CLAIMS SUMMARY 1

A crude oil pipeline owner and operator had secured a CGL policy; this pipeline extended from Utah to Wyoming, and an oil and gas corporation used it to transport oil to the crude oil pipeline owner/operator’s storage tank. The pipeline owner/operator had also secured an excess policy, which would have been accessible once the $1,000,000 damages limit had been met. A pipeline used to transport oil to a storage tank ruptured, and that resulted in the discharge of a significant amount of oil. The discharge of an estimated 2,754 crude oil barrels occurred; this rupture occurred at the beginning of April, but it went unreported for five days following the rupture. As a result, an additional 1,500 barrels of crude oil were released from the pipeline due to the rupture. According to the pipeline owner/operator, the required land and groundwater remediation totaled $4,798,296.30. Within the CGL policy, a pollution exclusion was included; however, there was an exception to this exclusion, which was classified as a “short-term pollution event.” When the CGL insurer was notified of the claim, it advanced $100,000 for remediation expenses; this was subject to a reservation of rights. This approach allowed for reimbursement if coverage was not required according to the policy terms. The pipeline owner/operator sued for an additional $900,000 to reach its $1,000,000 per occurrence policy limit. In turn, the CGL insurer counterclaimed and sought reimbursement of the $100,000 it had spent on remediation expenses. Here, the policy encompassed coverage for multiple types of claims including that of both bodily injury and property damage claims; the focus here was strictly on that of property damage, resulting from the oil pipeline rupture. The Court explained that even though the type of injury alleged was covered under the policy the pollution exclusion precluded coverage. This case also illustrates how an exception to the pollution exclusion, which was termed the “short-term” pollution event exception, applied; this exception did not afford coverage here because the crude oil leak came from the same source, and the pollution event extended beyond the 48-hour time limit stipulated in the policy. View Citation >

DID YOU KNOW: Energy Casualty policies help to address the unique risks involved in exploration, extraction, pipeline distribution, processing, marketing, or fuel transport to end markets. This case helps to illustrate how an exception to the pollution exclusion can operate, and it also shows how certain time limits within the policy can impact coverage.