Pinnacle Resources Inc v. Chartis Specialty Insurance Company
OPINION AND ORDER granting 14 Motion for Summary Judgment; denying 16 Motion for Partial Summary Judgment. Plaintiff's complaint is dismissed. Signed by Judge Susan Webber Wright on 8/1/2014. (ks)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
PINE BLUFF DIVISION
PINNACLE RESOURCES, INC.,
CHARTIS SPECIALTY INSURANCE CO.,
No. 5:13CV00240 SWW
Opinion and Order
Plaintiff Pinnacle Resources, Inc. (“Pinnacle”) brings this action for a declaratory
judgment against Chartis Specialty Insurance Company (“Chartis”) seeking a declaration that
Chartis has a duty to defend and to indemnify for any damages that may be awarded against
Pinnacle in connection with a lawsuit pending against it in state court. Before the Court is a
motion for summary judgment filed by Chartis to which Pinnacle responded.1 Also before the
Court is a motion for partial summary judgment filed by Pinnacle to which Chartis responded.2
Pinnacle filed a reply. After careful consideration, and for the reasons that follow, the
defendant’s motion is granted.
Pinnacle is an Arkansas corporation located in Pine Bluff which manufactures and
supplies bulk lubricants.3 It is in the business of blending lubricants for third parties and for its
Defendant’s Statement of Undisputed Facts is filed as Ex.1 to its Motion for Summary Judgment,
ECF No. 14-1.
Plaintiff’s Statement of Undisputed Facts is ECF No. 18. Defendant responded to the Statement.
See ECF No. 20.
Pl’s. Statement of Undisputed Material Facts at ¶ 1.
own account, and in the sale of such lubricants to the general public.4 Gibralter Lubricating
Services, Inc. (”Gibraltar”) is an Arkansas corporation that is involved in the research,
development, and sale of specialty lubricating oils. According to Gibralter, Pinnacle sent sales
representatives to Gibralter’s office in Beebe, Arkansas, to solicit its business as a blender of
Gibralter’s oil products. Eventually, Gibraltar entered into an agreement with Pinnacle and
provided Pinnacle with its confidential proprietary formula to allow Pinnacle to prepare test
batches of a lubricant for Gibraltar. In November 2010, Pinnacle blended a test sample of the
lubricant and thereafter blended one batch of lubricant which was sold to an established
customer of Gibraltar. According to Gibraltar, Pinnacle demanded the right to be Gibraltar’s
sole and exclusive blender. Gibraltar declined and terminated its relationship with Pinnacle in
January 2011. Gibraltar alleges Pinnacle then began to market to and solicit business from
Gibraltar’s customers and began to sell the oil lubricant blended using Gibraltar’s proprietary
formula directly to Gibraltar’s customers at a lower price than Gibraltar’s pricing structure.
Gibraltar filed a complaint on April 30, 2012, in state court alleging a claim of trade secret
misappropriation and seeking an injunction. Gibralter also seeks damages for breach of contract
and, in the alternative, conversion.
During the period of June 1, 2010 through June 1, 2012, Pinnacle had a commercial
general liability insurance policy (“the Policy”) issued by Chartis.5 Pinnacle tendered Gibraltar’s
complaint to Chartis but Chartis refuses to defend Pinnacle arguing the Gibralter claims are not
Pl’s. Compl., Ex. C (Complaint at ¶ 11.
The Policy, No. EG 5299271 was in effect for the policy period from June 1, 2010- June 1, 2011
(Ex. A to Compl.). It was renewed for the policy period of June 1, 2011 - June 1, 2012. (Ex. B to Compl).
See also Def’s. Mot. Summ. J.,(ECF No. 14) Exs. B & C and Pl’s. Reply (ECF No. 23), Exs. 1 & 2.
covered by the Policy and even it they are, exclusions apply. Pinnacle moves for partial
summary on Chartis’s duty to defend. Chartis moves for summary judgment on both the duty to
defend and the duty to indemnify.
