United States Court of Appeals
For the Eighth Circuit
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No. 19-1140
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Murphy Oil Corporation
Plaintiff Appellant
v.
Liberty Mutual Fire Insurance Company
Defendant Appellee
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Appeal from United States District Court
for the Western District of Arkansas - El Dorado
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Submitted: January 15, 2020
Filed: April 21, 2020
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Before BENTON, GRASZ, and STRAS, Circuit Judges.
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BENTON, Circuit Judge.
Murphy Oil Corporation sold an oil refinery to Valero Refining-Meraux, LLC
in 2011. Months later, a fire occurred on the property. Valero demanded
indemnification from Murphy. Murphy asked Liberty Mutual Fire Insurance
Company, its general commercial liability insurer, to provide a defense. Liberty
Mutual refused. Murphy Oil sued Liberty Mutual for a declaratory judgment and
damages. The district court1 granted summary judgment to Liberty Mutual. Murphy
appeals. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.
I.
In 2011, by an Asset Purchase Agreement, Murphy Oil sold an oil refinery to
Valero. Within a year, a fire extensively damaged it. Valero concluded that Murphy
sold the refinery in a condition unsuitable for use, violating numerous representations
and warranties in the Agreement. Valero demanded indemnification from Murphy
under the Agreement’s indemnity provision.
Murphy Oil notified Liberty Mutual of the demand letter, seeking full
protection under its Commercial General Liability (CGL) insurance policy. Liberty
Mutual denied any defense and payment duties, stating that the policy did not provide
coverage for the claim.
Valero sued Murphy Oil in New York state court for one count of “BREACH
OF CONTRACT.” Valero alleged multiple breaches of the Agreement, including not
meeting industry standards and good engineering practices; selling the refinery while
“in violation of numerous environmental regulations and standards and while assets
were not adequate for their use in the business”; and Murphy’s “Retained
Liabilities,” including “violations of Environmental Laws,” under the Agreement.
Murphy Oil requested that Liberty Mutual defend against Valero’s suit. Again
refusing, Liberty Mutual asserted that the CGL policy did not cover a breach of
contract. Murphy sued Liberty Mutual for a declaratory judgment that it had a duty
to defend. Both parties moved for summary judgment. The district court granted
1
The Honorable Timothy L. Brooks, United States District Judge for the
Western District of Arkansas.
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summary judgment to Liberty Mutual, ruling “there is no possibility of coverage
under the Policy for Valero’s claims against Murphy.” Murphy Oil Corp. v. Liberty
Mutual Fire Ins. Co., 357 F. Supp. 3d 791, 801 (W.D. Ark. 2019).
This court reviews de novo a grant of summary judgment, considering the
evidence and making all reasonable inferences most favorably to the nonmoving
party. Nelson v. USAble Mut. Ins. Co., 918 F.3d 990, 993 (8th Cir. 2019). Summary
judgment is proper if “there is no genuine issue as to any material fact” and “the
movant is entitled to judgment as a matter of law.” Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir. 2011) (en banc), citing Fed. R. Civ. P. 56(c). “Where
the record taken as a whole could not lead a rational trier of fact to find for the
nonmoving party, there is no genuine issue for trial.” Id., citing Ricci v. DeStefano,
557 U.S. 557, 586 (2009). The parties agree that Arkansas law governs the
interpretation of the policy.
II.
An insurance policy is ambiguous if there is doubt or uncertainty as to the
policy’s meaning and it is fairly susceptible to more than one reasonable
interpretation. Phelps v. U.S. Life Credit Life Ins. Co., 984 S.W.2d 425, 428 (Ark.
1998). If an insurance policy is unambiguous, its construction is a matter of law for
the court. Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 962 S.W.2d 735, 740
(Ark. 1998) (Unigard I). “[P]rovisions contained in a policy of insurance must be
construed most strongly against the insurance company which prepared it, and if a
reasonable construction may be given to the contract which would justify recovery,
it would be the duty of the court to do so.” Drummond Citizens Ins. Co. v. Sergeant,
588 S.W.2d 419, 423 (Ark. 1979). If an exclusion is at issue, the insurer has the
burden to prove that an exclusion applies. Ark. Farm Bureau Ins. Fed’n v. Ryman,
831 S.W.2d 133, 135 (Ark. 1992).
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Murphy Oil argues that Liberty Mutual has a duty to defend because there is
a potential for coverage under the policy. “The duty to defend is broader than the
duty to indemnify; the duty to defend arises when there is a possibility that the injury
or damage may fall within the policy coverage.” Scottsdale Ins. Co. v. Morrowland
Valley Co., 411 S.W.3d 184, 190 (Ark. 2012). “[I]n testing the pleadings to
determine if they state a claim within the policy coverage, we resolve any doubt in
favor of the insured.” Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co., 61 S.W.3d
807, 814 (Ark. 2001) (Unigard II). However, if there is “no possibility that the
damage alleged in the complaint may fall within the policy coverage, there is no duty
to defend.” Kolbek v. Truck Ins. Exch., 431 S.W.3d 900, 906 (Ark. 2014).
