects that both a Motion for Rehearing and a Motion to Certify Question of State Law have been filed and are pending since this decision was entered.
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