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Higby Crane Service LLC v. National Helium, LLC

United States Court of Appeals, Tenth Circuit

May 13, 2014

HIGBY CRANE SERVICE, LLC; NATIONAL INTERSTATE INSURANCE COMPANY, Plaintiffs - Appellees,
v.
NATIONAL HELIUM, LLC, a Delaware limited liability company; DCP MIDSTREAM, LP, a Delaware limited partnership, Defendants - Appellants

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS. (D.C. No. 6:10-CV-01334-JAR-GLR).

Lee Thompson, Thompson Law Firm, LLC, Wichita, Kansas, for Defendants - Appellants.

Tracy A. Cole (G. Andrew Marino with her on the brief), Gilliland & Hayes, LLC, Wichita, Kansas, for Plaintiffs - Appellees.

Before LUCERO, HARTZ, and GORSUCH, Circuit Judges.

OPINION

Page 1158

HARTZ, Circuit Judge.

Plaintiff Higby Crane Service, LLC (Higby) entered into a Contract (the Contract) with Defendant DCP Midstream, LP (DCP)[1] that covered crane work to be done at the gas processing plant of DCP's wholly owned subsidiary National Helium, LLC (we will refer to DCP and National Helium collectively as DCP). A fire negligently started by DCP damaged Higby's crane. The other Plaintiff, National Interstate Insurance Co. (National), had issued Higby a commercial inland marine (CIM) policy covering direct physical loss to certain property. National paid Higby under the policy and Plaintiffs then sued DCP for the loss. DCP counterclaimed that Higby had breached the Contract by failing to obtain a commercial general liability (CGL) policy that would have indemnified DCP for its negligence and therefore Higby should bear the loss from the damage to the crane. The United States District

Page 1159

Court for the District of Kansas granted summary judgment to Plaintiffs, and DCP appeals. Exercising jurisdiction under 28 U.S.C. § 1291, we reverse and remand for further proceedings to determine whether the required CGL policy would have protected DCP from liability.

I. BACKGROUND

Under the Contract, which governed various service agreements between the parties, Higby provided crane and other services for DCP at the National Helium gas-processing plant. Unfortunately, during the night of April 19-20, 2008, a fire at the plant severely damaged Higby's crane, requiring repairs costing more than $250,000. After National paid Higby for part of the loss under a CIM policy, Plaintiffs sued DCP in Kansas state court for the repair costs. The claim alleged that " in the course of operating the National Helium plant, [DCP] negligently and/or in violation of industry standard of care, applicable rules, regulations and statutes released or vented various gases in such a manner that a vapor cloud formed and ignited resulting in damage to [the] crane." Aplt. App. at 208. The case was removed to federal court under diversity jurisdiction. DCP admitted negligence but counterclaimed against Higby, alleging that it had breached the Contract by failing to obtain required insurance.

Paragraph 9.1 of the Contract required Higby to obtain various kinds of liability insurance, including a CGL policy:

Throughout the term of this Agreement [Higby] shall carry and pay for . . . Commercial General Liability Insurance covering liabilities for death and personal injury and liabilities for loss of or damage to property with combined single limit of not less than $3,000,000 per occurrence. This insurance must cover all operations of [Higby] required to fulfill this Agreement.

Id. at 71. Paragraph 9.2 required the CGL policy to list DCP as an additional insured:[2] " The insurance policies described above shall include [DCP], its affiliates and coventurers, and their directors, officers, and employees as additional assureds. All insurance required hereunder and provided by [Higby] shall be primary coverage." Id. at 72. Paragraph 9.3 required the policies to waive subrogation rights against DCP.[3]

DCP moved for summary judgment. It argued that the Contract waived any rights of Higby or National to seek recovery from DCP. Plaintiffs filed a cross-

Page 1160

motion for summary judgment asserting that the Contract did not require Higby to waive the right of subrogation under a CIM policy. Of particular importance to this appeal, DCP responded to the cross-motion by alleging that Higby had breached the Contract by failing to obtain a CGL policy and that because of the breach, Higby assumed the risk of loss and cannot collect from DCP. Plaintiffs did not produce a CGL policy[4] but contended that the Contract required only " coverage for [Higby's] liability arising from its operations" and " Higby ha[d] no liability for the fire." Id. at 154 (bolding omitted).

The district court granted Plaintiffs' cross-motion for summary judgment and denied DCP's motion for summary judgment. It ruled that the Contract required Plaintiffs to obtain only a liability policy covering claims brought by third parties and that because the CIM policy was not required by the Contract, " the subrogation requirement[] d[id] not apply to the CIM policy." Id. at 165. Further, said the court, the contractual requirement that DCP be listed as an additional insured did not help DCP because the Contract required coverage only for damages caused by Higby's operations, not DCP's. Finally, assuming that Higby breached the Contract ...


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