Superior Fuels, Inc. v. Nationwide Agribusiness Insurance Company

Filing 72

ORDER granting 59 Motion for Summary Judgment. Signed by Judge Staci M. Yandle on 8/16/2016. (rlw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
SUPERIOR FUELS, INC.,
an Illinois Corporation,
Plaintiff/Counter-Defendant,
Case No. 14-cv-1420-SMY-PMF
vs.
NATIONWIDE AGRIBUSINESS
INSURANCE COMPANY,
Defendant/Counter-Plaintiff.
MEMORANDUM AND ORDER
This matter comes before the Court on Defendant Nationwide Agribusiness Insurance
Company’s (“Nationwide”) Motion for Summary Judgment on its Counterclaim for Declaratory
Judgment and on Plaintiff’s Amended Complaint for Declaratory Judgment (Doc. 59). Plaintiff
Superior Fuels, Inc. (“Superior”) filed a Memorandum in Opposition (Doc. 64). For the reasons
that follow, Defendant’s motion is GRANTED.
BACKGROUND
Defendant issued an insurance policy providing various types of coverage to Plaintiff
including property, general liability and a liability umbrella among others. Doc. 20, p. 2. During
the course of coverage in 2010 and 2011, Plaintiff purchased biodiesel fuel from e-Biofuels,
LLC—a subsidiary of Imperial Petroleum. Id at p. 4. The fuel was purported to be B100 fuel
with Renewable Identification Numbers (“RINs”). 1
Plaintiff sold the biofuel and attached RINs to its customers under the presumption that
the RINs were valid. Doc. 59, p. 2-7. However, on or about December 18, 2013, the
Environmental Protection Agency (“EPA”) deemed a series of RINs attached to the purchased
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An overview of RINs can be found on the EPA’s website at https://www.epa.gov/renewable-fuel-standardprogram/renewable-identification-numbers-rins-under-renewable-fuel-standard.

biofuel invalid and/or fraudulent. Id. E-Biofuels filed for bankruptcy in 2012. Id. Beginning in
January 2014, Plaintiff began receiving claims from its customers for compensation for the
invalidated RINs. Id. Plaintiff advised Defendant of the claims and requested that it provide a
defense for the resulting litigation. Doc. 20, p. 5. Defendant refused to defend Plaintiff, and
Plaintiff filed this declaratory judgment action.
Defendant now seeks a summary finding from the Court that it owes no duty to defend or
indemnify Plaintiff with respect to the sale of the invalidated RINs under any of the policies
issued by Defendant. In response Plaintiff argues that, pursuant to established Illinois law, an
insurer must defend unless the allegations clearly demonstrate that the claim is beyond policy
coverage.
DISCUSSION
Summary judgment is appropriate where “the movant shows that 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); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Spath v. Hayes Wheels
Int’l-Ind., Inc., 211 F.3d 392, 396 (7th Cir. 2000). The reviewing court must construe the
evidence in the light most favorable to the nonmoving party and draw all reasonable inferences
in favor of that party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Chelios v.
Heavener, 520 F.3d 678, 685 (7th Cir. 2008); Spath, 211 F.3d at 396. Where the moving party
fails to meet its strict burden of proof, a court cannot enter summary judgment for the moving
party even if the opposing party fails to present relevant evidence in response to the motion.
Cooper v. Lane, 969 F.2d 368, 371 (7th Cir. 1992).

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In Illinois, an insurer may not refuse to defend “unless it is clear from the face of the
underlying complaint that the allegations fail to state facts which bring the case within, or
potentially within, the policy’s coverage.” Emp’r. Ins. of Wausau v. Ehlco Liquidating Trust, 708
N.E.2d 1122, 1135 (Ill. 1999) (quoting U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578
N.E.2d 926, 930 (Ill. 1991)). When the underlying complaint alleges facts within or potentially
within policy coverage, the insurer is obligated to defend even if the allegations are groundless.
Emp’r. Ins. of Wausau, 708 N.E.2d at 1135.
When determining whether an insurance provider has a duty to defend, a court should
apply an “eight corners rule.” Farmers Auto. Ins. Ass’n v. Country Mut. Ins. Co., 722 N.E.2d
1228, 1232 (Ill. 2000). The four corners of the underlying complaint are compared with the four
corners of the insurance contract, and the court must determine whether the facts alleged in the
underlying complaint fall within, or potentially within, the insurance policy’s coverage. Id.
“The underlying complaint and the policy must be construed in favor of the insured, with all
doubts resolved in the insured’s favor.” Emp’r. Ins. Of Wausau, 708 N.E.2d at 1135.
The rule of construction that policy terms are liberally construed in favor of coverage
only comes into play when the policy is ambiguous. Hobbs v. Hartford Ins., 823 N.E.2d 561,564
(Ill. 2005). Whether an ambiguity exists depends on whether the policy language is subject to
more than one reasonable interpretation. Id. When a policy includes a section with definitions, a
court should enforce the definitions as stated in the policy. Farmers Auto. Ins. Ass’n, 722 N.E.2d
at 1232.

