125 F.3d 1176 (8th Cir. 1997), 96-3004, Arkwright Mut. Ins. Co. v. Gwinner Oil, Inc.

Docket Nº96-3004, 96-3223 and 96-3227.
Citation125 F.3d 1176
Party NameARKWRIGHT MUTUAL INSURANCE COMPANY, a Massachusetts corporation; Insurance Company of North America, a Pennsylvania corporation, Plaintiffs-Appellants, v. GWINNER OIL, INC., a North Dakota corporation; Commonwealth Petroleum Co., an Ohio Corporation; Gwinner Propane Inc., an Ohio corporation, Defendants-Appellees. ARKWRIGHT MUTUAL INSURANCE COMPANY
Case DateSeptember 19, 1997
CourtUnited States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 1176

125 F.3d 1176 (8th Cir. 1997)

ARKWRIGHT MUTUAL INSURANCE COMPANY, a Massachusetts

corporation; Insurance Company of North America,

a Pennsylvania corporation, Plaintiffs-Appellants,

v.

GWINNER OIL, INC., a North Dakota corporation; Commonwealth

Petroleum Co., an Ohio Corporation; Gwinner

Propane Inc., an Ohio corporation,

Defendants-Appellees.

ARKWRIGHT MUTUAL INSURANCE COMPANY, a Massachusetts

corporation; Insurance Company of North America,

a Pennsylvania corporation, Plaintiffs-Appellees,

v.

GWINNER OIL, INC., a North Dakota corporation, Defendant,

Commonwealth Petroleum Co., an Ohio corporation; Gwinner

Propane, Inc., an Ohio corporation, Defendants-Appellants.

ARKWRIGHT MUTUAL INSURANCE COMPANY, a Massachusetts

corporation; Insurance Company of North America,

a Pennsylvania corporation, Plaintiffs-Appellees,

v.

GWINNER OIL, INC., a North Dakota corporation, Defendant-Appellant,

Commonwealth Petroleum Co., an Ohio corporation; Gwinner

Propane, Inc., an Ohio Corporation, Defendants.

Nos. 96-3004, 96-3223 and 96-3227.

United States Court of Appeals, Eighth Circuit

September 19, 1997

Submitted June 9, 1997.

Page 1177

Emmet J. McMahon, Minneapolis, MN, argued (James D. Steiner and Richard H. Kyle, Jr., on the brief), for Appellant.

Gregory P. Bulinski, Minneapolis, MN, argued (Charles E. Lunberg and Richard Henderson, on the brief), for Appellee.

Before MURPHY and HEANEY, Circuit Judges, and BOGUE, [*] District Judge.

Page 1178

BOGUE, Senior District Judge.

This case arises out of an explosion and fire in Gwinner, North Dakota at The Melroe Company's manufacturing plant, on January 31, 1993. The plaintiffs, Arkwright Mutual Insurance Company and Insurance Company of North America were Melroe's property insurers at the time of the explosion. They brought this subrogation action in their own names against the defendants, Gwinner Oil Company and Gwinner Propane, Inc., for negligence in delivering liquid propane to their insured, Melroe. Defendant Commonwealth Petroleum Company is the parent company of Gwinner Propane and was named as a defendant for its alleged negligent training and supervision of Gwinner Propane's employees. The district court 1 entered judgment against the plaintiffs upon a jury verdict assessing more than 50% of the fault for the loss to Melroe. The plaintiffs appeal from that verdict and judgment asserting several points of error. We affirm.

I.

Melroe is a large industrial company which manufactures "Bobcat" skid steer loaders at its factory in Gwinner, North Dakota for shipment to customers worldwide. Melroe uses large amounts of liquid propane to heat its manufacturing facility and power its factory utility vehicles. In fact, during the winter months, Melroe consumes approximately 30,000 gallons of propane per week. At the time of the accident, Melroe was storing nearly 100,000 gallons of propane in a storage and delivery system located on its property. This system consisted of five large tanks--four with 30,000 gallon capacities each, and one with a 15,000 gallon capacity. These five containers were interconnected with a series of pipes called a "manifold" which enabled all of the containers to operate together as one storage system. Each tank had its own shut-off valve, however, so that any one tank could be shut off or isolated from the rest of the system. With all of the valves open, a properly manifolded system maintains a relatively equal level of propane in all of the tanks as the propane is consumed. The liquid level in the tanks can vary widely, however, due to the peculiar properties of liquid propane. As the temperature rises, liquid propane expands. A small increase in temperature can cause a large volume expansion within the tanks. If a tank is overfilled, and the propane then expands with an increase in temperature, hydrostatic pressure begins to build within the tank which, without some mechanism for releasing excess pressure, could become great enough to rupture the tank. To prevent such an event, each of Melroe's tanks were equipped with two pressure relief valves designed to vent propane into the atmosphere if the pressure inside the tanks reached unusually high levels. By regulation, all of the relief valves were required to be fitted with caps to prevent rain, snow, ice, etc. from blocking the vents and causing the valves to fail.

