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CONAGRA, INC. v. ARKWRIGHT MUT. INS. CO.

September 10, 1999

CONAGRA, INC. PLAINTIFF,
v.
ARKWRIGHT MUTUAL INSURANCE CO. AND THE HOBBS GROUP, INC., DEFENDANTS.



The opinion of the court was delivered by: Marovich, District Judge.

    MEMORANDUM OPINION AND ORDER

After its initial complaint in Massachusetts state court was stayed on grounds of forum non conveniens, see Conagra, Inc. v. Arkwright Mut. Ins. Co., 1995 WL 808941 (Mass.Super. March 14, 1995), in June 1995, Conagra, Inc. ("Conagra") filed an action in this Court against Arkwright Mutual Insurance Co. ("Arkwright"), its former insurer, and The Hobbs Group, Inc. ("Hobbs"), its purported insurance broker, seeking over $28 million pursuant to various claims regarding its insurance coverage for two warehouse fires. Since then, the parties have battled regarding, among other things, procedure, see Conagra v. Arkwright Mut. Ins. Co., 1997 WL 573401 (N.D.Ill. Sept.11, 1997), and discovery, see ConAgra v. Arkwright Mut. Ins. Co., 32 F. Supp.2d 1015 (N.D.Ill. 1999). It is finally ripe to address some of the merits of the parties' contentious dispute.

Presently, the parties have submitted five separate motions for summary judgment: (1) Conagra's motion for summary judgment against Arkwright, (2) Conagra's motion for summary judgment against Hobbs, (3) Arkwright's motion for partial summary judgment against Conagra, (4) Hobbs' motion for summary judgment, and (5) Hobbs' motion for partial summary judgment to reduce damages. Having considered the hundreds of pages of briefs and factual submissions, as well as the relevant portions of the 14 volumes of exhibits, the Court: (1) denies Conagra's motions for summary judgment against Arkwright and Hobbs, (2) grants Arkwright's motion for partial summary judgment against Conagra, (3) grants in part and denies in part Hobbs' motion for summary judgment against Conagra, and (4) denies Hobbs' motion for partial summary judgment to reduce damages.

BACKGROUND

The following facts are undisputed unless otherwise noted. Conagra and its wholly owned subsidiaries and divisions (the independent operation companies, or "IOCs") are engaged in the production and distribution of a wide range of food and food related products throughout the United States and internationally. Arkwright is authorized to conduct business in Illinois as an insurer of various risks including damages to property. Hobbs, at all times relevant in this case, was an insurance broker engaged in the business of selling insurance and providing related services to its customers. Arkwright was the parent company of Hobbs.

Prior to June 1, 1989, Conagra and its IOCs were insured by a group of London underwriters. In early 1989, Arkwright had initial discussions with representatives of Conagra concerning the possibility of Arkwright providing property insurance for Conagra. These initial discussions culminated on April 21, 1989, when Arkwright presented its initial proposal for property coverages commencing June 1, 1989 and continuing for five years. On August 28, 1989, Arkwright issued a written policy of insurance (the "Arkwright Policy") to Conagra, and the Arkwright Policy was modified December 31, 1989 to add certain additional coverages. In June of 1991, Conagra's property insurance program was modified again as a joint property insurance program was instituted between Arkwright and certain London insurers.

On December 28, 1991, Conagra sustained fire damage to its property at the Americold Facility in Kansas City, Kansas. On March 16, 1992, Conagra sustained fire damages to its property at the Marshall Facility in Marshall, Missouri. The Marshall Facility was a non-owned outside warehouse used for temporary storage and consolidation of Conagra's products after they had left Conagra manufacturing facilities and while they were in the process of being distributed to Conagra's ultimate customers. The Americold Facility was also a non-owned outside warehouse used for temporary storage of product awaiting delivery to the Marshall Facility. None of the products in the Americold Facility or the Marshall Facility had reached their final destination at the time of the fires.

Conagra subsequently submitted claims for coverage for losses associated with the two fires. At that point, as one of the parties has stated in a colossal understatement, "certain issues arose between the parties which were not resolved." (Ark. Mot. at 2.) Indeed, in January of 1993, Conagra initiated action in Massachusetts state court against Arkwright. That action was stayed under the doctrine of forum non conveniens on May 4, 1995. Conagra subsequently refiled this action in this Court on June 6, 1995 and, on October 2, 1997, filed its Second Amended Complaint against Arkwright and Hobbs. Presently, as noted above, each party has filed at least one motion seeking summary judgment in this proceeding.