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Here, Plaintiff emphasizes the “Fraud and Deceit” section of the Commercial Output
Program Property policy. This section, found at Paragraph 5 of the “Covered Extensions” section
of the Commercial Property policy, states:
“We” pay up to $5,000 for “theft” of covered property when “you,”
“your” agents, customers, or consignees are fraudulently induced to part
with the covered property:
a.
to persons who falsely represent themselves as the proper
persons to receive the property; or
b.
by the acceptance of fraudulent bills of lading or
shipping receipts.
Amended Complaint, Doc. 20, p. 18 (emphasis added). Defendant argues that RINs do not
constitute “covered property” and, even if they did, the fraud and deceit coverage does not apply.
Plaintiff does not directly address Defendant’s argument as to whether RINs are “covered
property,” but rather responds that it “received literally thousands of fraudulent bills of lading”
that were fraudulent and deceitful because they did not contain valid RINs as represented by EBiofuels and Imperial Petroleum (Doc. 64, p. 2).
The “Property Covered” by the Commercial Property policy is set forth in three sections:
Building Property, Business Personal Property and Property Not Covered. Doc. 20, pp. 14-17.
There is no reference to RINs in any section. However, in Paragraph 11 of the “Property Not
Covered” section, the policy states, “[e]xcept as provided elswhere [sic] in this policy, ‘we’ do
not cover ‘money,’ ‘securities,’ accounts, bills, and the cost to reproduce, replace, or restore
‘valuable papers’ and lost information.” Doc. 20, p. 17. “Securities” are defined in the policy
as:
…negotiable and nonnegotiable instruments or contracts representing either
‘money’ or other property. This includes, but is not limited to, stock
certificates; tokens, tickets, revenue or stamps (whether represented by
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actual stamps or unused value in a meter) in current use; and evidences of
debt used in connection with charge, credit, or debit cards that are not
issued by ‘you,’ but does not include ‘money.’
Doc. 20, p. 13.
Defendant asserts that, because RINs are representative of a value that fluctuates and can
be traded on an exchange but have no intrinsic value themselves, they are similar to a stock
certificate and fall within the exclusion at Paragraph 11. Plaintiff does not dispute this argument
and instead points to the coverage for “Fraud and Deceit.” The “Fraud and Deceit” section,
however, is specifically limited to theft of covered property when the policyholder is
fraudulently induced to part with the covered property. If RINs are not covered property, the
Fraud and Deceit coverage is clearly inapplicable.
The United States Environmental Protection Agency describes RINs as “the ‘currency’ of
the [Renewable Fuel Standard] program.” EPA, https://www.epa.gov/renewable-fuel-standardprogram/renewable-identification-numbers-rins-under-renewable-fuel-standard (last visited Jun.
22, 2016). RINs may be bought/sold/traded either separately or with the batch of fuel to which
they were assigned. Id. Fuel producers generate the RIN, and market participants trade the
RINs. Id. RIN market participants buy/sell/trade RINs by entering a transaction record in an
EPA transaction system, which is then checked by the EPA before the RINs are transferred
between accounts. Id.
Because they represent intangible property described by the EPA as “currency,” the
Court finds that RINs are not “covered property” under the Commercial Property policy. Rather,
they fall within the definition of “securities.” The “Covered Property” section includes only
Building Property and Business Personal Property, with clear exclusions for non-tangible
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securities. Therefore, the allegations of the Amended Complaint clearly show that the claims are
beyond coverage provided by the Commercial Property policy. As such, Defendant had no duty
to defend under the Commercial Output Program Property policy.
The analysis does not end there, however, because Plaintiff also holds Commercial
General Liability and Commercial Liability Umbrella policies. The General Liability policy
obligates Defendant to pay damages “because of ‘bodily injury’ or ‘property damage’ to which
this insurance applies.” Doc. 20, p. 40. “Property damage” under this policy excludes intangible
property and therefore would not apply to RINs (see analysis above). Doc. 20, p. 54. The
Liability Umbrella policy likewise obligates Defendant “to defend the insured against any ‘suit’
seeking damages for such ‘bodily injury’ or ‘property damage’ when the ‘underlying insurance’
does not provide coverage….” Doc. 20, p. 56. Again, “property damage” under this policy
excludes intangible property and therefore would not apply to RINs.
The claims Plaintiff faces arising from the purchase of invalidated RINs are simply not
covered by the policies issued by Defendant. The lack of coverage is apparent from the eight
corners of the Amended Complaint and the insurance policies. Accordingly, Defendant’s motion
for summary judgment is GRANTED in its entirety. Nationwide Agribusiness Insurance
Company had no duty to defend Superior Fuels and has no obligation to pay attorneys’ fees
incurred by Superior Fuels in its defense of litigation regarding invalidated RINs.
IT IS SO ORDERED.
DATE: August 16, 2016
s/ Staci M. Yandle
STACI M. YANDLE
DISTRICT JUDGE
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