Court Opinion

ID: 9680944
Source: CourtListenerOpinion
Date Created: 2023-08-24 07:41:28.459338+00
Date Added: 2024-06-11T18:17:31.520904
License: Public Domain

Robert L. Brown, Justice, concurring in part; dissenting in part. I agree that the punitive-damage award of $2 million must be reversed and dismissed for the reasons stated in the majority opinion. To conclude, however, that the breach-of-lease award by the Alabama jury in the amount of $3.4 million was not due to property damage caused by two petroleum spills and, thus, was not covered by the ESLIC and Unigard policies is logically unsound and does not comport with the facts of this case.1 I dissent from that part of the majority opinion denying coverage for damages caused by breach of the lease agreement. The ESLIO policy which was in effect at the time of the 1970 petroleum spill indemnified Murphy Oil for all sums that the insured was obligated to pay due to property damage caused by an accident. The Unigard policy in effect during the 1975 spill had similar language. Murphy Oil was sued by Blakely Corporation in federal district court in Alabama in 1990 on alternative theories, which included (1) negligence for failure to use reasonable care to prevent the discharge of petroleum on the Blakely land, and (2) breach of the lease agreement for operating the facilities so as to allow petroleum to be discharged on the property and for fading to surrender the premises to Blakely in the same condition the land was in when the lease began. The gravamen of both counts was damage to the property caused by the petroleum spills. The negligence count was dismissed based on a limitations defense, and the majority correctly acknowledges that a jury award for negligence might have generated liability under the two policies. Somehow, however, the majority concludes that the “contract damages” award by the Alabama jury for breach of the lease had no relationship to the “property damages” caused by the petroleum spills. The unsoundness of this conclusion is made manifest by the simple fact that without the property damages there would have been no “contract damages.” Blakely sued for damages resulting from discharge of petroleum on its property as one basis for breach of the lease, and the jury was instructed that the lease required that the leased property be put to a reasonable use, which an ordinary reasonable business would use when conducting its operations. Damage to its land was the very essence of Blakely’s complaint. The two policies provided indemnity for all sums Murphy Oil was required to pay due to accidental property damage. We interpret insurance contracts according to their plain and unambiguous language and in favor of the insured. Smith v. Shelter Mut. Ins. Co., 327 Ark. 208, 937 S.W.2d 180 (1997); Nationwide Mut. Ins. Co. v. Worthey, 314 Ark. 185, 861 S.W.2d 307 (1993). What could be clearer than the language in the two insurance contracts? At a minimum, the lease agreement on this point is ambiguous. When the terms of an insurance contract are ambiguous, we accept an interpretation favorable to the insured. Nationwide Mut. Ins. Co. v. Worthey, supra; Drummond Citizens Ins. Co. v. Sergeant, 266 Ark. 611, 588 S.W.2d 419 (1979). Yet, inexplicably, the majority refrains from finding any connection between the petroleum spills and the breach of the lease agreement. In doing so, the majority concludes that Murphy Oil’s interpretation of its contract as well as that of the trial court are not reasonable constructions of the contract. More seriously, the majority opinion fails to distinguish successfully the one decision that has confronted this issue and held in favor of the insured. See Braswell v. Faircloth, 387 S.E.2d 707 (S.C. App. 1989). In Braswell, the lessor of land sued its lessee and the liability carrier for the lessee for damage to the land caused by a chemical spill after the lease terminated. The trial court ruled the chemical spill was not an “occurrence” under the lease because it was not accidental but rather a deliberate failure to remove hazardous waste. The Court of Appeals reversed and focused on the accident and property damage. In doing so, the appellate court held that an “occurrence” under the policy took place and the carrier was liable. As was the case in Braswell, the proper focus for the breach-of-lease claim should be on the accidental nature of the property damage and whether this constituted an “occurrence” for purposes of the ESLIC and Unigard policies. Just as in Braswell, Murphy Oil was required to compensate Blakely due to damage to its property, and just as in Braswell, the lessee’s carriers should be responsible for these damages. The majority opinion fails to acknowledge that accidental property damage lies at the core of this litigation and erroneously concludes that the appellate court’s rationale in Braswell does not rise to the level of legitimacy for ambiguity purposes. The majority opinion, in addition, appears to shift gears in its discussion of Braswell and concludes that the statute of limitations is the true distinguishing factor. Of course, limitations was not an issue in Braswell, and there is no question but that the breach-of-lease claim was timely filed and was directly tied to the accidental chemical spills in the case before us. Regardless of the label placed on the cause of action, whether it be for negligence or breach of lease, the liability imposed on Murphy Oil came about as the result of “occurrences” during the terms of the ESLIC and Unigard policies. The majority next erroneously analogizes cases involving misrepresentation by an insured to the instant case where the underlying compensatory damages awarded were for breach of contract which were tied directly to property damage. See, e.g., Safeco Ins. Co. of America v. Andrews, 915 F.2d 500 (9th Cir. 1990). I agree that misrepresentation is not a covered occurrence for accidental property damage. But misrepresentation was not the basis for the $3.4 million award in Alabama. Damages were assessed for breach of the lease and for failure to put the property to a reasonable use. The punitive damages, no doubt, were attributed to misrepresentation, and, again, I agree they were not covered by the policies. But the compensatory damages awarded were separate from the punitive damages and were occasioned solely by the damage to the property. It is surreal to contend that property damage was merely “lurking somewhere in the underlying case,” as the majority opinion puts it. The petroleum spills lay at the heart of the Alabama case, as can be readily gleaned from reading the complaint in that action. In sum, the majority confuses a jury verdict based on damage to the land and then turning it over in a damaged condition, all of which breached the lease, with a verdict for fraud and misrepresentation based on hiding the fact that the land had been damaged. The jury awarded $3.4 million in damages based solely on breach of the lease. I fail to see why the two carriers should not be liable for the accidental spills which occurred while their contracts were in force. To hold otherwise is an interpretive stretch and etches in our caselaw a precedent that undermines favorable construction of insurance policies for insureds. Because I disagree with the majority on this fundamental issue, there is no need to address the remaining points raised.   1 The ESLIC and Unigard policies were for excess coverage. USF&G, which carried the basic coverage, paid Murphy Oil the policy limits.