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Welspun Pipes, Inc. v. Liberty Mutual Fire Insurance Co.

United States Court of Appeals, Eighth Circuit

May 25, 2018

Welspun Pipes, Inc., et al. Plaintiffs - Appellants
v.
Liberty Mutual Fire Insurance Company Defendant-Appellee

          Submitted: January 11, 2018

          Appeal from United States District Court for the Eastern District of Arkansas - Little Rock

          Before LOKEN, GRUENDER, and KELLY, Circuit Judges.

          LOKEN, Circuit Judge.

         On July 14, 2012, a fire damaged equipment vital to production at the Little Rock steel pipe manufacturing plant of Welspun Tubular, LLC, a wholly owned subsidiary of Welspun Pipes, Inc. (together, Welspun). The fire, which forced the plant to temporarily cease operations, was a covered peril under the RM Select Commercial Insurance Policy issued to Welspun by Liberty Mutual Fire Insurance Company (Liberty Mutual). The policy provided real property, personal property, equipment breakdown, loss of business income, and extra expense coverages. In August 2012, Welspun submitted claims for real and personal property damage, loss of business income, and extra expenses. In March 2013, Liberty Mutual settled all claims except Welspun's claim for an additional $14 million in mitigation costs.

         In July 2013, Welspun brought this diversity action, alleging that its unpaid mitigation costs were "necessary expenses" included in the policy's loss of business income coverage. Liberty Mutual responded that these costs could only be covered as "extra expenses, " the policy limits of which were paid in the settlement. Ruling on the parties' cross motions for summary judgment, the district court[1] dismissed Welspun's complaint. Welspun appeals. Reviewing de novo the district court's interpretation of the insurance contract and its grant of summary judgment, we affirm. Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834, 836 (8th Cir. 2006) (standard of review).

         I.

         A. Background Facts.

         In May 2012, Welspun was awarded a contract to supply approximately 220, 000 metric tons of Submerged Arc Welded Pipe for the 670-mile Seaway Loop Pipeline from Cushing, Oklahoma to Houston, Texas. At the request of the Seaway construction manager, Enterprise Products Partners (Enterprise), Welspun agreed to convert 36, 592 metric tons to a different type of Submerged Arc Welded Pipe that would be produced by a Welspun affiliate in India, Welspun Tradings Ltd., at no additional cost to Enterprise. The remaining 180, 000 metric tons would be produced at Welspun's Little Rock facility for delivery on August 31, 2013 (sales value $275 million). Production in Little Rock was scheduled to begin on July 25, 2012.

         The fire on July 14 suspended Little Rock operations. As the plant was scheduled to operate at full production capacity through at least August 2013, leaving no time to make up lost Seaway production time, Welspun concluded it would be unable to meet the August 31, 2013 Seaway delivery date. Enterprise would not accept a later date. Fearing it would lose the entire unsigned Seaway contract (a fear Liberty Mutual argued was unjustified), Welspun proposed having its affiliate in India, Welspun Tradings, produce 39, 957 metric tons of pipe originally scheduled to be produced in Little Rock. Enterprise accepted the proposal. Welspun Tubular's Vice President assured his counterpart at Welspun Tradings that Welspun Tubular would bear all costs associated with the shift in production. Under this arrangement, Welspun fulfilled its obligations under the Seaway contract. The incremental costs Welspun incurred in shifting Seaway production from Little Rock to India are the mitigation costs here at issue.

         B. The Policy Provisions at Issue.

         Section C of the policy's Coverages provided that, when "coverage for loss of business income is provided, "[2] Liberty Mutual will pay for:

1. The actual loss of business income you incur during a period of restoration directly resulting from damage by a peril insured against to the type of property covered by this policy at a covered location.
2. The necessary expenses you incur in excess of your normal operating expenses that reduces your loss of business income. We will not pay more than we would pay if you had been unable to make up ...

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