Lion Oil Company v. National Union Fire Insurance Company of Pittsburgh, PA et al
***VACATED **** See Orders #242 and #243 ORDER plaintiffs Motion for Judgment as a Matter of Law is GRANTED; Defendants Motion for Judgment as a Matter of Law is DENIED; The policy at issue in this case provides coverage for Contingent Extra Expense. Signed by Honorable Susan O. Hickey on November 2, 2015. (cnn) Modified on 5/26/2016 (cnn).
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
EL DORADO DIVISION
LION OIL COMPANY
Case No. 1:13-cv-01071
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA, et al.
Before the Court are cross motions for Judgment as a Matter of Law Regarding the Applicability
of Contingent Extra Expense Coverage. The Court has reviewed the parties’ trial briefs (ECF Nos. 191
& 205), and it has considered the arguments presented during a hearing held on October 30, 2015. The
Court finds this mater ripe for its consideration.
Judgment as a matter of law is appropriate “[i]f a party has been fully heard on an issue during
a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis
to find for the party on that issue.” Fed. R. Civ. P. 50(a)(1). “A motion for judgment as a matter of law
may be made at any time before the case is submitted to the jury.” Fed. R. Civ. P. 50(a)(2). Here, the
parties agree that their motions present legal issues that should be resolved by the Court.
In the parties’ briefs, they argue whether the Policy provides Contingent Extra Expense (“CEE”)
coverage, whether the CEE losses are interchangeable with Extra Expenses to Reduce Loss, and
whether a sub-limit should apply if the Court finds CEE coverage. Since filing their briefs, the parties
have agreed that CEE is not interchangeable with Extra Expenses to Reduce Loss and that the sub-limit
issue is no longer relevant in light of the parties’ stipulation that Extra Expense damages total
$11,340,675. Accordingly, the only question before the Court is whether the contract between
Defendant Insurers and Plaintiff Lion Oil provides CEE coverage.
Defendants assert that the absence of CEE coverage in the Policy beyond the definition of
“Time Element” demonstrates that the parties did not intend to include the coverage. The bargained-for
contingent coverage, they argue, was only Contingent Business Interruption (“CBI”). Defendants also
assert that reading the Policy to provide CEE coverage would lead to the absurd result of providing
$700 million of coverage for CEE when the Direct Extra Expense coverage is limited to $15 million.
Plaintiff asserts that merely a lack of a definition for CEE coverage does not mean there is no
CEE coverage since the parties do not dispute that there is CBI coverage, which is also not defined in
the Policy. They assert that the Contingent Time Element coverage extension includes both CEE and
“In Arkansas, contracts of insurance are construed according to general contract principles.”
American Cas. Co. of Reading, Pa. v. Federal S. & L., 704 F.Supp. 898, 900 (E.D. Ark. 1989) (internal
citation omitted). When contracting parties express their intention in a written instrument in
unambiguous language, it is the court’s duty to construe the writing in accordance with the plain
meaning of the language employed. Fryer v. Boyett, 978 S.W.2d 304 (Ark. Ct. App. 1998). However,
when the meaning of the language depends upon disputed extrinsic evidence, the question is one for
the jury. Zulpo v. Farm Bureau Mut. Ins. Co., 255 S.W.3d 494 (Ark. Ct. App. 2007). The question of
whether an insurance policy is ambiguous is a legal one. Id.
When construing a contract, it is best to view it “as the mass of mankind would view it, as it
may be safely assumed that such was the aspect in which the parties themselves viewed it.” Alexander
v. McEwen, 239 S.W.3d 519, 522 (Ark. 2006) (internal citations omitted). The “intention of the parties
is to be gathered, not from particular words and phrases, but from the whole context of the agreement.”
Id.; see also Cont’l Cas. Co. v. Davidson, 463 S.W.2d 652, 655 (Ark. 1971). The Court must interpret
the policy so that “all of its parts harmonize” if possible. Cont’l Cas. Co., 463 S.W.2d at 655.
Construction that neutralizes any provision of a contract should never be adopted if the contract can
be construed to give effect to all provisions. Id.
Finally, a party may not present an unreasonable interpretation in order to create an ambiguity.
Thacker v. Arkansas Blue Cross & Blue Shield, 761 F. Supp. 654, 656 (W.D. Ark. 1991), citing In re
Olson, 916 F.2d 481 (8th Cir. 1990). Contracts should be interpreted to avoid absurdity. Id.
