Lion Oil Company v. National Union Fire Insurance Company of Pittsburgh, PA
1:13-cv-01071
W.D. Ark.Nov 2, 2015Background
- Lion Oil sued its insurers (National Union Fire Ins. Co. et al.) over whether the policy provides Contingent Extra Expense (CEE) coverage under the Time Element provisions and extensions.
- Policy expressly lists Time Element coverages (including Contingent Extra Expense) in the Time Element definition, but CEE is not separately defined elsewhere; Contingent Time Element is an extension that describes losses from damage to third‑party property.
- Parties agreed CEE is not interchangeable with direct Extra Expense and that sub‑limit questions were moot given stipulated Extra Expense damages of $11,340,675.
- Defendants argued the policy only intended Contingent Business Interruption (CBI) coverage (supported by explicit sub‑limits and endorsement language), and that recognizing CEE would produce absurdly large CEE exposure with no sub‑limit.
- Plaintiff argued that CEE is encompassed by the Contingent Time Element extension and that lack of a separate definition does not negate coverage, especially since CBI also lacks a standalone definition yet was sub‑limited.
- The court concluded the policy language is unambiguous, resolved the question as a matter of law, and granted Plaintiff’s motion, holding the policy provides CEE coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy provides Contingent Extra Expense (CEE) coverage | CEE is listed in the Time Element definition and the Contingent Time Element extension expands Time Element coverages (including Extra Expense) to third‑party losses | CEE is not separately provided or sub‑limited; the parties only bargained for CBI and recognizing CEE yields an absurd, unlimited contingent exposure | Court: Policy unambiguous; Contingent Time Element extends Time Element coverages (including CEE); CEE is covered |
| Whether extrinsic evidence is needed to interpret coverage | Not necessary; plain language controls | Defendants implied extrinsic evidence supports limiting coverage to CBI | Court: No extrinsic evidence needed; no disputed facts; issue resolved as matter of law |
| Whether a sub‑limit applies to CEE (procedural stipulation) | Irrelevant given stipulated Extra Expense damages | Argued CEE should be limited based on structure of sub‑limits for CBI/Extra Expense | Parties stipulated sub‑limit issue moot; court did not decide a CEE sub‑limit |
| Whether interpreting the policy to include CEE leads to an absurd result | Coverage follows plain language; absence of separate listing is not dispositive | Including CEE would create disproportionate coverage relative to direct Extra Expense limits | Court: Must follow clear text; avoids reforming contract to save defendants from an unfavorable but textually supported result |
Key Cases Cited
- American Cas. Co. of Reading, Pa. v. Federal S. & L., 704 F. Supp. 898 (E.D. Ark. 1989) (insurer‑contract construction follows general contract principles)
- Fryer v. Boyett, 978 S.W.2d 304 (Ark. Ct. App. 1998) (unambiguous written contracts construed by courts according to plain meaning)
- Zulpo v. Farm Bureau Mut. Ins. Co., 255 S.W.3d 494 (Ark. Ct. App. 2007) (ambiguity dependent on extrinsic evidence is for the jury)
- Alexander v. McEwen, 239 S.W.3d 519 (Ark. 2006) (contract intent gathered from whole context; interpret as ordinary people would)
- Cont’l Cas. Co. v. Davidson, 463 S.W.2d 652 (Ark. 1971) (policy construed so all parts harmonize; avoid constructions that nullify provisions)
- Thacker v. Arkansas Blue Cross & Blue Shield, 761 F. Supp. 654 (W.D. Ark. 1991) (parties may not adopt unreasonable interpretations to manufacture ambiguity)