DISCUSSION

I. Summary Judgment Standards

Summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). The moving party has the initial burden of submitting affidavits and other evidentiary material to show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Only genuine disputes over "material facts" can prevent a grant of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

To overcome a motion for summary judgment, the opposing party cannot rest on the pleadings but must, by affidavit or other means, set forth specific facts showing that there is a genuine issue of fact. See Fed.R.Civ.P. 56(e). While the record "and all reasonable inferences drawn from it [are to be viewed] in the light most favorable to the party opposing the motion," Bisciglia v. Kenosha Unified Sch. Dist. No. 1, 45 F.3d 223, 226 (7th Cir. 1995), the nonmovant must show more than "some metaphysical doubt" regarding the facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

II. Conagra v. Arkwright

Conagra's Second Amended Complaint asserts six claims against Arkwright: (1) breach of contract (Count I), (2) estoppel (Count II), (3) unfair practices (Count III), (4) improper claims practice (Count IV), (5) breach of fiduciary duty (Count V), (6) negligent misrepresentation (Count VI), and (6) breach of contract (Count IX).*fn1 Conagra presently moves for summary judgment with respect to the breach of contract (Count I) and estoppel (Count II) claims. Arkwright presently moves for summary judgment with respect to the unfair practices claim (Count III) and breach of contract claim (Count IX).

A. Breach of Contract (Count I)

Conagra asserts that Arkwright has breached its insurance contract. Under Illinois law,*fn2 a court's primary duty in construing the language of an insurance policy is to ascertain and give effect to the intentions of the parties as expressed within the policy. See Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 107-08, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992). As the Seventh Circuit has stated:

  [i]n construing an insurance policy, the court must
  ascertain the intent of the parties to the contract
  by construing the policy as a whole while giving due
  regard to the risk undertaken, the subject matter
  that is insured, and the purposes of the entire
  contract. When the words of the policy are
  unambiguous, they are afforded their plain, ordinary
  and popular meaning. If the words are susceptible to
  more than one interpretation, however, they are
  ambiguous and are to be construed in favor of the
  insured and against the insurer.

Employers Ins. of Wausau v. James McHugh Const. Co., 144 F.3d 1097, 1104 (7th Cir. 1998) (citing Outboard Marine Corp., 154 Ill.2d at 107-08, 180 Ill.Dec. 691, 607 N.E.2d at 1212).

Here, Conagra asserts that Arkwright has breached the insurance contract because coverage exists for the Americold Loss and the Marshall Loss. Specifically, Conagra contends that coverage exists in the Arkwright policy under: (1) its property coverage and (2) an Ocean Cargo Endorsement. The Court will consider these arguments in turn.

1. Property Coverage

Conagra argues that the Americold and Marshall losses were covered under property insurance coverage with Arkwright. The Arkwright Policy property coverages were "All Risk" and insured Conagra and all of its affiliates. (Joint App., Ex. 175 at A309407.) The property coverages further applied "only at locations described in the Schedule(s) attached to and forming a part of [the] Policy." (Id. at A309543.)

Arkwright first provided coverage for Conagra's property locations within the United States in 1989. In June of 1991, Arkwright and certain London insurers split up the responsibility for covering Conagra's property locations on the basis of the properties' reported total insured value. At that time, those with reported total insured values of under $10 million would be covered by London insurers. Those with reported total insured value of over $10 million would be covered by Arkwright.

The Arkwright Policy additionally contained an Errors and Omissions clause. That policy provision provided as follows:

    In the event of loss or damage of the Insured
  located in the United States, Puerto Rico and Canada,
  and such loss is not payable under this Policy solely
  because of:
    (a) any error or unintentional omission in the
    description or location of property insured under
    this Policy, which error or omission existed at the
    inception date of this Policy; or
    (b) any error or unintentional omission in the
    description or location of property insured under
    this Policy, in any subsequent amendments to this
    Policy; or
    (c) failure through error or unintentional omission
    to include (1) any location owned or occupied by
    the Insured at the inception date of this Policy,
    or (2) any location newly acquired or occupied
    during the term of this Policy; or
    (d) any error or unintentional omission which
    results in cancellation of property insurance under
    this Policy,
  such loss or damage shall be insured by this policy
  only to the extent this Policy would have provided
  coverage had the error or unintentional omission not
  been made, up to a limit of $*.

(Joint App., Ex. 176 at A310378.)

