Pennzoil-Quaker State Co. v. American Int’l Specialty Lines Ins. Co.
(S.D. Tex. Sept. 4, 2009)
Pennzoil-Quaker State Company sued its insurer, American International Specialty Lines Insurance (“AISLIC”) alleging breach of contract and a violation of Chapter 542 of the Texas Insurance Code. Pennzoil obtained a claims-made pollution legal liability policy from AISLIC for its Shreveport, Louisiana facility. In 2001, residents who lived near the Shreveport facility sued Pennzoil, alleging that Pennzoil released various pollutants into the air and groundwater surrounding the refinery, causing physical injury, mental distress, and property damage.
Pennzoil tendered its defense to AISLIC, which denied coverage for one lawsuit based on late notice. AISLIC acknowledged coverage for the four remaining complaints. It took the position, however, that the remaining complaints alleged separate pollution conditions each subject to the policy’s $2 million deductible. Pennzoil objected, claiming that the remaining complaints had a causal connection because the releases alleged originated from the same refinery, affected the same group of people (nearby residents), contained benzene, caused exposure to airborne or waterborne contaminants, and were all allegedly caused by Pennzoil’s failure to properly train its employees and maintain its equipment.
The District Court for the Southern District of Texas held that the underlying complaints did not allege injury or damage arising from “the same, related or continuous” pollution conditions and, therefore, that Pennzoil was obligated to pay more than a single $2 million deductible. In so ruling, the court stated that the proper focus was not on the alleged “overarching cause,” i.e., the negligent employee training or maintenance equipment, but rather on the specific event that caused the loss. The court noted that the underlying suits alleged distinct kinds of emissions and releases with distinct causes. One underlying complaint alleged injury and damage arising resulting from a January 18, 2000 fire and explosion in a specific unit of the refinery, allegedly due to a corroded hear exchanger in that unit. Another discrete release of pollutants occurred on November 4, 2002, almost two years later.
For a copy of the decision, click here
By Carrie P. Appler and Thomas F. Segalla