Hardy Oil Company, Inc. v. Nationwide Agribusiness Insurance Company et al

Filing 112

MEMORANDUM OPINION & ORDER: Dft's 87 MOTION for Summary Judgment is GRANTED in part and DENIED in part. Motion is granted to the extent that no coverage exists for the damages in dispute under the Property Coverage Part or Flood Endorsement of the Nationwide policy. Pla's 88 MOTION for Partial Summary Judgment is DENIED. IT IS FURTHER ORDERED that the undersigned RECUSES herself from further consideration of this case due to her imminent retirement, effective on 1/9/2013 and the scheduled PTC of this case on 1/10/2013. Clerk shall reassign this matter by random draw. Signed by Judge Jennifer B Coffman on 12/14/2012. (Attachments: # 1 Case Assignment) (KLB) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
CIVIL ACTION NO. 11-75-JBC
HARDY OIL COMPANY, INC.,
V.

PLAINTIFF,

MEMORANDUM OPINION & ORDER

NATIONWIDE AGRIBUSINESS
INSURANCE COMPANY, ET AL.,

DEFENDANTS.

***********
Pending before the court are two competing motions for summary judgment:
Nationwide Agribusiness Insurance Company’s motion for summary judgment, R.
87, and Hardy Oil Company, Inc.’s motion for partial summary judgment, R. 88.
For the following reasons, the court will grant in part and deny in part Nationwide’s
motion and deny Hardy Oil’s motion.
Hardy Oil Company, Inc. filed this suit in response to a dispute over
insurance coverage for losses it incurred for cleanup of a diesel fuel discharge on its
property in Richmond, Kentucky. Hardy Oil is a family business involved in the
petroleum industry, and on April 21, 2010, a failed diesel fuel line was discovered
at one of its bulk plants in Richmond, Kentucky, that required extensive remedial
and corrective action. Hardy Oil had purchased insurance policies through Wells
Fargo Insurance-Indiana, including first- and third-party insurance coverage for its
motor fuel operations from Nationwide Agribusiness Insurance Company, so it filed
1

a claim for coverage with Nationwide for losses sustained by the spill. Nationwide
denied the claim, and Hardy Oil filed this suit based on three arguments: (1) Hardy’s
policy issued by Nationwide covered its damages from the spill; (2) Nationwide’s
denial of coverage was a breach of obligations and bad faith; and (3) if the spill is
not covered by the policy issued by Nationwide, Wells Fargo negligently breached
its duty to use reasonable care in providing insurance brokerage services to Hardy.
Nationwide filed a counterclaim for a declaratory judgment regarding coverage of
the spill.
Both Nationwide and Hardy Oil now move for summary judgment on the
issue of whether Nationwide is required to pay for certain losses incurred by Hardy
Oil as a result of the fuel spill. Hardy Oil claims that the court should grant it partial
summary judgment and hold that Nationwide owes it $506,378.89 in damages
plus prejudgment interest because the site of the spill was covered by Nationwide
Policy COP 118389B. Nationwide, however, seeks a grant of summary judgment
with a holding that no reasonable interpretation of the policy can be construed as
providing coverage for the alleged loss. Because the court can establish only that
parts of the Nationwide policy do not cover the damages in dispute, the court will
grant in part and deny in part Nationwide’s motion and deny Hardy Oil’s motion.
Hardy Oil claims coverage under several sections of the Nationwide policy,
including the Property Coverage Part, Income Coverage Part, Petroleum Property
Endorsement, and Flood Endorsement. Even though no coverage exists under the
Property Coverage Part or Flood Endorsement, the court cannot conclude from the
2

record that no coverage exists under the other two parts. First, no coverage exists
under the Property Coverage Part because the property in dispute is not “covered
property.” Nationwide covers “direct physical loss to covered property at a
‘covered location’ caused by a covered peril.” Hardy Oil argues that much of its
clean-up was performed to remediate damage to structures owned by Hardy Oil,
including a diked secondary-containment area, above-ground storage tanks, and
associated piping. Even though “buildings and structures” are covered property
under the policy, the areas of damage described by Hardy Oil – the secondarycontainment area, above-ground storage tanks, and associated piping – are not
“structures” under the policy.
The Nationwide policy does not define the term “structure;” therefore, the
court must “determine the intention of the parties according to the language of the
contract,” and look no further than the “four corners of the document to determine
that intent” unless an ambiguity exists. Scottsdale Ins. Co. v. Flowers, 513 F.3d
546, 564 (6th Cir. 2008). The term “structure” does not create an ambiguity in
the Nationwide policy because its meaning within the context of the agreement is
not doubtful. Id. at 565 (citing Black’s Law Dictionary). Hardy Oil offers two
dictionary definitions of “structure,” including “something (as a building) that is
constructed” or “something built,” and “something arranged in a definite pattern of
organization.” See Merriam-Webster at http://www.merriamwebster.com/dictionary/structure; see also The Cambridge Dictionary at
http://dictionary.cambridge.org/dictionary/american-english/structure_2. It argues
3