Summary judgment is proper only if “there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving
party bears the initial responsibility of demonstrating the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has properly
supported its motion for summary judgment, the non-moving party must “come forward with
‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986)(citation omitted)(emphasis in original). A
genuine issue exists only if there is sufficient evidence to allow a jury to return a verdict for the
non-moving party. Anderson v. Liberty Lobby., Inc., 477 U.S. 242, 249 (1986).
The parties agree that Arkansas substantive law governs this diversity action. As a
general rule, the duty to defend is determined by comparing the allegations in the underlying
complaint with the scope of coverage provided under the insurance policy. See Murphy Oil
USA, Inc. v. Unigard Security Ins. Co., 61 S.W.3d 807, 812-13 (Ark. 2001). Under Arkansas
law, the duty to defend is broader that the duty to indemnify, and it arises when there is a
possibility that the injury or damage may fall within the liability policy coverage. Id. In testing
the pleadings to determine if they state a claim within the policy coverage, a court must resolve
any doubt in favor of the insured. Id. at 814. Courts are not, however, required by the rules of
contractual construction to stretch their imaginations to create coverage where none exists. Pate
v. U.S. Fid. & Guar. Co., 685 S.W.2d 530, 532 (Ark 1985). An intent to exclude coverage in an
insurance policy must be expressed in clear and unambiguous language, and the burden is upon
the insurance company to present facts that come within the stated exclusion. See Union
Bankers Ins. Co. v. National Bank of Commerce, 408 S.W.2d 898, 900 (Ark. 1966).
The Policy states, in relevant part:
SECTION I - COVERAGES
COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY
We will pay those sums that the insured becomes legally obligated to pay
as damages because of bodily injury or property damage to which this
insurance applies. We will have the right and duty to defend the insured
against any suit seeking those damages. However, we will have no duty
to defend the insured against any suit seeking damages for bodily injury
or property damage to which this insurance does not apply. We may, at
our discretion, investigate any occurrence and settle any claim or suit
that may result. But:
(1) The amount we will pay for damages is limited as described in
SECTION III - LIMITS OF INSURANCE AND
(2) Our right and duty to defend end when we have used up the applicable
limit of insurance in the payment of judgments or settlements under
Coverages A or B, medical expenses under Coverage C, or loss under
Coverages D or E.
No other obligation or liability to pay sums or perform acts or services is
covered unless explicitly provided for under SUPPLEMENTARY
PAYMENTS - COVERAGES A, B and E.
This insurance applies to bodily injury and property damage only if:
(1) The bodily injury or property damage is caused by an occurrence
that takes place in the coverage territory; and
(2) The bodily injury or property damage occurs during the policy
This insurance does not apply to:
a. Expected or intended injury
Bodily injury or property damage expected or intended from the standpoint of the
insured. . . .
SECTION VI - DEFINITIONS
29. Occurrence means an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.
35. Property Damage means:
Applicable to Coverages A and B
a. Physical injury to tangible property, including all resulting loss of use of that property.
All such loss of use shall be deemed to occur at the time of the physical injury that
caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use
shall be deemed to occur at the time of the occurrence that caused it.
Chartis argues that the allegations of the lawsuit do not state Gibraltar suffered property
damage caused by an occurrence.6 The complaint alleges that Pinnacle caused Gibraltar to lose
profits by obtaining its proprietary formula, blending a lubricant with that formula, and selling it
The parties agree that Coverage B - Personal and Advertising Injury Liability - is not implicated in
to Gibraltar’s customers at a lower price. Gibraltar makes no allegation that it lost the use of the
formula although, as Pinnacle suggests, Gibraltar may have lost the exclusive use of the formula.
