Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-09-02220/USCOURTS-ca8-09-02220-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

 ___________

 No. 09-2220

 ___________

George’s Inc., *

*

Appellee, *

*

v. *

*

Allianz Global Risks US Insurance Co., *

*

Appellant. *

 ___________

Appeals from the United States

 No. 09-2248 District Court for the

 ___________ Western District of Arkansas.

George’s Inc., *

*

Appellant, *

*

v. *

*

Allianz Global Risks US Insurance Co., *

*

Appellee. *

___________

Submitted: January 12, 2010

Filed: March 9, 2010

___________

Before LOKEN, Chief Judge, JOHN R. GIBSON, and WOLLMAN, Circuit Judges.

___________

Appellate Case: 09-2220 Page: 1 Date Filed: 03/09/2010 Entry ID: 3642125
-2-

WOLLMAN, Circuit Judge.

George’s Inc. brought this diversity lawsuit against its insurer, Allianz Global

Risks US Insurance Co., arguing that Allianz failed to indemnify George’s for

business expenses and personal property losses as required under the terms of its

insurance policy. The district court denied Allianz’s motion for summary judgment

on the contested business expenses and granted summary judgment for Allianz on

George’s personal property claims. Both parties appealed. Because we conclude that

the policy unambiguously excludes coverage for both claimed losses, we reverse the

district court’s denial of summary judgment on the business expenses claim and affirm

the grant of summary judgment on the personal property claim. 

I.

George’s, a poultry processing company with facilities in Cassville, Missouri,

has both property insurance and business interruption insurance through Allianz. In

January and March 2007, ice storms caused a break in electrical service to George’s

Cassville plant, which disrupted production and resulted in a loss of business income.

The power outage also led to the premature deaths of a number of chickens that were

stored in a holding shed before processing. George’s filed a claim under the policy,

and Allianz conceded liability for lost business income and extra expenses totaling

$309,676, minus the deductible. 

At issue in this appeal is George’s claim for $154,984 of business expenses in

the form of fixed labor and overhead costs, and $29,989 in personal property losses

from the chickens that perished in its holding shed. According to George’s, the labor

and overhead costs are recoverable under the “extra expense” portion of the policy.

George’s undisputed accounting records show that as a result of the business

disruption, its cost-per-pound of chicken increased from $.0457 per pound to

$.0527—that is, the company produced less chicken relative to its fixed costs.

Appellate Case: 09-2220 Page: 2 Date Filed: 03/09/2010 Entry ID: 3642125
-3-

George’s derived the figure of $154,984 by multiplying its increased cost-per-pound

by the number of pounds that it produced during the coverage period. It argued that

those costs were recoverable under the following provision:

EXTRA EXPENSE

1) Measurement of Loss:

The recoverable EXTRA EXPENSE loss will be the reasonable and

necessary extra costs incurred by the Insured of the following during the

PERIOD OF LIABILITY:

a) Extra expenses to temporarily continue as nearly normal as practicable

the conduct of the Insured’s business; and

b) Extra costs of temporarily using property or facilities of the Insured

or others, less any value remaining at the end of the PERIOD OF

LIABILITY for property obtained in connection with the above.

2) EXTRA EXPENSE Exclusions. As respects EXTRA EXPENSE, the

following are also excluded:

a) Any loss of income.

b) Costs that normally would have been incurred in conducting the

business during the same period had no direct physical loss or damage

occurred.

The district court concluded that because George’s utilizes a cost-per-pound

accounting system, an ambiguity existed regarding whether the extra expense

provision covered an increase in cost-per-pound. It therefore denied Allianz’s partial

motion for summary judgment on George’s claim for business expenses.

George’s also maintained that the personal property provisions of the policy

covered its lost chickens. The parties disagreed, however, about the effect of the

following two exclusions to the personal property coverage:

C. animals, standing timber, growing crops.

. . . .