Melroe contracted with Gwinner Propane to supply its great demand for propane. Because Gwinner Propane did not have a delivery truck large enough to transport the bulk propane required by Melroe, Gwinner Propane contracted with Gwinner Oil whereby Gwinner Oil used its fuel transporter to make propane deliveries from Gwinner Propane's rail siding to Melroe's plant. Melroe's fuel was supplied on an "as needed" basis. Gwinner Propane's manager, Daniel Enderson, monitored Melroe's fuel levels and decided when to deliver propane, and in what amounts. Marshall Johnson drove Gwinner Oil's fuel transporter. Although he was an employee of Gwinner Oil, he took instructions from Enderson relative to the Melroe deliveries.

On January 25, 1993, at Enderson's direction, Marshall Johnson made another delivery of fuel to Melroe. Before pumping the nearly 9,000 gallons of propane into the manifold, Johnson noticed the 15,000 gallon tank was registering 97% full--a dangerously high level. Johnson called Enderson to report the overfull tank. Enderson instructed Johnson to close the shut-off valves to the 15,000 gallon tank, deliver the fuel to the system

Page 1179

and reopen the valves to the tank. Johnson followed these instructions and the delivery was made without incident. Upon learning of the overfull tank, Enderson placed a telephone call to Melvin Adolfs, the maintenance foreman at Melroe, and informed him that the tank was registering 97% full. Adolfs in turn conveyed the information to Jerry Johnson, Melroe's maintenance coordinator, and to Mark Hardebeck, Melroe's maintenance worker in charge of the propane system. No one took measures to correct the problem. On January 27, Marshall Johnson returned to Melroe with another 9,000 gallons of propane. When he informed Enderson that the small tank was still 97% full, Enderson instructed him to follow the same delivery procedure as that of two days earlier. On January 29, Johnson was instructed to pump another 9,000 gallons of propane into the system following the same procedures, despite that the 15,000 gallon tank was still registering 97% full. After Enderson's initial call to Melroe regarding the overfull tank, no more calls were made to inform them the tank was still full. As of the January 29 delivery, no one had taken any measures to correct the problem.

By January 31, the outside temperatures had warmed from below zero to above freezing Fahrenheit. At about 6 a.m. on the morning of January 31, the 15,000 gallon tank ruptured and began releasing its contents. The ensuing explosion and fire caused nearly $2 million in damage to the Melroe plant and surrounding neighborhood. As Melroe's insurers, the plaintiffs bore the bulk of this loss.

At trial, the plaintiffs' theory was that Marshall Johnson overfilled the tank, closed its shut-off valves, and left them closed for a week, thereby isolating the tank from the rest of the system. Moreover, because the rain caps were missing from the pressure relief vents, they became blocked with snow and ice preventing them from releasing excess pressure. The overfilled isolated tank, they argued, combined with a dramatic rise in temperatures, created tremendous hydrostatic pressure inside the tank which ultimately caused the tank to fail at pressure levels much higher than it was designed to withstand. The plaintiffs presented evidence to support their theory that the defendants knew the rain caps were missing, knew the tank was dangerously overfull, did nothing to alleviate the problem, and in fact, added fuel to an extremely dangerous manifold system. The plaintiffs maintained that the defendants' fault far exceeded that of Melroe's because the defendants breached their duty to either inspect Melroe's storage system or shut off the supply of propane once it obtained knowledge that the system was unsafe.

The defendants' theory, on the other hand, was that the tank failed as a result of a defective weld which, over time, weakened and burst at pressures much lower than 250 psi--the pressure at which the relief valves were calibrated to activate. The defendants disputed the plaintiffs' theory that the shut-off valves were closed and that the vent pipes were blocked by snow and ice. They presented expert testimony to support their theory that the cracked weld caused the tank to become overfull. The increased temperature, they argued, created pressure levels which, although lower than 250 psi, were higher than normal. As the weakest point on the tank, the defective weld then failed under the pressure, allowing the propane to escape and ignite. The defendants argued that Melroe's fault exceeded their own because Melroe's storage tank and maintenance procedures did not comply with industry standards, thus allowing this accident to occur.

The jury was instructed to apportion fault among the various parties pursuant to North Dakota's comparative fault laws. The jury returned a verdict assessing 54% fault to Melroe, 26% to Gwinner Propane and Commonwealth Petroleum, 2 and 20% to Gwinner Oil.

II.

The plaintiffs first argue the district court erred in refusing to submit the plaintiffs'

Page 1180

proposed jury instruction regarding a propane supplier's duty of care when delivering propane into customers' appliances that are known to be unsafe. Failure to instruct on this duty, they maintain, erroneously allowed the defendant to characterize their duty as merely an allegation of negligence rather than...

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