that the diked secondary-containment area surrounding the above-ground storage
tanks, as well as the tanks and associated piping, fall within those definitions.
Even though the secondary containment area is not raw land and was
“constructed” to contain fuel spills, it was not constructed “as a building.”
Furthermore, when construing the term “according to the entirety of [the] terms
and conditions as set forth in the policy,” see Scottsdale Ins. Co. v. Flowers, 513
F.3d at 564 (6th Cir. 2008), the appropriate interpretation of the term “structure”
is something that was built or constructed like a building because structures are
covered as “building property” under the policy. R. 87-4, p.16.
Even if the term were ambiguous, Hardy Oil’s expectation that a secondary
containment dike, above-ground storage tanks, and associated piping would
constitute a “structure” under the Building Property provision of covered property is
not reasonable. The policy specifically states that land, retaining walls,
underground pipes, drains, and paved surfaces are not covered property. These
types of property are more analogous with the areas at issue than with a
constructed building.
Second, summary judgment in favor of Nationwide is also appropriate for
alleged damages under the Flood Endorsement because Hardy Oil has presented no
evidence in support of its theory that a flood caused the damages in dispute. Hardy
Oil alleges damages under the Flood Endorsement in its motion for summary
judgment, but when Nationwide responds that Hardy Oil has offered no evidence in
support of such theory, Hardy Oil fails to address this argument or offer any
4

evidence in its reply memorandum. Even though the cause of the alleged damages
remains an issue of fact, Hardy Oil has not presented more than “a scintilla of
evidence in support of [its] position.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 252 (1986).
Last, summary judgment is not appropriate in favor of either party on the
issue of whether the Nationwide policy Income Coverage Part or Petroleum
Property Endorsement covers the damages in dispute because a dispute of fact
remains over what caused the fuel line leak. The Income Coverage Part does not
specifically provide coverage for only “covered property” as in the Property
Coverage Part. Even though it does make coverage subject to the “terms and
conditions” of certain sections of the Property Coverage Part, the “Property
Covered” section is not one of those sections. R. 3-1, p. 42. The Income
Coverage Part provides coverage during the time period in which a business is
interrupted by losses to property “as a result of a covered peril.” Id. The Income
Coverage Part adopts the Property Coverage Part section on perils covered and
perils excluded. Id.
Nationwide excludes the perils “contamination or deterioration” and “wear
and tear,” unless the losses or damage was caused by a “specified peril.” R. 3-1,
p. 87 (Fungi or Bacteria Exclusion provision which replaces the Contamination or
Deterioration portion of the Property Coverage Part at R. 87-4, p. 30); R. 87-4, p.
32. “Specified perils” include vehicles. R. 87-4, p. 15. Hardy Oil argues and
provides expert testimony in support of its argument that the weight of vehicles
5

driving over the buried pipes at the property site caused the leak at issue. See
Nicholson Report, R. 87-9, pp. 17-26. Nationwide contests this theory and
provides its own theory of causation. Because evidence supports each party’s
theory of causation, a determination of whether the damages were a result of a
“covered peril” is an issue of fact, and summary judgment is not appropriate.
Under similar reasoning, summary judgment is also not appropriate on the
issue of whether damages are covered by the Petroleum Property Endorsement.
The Pollutant Cleanup and Removal Provision under which Hardy Oil alleges
coverage provides for payment of expenses “to extract ‘pollutants’ from land or
water resulting from a discharge, dispersal, seepage, migration, release or escape of
the ‘pollutants’ . . . if caused by ‘specified perils.’” R. 3-1, p. 99. Whether the
fuel line leak was caused by a specified peril remains an issue of fact to be decided
by a jury. Accordingly,
IT IS ORDERED that Nationwide Agribusiness Insurance Company’s motion
for summary judgment, R. 87, is GRANTED in part and DENIED in part. The motion
is granted to the extent that no coverage exists for the damages in dispute under
the Property Coverage Part or the Flood Endorsement of the Nationwide policy.
IT IS FURTHER ORDERED that Hardy Oil Company, Inc.’s motion for partial
summary judgment, R. 88, is DENIED.
IT IS FURTHER ORDERED that the undersigned RECUSES herself from
further consideration of this case due to her imminent retirement, effective on
January 9, 2013, and the scheduled pretrial conference of this case on January 10,
6

2013. The Clerk shall reassign this matter by random draw.

Signed on December 14, 2012

7