O. stock or materials when loss is caused by manufacturing or processing

operations which result in damage to such property while being

Appellate Case: 09-2220 Page: 3 Date Filed: 03/09/2010 Entry ID: 3642125
-4-

processed, manufactured, tested or otherwise being worked upon (work

in progress). 

Allianz contended that the exclusion of animals—expanded in a later exclusion

endorsement to “animals (including eggs)”—unambiguously excluded live chickens

from coverage. The district court agreed with this interpretation and granted Allianz’s

partial motion for summary judgment on the claim for the chickens that perished prior

to processing. 

II.

We review the district court’s summary judgment rulings de novo, viewing the

evidence in the light most favorable to the nonmoving party. Source Food Tech., Inc.

v. U.S. Fid. & Guar. Co., 465 F.3d 834, 836 (8th Cir. 2006). The parties agree this

case is governed by Arkansas law.

Interpretation of an insurance policy is ordinarily treated as a legal question by

Arkansas courts. See Elam v. First Unum Life Ins. Co., 57 S.W.3d 165, 169 (Ark.

2001). When the language of the policy is unambiguous, courts will follow the plain

meaning of the policy without resorting to rules of construction. Id. If an ambiguity

exists, the policy is construed in favor of the insured and against the insurer. Smith

v. Prudential Prop. & Cas. Ins. Co., 10 S.W.3d 846, 850 (Ark. 2000). This rule of

construction, however, should not be used to make an insurer liable where the plain

language of the insurance contract denies coverage. Smith v. S. Farm Bureau Cas.

Ins. Co., 114 S.W.3d 205, 206 (Ark. 2003). Rather, an insurance policy should be

construed in its plain, ordinary, and popular sense, and if possible the various clauses

of the contract must be read together, so as to harmonize all of the provisions. Id. at

206-07. 

Appellate Case: 09-2220 Page: 4 Date Filed: 03/09/2010 Entry ID: 3642125
-5-

A.

We turn first to George’s argument that it is entitled to recover as extra

expenses the $154,984 in fixed labor and overhead costs. As discussed above,

George’s does not dispute that it would have had to pay these labor and overhead

costs irrespective of the plant shutdown. Instead, it contends that it experienced an

increase in cost-per-pound because the business disruption caused it to process less

chicken relative to its fixed expenses. Allianz argues that these fixed expenses fit

squarely within the extra expense provision’s exclusion of “[c]osts that normally

would have been incurred in conducting the business during the same period had no

direct physical loss or damage occurred.” We agree.

A straightforward reading of the policy language makes it clear that the extra

expense provision was intended to cover unanticipated outlays related to a business

disruption. Fixed labor and overhead costs do not fit that description. The extra

expense provision is focused instead on unforseen expenditures such as overtime pay

or additional expenses associated with using different facilities, both of which Allianz

concedes are covered. George’s argues that because the term “costs” is not defined

in the policy, coverage for its extra expenses might reasonably be understood to

include an increase in cost-per-pound. It contends that the increased cost-per-pound

is not a normal cost incurred in conducting its business, because the increase is

directly attributable to the interruption caused by the ice storms. George’s further

urges that its interpretation of the policy is augmented by the general accounting

practices of the poultry industry, wherein expenses are commonly expressed in terms

of cost-per-pound. 

We find George’s argument to be unpersuasive. A term in an insurance policy

is not ambiguous simply because it is undefined. See Smith, 114 S.W.3d at 207.

Looking only at the words themselves, the ordinary meaning of “costs” is distinct

from the concept of “cost-per-pound,” which as its wording suggests, is an equation

Appellate Case: 09-2220 Page: 5 Date Filed: 03/09/2010 Entry ID: 3642125
-6-

representing the relationship between cost and total production. A company’s overall

expenditures do not necessarily increase simply because it experiences an increase in

the per-unit cost of its product. But as George’s interprets the policy, it would incur

an extra expense any time that it slowed or stopped production. Moreover, the terms

in the policy must be interpreted in context, and the exclusion of costs that “normally

would have been incurred in conducting the business” plainly precludes recovery of

fixed costs. Although it is undisputed that George’s uses a cost-per-pound allocation

in its own accounting, that is not the language used in the contract. When, as here, the

language of an insurance policy is clear, it is improper for a court to “strain the

construction of ordinary terms in the contract to create ambiguity where one does not

appear.” Arkansas Burial Ass’n v. Dixon Funeral Home, Inc., 751 S.W.2d 356, 357

(Ark. App. 1988). 

