Hardy Oil Company, Inc. v. Nationwide Agribusiness Insurance Company et al
Filing
185
MEMORANDUM OPINION & ORDER: It is ordered that Wells Fargo's 157 Motion for Summary Judgment is GRANTED. Signed by Judge Joseph M. Hood on 10/8/2013. (SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DIVISION OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
HARDY OIL COMPANY, INC.
Plaintiff,
v.
NATIONWIDE AGRIBUSINESS
INSURANCE COMPANY, and WELLS
FARGO INSURANCE-INDIANA
Defendants.
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Civil Case No.
5:11-cv-00075
MEMORANDUM OPINION & ORDER
***
This matter is before the Court upon Defendant Wells
Fargo
Insurance-Indiana’s
(“Wells
Summary Judgment [DE 157].
Fargo”)
Motion
for
Plaintiff Hardy Oil Company,
Inc. (“Hardy Oil”) has filed a Response [DE 169], stating
its objections, and Wells Fargo has filed a Reply [DE 178]
in further support of its Motion.
Judgment
is
ripe
for
adjudication
This Motion for Summary
and,
for
the
reasons
stated below, shall be granted.
I. BACKGROUND
At all relevant times, Hardy Oil owned a petroleum
bulk
plant
storage
Richmond,
Kentucky
contained
five
facility
(“Bulk
aboveground
at
120
Plant”).
storage
Quality
The
tanks
Drive
Bulk
that
in
Plant
stored
petroleum-based fuel for wholesale with on-site dispensing
by transfer of the fuel from the tanks to a load-out-rack
via connecting fuel pipes that were located partially above
ground
and
partially
underground.
The
exact
date
of
construction of the Bulk Plant is not known, however, it
was designed in the summer of 1979 and is believed to have
been constructed at about the same time.
The underground
portion of the fuel pipes are covered by a driveway that is
partially
graveled,
but
that
driveway
is
concrete in the area of the load-out-rack.
of
the
incident
in
question,
described
paved
with
During the time
below,
the
Bulk
Plant was leased to and operated by Richmond Petroleum,
Inc., under a Commissioned Agent Agreement with Hardy Oil.
Hardy Oil maintained insurance for the Bulk Plant in
the relevant policy year, 2010, in the form of a property
policy and a liability policy.
Nationwide
Agribusiness
The policy was written by
Insurance
Company
(“Nationwide”)
and was obtained for Hardy Oil by Wells Fargo through its
agent, Rollie Lehnus.1 When Hardy Oil sought coverage, its
1
Hardy Oil had a relationship with Lehnus dating back to
the mid-1980s, when Hardy Oil obtained insurance for the
Bulk Plant through Lehnus, who was then an independent
broker, for a couple of years.
Hardy Oil then began
obtaining its insurance through another broker whose
pricing was more competitive.
However, for the policy
years of 2005 to 2007 and 2009 to 2012, Hardy Oil again
used the services of Lehnus, who was by that time with
Wells Fargo, to obtain insurance coverage for the Bulk
Plant.
The Court finds it interesting that there is no
evidence presented that the other brokers or agents, who
worked with Hardy Oil from the later 1980s until its
2
sole
owner
and
president,
Butch
Hardy,
asked
Lehnus
if
there was further protection he would recommend for Hardy
Oil.
Hardy Oil did not specifically ask Lehnus to procure
pollution liability insurance for the aboveground storage
tanks at the Bulk Plant.2
While it appears that the parties
did not discuss it specifically, Lehnus did not recommend
that
Hardy
coverage
Oil
for
the
obtain
additional
aboveground
storage
pollution
tanks
liability
because:
(1)
such insurance can be expensive, (2) the inspections and
testing
necessary
to
qualify
for
such
insurance
can
be
expensive, (3) if the inspection or testing reveals a leak
or environmental issue, then the state must be notified and
an insured can incur substantial costs in rectifying the
issue, and, (4) in over 30-years as an insurance broker
specializing in the petroleum insurance industry, Lehnus
has
never
had
a
client
request
pollution
insurance
for
aboveground storage tanks.
resumption of its relationship with Lehnus in 2005,
suggested that Hardy Oil obtain the coverage which it now
faults Lehnus and Wells Fargo for failing to recommend. An
inquiring mind would ask, "Why not?"
The Court need not
reach this issue to resolve the matter before it.
2
It is unclear from the facts before this Court how
familiar Lehnus was with the Bulk Plant facility, but the
Court assumes for the purposes of analyzing this Motion
that he was sufficiently familiar with it to understand the
potential hazards which might arise from the storage tanks
and the pipes associated with them.
3
Then, on April 21, 2010, Hardy Oil was notified of a
petroleum leak, emanating from the underground portion of
one of the fuel transfer pipes at the Bulk Plant.
There is
substantial dispute over the cause of the leak, whether it
was
due
to
corrosion
or
a
stress
fracture
due
to
the
compression of the soil over the pipes from the load of the
trucks
passing
driveway.