Arkansas follows a three-step analysis to evaluate coverage in CGL policies.
First, we examine the facts of the insured's claim to
determine whether the policy's insuring agreement makes
an initial grant of coverage. If it is clear that the policy was
not intended to cover the claim asserted, the analysis ends
there. If the claim triggers the initial grant of coverage in
the insuring agreement, we next examine the various
exclusions to see whether any of them preclude coverage
of the present claim. . . . Exclusions sometimes have
exceptions; if a particular exclusion applies, we then look
to see whether any exception to that exclusion reinstates
coverage.
Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., Inc., 491 S.W.3d 135,
138-39 (Ark. 2016), citing Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 673 N.W.2d
65, 73 (Wis. 2004).
III.
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The first step is to determine whether a policy makes an initial grant of
coverage. The general coverage provision of the CGL policy here says the policy
applies to “property damage” caused by an “occurrence” that takes place in the
“coverage territory,” during the “policy period,” and was unknown to the policy
holder before the policy period began.
Valero’s complaint has a single cause of action for breach of contract, with
multiple allegations how Murphy breached the Agreement. Liberty Mutual argued
in the district court that breach-of-contract claims are not covered by CGL policies
under Arkansas law. The Supreme Court of Arkansas says it “is not alone in
recognizing that breach-of-contract claims are not covered by CGL policies.”
Columbia, 491 S.W.3d at 141. See also id., citing Grinnell Mut. Reins. Co. v.
Lynne, 686 N.W.2d 118, 125-26 (N.D. 2004) (stating that coverage under a CGL
policy is for tort liability, not contractual liability for economic loss); Oak Crest
Constr. Co. v. Austin Mut. Ins. Co., 998 P.2d 1254, 1257 (Or. 2000) (holding that
there can be no accident within the meaning of a CGL policy, when the “resulting
damage is merely a breach of contract.”); Redevelopment Auth. of Cambria Cty. v.
Int’l Ins. Co., 685 A.2d 581, 589 (Pa. Super. 1996) (holding that breach of contract
is “not an accident or occurrence contemplated or covered by the provisions of a
general liability insurance policy.”); Glens Falls Ins. Co. v. Donmac Golf Shaping
Co., 417 S.E.2d 197, 200 (Ga. App. 1992) (holding that coverage applicable under
a CGL policy is for tort liability, not for contractual liability for economic loss).
Murphy Oil counters with an Arkansas Supreme Court case that recognizes the
possibility of CGL coverage for a breach-of-contract action. U. S. Fidelity & Guar.
Co. v. Cont’l Cas. Co., 120 S.W.3d 556, 561 (Ark. 2003) (Fidelity). In Fidelity, the
court held that under the language of the policy there, the definition of “insured
contract” covered the indemnification provisions of the agreements at issue. Id.
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The district court recognized the tension between Columbia’s holding that
breach of contract is not covered by a CGL policy and Fidelity’s recognition that a
CGL policy covered a single breach-of-contract claim. Murphy Oil, 357 F. Supp. 3d
at 797. Murphy acknowledges, however, that the Agreement here is not an insured
contract as present in Fidelity.
Murphy Oil argues that there is coverage because the underlying facts of the
claim reference the property damage from the fire. Thus, Murphy says, the count for
breach of contract is a claim for property damage, which is (possible) liability.
However, even if the breach-of-contract claim involves property damage, it does not
change the nature of the claim into one for covered property damage. See Unigard
Sec. Ins. Co. v. Murphy Oil USA, Inc., 962 S.W.2d 735, 742-43 (Ark. 1998)
(Unigard I). In Unigard I, plaintiff leased an island from a third party, agreeing to
return it in the same condition as when leased. Id. at 736. After numerous oil leaks
and spills during the lease, plaintiff returned the island without mentioning them. Id.
at 736-37. The third party sued for breach of lease and negligence. Id. at 737.
The Arkansas Supreme Court considered, as a question of first impression,
whether “damages awarded for breach of lease qualify as damages awarded ‘because
of’ or ‘on account of’ ‘property damage.’” Id. at 742. The court held that due to the
running of the statute of limitations, plaintiff was “absolved of liability” for the
property damage, noting “the insurers cannot be held liable for events for which their
insured is not liable.” Id. The court held that although “the facts in the underlying
case involved ‘property damage’ it ‘does not change the nature of the claim’ that was
asserted . . . which was a breach-of-lease claim . . .” Id. at 742-43. The court
categorized the liability in the underlying case as “economic loss” to the third party
from plaintiff’s breach, which is “not covered by the language of the policies
[plaintiff] purchased from its insurance carriers.” Id. at 743.
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Unigard I controls this case. The statute of limitations for tort liability ran
before Valero filed its complaint. Before the running of the statute of limitations,
Valero might have sued in tort for the property damage from the fire. Because Valero
did not sue before the statute of limitations ran, like in Unigard I, Murphy Oil was
“absolved of liability” for the underlying property damage. Id. at 742. See also
Unigard II, 61 S.W.3d at 812 (“[A]llegations in the pleadings against the insured
determine the insurer’s duty to defend.”). Like in Unigard I, any liability of Murphy
in the underlying suit represents the “economic loss” from Murphy’s breach of
contract, which is not covered by the policy. Based on Unigard I, Murphy Oil loses
on its duty-to-defend claim at step one.
