A U.S. District Court jury in El Dorado on Wednesday awarded $72 million to Lion Oil Co. of Brentwood, Tennessee, which accused its insurance carriers of not paying the multimillion dollar claim tied to a months-long interruption of work at its oil refinery in El Dorado.
Lion Oil filed the lawsuit in 2013 against National Union Fire Insurance Co. of Pittsburgh, Lloyd’s of London underwriters, ACE American Insurance Co. of Philadelphia and 11 other carriers, charging the insurance companies didn’t pay for alleged loss of business income and expenses stemming from the rupture of a pipeline in 2012, according to court filings by one of Lion’s attorneys, Geoffrey Greeves of Pillsbury Winthrop Shaw Pittman LLP of Washington.
The Pillsbury firm was co-counsel with PPGMR Law PLLC of El Dorado and Little Rock, whose attorneys, Julie Greathouse and Brian Ratcliff, tried the case with Greeves.
“We are genuinely pleased but not surprised that the El Dorado jury concluded that Lion Oil’s insurers breached their obligations by failing to live up to their all risk insurance contracts,” Greeves said in a statement on Thursday.
After a six-day trial, the jurors deliberated for just two hours before awarding Lion Oil $60.4 million for income loss and another $11.3 million was awarded to cover the expenses incurred by Lion as a result of the damaged pipeline.
Lion received an early victory on Monday when U.S. District Judge Susan Hickey ruled that Lion potentially had up to $700 million of coverage.
The insurance companies had said in a motion that the amount was “absurd and unsupported.”
“Allowing Lion Oil to access $700 million of contingent extra expense coverage when the direct coverage is limited to $15 million is contrary to the plain language of the Policy,” William Webster of Los Angeles, an attorney representing the insurance companies, said in his filing.
But Hickey found otherwise.
“The Court finds that a plain reading of the Policy demonstrates that the language is unambiguous, and that the Policy provides coverage for [contingent extra expense],” Hickey wrote. “The Court will not reform the Policy in favor of Defendants when the language is clear and unambiguous.”
Pipeline Damage
Since 1985, Lion Oil has owned and operated an oil refinery in El Dorado. The refinery, which has been in place since the 1920s, processes about 80,000 barrels of crude oil per day, producing gasoline, diesel fuel and asphalt. In 2012, Lion relied on a pipeline owned and operated by ExxonMobil Pipeline Co. to deliver crude to the plant.
The problem occurred in April 2012 when Exxon’s pipeline ruptured near Torbert, Louisiana, causing Exxon to close the entire 200-mile line from St. James, Louisiana, to Longview, Texas.
The pipeline was repaired in about two weeks. The insurance companies said Exxon then “made a business decision” to test undamaged sections of the pipeline. Because of that decision, the pipeline wasn’t restarted until October 2012, and the El Dorado refinery didn’t receive crude oil until January 2013, Webster, the insurance companies’ attorney, said in a filing.
The insurance carriers argued that they weren’t liable for Exxon’s caution.
“The Policies do not cover the financial loss to Lion Oil resulting from the decision of the pipeline operator to perform testing and inspection of undamaged property,” Webster asserted.
Lion, however, said the U.S. Department of Transportation Pipeline & Hazardous Materials Safety Administration ordered Exxon to perform additional tests on the pipeline, which meant the losses would be covered.
Lion said it tried to mitigate its losses while the pipeline was down. But it still suffered covered losses of $72 million, including about $44 million in lost earnings.
Lion said it had bought “all risk” insurance policies to protect itself from all sorts of issues, including the problems tied to the pipeline.
Still, the insurance companies denied the claim in September 2013, nearly 16 months after the claim was filed.
The insurance companies said in its filing that Lion Oil failed to prove that its financial losses were caused by physical damage to property, which is required under the policy. It also said the interruption by the civil or military authority provision can’t be applied because “there was physical damage located within five miles of the premises described, and because access to Lion Oil’s property was not impaired.”
Peter Gillon, who served as trial co-counsel in the case, said in a news release about the verdict, “Proving a company’s rights to insurance for damages to a supplier can be challenging, and we are pleased that both the jury and the court understood the way these policies are supposed to work and awarded our client the compensation they were owed.”
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