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Pinnacle Resources, Inc. v. Chartis Specialty Insurance Co.

United States District Court, E.D. Arkansas, Pine Bluff Division

August 1, 2014

PINNACLE RESOURCES, INC., Plaintiff,
v.
CHARTIS SPECIALTY INSURANCE CO., Defendant.

OPINION AND ORDER

SUSAN WEBBER WRIGHT, District Judge.

Plaintiff Pinnacle Resources, Inc. ("Pinnacle") brings this action for a declaratory judgment against Chartis Specialty Insurance Company ("Chartis") seeking a declaration that Chartis has a duty to defend and to indemnify for any damages that may be awarded against Pinnacle in connection with a lawsuit pending against it in state court. Before the Court is a motion for summary judgment filed by Chartis to which Pinnacle responded.[1] Also before the Court is a motion for partial summary judgment filed by Pinnacle to which Chartis responded.[2] Pinnacle filed a reply. After careful consideration, and for the reasons that follow, the defendant's motion is granted.

I.

Pinnacle is an Arkansas corporation located in Pine Bluff which manufactures and supplies bulk lubricants.[3] It is in the business of blending lubricants for third parties and for its own account, and in the sale of such lubricants to the general public.[4] Gibralter Lubricating Services, Inc. ("Gibraltar") is an Arkansas corporation that is involved in the research, development, and sale of specialty lubricating oils. According to Gibralter, Pinnacle sent sales representatives to Gibralter's office in Beebe, Arkansas, to solicit its business as a blender of Gibralter's oil products. Eventually, Gibraltar entered into an agreement with Pinnacle and provided Pinnacle with its confidential proprietary formula to allow Pinnacle to prepare test batches of a lubricant for Gibraltar. In November 2010, Pinnacle blended a test sample of the lubricant and thereafter blended one batch of lubricant which was sold to an established customer of Gibraltar. According to Gibraltar, Pinnacle demanded the right to be Gibraltar's sole and exclusive blender. Gibraltar declined and terminated its relationship with Pinnacle in January 2011. Gibraltar alleges Pinnacle then began to market to and solicit business from Gibraltar's customers and began to sell the oil lubricant blended using Gibraltar's proprietary formula directly to Gibraltar's customers at a lower price than Gibraltar's pricing structure. Gibraltar filed a complaint on April 30, 2012, in state court alleging a claim of trade secret misappropriation and seeking an injunction. Gibralter also seeks damages for breach of contract and, in the alternative, conversion.

During the period of June 1, 2010 through June 1, 2012, Pinnacle had a commercial general liability insurance policy ("the Policy") issued by Chartis.[5] Pinnacle tendered Gibraltar's complaint to Chartis but Chartis refuses to defend Pinnacle arguing the Gibralter claims are not covered by the Policy and even it they are, exclusions apply. Pinnacle moves for partial summary on Chartis's duty to defend. Chartis moves for summary judgment on both the duty to defend and the duty to indemnify.

II.

Summary judgment is proper only if "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). The moving party bears the initial responsibility of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has properly supported its motion for summary judgment, the non-moving party must "come forward with specific facts showing that there is a genuine issue for trial. '" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)(citation omitted)(emphasis in original). A genuine issue exists only if there is sufficient evidence to allow a jury to return a verdict for the non-moving party. Anderson v. Liberty Lobby., Inc., 477 U.S. 242, 249 (1986).

III.

The parties agree that Arkansas substantive law governs this diversity action. As a general rule, the duty to defend is determined by comparing the allegations in the underlying complaint with the scope of coverage provided under the insurance policy. See Murphy Oil USA, Inc. v. Unigard Security Ins. Co., 61 S.W.3d 807, 812-13 (Ark. 2001). Under Arkansas law, the duty to defend is broader that the duty to indemnify, and it arises when there is a possibility that the injury or damage may fall within the liability policy coverage. Id. In testing the pleadings to determine if they state a claim within the policy coverage, a court must resolve any doubt in favor of the insured. Id. at 814. Courts are not, however, required by the rules of contractual construction to stretch their imaginations to create coverage where none exists. Pate v. U.S. Fid. & Guar. Co., 685 S.W.2d 530, 532 (Ark 1985). An intent to exclude coverage in an insurance policy must be expressed in clear and unambiguous language, and the burden is upon the insurance company to present facts that come within the stated exclusion. See Union Bankers Ins. Co. v. National Bank of Commerce, 408 S.W.2d 898, 900 (Ark. 1966).

The Policy states, in relevant part:

SECTION I - COVERAGES
COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not ...

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