Decker Plastics Corp. Plaintiff- Appellant
West Bend Mutual Insurance Company Defendant-Appellee
Submitted: November 6, 2017
from United States District Court for the Southern District
of Iowa - Council Bluffs
WOLLMAN, LOKEN, and KELLY, Circuit Judges.
Plastics Corp. (Decker) sold plastic bags to Al's, Inc.
(Al's). Al's filled the bags with landscaping
materials (sand and rock) and stored them outdoors for sale
to its wholesale customers. Because Decker failed to
manufacture the bags with an ultraviolet inhibitor, the bags
deteriorated in the sunlight, spilling rock and sand off
pallets and causing shreds of plastic to commingle with
landscaping materials, both while in Al's inventory and
after delivery to its customers. Al's sued Decker,
alleging negligence, breach of warranty, and defective
product. Decker's insurer, West Bend Mutual Insurance Co.
(West Bend), refused to defend or indemnify Decker under its
commercial general liability (CGL) and umbrella/excess
liability policies. Decker paid $125, 000 to settle Al's
claims. This coverage litigation followed.
policies provided coverage for an "occurrence"
resulting in "property damage." The district
court granted West Bend summary judgment,
concluding there was no "occurrence" triggering
property damage coverage. Decker appealed and we reversed,
concluding "deterioration of the bags was the covered
occurrence, " and "covered property damage (if any)
was to Al's property other than the bags."
Decker Plastics Inc. v. W. Bend Mut. Ins. Co., 833
F.3d 986, 988 (8th Cir. 2016). We remanded to the district
court to address West Bend's alternative claims that
there was no covered "property damage" and that
Al's claims against Decker fell within policy exclusions.
Id. On remand, the district court again granted
summary judgment for West Bend, concluding there was no
covered property damage and three policy exclusions apply.
Decker appeals. We affirm.
Insuring Agreement section of the CGL policy provides that
West Bend will pay "those sums that the insured becomes
legally obligated to pay as damages because of . . .
'property damage' to which this insurance
applies." Both policies defined "property
damage" to mean:
a. Physical injury to tangible property, including all
resulting loss of use of that property. . . . or
b. Loss of use of tangible property that is not physically
Kartridg Pak Co. v. Travelers Indem. Co., the Iowa
Court of Appeals noted that the modifier "physical"
was added in a 1973 revision of the CGL policy form used by
most insurers, that this coverage limitation was unambiguous,
and that "intangible damages, such as diminution in
value, do not constitute physical injury to or destruction of
tangible property." 425 N.W.2d 687, 689-90 (Iowa App.
1988). The Supreme Court of Iowa has expressly agreed, as
have most courts around the country. See Ide v. Farm
Bureau Mut. Ins. Co., 545 N.W.2d 853, 858-59 (Iowa
1996); Yegge v. Integrity Mut. Ins. Co., 534 N.W.2d
100, 102 (Iowa 1995); Esicorp, Inc. v. Liberty Mut. Ins.
Co., 266 F.3d 859, 862 (8th Cir. 2001) (applying
Missouri law). Thus, the critical question in this case is
whether there was some "physical injury" to
Al's "tangible property." The Supreme Court of
Iowa construes these terms "in their plain, ordinary and
popular sense." Continental Ins. Co. v. Bones,
596 N.W.2d 552, 557 (Iowa 1999) (quotation omitted). If there
was covered physical injury to tangible property, "all
damages caused by the [injury], such as lost profits and
investments, would be covered by the policy."
Kartridg, 425 N.W.2d at 689.
the question is not free from doubt, we agree with the
district court that Al's tangible property, its
landscaping materials, did not suffer physical injury. Like
the parties and the district court, we address this question
by examining factually relevant cases. On the one hand,
"the mere incorporation of a defective component [into a
customer's product] is not 'property damage'
because it does not result in 'physical
injury.'" Esicorp, 266 F.3d at 862. Thus,
simply filling Decker's defective bags with Al's
landscaping materials did not cause covered property damage.
On the other hand, when an insured's customers covered
tomato plants with plastic film that deteriorated, we held
that covered property damage occurred when the plants became
"stunted, undersized, sunburned, or waterlogged, "
even though the customers' damages were measured in
economic terms such as lost profits. Ferrell v. West Bend
Mut. Ins. Co., 393 F.3d 786, 795 (8th Cir. 2005)
(applying Wisconsin law).
Al's landscaping materials in Decker's deteriorated
bags became contaminated with small shreds of plastic. The
rock and sand were not physically altered or destroyed, but
contamination made the landscaping product unsaleable, and
the contaminating plastic could not be economically removed.
Two cases applying Iowa law paint the parameters of this
issue. In National Union Fire Insurance Co. of Pittsburgh
v. Terra Industries, Inc., the insured sold
benzene-contaminated carbon dioxide to beverage
manufacturers, who incorporated the carbon dioxide in
carbonated drinks that had to be recalled when the health
risk was discovered. 346 F.3d 1160, 1162-63 (8th Cir. 2003).
We affirmed the finding of covered property damage under a
CGL policy with the same "physical injury"
limitation, agreeing with the district court that the
beverages were physically injured when contaminated carbon
dioxide was physically incorporated into the product.
Id. at 1165. By contrast, in Kartridg,
another food industry case, the Iowa Court of Appeals
concluded there was no covered property damage, only
diminution in value, when the insured's faulty deboning
machine failed to separate enough bone from ground pork loin,
leaving the meat unfit to be sold for human consumption.
"[T]he failure to sufficiently separate the meat and
bone, " the court concluded, "did not physically
injure the product." 425 N.W.2d at 690.
district court thoroughly reviewed these governing Iowa cases
and relevant non-governing precedents and concluded
undisputed facts established that Al's "landscaping
materials -- the rock, gravel, and sand -- were [not]
physically injured due to the incorporation of the
deteriorated packaging material." After careful review
of the undisputed facts of record, the relevant West Bend
policy provisions, and the above-summarized authorities, we
agree. Absent physical alteration, Al's property suffered
only diminution in value. Accordingly, Decker's claims
were properly dismissed because there was no property damage