In this case, the Policy specifically provides for certain coverages. The “Time Element”
coverages include Business Interruption; Extra Expense; Rental Value; and Royalties. The Policy also
provides coverage for “Time Element Extensions,” which includes Service Interruption, Contingent
Time Element, Impounded Water, Interruption by Civil or Military Authority, Ingress/Egress, Research
and Development, and Authorities Clause.
The Policy’s specific language as it relates to the Contingent Time Element coverage extension
reads as follows:
(5) Time Element Extensions
(a) This policy, subject to all provisions and without increasing the limits of this
policy, also insures against loss resulting from damage to or destruction by
causes of loss insured against, to:
(ii) Contingent Time Element: property that wholly or partially prevents
any direct supplier of goods and/or services to the Insured from
rendering their goods and/or services, or property that wholly or
partially prevents any direct receiver of goods and/or services from the
Insured from accepting the Insured’s goods and/or services, such
supplier or receiver to be located anywhere in the Policy Territory;
(ECF No. 1-2, pg. 17).
The definition of “Time Element” reads as follows:
H. Time Element
The term Time Element means any one or all of the following coverages: Business
Interruption, Extra Expense, Contingent Business Interruption, Contingent Extra
Expense, Rental Value, Royalties, Service Interruption (Time Element), Ingress/Egress,
Interruption by Civil or Military Authority, and all other Time Element extensions
(ECF No. 1-2, pg. 49).
The parties agreed to multiple sub-limits, including a sub-limit of $5 million for CBI-Named,
$3.5 million for CBI-Unnamed, and $15 million for Extra Expense coverage. (ECF No. 1-2, pg. 2).
The CBI-Named sub-limit was modified to $25 million through a subsequent endorsement. (ECF No.
1-2, pg. 82-83). There is no sub-limit provided for CEE.
The Court finds that a plain reading of the Policy demonstrates that the language is
unambiguous, and that the Policy provides coverage for CEE. The Coverages section of the Policy
delineates the different coverages the parties intended. Relevant to this discussion, the Policy
specifically provides for the Time Element coverages of Business Interruption and Extra Expenses.
(ECF No. 1-2, pg. 14-15). These coverages are direct coverages, meaning that they are triggered when
there is a loss caused by “loss, damage, or destruction” to Plaintiff’s property. The Policy’s Time
Element coverage is extended by certain Time Element Extensions, including the Contingent Time
Element extension. This extension adds contingent coverage which is triggered by a loss “resulting
from damage to or destruction by causes of loss insured against, to [third-party property].” (ECF No.
1-2, pg. 17).
The losses insured under the Contingent Time Element coverage extension are not limited to
Business Interruption losses, as Defendants would have the Court read the clause. Instead, the
Contingent Time Element extension expands Business Interruption and Extra Expense to losses
resulting from damage or destruction to third-party property. Because CEE is listed as an available
coverage in the Time Element definition,1 and has not been excluded in any way, the Contingent Time
Element extension extends the coverage to protect against those losses. Accordingly, the plain reading
The Court agrees with Defendants that the definition of “Time Element” serves as a general list to explain the types of
coverages that may be included, if purchased. However, the Court finds that a plain reading of the Policy demonstrates
that CEE coverage is, in fact, provided.
of the Policy as a whole provides coverage for both CBI and CEE.
Defendants assert that, because CEE coverage is not listed in the Policy outside of the Time
Element definition, but CBI coverage is, the parties bargained only for CBI coverage. However,
Defendants only point to CBI coverage discussed in reference to a sub-limit and an endorsement, or
modification, of that sub-limit. They fail to direct the Court to where CBI coverage is specifically
provided for or defined and CEE coverage is not. Before a coverage may be sub-limited, it must be
provided. The parties do not dispute that CBI coverage is provided. The CBI coverage was then sublimited and later extended. The fact that CBI is not specifically enumerated, but is clearly covered since
it was later sub-limited, supports the fact that CEE is also covered. CEE is not listed in the Policy again
because it was not sub-limited.
Defendants further argue that this interpretation is absurd. However, the Court must first look
to the plain language. The Court finds that, here, the plain language of the Policy taken as a whole is
susceptible to only one reasonable construction. The Court will not reform the Policy in favor of
Defendants when the language is clear and unambiguous.
Because the plain language of the Policy is clear, it is unnecessary for the Court to resort to the
use of any extrinsic evidence. Because there are no disputed issues of fact, this question may be
resolved without presenting anything to the jury. Accordingly, Plaintiff’s Motion for Judgment as a
Matter of Law is GRANTED. Defendants’ Motion for Judgment as a Matter of Law is DENIED. The
Policy at issue in this case provides coverage for Contingent Extra Expense.
IT IS SO ORDERED, this 2nd day of November, 2015.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge
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