The
inquiry today.
over
the
reason
graveled
is
not
and
concrete-slabbed
material
to
the
Court’s
All that matters is that a quantity of
diesel fuel was discharged into the underground environment
from an unintended opening in one of the pipes.
eventually
subsequently
reached
the
impacted
surface
of
surface
water,
the
the
That fuel
ground
and
Hardy
and
Oil
suffered losses as a result.
Hardy
Nationwide,
Oil
sought
under
the
to
recover
property
those
and
brokered by Wells Fargo’s agent, Lehnus.
Oil
filed
suit
in
this
Court
Nationwide for breach of contract.3
3
losses
liability
from
policies
Ultimately, Hardy
seeking
damages
from
Hardy Oil also averred
During the course of this litigation, this Court has ruled
that there was no coverage under certain provisions of the
Nationwide property policy and no coverage under the
Nationwide liability policy.
Hardy Oil and Nationwide
entered into a settlement of that dispute without further
resort to litigation before this Court, and the Court has
not yet decided whether there was coverage for the leak
under the Income Coverage Part or the Petroleum Property
4
that Wells Fargo is liable for its losses on the grounds
that Wells Fargo’s agent, Lehnus, was negligent when he
failed to recommend and broker pollution liability coverage
for the aboveground storage tanks at the Bulk Plant.
As
Hardy
is
Oil
explains
it,
pollution
liability
coverage
designed to cover the type of release which occurred at the
Bulk Plant and would provide coverage for the costs of
onsite cleanup, offsite cleanup, third-party bodily injury,
and
property
damage,
interruption.4
as
well
as
any
resulting
business
Whether Wells Fargo, through Lehnus, should
have recommended that coverage and whether Hardy Oil was
injured
as
a
result
of
any
failure
to
recommend
that
coverage are the questions before the Court today.
In this regard, Hardy Oil’s opinion witness, Howard
Tollin,
has
opined
that
all
insurance
brokers
should
recommend a pollution liability policy for companies that
own
or
operate
a
fuel
storage
facility,
store
fuel
in
Endorsement of the property policy.
The Court concludes
that it need not reach a decision on that issue to make its
ruling today.
4
While Wells Fargo disputes this fact, the Court construes
the facts (or legal conclusions masquerading as facts, as
the case may be) in the light most favorable to the nonmovant Hardy Oil for the purposes of deciding this Motion
for Summary Judgment.
Thus, the Court assumes that a
pollution liability policy, as described, would encompass
the loss suffered at the Bulk Plant. Of course, since the
Court need not do so, the Court makes no actual
determination that such a policy would provide coverage.
5
aboveground or underground storage tanks or deliver fuel
and that there are at least twenty-five insurers who could
provide pollution liability coverage.
Wells Fargo’s opinion witness, Reynolds Renshaw, has
affied,
however,
qualified
for
aboveground
facility’s
that
pollution
petroleum
age;
the
(2)
Bulk
Plant
storage
the
not
have
coverage
liability
would
for
its
(1)
the
tanks
due
antiquated
to
equipment/lack
of
documentation of any upgrade to the equipment at the Bulk
Plant; (3) the absence of leak detection systems; (4) the
absence
of
integrity
evidence
confirmation;
of
tank
(5)
the
tightness
absence
testing/vessel
any
evidence
of
environmental media sampling; and (6) the absence of any
known site review/investigation (Phase I/Phase II) reports.
II.
STANDARD OF REVIEW
The
Court
may
grant
a
motion
for
summary
judgment
where there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a).
The moving party must bear the
initial burden of specifying the basis for its motion and
of
identifying
that
portion
of
the
record
which
demonstrates the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
That
burden
satisfied,
the
non-moving
6
party
must
then
produce
specific
fact for trial.
facts
demonstrating
a
genuine
issue
of
Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247–48 (1986).
The Court must review the evidence in
the light most favorable to the non-moving party; however,
the non-moving party is required to do more than simply
show there is some “metaphysical doubt as to the material
facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986).
Thus, the non-moving party must present specific facts
showing that a genuine factual issue exists by “citing to
particular parts of materials in the record” or by “showing
that the materials cited do not establish the absence ...
of a genuine dispute[.]” Fed. R. Civ. P. 56(c)(1). “The
mere existence of a scintilla of evidence in support of the
[non-moving party's] position will be insufficient; there
must be evidence on which the jury could reasonably find
for the [non-moving party].”
Anderson, 477 U.S. at 252.
III. DISCUSSION
The
United
States
District
Court
for
the
Western
District of Kentucky recently summarized the Kentucky law
of negligence, as it applies to insurance brokers or agents
and their clients as follows:
To succeed on a claim of negligence,
the plaintiff must establish that (1)
the defendant owed a duty of care to
7
the
plaintiff,
(2)
the
defendant
breached its duty, and (3) the breach
proximately
caused
the
plaintiff's
damages. Mullins v. Commonwealth Life
Insur. Co., 839 S.W.2d 245 (Ky. 1992).
