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Murphy Oil Corp. v. Liberty Mutual Fire Insurance Co.

United States District Court, W.D. Arkansas, El Dorado Division

January 8, 2019

MURPHY OIL CORPORATION PLAINTIFF
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY DEFENDANT

          MEMORANDUM OPINION AND ORDER

          TIMOTHY L. BROOKS, UNITED STATES DISTRICT JUDGE.

         Currently before the Court are cross-motions for summary judgment filed by Plaintiff Murphy Oil Corporation ("Murphy") and Defendant Liberty Mutual Fire Insurance Company ("Liberty").[1] For the reasons given below, Murphy's motion is DENIED, Liberty's motion is GRANTED, and Murphy's Complaint is DISMISSED WITH PREJUDICE.

         I. BACKGROUND

         In September 2011, Valero Energy Corporation ("Valero") purchased an oil refinery ("the Refinery") in Meraux, Louisiana from Murphy, pursuant to an Asset Purchase Agreement ("APA"). See Doc. 30-2. The following year, on July 22, 2012, a fire occurred at the Refinery's Crude Unit, causing extensive structural damage. After investigating the matter, Valero concluded that the fire was caused by various acts and omissions that Murphy had committed prior to the APA's closing. In November of that same year, the Environmental Protection Agency ("EPA"), informed Valero that it would seek to impose penalties on Valero for violations of the Clean Air Act based on the July fire.

         In December 2012, Valero sent Murphy a letter demanding that Murphy indemnify Valero for the full amount of damages it had sustained (and would sustain in the future) in connection with the July fire, including any EPA penalties related to that fire. See Doc. 30-4, p. 4. In that same letter, Valero described various additional violations of environmental law that its investigation had uncovered, accusing Murphy of having made material misrepresentations or omissions about those violations to Valero during the sale of the Refinery, and demanding that Murphy indemnify it for the various damages and penalties that it had suffered (or expected to suffer) as a result. See id. at 4-7. The letter's demands were explicitly premised on the APA's indemnity provision, see Id. at 1, 3, which states in relevant part that Murphy will indemnify Valero for "any and all damage, loss and expense . . . actually suffered by [Valero] to the extent arising out of: (i) any misrepresentation or breach of warranty; ... or (iii) any Retained Liability," see Doc. 30-2, p. 85, § 13.02(a); see also Id. at p. 30, § 2.04(f) (defining "Retained Liabilities" to include "the Retained Environmental Liabilities," which are defined in § 1.01(a) to include a wide variety of "liabilities and obligations arising under Environmental Law to the extent arising from the ownership or operation of [the Refinery] prior to Closing . . . ."). Valero's letter concluded by informing Murphy that it expected its total indemnification claims to exceed $52, 000, 000, demanding a response within ten business days, and threatening to file a lawsuit before the end of 2012 unless an agreement to toll the statute of limitations could be reached before then. See Doc. 30-4, p. 7.

         Murphy promptly notified its insurer, Liberty, of Valero's claims against it, and asked Liberty to provide Murphy a defense under the commercial general liability ("CGL") policy that Murphy had purchased from it ("the Policy"). Liberty declined to do so, contending that it had no duty under the Policy to defend Murphy against Valero's claims. See Doc. 30-7, pp. 1, 30-33. At a general level, Liberty's justifications were twofold. First, no lawsuit had actually been filed yet. Second, and regardless of the first, the policy did not provide coverage for this type of claim. Murphy disagreed with both justifications, and continued apprising Liberty of developments in its negotiations with Valero over the next several years, as the two oil companies attempted to resolve their dispute outside of court. See, e.g., Docs. 30-9, 30-10, 30-11.

         Ultimately, Murphy and Valero were unable to resolve their dispute, and on February 7, 2017, Valero filed a one-count complaint against Murphy for breach of contract in New York state court ("the New York Lawsuit"), claiming damages in excess of $25, 000, 000. See Doc. 30-3. Murphy again requested a defense from Liberty. See Doc. 30-8. In November 2017, Liberty again refused, denying that it had any duty to provide one. So the following year, Murphy filed the instant lawsuit against Liberty in this Court, seeking a declaratory judgment and damages for breach of contract. See Doc. 1. Among other things, Murphy's Complaint asks this Court to declare that the Policy requires Liberty to provide Murphy a defense against Valero. See Id. The Complaint also asks this Court to order Liberty to pay for that defense and to reimburse Murphy for the defense costs that Murphy has already incurred. See id.

         Murphy and Liberty have filed cross-motions for summary judgment against each other. Those motions have been extensively briefed, see Note 1, supra, and on December 18, 2018, this Court received oral argument on them. Both motions are now ripe for decision.

         II. LEGAL STANDARD

         "The court shall grant summary judgment if 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). When, as here, cross-motions for summary judgment are filed, each motion should be reviewed in its own right, with each side "entitled to the benefit of all inferences favorable to them which might reasonably be drawn from the record." Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983). The Court must view the facts in the light most favorable to the non-moving party, and give the non-moving party the benefit of any logical inferences that can be drawn from the facts. Canada v. Union Bee. Co., 135 F.3d 1211, 1212-13 (8th Cir. 1997). The moving party bears the burden of proving the absence of any material factual disputes. Fed.R.Civ.P. 56(a); Matsushita Bee. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).

         If the moving party meets this burden, then the non-moving party must "come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting then-Fed. R. Civ. P. 56(e)) (emphasis removed). These facts must be "such that a reasonable jury could return a verdict for the nonmoving party." Allison v. Flexway Trucking, Inc., 28 F.3d 64, 66 (8th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). "The nonmoving party must do more than rely on allegations or denials in the pleadings, and the court should grant summary judgment if any essential element of the prima facie case is not supported by specific facts sufficient to raise a genuine issue for trial." Register v. Honeywell Fed. Mfg. & Techs., LLC, 397 F.3d 1130, 1136 (8th Cir. 2005) (citing Celotex Corp v. Catrett, 477 U.S. 317, 324(1986)).

         III. DISCUSSION

         Murphy's summary judgment motion asks this Court to enter judgment in Murphy's favor by declaring that: (1) Liberty owes Murphy a duty to defend it against Valero's claims in the New York Lawsuit; (2) Liberty's duty encompasses attorney fees incurred by Murphy before the New York Lawsuit was filed; and (3) Liberty's duty to defend is not subject to the deductible or policy limits of the Policy. See Doc. 28, p. 1. Of course, Liberty opposes that request, and in its own motion asks this Court to declare that: (1) Liberty has no duty to defend Murphy against Valero's claims in the New York Lawsuit; (2) Liberty is not obligated to pay for the costs and fees Murphy incurred through the negotiations with Valero that preceded the New York Lawsuit's filing; and (3) in any event, Liberty is not liable for any defense costs under the Policy until Murphy meets its deductible obligations. See Doc. 35, p. 1.

         Under the doctrine of Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), a federal court sitting in diversity jurisdiction must "apply the substantive law of the forum State, absent a federal statutory or constitutional directive to the contrary." Salve Regina Coll. v. Russell, 499 U.S. 225, 226 (1991). The parties, and this Court, all agree that Arkansas law governs the interpretation of the Policy.[2] Thus, this Court must apply governing precedent from the Arkansas Supreme Court; and if there is no such case that is directly on point, then this Court must predict how the Arkansas Supreme Court ...


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