Two neighboring businesses became poor neighbors due to an accident that caused a pollution problem. Kirksville College, needing to expand, agreed to buy land belonging to Lewistown Heet Gas Company. Before the two businesses closed the sale, Kirksville began its enhancement plan by hiring a contractor, PSR Construction, Inc. An underground cistern, located under the land Kirksville just purchased, ruptured while PSR was preparing the land as a parking lot.

The cistern contained coal tar wastes which spread to Lewiston’s property. This prompted the company to sue Kirksville for trespassing and negligence. Note: the trespass charge was made against PSR since, at the time of the loss, the land purchase had not been finalized. Kirksville owned a general liability policy issued by Royal Insurance Company of America. When Kirksville notified Royal of the suit, the carrier began to investigate the matter under a reservation of rights. Later the insurer denied coverage. The insurer’s position was backed by a court, which ruled that the carrier was not obligated to defend or cover the suit against Kirksville. In a separate motion, a court granted summary judgment to Kirksville, finding that the trespass allegation against its contractor, PSR, was inapplicable since it had Kirksville’s permission.

With several other motions pending, Kirksville and Lewiston reached a settlement. The former agreed to pay $30,000 for the land, $270,000 for its loss of value (due to the pollution) and to handle any costs associated with remediation (clean-up, monitoring, testing, etc.). In Kirkville’s appeal, the court ruled that Royal owed a duty only to cover any damage related to the original claim of trespass and that Kirkville could not have the trespass matter litigated again (i.e., it was estopped). The legal result was that, absent the trespass claim, Royal owed no obligation to defend or reimburse Kirksville. Kirksville appealed (note, the company had incurred $5 million in remediation expense).

A U.S. Appellate court considered the question of whether estoppel applied to the trespass issue and if Royal breached a duty to defend Kirksville. The court found that the trespass ruling became final once Lewiston and Kirksville reached a settlement without also deciding to have the ruling vacated. In light of this, Kirksville forfeited its right to challenge the trespass decision. The lower court ruling in favor of Royal was affirmed.

Royal Insurance Company of America: American Employers Insurance company, Plaintiffs-Appellees v. Kirksville College of Osteopathic Medicine, Incorporated, Defendant-Appellant. – USCTAPP, Eighth Circuit No. 01-3645. Filed September 23, 2002. 2002 U.S. App. LEXIS 19753. Affirmed. CCH Fire and Casualty Cases Paragraph 7647