In McShane Constr. Co., LLC v. Gotham Ins. Co., No. 16-2632 (8th Cir. filed Aug. 11, 2017), the Eighth Circuit Court of Appeals affirmed the district court’s grant of Gotham’s motion to dismiss for failure to state a claim upon which relief can be granted. McShane, the general contractor on a 196-unit apartment complex, sought to recover approximately $500,000 in damages allegedly caused by the faulty design and installation of a fire suppression system by its subcontractor Mallory. Mallory was Gotham’s named insured and McShane was an additional insured on the Gotham policy. McShane sought recovery directly from Gotham, alleging, among other things, violations of Nebraska’s Unfair Insurance Trade Practices and Unfair Insurance Claims Settlement Practices Acts, breaches of contract and the implied covenant of good faith and fair dealing, waiver, and estoppel.
The Eighth Circuit found that McShane failed to plead any plausible claim for relief and dismissal of all counts was proper. The court found that McShane’s statutory claims failed because the statutes provide no private cause of action. The court also found that McShane’s breach of contract claims failed because McShane’s status as an additional insured extended only to liability coverage, the Gotham policy covered third-party rather than first-party loss, and McShane’s remedy was to sue Mallory, not Gotham, as a claimant, not an insured, under the Gotham policy. The court further held that McShane failed to plausibly allege clear, unequivocal, and decisive acts by Gotham constituting waiver, or good faith reliance on Gotham constituting estoppel.
Insurers defending direct action allegations under Nebraska law can cite McShane in support of the prohibition on private causes of action under the insurance claims handling statutes, the stringent elements of waiver and estoppel, and the fundamental distinction between liability and first-party coverage.
Gotham is represented by Ross D. Roloff of Tressler LLP.