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Royal Ins. Co. of Am. v. Kirksville College of Osteopathic Med., Inc.

Citation: 33 ELR 20079
No. No. 01-3645, 304 F.3d 804/(8th Cir., 09/23/2002) Decision on indemnity

The court affirms a district court decision that a company is collaterally estopped from seeking indemnity from its insurer in a hazardous waste contamination case due to a prior state court ruling. The company was sued for trespass and negligence by its neighbor in state court when an underground storage tank containing coal tar wastes on the neighbor's property was ruptured by the company's contractor. The insurer brought suit against the company in federal court claiming that there was no duty to defend or indemnify based on the absolute pollution exclusions in the policy. A district court held that the insurer did not have a duty to defend. On appeal, the U.S. Court of Appeals for the Eight Circuit held that the insurer breached its duty to defend the company on the trespass claim and remanded the case for consideration of damages and the duty to indemnify. The parties settled the issue of damages on the breach of duty to defend claim. The court first holds that the district court correctly held in favor of the insured on the indemnity claim. Although the insurer breached its duty to defend, it may still litigate the indemnity issue. The court next holds that collateral estoppel bars the company from relitigating the issue of whether it trespassed on its neighbor's property. Consequently, there is no covered offense and the insurer has no duty to indemnify. In a previous state court action, the company's contractor filed a motion arguing that no trespass occurred because the contractor had implied permission to work at the site. The court granted the motion, the company and the neighbor settled their part of the dispute, and then all parties to the state court action stipulated to dismissal of all claims against the company with prejudice. The state court's dismisssal of the trespass claim against the contractor was a final judgment on the merits to which collateral estoppel may apply; the lack of appellate review does not affect either the finality of the ruling or its preclusive effect.

[A prior decision in this litigation is digested at 30 ELR 20148.]

Counsel for Plaintiffs
John L. Hayob
Niewald & Waldeck
120 W. 12th St., Kansas City MO 64105
(816) 471-7000

Counsel for Defendant
Richard D. Rhyne
Craft & Fridkin
4435 Main St., Kansas City MO 64111
(816) 735-3222