891 F.3d 351
8th Cir.2018Background
- Welspun Tubular's Little Rock plant was damaged by fire on July 14, 2012, disrupting production for a major Seaway pipeline contract; Welspun shifted part of that production to an affiliated plant in India and incurred about $14 million in incremental mitigation costs.
- Welspun had an RM Select Commercial Insurance Policy from Liberty Mutual providing (among other things) Loss of Business Income (Section C) and Extra Expense (Section D) coverages.
- Section C.1 covered actual business income loss during the Period of Restoration (POR) and an Extended POR (EPOR); Section C.2 covered "necessary expenses" that reduce business income loss, subject to a cap tied to actual loss; Section D covered extra expenses but excluded expenses recoverable elsewhere in the policy.
- Liberty Mutual paid a March 2013 settlement for business income and extra expense limits but left unresolved Welspun’s $14 million mitigation claim; Welspun sued in diversity seeking payment under Section C.2 as "necessary expenses."
- The district court granted summary judgment to Liberty Mutual, holding that "necessary expenses" must reduce a covered business income loss (i.e., a loss occurring during the POR or EPOR), and Welspun failed to show its mitigation expenses reduced covered business income during that period. The Eighth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "necessary expenses" under Paragraph C.2 cover mitigation costs that do not reduce a business income loss incurred during the POR/EPOR | Welspun: C.2's phrase "necessary expenses" is not temporally limited; mitigation that preserved the Seaway contract reduced Welspun's business-income loss and thus is covered | Liberty Mut.: C.2 covers only expenses that reduce a covered business income loss (i.e., losses during POR/EPOR); costs that avert loss outside that period are not C.2 recoverable and may fall, if at all, under Section D (extra expense) | Court: C.2 is limited to expenses that reduce a covered business income loss; Welspun's $14M did not demonstrably reduce covered loss during POR/EPOR, so not recoverable under C.2 |
| Whether Welspun raised a triable fact that its mitigation expenses reduced covered business income during the POR/EPOR | Welspun: expert testimony allocated part of the contract's lifetime loss into the EPOR, showing mitigation produced a net reduction in covered loss greater than mitigation costs | Liberty Mut.: the record shows Welspun replaced Seaway production during the POR/EPOR with other higher-value projects, so mitigation costs were not "necessary" to reduce covered loss | Court: Even accepting Welspun's POR/EPOR timing for summary judgment, the evidence showed Welspun mitigated covered losses by reallocating production without relying on the India shift; no factual showing that the India mitigation reduced covered loss during POR/EPOR |
Key Cases Cited
- Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006) (standard of review for summary judgment on contract interpretation)
- Midwest Regional Allergy v. Cincinnati Ins. Co., 795 F.3d 853 (8th Cir. 2015) (extra-expense coverage can apply to expenses not reducing business-income loss when policy provides separate extra-expense coverage)
- Nw. States Portland Cement Co. v. Hartford Fire Ins. Co., 360 F.2d 531 (8th Cir. 1966) (historical discussion of duty to mitigate and business-interruption coverage)
- Liberty Mut. Ins. Co. v. Sexton Foods Co., 854 S.W.2d 365 (Ark. App. 1993) (business-interruption insurance should not place insured in a better position than before the loss)
- Witcher Constr. Co. v. St. Paul Fire & Marine Ins. Co., 550 N.W.2d 1 (Minn. App. 1996) (mitigation expenses must relate to a covered loss to be recoverable)