TEXAS COURT OF APPEALS RULES FINDS COVERAGE FOR PIPELINE LEAK CLAIM

By TONI ELLINGTON

The Eleventh Court of Appeals ruled that Plantation Pipe Line Company (“Plantation”) was still covered by excess coverage from Highlands Insurance Company (“Highlands”) for claims arising from a 1975 oil leak, even though Plantation had settled coverage claims for less than the full limits against its lower level insurers. The opinion in Case No. 11-12-00029-CV reversed a ruling from the 261st Judicial District Court in Travis County, Texas, in Cause No. D-1-GN-10-004057, which granted summary judgment in favor of Highlands and held that Highlands was not obligated to pay Plantation because the underlying insurers had not actually paid the full limits of their policies.

Plantation operated pipelines which carried product from Louisiana to Mississippi, Alabama, Georgia, South Carolina, North Carolina, and Virginia.  The incident giving rise to this litigation against the insurers took place on March 19, 1975, when a leak occurred in one of Plantation’s underground lines at the Stifford Ferry site in Mecklenberg County, North Carolina.  Plantation repaired the leak and spent over $18,000 in recovery costs over nine years.  Plantation also made payment to the affected property owner.

Fourteen years later, a North Carolina company contracted to buy the property, and discovered residual contamination.  In 1990, the North Carolina Department of Environmental Health and Natural Resources directed Plantation to further remediate the site.  Plantation expended approximately $12 million on the complete remediation.

Before the leak was discovered, Plantation had acquired the following insurance policies from the following carriers:
$100,000 to $1 million American Reinsurance Company (“American”)
$1 million to $3 million California Union Insurance Company (“Cal Union”)
$3 million to $8 million Lumbermen’s Mutual Casualty Insurance Company
(“Lumbermen’s”)
$8 million to $18 million Highlands Insurance Company

Plantation was self insured up to $100,000.  Once it was informed in 1990 of the need for further remediation, Plantation notified its carriers.  American, Cal Union, and Lumbermen’s disputed coverage, pointing to exclusions in their policies.  Plantation sued these carriers and reached settlements.  Once the remediation expenditures were in excess of $8 million, Plantation made a claim under the Highlands policy. Highlands argued that an “exhaustion clause” in the policy precluded it from making payment, since the underlying carriers had not paid their policy limits.  The Court of Appeals rejected this argument.

For more information, or for assistance with your environmental remediation projects and related insurance coverage issues, contact Toni Ellington at (504) 599-8500.