Our interpretation also harmonizes the various provisions in the policy. At

bottom, George’s claim is one for lost production, not increased expenses; in George’s

own words, “[f]ewer birds processed results in larger labor and overhead cost per

pound to operate a processing plant.” Appellee’s Br. 16. The purpose of business

interruption insurance is to put the insured in the financial position that it would have

occupied if the covered peril had not occurred. See Associated Photographers, Inc.

v. Aetna Cas. & Sur. Co., 677 F.2d 1251, 1253 (8th Cir. 1982). Conceptually, there

are two components to such indemnification: payment for losses in gross earnings and

compensation for unanticipated expenses. The present policy contains separate,

mutually exclusive provisions addressing both categories of liability. The formula for

indemnifying losses in gross earnings—which is not at issue here—does not include

additional, unforseen expenses caused by an insured event; and conversely, the

provision covering extra expenses explicitly excludes “[a]ny loss of income.” By

reading the extra expense provision to cover what is actually a claim for lost

production, however, George’s interpretation eliminates the distinction between the

two provisions, suggesting that one is superfluous. We think the various provisions

of the policy are best harmonized by reading the extra expense provision to exclude

Appellate Case: 09-2220 Page: 6 Date Filed: 03/09/2010 Entry ID: 3642125
-7-

coverage for a decrease in production relative to fixed costs. Accordingly, the district

court erred in denying Allianz’s motion for summary judgment on this claim.

B.

 

George’s also claims that the policy’s personal property coverage entitles it to

recover the $29,989 in losses that it sustained from chickens that died in its holding

shed prior to processing. As discussed above, the personal property coverage

excludes “animals (including eggs).” 

In an attempt to avoid the clear import of this exclusion, George’s argues that

the chickens in its holding shed should be treated as processing stock and thus

subjected only to the more-limited work in progress exclusion. George’s contends

that there is a jury question on whether, under the terms of the policy, the chickens

ceased to be animals and became stock or materials when transported to its factory for

processing. It cites for support Dyer v. Royal Ins. Co., 150 A.2d 915 (Md. 1959), in

which the Court of Appeals of Maryland concluded that an exclusion for “growing

crops” applied to barley that was still standing in a field but no longer growing.

According to George’s, Dyer suggests that farm goods change their character when

taken off the farm. Whether or not that is a fair characterization of the holding in

Dyer, it is clear that the term “animals” includes live chickens, regardless of their

location. The policy makes no distinction based on the animals’ proximity to the

processing facility, and we will not add a condition that is unsupported by the plain

language of the contract. 

Alternatively, George’s maintains that the existence of both the animal

exclusion and the work in progress exclusion creates an ambiguity regarding which

exclusion should apply. This argument mistakenly assumes that there is a conflict

whenever multiple exclusions may apply to the same claim. The presence of two or

more potentially overlapping exclusions, however, is unremarkable. A problem would

Appellate Case: 09-2220 Page: 7 Date Filed: 03/09/2010 Entry ID: 3642125
-8-

arise only if there were a conflict between an exclusion and a specific grant of

coverage. Because chickens clearly fall into the policy’s exclusion of animals, it is

immaterial whether the work in progress exclusion might also apply and to what

extent it would limit Allianz’s liability. Accordingly, the district court did not err in

granting Allianz summary judgment on the claim for lost chickens.

III.

The grant of summary judgment on the personal property claim is affirmed.

The denial of summary judgment on the business expenses claim is reversed, and the

case is remanded to the district court for entry of judgment dismissing that claim. 

______________________________

Appellate Case: 09-2220 Page: 8 Date Filed: 03/09/2010 Entry ID: 3642125