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An accidental theft?

An accidental theft?

December 26
09:30 2018

An accidental theft?

Beginning in 2007, Ikerd Mining, LLC, removed 20,212 tons of coal from land that belonged to Peters Farms, LLC. Of that amount, 19,012 tons were wrongfully mined under Ikerd’s alleged mistaken belief as to the correct location of Peters’ boundary lines. The other 1,200 tons were mined by Ikerd knowing that the land thereunder belonged to Peters, pursuant to a disputed oral lease agreement between Ikerd and Peters; Peters claimed that the lease was an ongoing negotiation that was never finalized.

In 2010, Peters sued Ikerd and its commercial general liability insurer, American Mining Insurance Company, Inc. (AMIC), for Ikerd’s “willful and wanton trespass” onto Peters’ property and conversion of coal from it. In response, AMIC argued that the losses claimed by Peters from Ikerd’s trespassory mining activities were not an “occurrence” and thus not covered by the policy. During the course of litigation Ikerd became insolvent, leaving AMIC as the only source for recovery.

In 2014 Ikerd, AMIC, and Peters reached a partial settlement. Under the agreement, AMIC advanced $15,000 to Peters to preserve the mining permit on the property. Ikerd also admitted that it had mined the coal without Peters’ consent, but the settlement left open whether Ikerd’s mining was “intentional.” Peters gave Ikerd a full release, reserving its claims against AMIC for any available coverage under Ikerd’s policy.

The parties agreed to submit two issues to the trial court: (1) whether the policy covered the damage caused by Ikerd’s actions; and (2) whether the appropriate measure of damages was the reasonable royalty rate, which the parties agreed was $75,000, or the market rate of the coal less extraction costs, valued at $400,000.

The court concluded that injuries to Peters’ property were the result of two separate and distinct mistakes committed by Ikerd. First, an Ikerd employee, Conway Speaks, offered testimony that the removal of 19,012 tons from Peters’ property “occurred because of an ‘accident’ and a ‘mistake’ as to the location of the boundary line.” He claimed that Ikerd only intended to mine coal from adjacent land belonging to Charles Gross but mistakenly mined Peters’ land instead. Second, according to Speaks’s testimony, 1,200 tons of coal were knowingly removed from Peters’ property because “Ikerd’s employees mistakenly believed [Ikerd] had permission from Peters to mine it. In fact, Peters had never entered into a lease with Ikerd.”

The court determined that both of Ikerd’s mistakes in mining Peters’ property were “accidents,” which meant each was an “occurrence” under the policy. The court also determined that the removal of coal and foliage from Peters’ property constituted “property damage” that triggered coverage under the policy.

Further, the court found that additional coverage was provided through an aggregate limit under the products-completed operations coverage in the CGL policy. Additionally, the court found that Peters was capable of extracting coal from the property and therefore was entitled to $400,000 for the net market value of the coal. AMIC appealed, and the court of appeals affirmed the trial court’s findings. AMIC appealed to the state supreme court.

On appeal, the Supreme Court of Kentucky noted that, although it may not have been Ikerd’s intent to mine Peters’ coal specifically, Ikerd did intend to mine and sell the coal it extracted. Regardless of whether its trespass was willful or innocent, Ikerd intended to act.

Thus, the court said, “[b]ecause the actions taken by [Ikerd], which led to property damage, were entirely under [its] control, and [Ikerd] fully intended to execute the [excavation] plan as [it] did, we cannot say that the resulting damage throughout the property was an accident. Accordingly, that property damage is not covered by the CGL policy.”

The ruling of the court of appeals was reversed and the case remanded to the trial court for entry of a judgment consistent with that ruling.

American Mining Insurance Company vs. Peters Farms, LLC-Supreme Court of Kentucky-August 16, 2018-No. 2017-SC-000066-DG.

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