Murphy Oil Corp. v. Liberty Mut. Fire Ins. Co.

Decision Date21 April 2020
Docket NumberNo. 19-1140,19-1140
Parties MURPHY OIL CORPORATION Plaintiff Appellant v. LIBERTY MUTUAL FIRE INSURANCE COMPANY Defendant Appellee
CourtU.S. Court of Appeals — Eighth Circuit

Counsel who presented argument on behalf of the appellant and appeared on the brief was Robert H. Shulman, of Bethesda, MD. The following attorney(s) also appeared on the appellant brief; Julie DeWoody Greathouse, of Little Rock, AR, Kimberly D. Logue, of Little Rock, AR, Molly Magee Shepherd, of El Dorado, AR, Jessica B. Summers, of Bethesda, MD, Patricia M. Weaver, of Bethesda, MD.

Counsel who presented argument on behalf of the appellee and appeared on the brief was Charles Mitchell Brown, of Columbia, SC. The following attorney(s) also appeared on the appellee brief; Lyn Peoples Pruitt, of Little Rock, AR, David Koehler, of Little Rock, AR, Brian P. Crotty, of Columbia, SC, Timothy Joseph Fitzgibbon, of Washington, DC.

Before BENTON, GRASZ, and STRAS, Circuit Judges.

BENTON, Circuit Judge.

Murphy Oil Corporation sold an oil refinery to Valero Refining-Meraux, LLC in 2011. Months later, a fire occurred on the property. Valero demanded indemnification from Murphy. Murphy asked Liberty Mutual Fire Insurance Company, its general commercial liability insurer, to provide a defense. Liberty Mutual refused. Murphy Oil sued Liberty Mutual for a declaratory judgment and damages. The district court1 granted summary judgment to Liberty Mutual. Murphy appeals. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

I.

In 2011, by an Asset Purchase Agreement, Murphy Oil sold an oil refinery to Valero. Within a year, a fire extensively damaged it. Valero concluded that Murphy sold the refinery in a condition unsuitable for use, violating numerous representations and warranties in the Agreement. Valero demanded indemnification from Murphy under the Agreement’s indemnity provision.

Murphy Oil notified Liberty Mutual of the demand letter, seeking full protection under its Commercial General Liability (CGL) insurance policy. Liberty Mutual denied any defense and payment duties, stating that the policy did not provide coverage for the claim.

Valero sued Murphy Oil in New York state court for one count of "BREACH OF CONTRACT." Valero alleged multiple breaches of the Agreement, including not meeting industry standards and good engineering practices; selling the refinery while "in violation of numerous environmental regulations and standards and while assets were not adequate for their use in the business"; and Murphy’s "Retained Liabilities," including "violations of Environmental Laws," under the Agreement.

Murphy Oil requested that Liberty Mutual defend against Valero’s suit. Again refusing, Liberty Mutual asserted that the CGL policy did not cover a breach of contract. Murphy sued Liberty Mutual for a declaratory judgment that it had a duty to defend. Both parties moved for summary judgment. The district court granted summary judgment to Liberty Mutual, ruling "there is no possibility of coverage under the Policy for Valero’s claims against Murphy." Murphy Oil Corp. v. Liberty Mutual Fire Ins. Co. , 357 F. Supp. 3d 791, 801 (W.D. Ark. 2019).

This court reviews de novo a grant of summary judgment, considering the evidence and making all reasonable inferences most favorably to the nonmoving party. Nelson v. USAble Mut. Ins. Co. , 918 F.3d 990, 993 (8th Cir. 2019). Summary judgment is proper if "there is no genuine issue as to any material fact" and "the movant is entitled to judgment as a matter of law." Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc), citing Fed. R. Civ. P. 56(c). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. , citing Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009). The parties agree that Arkansas law governs the interpretation of the policy.

II.

An insurance policy is ambiguous if there is doubt or uncertainty as to the policy’s meaning and it is fairly susceptible to more than one reasonable interpretation. Phelps v. U.S. Life Credit Life Ins. Co. , 336 Ark. 257, 984 S.W.2d 425, 428 (1999). If an insurance policy is unambiguous, its construction is a matter of law for the court. Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc. , 331 Ark. 211, 962 S.W.2d 735, 740 (1998) ( Unigard I ). "[P]rovisions contained in a policy of insurance must be construed most strongly against the insurance company which prepared it, and if a reasonable construction may be given to the contract which would justify recovery, it would be the duty of the court to do so." Drummond Citizens Ins. Co. v. Sergeant , 266 Ark. 611, 588 S.W.2d 419, 423 (1979). If an exclusion is at issue, the insurer has the burden to prove that an exclusion applies. Ark. Farm Bureau Ins. Fed’n v. Ryman , 309 Ark. 283, 831 S.W.2d 133, 135 (1992).