The Supreme Court of Kentucky has held
that, in general, insurance brokers and
agents owe only a standard duty of
reasonable care to their clients. See
Associated
Ins.
Serv[.],
Inc.
v.
Garcia, 307 S.W.3d 58, 63 (Ky. 2010).
However, “an insurer may assume a duty
to advise an insured when: (1) he
expressly undertakes to advise the
insured; or (2) he impliedly undertakes
to advise the insured.” Mullins, 839
S.W.2d at 248; see also Dotson v.
Grange Mut. Cas. Co., [No. 2009-CA000482-MR,] 2010 WL 1133337 (Ky. Ct.
App.
Mar.
26,
2010).
“An
implied
assumption of duty may be present when:
(1) the insured pays the insurance
agent
consideration
beyond
a
mere
payment of the premium; (2) there is a
course of dealing over an extended
period of time which would put an
objectively reasonable insurance agent
on notice that his [advice] is being
sought and relied on; or (3) the
insured clearly makes a request for
advice.” Mullins, 839 S.W.2d at 248.
Helton v. American General Life Ins. Co., Civil Action No.
4:09-cv-0018-JHM,
2013 WL 2242773, *12 (W.D.Ky. May 21,
2013); see also St. Paul Fire & Marine Ins. Co. v. CEI
Florida, Inc., 864 F. Supp. 656, 673 (E.D. Mich. 1994)
(“where a special relationship exists with the insured, an
agent has the duty to advise the insured”).
Here, the Court assumes, as Hardy Oil contends, that
“there [was] a course of dealing over an extended period of
8
time which would put an objectively reasonable insurance
agent on notice that his [advice was] being sought and
relied on” with the respect to obtaining adequate coverage
for Hardy Oil’s business interests, specifically pollution
liability coverage for the aboveground storage tanks at the
Bulk Plant.5
The Court also assumes for the purposes of
summary judgment that Wells Fargo, through Lehnus, had and
breached
a
duty
to
advise
Hardy
Oil
that
coverage
alternatives, such as pollution liability coverage, would
be necessary to fill gaps in the property and liability
insurance obtained and to guard against losses at its Bulk
Plant.
The
Court
agrees
with
Wells
Fargo,
however,
that
Hardy Oil still could not recover – even with all of these
assumptions – because there is no evidence in the record
that
the
Bulk
Plant
liability coverage.
would
have
qualified
for
pollution
Tollin opines only that “more than 25
5
Whether
that
special
relationship
existed
between
Lehnus/Wells Fargo and Hardy Oil is a question of fact.
However, the Court is willing to accept that such a
relationship existed for the purposes of summary judgment
in this case.
Looking at the facts in the light most
favorable to non-movant Hardy Oil, the Court sees an agent
who worked with Hardy Oil on and off for more than twenty
years – and more often on than off in the eight years prior
to the time period in question.
Further, Lehnus has
testified to his familiarity with the insurance options
available to those in the petroleum industry based on his
more than thirty years of experience in the petroleum
insurance industry.
9
insurers could have provided pollution liability coverage
which would have covered the loss.”
ID # 4209.]
[DE 169-2 at 4; Page
It is clear from the context in which this
statement was made that Tollin speaks only to the fact that
this
type
of
coverage
is
underwritten
by
a
subset
of
insurers who serve as environmental insurers — not to the
ability of Hardy Oil to qualify for this coverage.
By
contrast, Renshaw has opined that the Bulk Plant would not
have
qualified
for
the
pollution
liability
coverage
of
which Tollin speaks due to the age of the facility, the
antiquated equipment and lack of documentation of upgrade,
the
absence
evidence
of
of
leak
tank
detection
tightness
systems,
the
absence
testing/vessel
of
integrity
confirmation, the absence of any evidence of environmental
media sampling, and the lack of any known site review or
investigation reports.
Thus, it is undisputed that, even if Wells Fargo, by
and through its agent, had a duty to advise Hardy Oil about
the
existence
of
pollution
liability
coverage
and
had
provided that advice, Hardy Oil would not have qualified
for and obtained that coverage due to the state in which
its facilities were maintained.
Looking at the facts in
the light most favorable to non-movant Hardy Oil, a jury
could conclude that there was an implied assumption of the
10
duty of care and even that the facts demonstrated that it
was breached.
They could not, however, conclude the breach
was the proximate cause of Hardy Oil’s injury — lack of
coverage in the face of loss — since Hardy Oil could not
have obtained the coverage had it been recommended.
Thus, considering the material facts about which there
is no genuine dispute and which are before this Court,
summary
judgment
is
appropriate.
Wells
Fargo’s
Motion
shall be granted, and Hardy Oil’s claim of negligence on
the part of Wells Fargo shall be dismissed.
Accordingly, IT IS ORDERED that Wells Fargo’s Motion
for Summary Judgment is GRANTED.
This the 8th day of October, 2013.
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