Murphy Oil Usa v. Unigard Security Ins.

• Decision Date: 06 December 2001
• Docket Number: 00-1408
• Citation: 61 S.W.3d 807
• Parties: MURPHY OIL USA, INC., APPELLANT, VS. UNIGARD SECURITY INSURANCE COMPANY AND EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, APPELLEES, EMPLOYERS' SURPLUS LINES INSURANCE COMPANY,OIL USA, INC.; UNITED STATES FIDELITY & GUARANTY COMPANY,SUPREME COURT OF ARKANSAS 6 December 2001 APPEAL FROM THE UNION COUNTY CIRCUIT COURT, NO. 91-439-2, HON. C. DAVID BURNETT, JUDGE DIRECT APPEAL REVERSED AND REMANDED.AFFIRMED. Opinion Delivered ROBERT L. BROWN, Associate Justice Appellant Murphy Oil USA, Inc. appeals a grant of summary judgment in favor of appellee Unigard Security Insurance Company (Unigard) and appellee Employers' Surplus Lines Insurance Company (ESLIC). (FN1) In that summary judgment, the circuit court concluded that Unigard and ESLIC had no duty to defend their insured, Murphy Oil, in litigation brought by Harrison Brothers Dry Dock and Repair Yard. On appeal, Murphy Oil urges this court to reverse the summary judgment and then revisit and overrule our previous decision in Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998) (Murphy I). We agree with Murphy Oil that the summary judgment must be reversed, but we decline to overrule our previous decision. On cross-appeal, ESLIC contends that the circuit court erred in refusing to order cross-appellee Murphy Oil or cross-appellee United States Fidelity and Guaranty Company (USF&G) to reimburse it for costs advanced in two other lawsuits to Murphy Oil as part of its obligation to defend. We affirm the circuit court on the cross-appeal. The underlying events which have led to several lawsuits against Murphy Oil were three petroleum spills at Murphy Oil's facility which occurred in 1970, 1975, and 1982. During those years, Murphy Oil occupied a facility which it leased from Blakely Corporation on Blakely Island, located in the Mobile River in Alabama. In 1970, Murphy Oil personnel overestimated the capacity of a tank and between 8,800 to 23,000 gallons spilled onto the ground. In 1975, between 22
• Court: Arkansas Supreme Court

MURPHY OIL USA, INC., APPELLANT VS UNIGARD SECURITY INSURANCE COMPANY AND EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, APPELLEES,

EMPLOYERS' SURPLUS LINES INSURANCE COMPANY,

CROSS-APPELLANT, MURPHY OIL USA, INC.; UNITED STATES FIDELITY & GUARANTY COMPANY, CROSS-APPELLEES

No. 00-1408

SUPREME COURT OF ARKANSAS

6 December 2001

APPEAL FROM THE UNION COUNTY CIRCUIT COURT, NO. 91-439-2, HON. C. DAVID BURNETT, JUDGE

DIRECT APPEAL REVERSED AND REMANDED.

CROSS-APPEAL AFFIRMED.

Opinion Delivered

ROBERT L. BROWN, Associate Justice

Appellant Murphy Oil USA, Inc. appeals a grant of summary judgment in favor of appellee Unigard Security Insurance Company (Unigard) and appellee Employers' Surplus Lines Insurance Company (ESLIC). ¹ In that summary judgment, the circuit court concluded that Unigard and ESLIC had no duty to defend their insured, Murphy Oil, in litigation brought by Harrison Brothers Dry Dock and Repair Yard. On appeal, Murphy Oil urges this court to reverse the summary judgment and then revisit and overrule our previous decision in Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998) (Murphy I). We agree with Murphy Oil that the summary judgment must be reversed, but we decline to overrule our previous decision. On cross-appeal, ESLIC contends that the circuit court erred in refusing to order cross-appellee Murphy Oil or cross-appellee United States Fidelity and Guaranty Company (USF&G) to reimburse it for costs advanced in two other lawsuits to Murphy Oil as part of its obligation to defend. We affirm the circuit court on the cross-appeal.

The underlying events which have led to several lawsuits against Murphy Oil were three petroleum spills at Murphy Oil's facility which occurred in 1970, 1975, and 1982. During those years, Murphy Oil occupied a facility which it leased from Blakely Corporation on Blakely Island, located in the Mobile River in Alabama. In 1970, Murphy Oil personnel overestimated the capacity of a tank and between 8,800 to 23,000 gallons spilled onto the ground. In 1975, between 22,000 and 26,000 gallons of gasoline leaked onto the ground because of a tank valve that was accidentally left open. In 1982, 4,600 gallons of diesel fuel leaked onto the ground through a corroded hole in the bottom of a tank. In April 1990, Blakely Corporation sued Murphy Oil in the Alabama federal district court for negligence, breach of the lease agreement, and trespass associated with the spills. The jury awarded Blakely $3.4 million in compensatory damages on the breach-of-lease claim but no damages for negligence or trespass. The jury also awarded $4.6 million in punitive damages, which was subsequently reduced to $2 million. The total judgment in this litigation, when costs were included, was $5.8 million. This litigation in federal district court is referred to as Blakely I.

Murphy Oil then sued its liability carriers, including USF&G, Unigard, and ESLIC, in 1991 in Union County Circuit Court for indemnity associated with the Blakely I judgment. USF&G, as primary carrier, settled with Murphy Oil and paid the policy limits for the three years that the spills occurred. Following a jury trial, judgment for complete indemnity was entered in favor of Murphy Oil as against Unigard & ESLIC. Unigard and ESLIC appealed the judgment, and this court reversed in Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., supra (Murphy I). In doing so, this court held as a matter of law that the Unigard and ESLIC insurance policies afforded Murphy Oil no coverage for liability based on the breach-of-lease claim.