Murphy Oil argues that Liberty Mutual has a duty to defend because there is a potential for coverage under the policy. "The duty to defend is broader than the duty to indemnify; the duty to defend arises when there is a possibility that the injury or damage may fall within the policy coverage." Scottsdale Ins. Co. v. Morrowland Valley Co. , 411 S.W.3d 184, 190 (Ark. 2012). "[I]n testing the pleadings to determine if they state a claim within the policy coverage, we resolve any doubt in favor of the insured." Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co. , 347 Ark. 167, 61 S.W.3d 807, 814 (2001) ( Unigard II ). However, if there is "no possibility that the damage alleged in the complaint may fall within the policy coverage, there is no duty to defend." Kolbek v. Truck Ins. Exch. , 431 S.W.3d 900, 906 (Ark. 2014).

Arkansas follows a three-step analysis to evaluate coverage in CGL policies.

First, we examine the facts of the insured's claim to determine whether the policy's insuring agreement makes an initial grant of coverage. If it is clear that the policy was not intended to cover the claim asserted, the analysis ends there. If the claim triggers the initial grant of coverage in the insuring agreement, we next examine the various exclusions to see whether any of them preclude coverage of the present claim. ... Exclusions sometimes have exceptions; if a particular exclusion applies, we then look to see whether any exception to that exclusion reinstates coverage.

Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., Inc. , 491 S.W.3d 135, 138-39 (Ark. 2016), citing Am. Family Mut. Ins. Co. v. Am. Girl, Inc. , 268 Wis.2d 16, 673 N.W.2d 65, 73 (2004).

III.

The first step is to determine whether a policy makes an initial grant of coverage. The general coverage provision of the CGL policy here says the policy applies to "property damage" caused by an "occurrence" that takes place in the "coverage territory," during the "policy period," and was unknown to the policy holder before the policy period began.

Valero’s complaint has a single cause of action for breach of contract, with multiple allegations how Murphy breached the Agreement. Liberty Mutual argued in the district court that breach-of-contract claims are not covered by CGL policies under Arkansas law. The Supreme Court of Arkansas says it "is not alone in recognizing that breach-of-contract claims are not covered by CGL policies." Columbia , 491 S.W.3d at 141. See also id. , citing Grinnell Mut. Reins. Co. v. Lynne , 686 N.W.2d 118, 125-26 (N.D. 2004) ( stating that coverage under a CGL policy is for tort liability, not contractual liability for economic loss); Oak Crest Constr. Co. v. Austin Mut. Ins. Co. , 329 Or. 620, 998 P.2d 1254, 1257 (2000) (holding that there can be no accident within the meaning of a CGL policy, when the "resulting damage is merely a breach of contract."); Redevelopment Auth. of Cambria Cty. v. Int’l Ins. Co. , 454 Pa.Super. 374, 685 A.2d 581, 589 (1996) (holding that breach of contract is "not an accident or occurrence contemplated or covered by the provisions of a general liability insurance policy."); Glens Falls Ins. Co. v. Donmac Golf Shaping Co. , 203 Ga.App. 508, 417 S.E.2d 197, 200 (1992) (holding that coverage applicable under a CGL policy is for tort liability, not for contractual liability for economic loss).

Murphy Oil counters with an Arkansas Supreme Court case that recognizes the possibility of CGL coverage for a breach-of-contract action. U. S. Fidelity & Guar. Co. v. Cont’l Cas. Co. , 353 Ark. 834, 120 S.W.3d 556, 561 (2003) ( Fidelity ). In Fidelity , the court held that under the language of the policy there, the definition of "insured contract" covered the indemnification provisions of the agreements at issue. Id.

The district court recognized the tension between Columbia’s holding that breach of contract is not covered by a CGL policy and Fidelity’s recognition that a CGL policy covered a single breach-of-contract claim. Murphy Oil , 357 F. Supp. 3d at 797. Murphy acknowledges, however, that the Agreement here is not an insured contract as present in Fidelity .

Murphy Oil argues that there is coverage because the underlying facts of the claim reference the property damage from the fire. Thus, Murphy says, the count for breach of contract is a claim for property damage, which is (possible) liability. However, even if the breach-of-contract claim involves property damage, it does not change the nature of the claim into one for covered property damage. See Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc. , 331 Ark. 211, 962 S.W.2d 735, 742-43 (1998) ( Unigard I ). In Unigard I , plaintiff leased an island from a third party, agreeing to return it in the same condition as when leased. Id. at 736. After numerous oil leaks and spills during the lease, plaintiff returned the island without mentioning them. Id. at 736-37. The third party sued for breach of lease and negligence. Id. at 737.

The Arkansas Supreme Court considered, as a question of...

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