SDV Insights

The Power & Energy sector faces a multitude of risks that impact output and profitability, requiring sound risk management and robust insurance programs. As of recent, like most industries, there have been significant challenges facing the industry in light of COVID-19. These issues, including decreased product demand as well as supply- side issues, have been well documented. However, other issues continue to impact Power & Energy providers, with significant insurance coverage implications that are worthy of note. Below is a summary of three open cases of interest, where declaratory relief has been sought by energy providers’ insurance carriers, seeking an avoidance of coverage.

1. Fracking Dispute and “Intentional Acts”
In the Texas case of The James River Insurance Co. v. Clearpoint Chemicals LLC et al., No. 4:20-cv-0076 (N.D.Tex), James River Insurance Company (“James River”) is asking a federal district court to declare that it does not owe defense or indemnity to its insured for acts it defines as both intentional and/or malicious acts.

Integrity Applied Sciences, Inc., (“Integrity”), a fracking chemical distributor, sued its competitor, Clearpoint Chemicals, LLC, (“Clearpoint”), for alleged improper use of customer and vendor information acquired from two former (disgruntled) Integrity shareholders, including improper access Integrity’s email, diverting customer’s orders, and reading and using Integrity’s business information. Integrity further alleges that Clearpoint trespassed onto its business property, locked its tanks, and prevented delivery of product to Integrity customers. Clearpoint tendered the claim to its carrier, James River, who is defending Clearpoint subject to a reservation of rights.

James River asserts in its complaint that the allegations in the underlying action between Integrity and Clearpoint do not constitute a covered “occurrence,” defined as an “accident,” which is required to trigger coverage. Instead, James River argues Clearpoint’s alleged actions are intentional, uncovered claims, or alternatively constitute a malicious act or misappropriation of others’ property by a fiduciary for which there is an exclusion in the policy.

2. Who’s Responsible? Priority of Coverage and Division of Liability for Energy Turbine Damage
In Hartford Fire Insurance Co. et al. v. National Union Fire Insurance Co. of Pittsburgh Pa. et. al., No. 3:20-cv-00513(W.D.KY), two insurers, Travelers Property and Casualty Co., (“Travelers”), and Hartford Fire Ins. Co., (“Hartford”), have each sought a declaration that they are owed reimbursement for money fronted as part of an interim funding agreement to cover the costs to repair energy-generating turbines that were extensively damaged when an inlet cooling system manufactured by Caldwell Energy Company, (“Caldwell”) and installed by C&E Industrial Services, Inc. (“C&E), had failed. Caldwell claims that the damage occurred because C&E over-tightened certain U-bolts that held essential components of the cooling system, which caused the U-bolts to break and the system to fail. The purported damages exceeded $5.6 Million.

Apportionment of liability as between Caldwell and C&E is disputed. Hartford and Travelers, which provide liability insurance to Caldwell as an additional named insured, claim that their share of the interim funding agreement should be reimbursed by National Union Fire Ins. Company of Pittsburgh, PA (providing primary and excess coverage to Caldwell as an additional insured) and Allied World Surplus Lines. Ins. Co. (providing professional liability coverage to Caldwell) on the alleged basis that these policies are primary to the Hartford and Travelers policies. They otherwise claim that they should be reimbursed by C&E as the alleged party at fault.

This presents an interesting case of coverage priority where multiple policies or insurance are in play.

3. Do Total Pollution and Toxic Metal Exclusions Apply to Bodily Injury as a Result of Toxic Gas Exposure?
Pollution is a common risk for energy providers, and the case of Hudson Specialty Insurance Co. v. Wide Open Production Services LLC, No. 2:20-cv-0007, is one example.

The case involves a dispute concerning coverage for bodily injury for noxious gas inhalation. Wide Open Production Services LLC (“Wide Open”), an oil and gas production contractor, was providing supervisory services at a gas production site when an employee of another contractor was exposed to toxic gases, including hydrogen sulfide gas and mercury vapor gas. The employee suffered a variety of bodily injuries, including fluid in his lungs, difficulty breathing, irritation, headaches and memory loss, and brought suit against Wide Open.

Wide Open’s general liability insurer, Hudson Specialty Insurance Company (“Hudson”), seeks a declaration from the Western District Court in Texas that several of its policy exclusions apply to exclude the loss., Specifically, the Hudson policy has a Total Pollutant exclusion excluding losses arising from the “discharge, dispersal, seepage, migration, release or escape of ‘pollutants.'” It also has a Toxic Metals Exclusion removing coverage for “direct or indirect contact with any exposure to, or the ingestion, inhalation or absorption of any ‘toxic metals’ in any form.” Lastly, there are two exclusions for losses due to supervisory work.

Hudson argues that all four exclusions apply and request a judgment in favor of its position that it does not owe defense or indemnification for its insured, Wide Open. This case will examine the scope of the pollution exclusion and any raised exceptions thereto.

For more information, contact David G. Jordan at DJordan@sdvlaw.com, or Tiffany L. Casanova at TCasanova@sdvlaw.com.

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