The Court finds Bridge Metal Indus., LLC v. Travelers Indem. Co., 812 F. Supp. 2d 527
(S.D.N.Y. 2011) helpful and persuasive. In Bridge Metal, the court found that the insurer was
not obligated to provide a defense to the insurer because the complaint did not allege property
damage within the policy’s definition. The underlying lawsuit alleged that the insured used trade
secrets and other proprietary information belonging to the plaintiffs for its own benefit. The
While National’s complaint could be read to allege the loss of the exclusive use of
the drawings and other documents, ‘exclusive use’ is not included in the Policy’s
definition of property damage. Even under the broad duty to defend and the
liberal construction given to insurance policy language in these situations,
National’s allegations do not fall within the Policy’s definition. National was
clearly concerned with Plaintiffs’ use of the information and property, not
National’s own inability to use it.
812 F.Supp.2d at 546. The Court finds Gibraltar’s complaint does not allege loss of use of the
Chartis also argues that there is no allegation of property damage as defined by the Policy
because there was no “occurrence.” Occurrence means an accident. “We have defined an
‘accident’ as ‘an event that takes place without one's foresight or expectation-an event that
proceeds from an unknown cause, or is an unusual effect of a known cause, and therefore not
expected.’” U.S. Fidelity & Guar. Co. v. Continental Cas. Co., 120 S.W.3d 556, 563 (Ark.
2003). Chartis contends that the conduct alleged by Gibraltar - that Pinnacle improperly
acquired and then sold lubricant blended with its secret formula - is and or is alleged to be
intentional. The Court finds there are no allegations surrounding Gibraltar’s claims that could
indicate an accident.
Lastly, Chartis argues that even if the complaint could be read as to allege “property
damage” caused by an “occurrence,” coverage is precluded by the Expected or Intended Injury
exclusion. The Policy does not apply to property damage “expected or intended from the
standpoint of the insured.” The Arkansas Supreme Court interpreted this exclusion to preclude
coverage for “injuries which the average run of reasonable people would expect or intend to
inflict by engaging in the conduct in question.” CNA Ins. Co. v. McGinnis, 666 S.W.2d 689,
691 (Ark. 1984).
The complaint alleges Pinnacle’s actions caused Gibraltar to lose profits. Any reasonable
person would expect that the acquisition and use of a competitor’s secret formula would result in
a loss of profits. Pinnacle argues that because Gibraltar did not allege that the damage caused by
Pinnacle’s alleged misappropriation of Gibraltar’s secret formula was expected or intended by
Pinnacle, there is a possibility that such damages were accidental under the Policy.
The Court finds that even if the complaint could be read to allege the loss of use of
tangible property, the incident is excluded from coverage because the loss of use and resulting
damage was a loss Pinnacle expected or intended to occur when it allegedly improperly obtained
and misued Gibraltar’s property.7
Pinnacle argues that any ruling on Chartis’s motion for summary judgment as to its duty
to indemnify would be premature. Chartis contends that when the same reasons that negate a
duty to defend - lack of “property damage” and lack of an “occurrence” - negate any possibility
Chartis states it is not its position that the Coverage A exclusions for contractual liability, personal
and adverstising injury, or punitive damages, on their own, would bar a duty to defend. ECF. 19 at 11, n.4.
that the insurer will ever have a duty to indemnify, it is not premature to make a determination
on the duty to indemnify. See Medical Liability Mut. Ins. Co. v. Alan Curtis, LLC, 519 F.3d 466
(8th Cir. 2008) (court determined insurer had no duty to defend or indemnify employee and had
duty to defend insured owner on all claims but only had duty to indemnify to with respect to one
claim). See also Harleysville Worchester Ins. Co. v. Diamondhead Property Owners Ass’n,
2013 WL 1500709 *3 (W.D. Ark. April 11, 2013(“if Court finds Harleysville has no duty to
defend . . . then it also has no duty to indemnify”).
Because the Court finds there are no genuine issues of material fact in dispute and that
there is no coverage under the Policy, defendant’s motion for summary judgment will be
IT IS THEREFORE ORDERED that defendant’s motion for summary judgment [ECF
No. 14] is granted. Plaintiff’s motion for partial summary judgment [ECF No. 16] is denied.
Plaintiff’s complaint is dismissed. A separate Judgment will be entered.
DATED this 1st day of August, 2014.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
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