IV.
Murphy insists that there is a possibility that the damage may fall within the
policy coverage, stressing that this court must resolve “any doubt” in its favor. See
Scottsdale Ins. Co., 411 S.W.3d at 190; Unigard II, 61 S.W.3d at 814. Assuming
there is any possibility of coverage, the second step is to examine the various
exclusions to see whether “any of them” preclude coverage. Columbia, 491 S.W.3d
at 138. The general contract liability exclusion in the CGL policy here says “This
insurance does not apply to. . . property damage for which the insured is obligated to
pay damages by reason of the assumption of liability in a contract or agreement.”
This exclusion specifically precludes coverage of the breach-of-contract claim at
issue.
The third step is to see whether any exception to that exclusion reinstates
coverage. Columbia, 491 S.W.3d at 139. There are two exceptions to the contractual
liability exclusion here: “liability for damages: (1) That the insured would have in
the absence of the contract or agreement; or (2) Assumed in a contract or agreement
that is an insured contract.” The parties agree that the second exception does not
apply.
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Murphy Oil argues that the first exception—absence of the contract—applies.
Murphy believes that Valero’s allegations about “Retained Liabilities” are claims that
it would have in the absence of the contract. The Agreement, however, requires
Murphy to indemnify Valero for damages “arising out of” misrepresentation, breach
of warranty, and any Retained Liability. The Agreement makes its remedies
“exclusive” for “any aspect of the transactions contemplated by this agreement, the
business or the purchased assets.” Indemnification for any damages from retained
liabilities is thus a contractual obligation—squarely within the policy’s exclusion for
“damages by reason of the assumption of liability in the contract or agreement.”
V.
Murphy Oil argues at length that a “customized” Alienated Premises
Endorsement to the policy “expressly changed the very nature of the coverage,” so
that “the sale of the refinery, subsequent fire and ensuing property damage fit
squarely within the newly customized coverage.” Murphy contends this distinguishes
its case from others interpreting CGL policies.
In the body of the CGL policy here, an alienated premises exclusion originally
excluded from coverage:
j. Damage To Property
“Property damage” to:
...
(2) Premises you sell, give away or abandon, if the
“property damage” arises out of any part of those premises.
The “ALIENATED PREMISES COVERAGE” endorsement modifies the CGL policy
by saying:
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Subparagraph (2) of the Damage to Property exclusion is
replaced by the following:
(2) Premises you sell, give away, or abandon, if the
“property damage” arises out of any part of those premises,
and results from one or more hazards that were known by
you, or should have reasonably been known by you, at the
time the property was sold, given away, or abandoned.
The original alienated premises exclusion excludes coverage for property
damage to premises that are sold. The endorsement excludes coverage for property
damage to premises that are sold if the property damage results from a hazard that was
known, or reasonably should have been known, by Murphy Oil when sold.
Murphy Oil asserts, “The general Contractual Liability Exclusion cannot
supersede the specific Alienated Premises Coverage endorsement that was added to
the Policy.” See Pate v. Goyne, 204 S.W.2d 900, 901 (Ark. 1947) (“Where there is
inconsistency between general and specific provisions, the specific provisions
ordinarily qualify meaning of the general provisions.”). Arkansas does recognize that
“[i]t would be incongruous for an insurer to plainly include a risk only to exclude it
a few paragraphs later.” Home Mut. Fire Ins. Co. v. Jones, 977 S.W.2d 12, 16 (Ark.
App. 1998). However, “[i]n seeking to harmonize different clauses of a contract, [the
court] should not give effect to one to the exclusion of another. . . nor adopt an
interpretation which neutralizes a provision if the various clauses can be reconciled.”
Sturgis v. Skokos, 977 S.W.2d 217, 223 (Ark. 1998).
Arkansas courts “analyze each exclusion separately.” S.E. Arnold & Co., Inc.
v. Cincinnati Ins. Co., 507 S.W.3d 553, 558 (Ark. App. 2016), citing Am. Family
Mut. Ins. Co., 673 N.W.2d at 73. “[T]he inapplicability of one exclusion will not
reinstate coverage where another exclusion has precluded it.” Id. Here, the
endorsement replaces one exclusion. True, as Murphy Oil stresses, the endorsement
expands coverage for property damage on sold property. However, the endorsement
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does not reinstate coverage where another exclusion—the contractual liability
exclusion—precludes it. As discussed, the contractual liability exclusion precludes
any possibility of coverage for Valero’s breach-of-contract claim. Contrary to
Murphy’s assertion that this interpretation of the CGL policy nullifies the
endorsement, it harmonizes the two exclusions under Arkansas’s stair-stepping
approach to interpreting separate exclusions.
The district court properly ruled that there is no possibility that the policy
covers the property damage alleged in the complaint, and thus there is no duty to
defend.
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The judgment is affirmed.
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