The Americold and Marshall losses occurred after the Arkwright/London joint program for Conagra's property insurance coverage was implemented in June of 1991. Under the property coverages provided by Arkwright (the locations with total insured values above $10 million), Schedule 90 was used to identify outside warehouses. At the time of the losses in question, neither the Marshall Facility nor the Americold Facility were described in Schedule 90. Notwithstanding that fact, Conagra contends that Arkwright's insurance covered the Americold and Marshall losses because, on June 1, 1991, both warehouses were locations with property in excess of $10 million. Conagra further asserts that to the extent that the Americold Facility and the Marshall Facility were not properly scheduled under the property coverage in the policy, the Errors and Omissions Clause provides coverage for those losses. The Court will separately consider whether coverage existed for the Marshall and Americold losses pursuant to the terms of the Arkwright Policy's property coverage provisions.

a. The Marshall Facility

The Marshall Facility was originally scheduled on an initial version of Schedule 90 issued May 17, 1990 and made effective December 31, 1989. However, a later version of Schedule 90, issued August 26, 1991 and made effective May 31, 1991, stated with respect to Marshall Facility: "Location Canceled May 31, 1991." Conagra asserts that the Marshall Facility had, on June 1, 1991 and at the time of the fire at the facility, more than $10 million in total insured value. Conagra claims that its deletion from Schedule 90 was error and that coverage is available under the Errors and Omissions clause.*fn3

The essential dispute between the parties with respect to whether the Errors and Omissions clause covers the loss at the Marshall Facility is how and when the property values needed to be computed under the policy. Arkwright claims that, although the policy did not explicitly require it, "common sense" dictates that Conagra needed to report updated values for its property locations. (Arkwright Resp. at 14.) Arkwright contends that Conagra's failure to do so with respect to the Marshall Facility was its own fault. On the other hand, Conagra claims that updating the property values was Arkwright's responsibility. Conagra claims that Arkwright used outdated information for the Marshall Facility and, therefore, erroneously omitted the facility from Schedule 90.

The Arkwright Policy does not directly address whose responsibility it was to update Conagra's property values and how and when such values would be computed. Arkwright notes that a provision in the policy titled "Special Review of Values" stated that "[t]he Insured shall send to this Company maximum and average insurable values for each of the locations where allocated values are shown in the schedule page(s)." (Joint App., Ex. 219 at A309571.) On the other hand, Conagra has presented evidence that another clause in the Arkwright policy effective June 1, 1991 provided as follows: "Notice is accepted that in respect in locations where total values at inception or subsequent anniversary exceed $10,000,000 the Arkwright Mutual Insurance Company is insuring the same interest(s) as covered hereunder[.]" (Id., Ex. 177 at A309578.) Moreover, the coverage conditions of the Errors and Omissions clause provided "Automatic Coverage and Errors & Omissions Coverage under this policy apply only where the combined Total Insured Value (Property Damage and Time Element) of the location exceeds $10,000,000." (Id.) In light of the conflicting provisions, the Court finds that the issue regarding whose responsibility it was to update Conagra's property values and how and when such values would be computed is ambiguous under the terms of the Arkwright Policy.

The extrinsic evidence merely reinforces this ambiguity. Conagra has presented evidence that the allocation of responsibility for Conagra's property between the London insurers and Arkwright was properly made on the basis of "total insured values" at the inception of the program. (See Joint App., Ex. 20 at 70:19-72:2.) Conagra has additionally presented evidence that it was Arkwright's responsibility to collect information concerning property values and prepare schedules which allocated responsibility for Conagra's property locations between Arkwright and the London Underwriters. (Id., Ex. 24 at 186:2-11, 187:16-188:7.)

On the other hand, Arkwright has presented evidence that the split of locations was to be based on total insured values reported at inception. (See id., Ex. 75; Ex. 11 at 48:18-49:6.) Arkwright has further presented evidence that it was Conagra's responsibility to provide Arkwright with updated values to use in the schedules which would form the basis for allocating responsibility between Arkwright and London. (Id., Ex. 24 at 214:1-215:6; 270:6-11; 330:20-331:8.) Finally, Arkwright has provided evidence that it requested that Conagra provide updated values for the outside warehouses prior to the June 1, 1991 split in insurance coverage but that Conagra did not provide such information. (See, e.g., id., Ex. 72; Ex. 73; Ex. 186.)

The Errors and Omissions clause, which Conagra seeks coverage under, provides coverage for "any error or unintentional omission in the description or location of property insured under th[e] Policy, which error or omission existed at the inception date of th[e] Policy." Arkwright has presented evidence here that its property coverage policy provisions only covered property locations with reported property values over $10 million. Arkwright has additionally presented evidence that Conagra did not report such values regarding the Marshall Facility. If Arkwright is right, an inference could be drawn that Conagra consciously failed to comply with the provisions of the Arkwright Policy such that no "error or unintentional omission" occurred triggering the Errors and Omissions ...


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