During the pendency of Murphy Oil's appeal to this court in Murphy I, a second action by the Blakely Corporation was pending against Murphy Oil in the Alabama federal district court entitled Blakely Corp. v. Murphy Oil USA, Inc. (Blakely II), in which Blakely sought a verdict for property damage caused by the three spills to an adjoining Blakely site. On March 11, 1996, the Union County Circuit Court held a hearing on Unigard's and ESLIC's duty to defend Murphy Oil in the Blakely II matter. Following the hearing, the court ruled from the bench:

Of course, I have already ruled in the other case that there was a duty to defend, and I am going to make a similar ruling in this case that there is a duty on the part of ESLIC and Unigard to defend for the years 1970, `75 and `82 in the Blakely II matter.

....

But it seems to me that the facts that are alleged are identical to what has been previously litigated ....

ESLIC then requested the circuit court to delay entering an order to that effect, so that it could add a cross-claim for the defense costs against USF&G. In Blakely II, summary judgment on the issue of Murphy Oil's liability for the spills was entered by the Alabama federal district court in favor of Murphy Oil. The summary judgment was affirmed by the Eleventh Circuit Court of Appeals. See Blakely Corp. v. Murphy Oil, 141 F.3d 1189 (11th Cir. 1998) (unpublished table disposition).

Subsequently, a second amended complaint was filed in a third suit against Murphy Oil relating to the Blakely Island spills. This suit, entitled Harrison Bros. Dry Dock & Repair Yard, Inc., et al. v. Murphy Oil USA, Inc., was filed in Mobile County Circuit Court in Alabama (Blakely III). In this suit, Harrison Brothers alleged claims of trespass, continuing trespass, nuisance, negligence, and wantonness, all relating to the "allow[ance of] petroleum products and/or other polluting, contaminating or hazardous substances to be discharged and/or released onto and into the ground, subsoiland/or ground water" on Murphy Oil's leased property that was located adjacent to the Harrison Brothers' property. Harrison Brothers also alleged that "[i]n or about August 1996, Plaintiffs discovered that the above described petroleum products and/or other polluting, contaminating or hazardous substances had migrated from the subject property onto Plaintiffs' property."

As a consequence of Blakely III, on April 24, 1999, Murphy Oil filed a seventh amended complaint in the ongoing action in the Union County Circuit Court and prayed for a declaratory judgment that both Unigard and ESLIC be obligated to defend Murphy Oil and to indemnify it for the defense costs incurred in its defense in Blakely III. ² ESLIC answered and counterclaimed seeking a declaration that it did not have a duty to defend or indemnify Murphy Oil in either Blakely II or Blakely III. ESLIC further sought a judgment for defense costs paid to Murphy Oil under a reservation of rights in Blakely II and III.

In May 1999, Murphy Oil filed an amended and supplemental motion for partial summary judgment in Union County Circuit Court in which it requested the court to order Unigard and ESLIC to pay Murphy Oil's defense costs in Blakely III. Murphy Oil argued that Blakely III involved the same spills and many of the same issues as Blakely I and Blakely II. Thus, it argued, Unigard and ESLIC, as umbrella carriers, had a contractual duty to defend it which they inherited from the primary carrier, USF&G, which had already paid policy limits. Murphy Oil further asserted in its brief in support of the amended partial summary-judgment motion that the Harrison Brothers complaint in Blakely III plainly stated a claim that could activate the policy coverage of Unigard and ESLIC.

ESLIC responded to Murphy Oil's amended motion for partial summary judgment and cross-motioned for summary judgment for the reimbursement of defense costs paid to Murphy Oil, or, alternatively, for reimbursement of those costs from USF&G. ESLIC then filed a Combined Motion and Brief in Support of Summary Judgment as to Blakely III, in which it claimed that due to the Alabama statute of limitations on claims involving property damage and ESLIC's policy's definition of the term "occurrence," there could be no coverage under the policy and, thus, no duty to defend or indemnify.

On October 12, 1999, Unigard filed a Motion for Summary Judgment in which it alleged that the Blakely III complaint asserted a migration of contaminants and that migration is a slow process which would cause the event to be excluded under the Pollution Exclusion to its policy. Unigard submitted an affidavit in support of its motion from Dr. Gary R. Walter, a professional hydrogeologist, as well as the testimony of Jane Spellman, another hydrogeologist, who was Murphy Oil's expert witness.

On May 8, 2000, a hearing was held on the various motions. At the close of the hearing, the circuit court ruled:

I understand that all these issues were raised back in `93, and I ruled in favor of Murphy on [them]. This set of facts is a little bit different. I'm going to grant summary judgment on both based upon the --

....

-- based upon the exclusionary provision of the policies that this was classic pollution, and the language is rather clear to the Court that they excluded coverage, and that ends the issue in my eyes on this particular fact situation - - which is different from the previous case.

....

And I'm persuaded by the language and the discussion in this Bell [Lumber & Pole Co. v. United States Fire Ins. Co., 60 F.3d 437 (8th Cir. 1995)] case also.

....

Yes, I think [other pending motions] would be [moot] because this is a coverage question, and I have ruled that there's no coverage so duty to defend and all those would be out ... the window.

In the resulting order of summary judgment, the circuit court made the following findings:

there is no genuine issue of material fact;

as a matter of law the insurance policies do not provide coverage for the claims asserted in Blakely III;

Unigard and ESLIC are entitled to judgment as a matter of law on the claims asserted by Murphy Oil in its Seventh Amendment to Complaint that the carriers had an obligation to defend; and after hearing arguments of counsel, the Court denies ESLIC's request for reimbursement of the defense costs it has paid in Blakely II and...