Arkansas Power & Light v. Hartford Steam Boiler Insp. & Ins.

• Decision Date: 15 February 2001
• Docket Number: No. 00-2068,00-2068
• Citation: 257 F.3d 853
• Parties: (8th Cir. 2001) ARKANSAS POWER AND LIGHT COMPANY, ET AL., PLAINTIFFS - APPELLANTS, v. HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, DEFENDANT - APPELLEE. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 853

257 F.3d 853 (8th Cir. 2001)

ARKANSAS POWER AND LIGHT COMPANY, ET AL., PLAINTIFFS - APPELLANTS, v. HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, DEFENDANT - APPELLEE.

No. 00-2068

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: February 15, 2001

Filed: July 23, 2001

Appeal from the United States District Court for the Western District of Arkansas.

Before Bowman and Loken, Circuit Judges, and Strom,^* District Judge.

Loken, Circuit Judge.

Arkansas Power and Light Company ("Arkansas Power") suffered a catastrophic loss to one of the units at its steam generating plant near Newark, Arkansas, resulting in property damage and expediting expenses of $28,182,561.14. At the time, Arkansas Power had in place boiler and machinery insurance provided by Hartford Steam Boiler Inspection and Insurance Company ("Hartford"), and all-risk property insurance provided by six property insurers. After preliminary investigations of the loss, Hartford took the position that the loss was proximately caused by a furnace explosion or an explosion of unconsumed fuel, risks covered by the all-risk policies but excluded under Hartford's policy. The all-risk carriers took the position that the loss was caused by a mechanical breakdown of a fired vessel and excursion of steam into other components of the unit, a risk covered solely by Hartford. Faced with this coverage dispute, Arkansas Power invoked the loss adjustment endorsements in the various policies.

A loss adjustment endorsement, also referred to as a joint loss agreement, provides a means for an insured to receive prompt payment when two or more insurers with potentially overlapping coverages disagree as to the cause of a loss. Under these endorsements, after the insurers agree on the total amount of the loss, each pays any portion that it agrees is covered solely under its own policy, plus one-half of the remaining amount in dispute. With the insured fully paid, the insurers then arbitrate their coverage dispute. See WEBB, COMMERCIAL INSURANCE 150 (3d ed. 1996). In this case, however, the insured was left unsatisfied because, in determining the amount to be paid under the loss adjustment endorsements, the insurers applied the $5,000,000 deductible in the all-risk policies, rather than the $250,000 deductible in Hartford's boiler and machinery policy. Arkansas Power filed this action against Hartford to recover the difference in deductibles. The district court¹ concluded that the $5,000,000 deductible applies and granted Hartford's summary judgment motion. Arkansas Power appeals. We affirm.

As framed by the parties, the dispute between Arkansas Power and Hartford turns on the proper construction and application of Endorsement 11 and Endorsement 12 in the Hartford policy. Endorsement 11 is entitled Joint Loss Deductible and provides in relevant part:

In the event of there being a combined loss, being a loss which is covered by both this policy and the fire policy, then the highest applicable deductible only will be utilized.

Endorsement 12 is Hartford's Loss Adjustment Endorsement, which is mirrored in the all-risk policies. It provides in relevant part:

In the event of damage to or destruction of property . . . and there is a disagreement between the insurers with respect to

(1) whether such damage or destruction was caused by an accident insured against by this policy or by a peril insured against by such fire insurance policy(ies) . . .

This company shall, upon written request of the insured, pay to the insured one-half of the amount of the loss which is in disagreement, but in no event more than this company would have paid if there had been no fire insurance policy(ies) in effect, subject to the following conditions:

(1) The amount of the loss which is in disagreement, after making provisions for any undisputed claims payable under the said policies and after the amount of the loss is agreed upon by the insured and the insurers, is limited to the minimum amount remaining payable under either the boiler and machinery or fire policy(ies) . . . .

After Arkansas Power invoked Endorsement 12 and the comparable loss adjustment endorsements in the all-risk policies, Hartford and the all-risk insurers adjusted the loss under these endorsements. Disregarding the treatment of expediting expenses, which are not at issue on appeal, the insurers agreed that the total amount of the insured loss was $26,813,961.18, well within the policy limits of the Hartford policy and the all-risk policies. They also agreed that $948,102.27 of the loss was covered only by the all-risk carriers (for costs of freeze...