Farmland Industries v. National Union Fire Ins., 02-4135-JAR.

• Decision Date: 03 March 2005
• Docket Number: No. 02-4135-JAR.,02-4135-JAR.
• Citation: 359 F.Supp.2d 1144
• Parties: FARMLAND INDUSTRIES, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pennsylvania, et al., Defendants.
• Court: U.S. District Court — District of Kansas

359 F.Supp.2d 1144

FARMLAND INDUSTRIES, INC., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Pennsylvania, et al., Defendants.

No. 02-4135-JAR.

United States District Court, D. Kansas.

March 3, 2005.

Lee M. Smithyman, Smithyman & Zakoura, Chtd., Overland Park, KS, for Plaintiff.

Christopher F. Burger, Peter K. Curran, Stevens & Brand, L.L.P., Lawrence, KS, Ethan V. Torrey, Matthew M Burke, Ropes & Gray, Boston, MA, for Defendants.

MEMORANDUM ORDER AND OPINION GRANTING MOTION FOR SUMMARY JUDGMENT AND DENYING MOTION FOR HEARING

ROBINSON, District Judge.

This matter comes before the Court on defendants' Motion for Summary Judgment (Doc. 49). Defendants National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Qatar General Insurance and Reinsurance Company; Certain Underwriters at Lloyd's of London Gerling Konzern Allgemeine Versicherungs-AG; and Allianz Insurance Company (collectively "the Insurers") seek summary judgment on the discrete issue of quantification of plaintiff Farmland Industries, Inc.'s ("Farmland") damages. In turn, Farmland has requested oral argument on the Insurers' motion (Doc. 67). For the reasons set forth below, the Insurer's Motion for Summary Judgment is granted, and Farmland's Motion for Oral Argument is denied.¹

I. Uncontroverted Facts²

Prior to April 5, 2000, Mountain Energy Corporation ("MEC") purchased from Terra Nitrogen Corporation 1.5 bcf of physical natural gas (the "Terra gas"). At that time, the Terra gas was located in a storage facility owned by Manchester Gas Storage, Inc. ("Manchester") and managed by MEC. On or about April 5, 2000, Farmland entered into a transaction with MEC for .5 bcf of the Terra gas. At the same time as the Farmland transaction, MEC entered into a virtually identical transaction with Tenaska Marketing Ventures ("Tenaska") for .5 bcf of the Terra gas.

Sometime in early April of 2000, MEC committed to withdraw 635,000 MMBtu of the Terra gas on a ratable basis over the month of April for sale to its customers in the Kansas City area. MEC's Kansas City supply customers received this gas on a ratable basis of 20,000 MMBtu per day, beginning on April 1. On April 17, 2000, Manchester advised MEC that it would not permit MEC to remove the Terra gas from the storage facility. After Manchester's refusal, MEC sold the remainder of the Terra gas to Anadarko Energy Services Company ("Anadarko") in May 2000.

Section I.4B of the insurance policy governing this dispute ("the Policy") titled "Basis of Settlement" provides:

In the event of claim for loss to crude petroleum, the basis of settlement shall be the posted market price thereof on the date of the loss, plus the gathering and transportation charges to include also, where crude petroleum is delivered in railroad tankers, cars, tank ships or tank trucks, loading and unloading charges, if incurred, plus earned freight revenue, and in the event of claim for loss or damage to other petroleum products, the basis of settlement shall be the market value thereof at the time and place of loss.³

The Inside FERC WNG Index provides the market value of natural gas. According to the Inside FERC WNG Index, the market value of natural gas was $2.79/MMBtu on April 30, 2000, and $2.94/MMBtu on May 31, 2000.

II. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law."⁴ The requirement of a "genuine" issue of fact means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party.⁵ Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."⁶

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be met by showing that there is a lack of evidence to support the nonmoving party's case.⁷ Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial.⁸ "A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of [its] pleading, but must set forth specific facts showing that there is a genuine issue for trial."⁹ Therefore, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.¹⁰ The Court must consider the record in the light most favorable to the nonmoving party.¹¹ The Court notes that summary judgment is not a "disfavored procedural shortcut"; rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."¹²

III. Discussion

The Insurers argue that summary judgment is appropriate because under the Policy, the basis of settlement for any loss of petroleum products other than crude petroleum is the "market value thereof at the time and place of loss." Since the loss took place no later than the end of April 2000 as to 0.135 bcf and no later than the end of May 2000 as to 0.365 bcf, the Insurers' assert that Farmland's loss should be valued at $2.79/MMBtu and $2.94/MMBtu, respectively. In response, Farmland asserts that the Policy valued the gas not at the time of loss, but instead at the time of replacement, and thus its loss should be valued at $5.19/MMBtu, the value of natural gas in October 2000. Additionally, Farmland urges that it was not "actually damaged" until October 2000, when the loss was discovered, investigated and verified, such that the loss should be valued according to October 2000 market prices.

A. Basis for Settlement under the Policy

The parties disagree over which provision of the Policy provides the measure of damages for lost natural gas. The Insurers contend that section I.4B of the Policy pertaining to "petroleum products other than crude petroleum" provides the basis for settlement, while Farmland contends that its natural gas loss falls under the valuations of loss for "real and personal property," or "raw stock, supplies or other merchandise not manufactured by the Insured." Alternatively, Farmland urges that the Policy provisions are ambiguous.

"Rules governing the interpretation of insurance policies are well settled."¹³ In interpreting an insurance contract, courts "read the contract as a whole and determine the intent of the parties, giving effect to that intent by enforcing the contract as written."¹⁴ Language used in an insurance contract is given its plain and ordinary meaning.¹⁵ Plain or ordinary meaning is the meaning that the average layperson would understand, as determined by consulting standard English language dictionaries.¹⁶ Where insurance contracts are written in plain and unambiguous terms, the court must enforce the policy according to those terms,¹⁷ and rules of construction are inapplicable.¹⁸ The Court may not distort unambiguous policy language to create an ambiguity.¹⁹ Nor may a court "use its inventive powers to ... rewrite a policy to provide coverage for which the parties never contracted, absent a statute or public policy requiring coverage."²⁰

In this case, the Policy unambiguously provides for a measure of damages for lost natural gas in section I.4B. Section I.4B states that "in the event of claim for loss or damage to other petroleum products [other than crude], the basis of settlement shall be the market value thereof at the time and place of the loss." Petroleum is commonly defined as: "[a] naturally occurring complex liquid hydrocarbon which after distillation yields combustible fuels, petrochemicals, and lubricants; can be gaseous (natural gas), liquid (crude oil, crude petroleum), solid (asphalt, tar, bitumen), or a combination of states."²¹ Thus, according "petroleum" its plain and ordinary meaning, natural gas is clearly a petroleum product, making the appropriate measure of damages the market value of the natural gas at the time and place of the loss.

Moreover, the Policy itself demonstrates that natural gas was a "petroleum product," as that term is used in section I.4B. In an exclusion section of the Policy, the parties agreed that: "[t]his section does not cover ... [s]ubterranean strata except coverage is provided for crude petroleum and its products including but not limited to natural gas and other minerals while stored in strata of any nature after initial recovery above ground unless otherwise provided under this policy."²² The Court therefore concludes that, based upon a plain reading of the four corners of the Policy, natural gas is a petroleum product.

Even though natural gas falls squarely within the purview of petroleum products covered in section I.4B of the Policy, Farmland urges that its lost natural gas must be valued according to the personal property or raw stock Policy provisions, both of which measure damages based upon the cost of replacement. Such a valuation, according to Farmland, is necessary as it furthers "the overarching intent of the Basis of Settlement provisions ... to fully reimburse the insured through cost of replacement." Thus, Farmland contends that the market value basis of settlement for damages to petroleum products, such as natural gas, is inconsistent with the Policy as a whole and is contrary to the stated intention to fully indemnify the insured.

The presence of a different damage valuation for losses to petroleum products, as compared with other risks insured under the Policy, does not aid Farmland's proffered contract interpretation. "In construing a contract, [courts] assume that the use of different language to define different obligations was deliberate and...