United States District Court, W.D. Arkansas, El Dorado Division
[Copyrighted Material Omitted]
Lion Oil Company, Plaintiff: Brian H. Ratcliff, LEAD
ATTORNEY, PPGMR Law, PLLC, El Dorado, AR; Geoffrey J.
Greeves, Vernon C. Thompson, LEAD ATTORNEYS, PRO HAC VICE,
Pillsbury Winthrop Shaw Pittman LLP, Washington, DC; Julie
DeWoody Greathouse, LEAD ATTORNEY, PPGMR Law, Little Rock,
AR; Peter M. Gillon, LEAD ATTORNEY, PRO HAC VICE, Pillsbury
LLP, Washington, DC; Vincent E. Morgan, LEAD ATTORNEY,
Pillsbury LLP, Houston, TX; Kimberly D. Logue, Perkins
Trotter PLLC, Little Rock, AR.
National Union Fire Insurance Company of Pittsburgh, PA,
Great Lakes Reinsurance (UK) PLC, Ace American Insurance
Company, XL Insurance America, Inc., Torus Speciality
Insurance Company, Certain Underwriters at Lloyds-Talbot
Syndicate 1183, Certain Underwriters at Lloyds-Navigators
Syndicate at Lloyds 1221 and Pembroke Syndicate at Lloyds
4000, Certain Underwriters at Lloyds-SJC 2003/Catlin, Certain
Underwriters at Lloyds-Brit Insurance, Syndicate 2987,
Certain Underwriters at Lloyds-Chaucer Marine Syndicate 1084,
Berkshire Hathaway International Insurance Limited, Arch
Insurance Company, Landmark American Insurance Company,
Lexington Insurance Company, Ironshore Specialty Insurance
Company, Defendants: Amy Churan, LEAD ATTORNEY, Robins Kaplan
Miller Ciresi LLP, Los Angeles, CA; James M. Simpson, Martin
A. Kasten, LEAD ATTORNEYS, Friday, Eldredge & Clark, Little
Rock, AR; William A. Webster, LEAD ATTORNEY, Robins Kaplan
LLP, Los Angeles, CA.
O. Hickey, United States District Judge.
the Court is a Motion for Summary Judgment filed by
Defendants. ECF No. 68. Plaintiff has filed a
response. ECF No. 73. Defendants have filed a reply. ECF No.
76. Plaintiff has filed a sur-reply, and Defendants have
filed a response to the sur-reply. ECF Nos. 81-1 and 84-1.
The matter is ripe for the Court's consideration.
Lion Oil Company (" Lion Oil" ) has owned and
operated an oil refinery in El Dorado, Arkansas since 1985.
Defendants are insurers and underwriters of insurance
policies under which Lion Oil unsuccessfully attempted to
recover money for losses sustained at Lion Oil's refinery
in El Dorado, Arkansas. Lion Oil filed this action alleging a
breach of contract claim and seeking a declaration that
Defendants are obligated to cover Lion Oil's losses under
A. El Dorado Refinery and Pipeline
Oil's El Dorado refinery processes approximately 80,000
barrels of crude oil per day and produces refined products
such as gasoline, diesel fuel, and asphalt. Lion Oil receives
oil from a pipeline known as the North Line, which is owned
and operated by EMPCo, a subsidiary of ExxonMobil. The North
Line runs from St. James, Louisiana, to Longview, Texas, and
it consists of approximately 200 miles of pipe.
Pipeline Inspection (2007) and Rupture
2007, EMPCo inspected the North Line for defects in the seam
weld of the pipeline. This inspection identified anomalies at
various locations along the North Line. The inspection vendor
misidentified one particular defect as a seam weld anomaly
that was unlikely to cause a failure. This particular seam
weld anomaly, however, caused the pipeline to rupture at a
point near Torbert, Louisiana on April 28, 2012.
the rupture occurred, EMPCo shut down the pipeline and
notified the Department of Transportation Pipeline and
Hazardous Material Safety Administration (" PHMSA"
), the regulatory entity responsible for pipeline safety.
PHMSA Corrective Action Order
8, 2012, the PHMSA issued a Corrective Action Order ("
CAO" ) to EMPCo. The CAO required EMPCo to take several
corrective actions, including the following: (1) develop and
submit a written re-start plan for PHMSA's approval; (2)
undertake a failure analysis of the ruptured section; and (3)
submit an " integrity verification and remedial work
plan." ECF No. 1-1, pp. 5-6. The integrity
verification plan was required to include, among other items,
the following: (1) a metallurgical analysis, failure
analysis, and an integrated compilation of relevant pipeline
system data; (2) field testing to assess whether conditions
that caused the failure or other integrity threatening
conditions were present elsewhere in the pipeline; and (3)
provisions for long-term testing and verification measures.
ECF No. 1-1, p. 6. Regarding the field testing plan, the CAO
stated that " confirmatory hydrostatic testing must be
considered in the plan"  ECF No. 1-1, p. 6.
damaged section of the pipeline had been excavated, removed,
and replaced my mid-May 2012. It was not until October 2012,
however, that EMPCo submitted the required integrity
verification plan to the PHMSA, which included EMPCo's
election to perform a hydrostatic pressure test. The test was
intended to verify the pipeline's integrity as required
by the CAO and to reestablish the maximum operating pressure.
EMPCo planned to perform the hydrostatic pressure test along
approximately 200 miles of the North Line pipeline, including
sections that had not been damaged by the April 28, 2012
incident. The PHMSA approved the integrity verification plan
and incorporated the plan into the CAO.
hydrostatic testing began in July 2012 and lasted until
September 2012. EMPCo discovered seven leaks during the
hydrostatic testing, and it located and repaired each leak.
In October 2012, the PHMSA granted EMPCo permission to
restart the pipeline. Lion Oil began receiving crude oil from
the EMPCo pipeline in March 2013.
D. Insurance Policies
time of the rupture, Defendants provided insurance to Lion
Oil pursuant to certain " allrisk" insurance
policies. The policies were not identical, but
the parties agree that the relevant coverage and exclusion
terms were the same. The policies provided coverage to Lion
Oil for " all risk of direct physical loss of or damage
to property described herein, except as hereinafter
excluded." ECF No. 1-2, p. 30. Thus, certain perils were
excluded from coverage. For example, the policy did not
insure against the cost of making good faulty workmanship or
policies provided coverage for contingent time element loss
subject to the policies' terms, conditions, and
exclusions. The contingent time element coverage insured
against loss resulting from damage to property that wholly or
partially prevented a direct supplier from rendering their
goods to the insured. The policies included a time element
deductible of either 30 or 45 days as to the El Dorado
Oil submitted a contingent business interruption claim of
approximately $44 million and an extra expense claim of
approximately $36 million for the losses it sustained during
the time the El Dorado refinery did not receive crude oil
from the EMPCo pipeline. In September 2013, Defendants denied
Lion Oil's claims.
2013, Lion Oil filed the instant action alleging a breach of
contract claim and seeking a declaration that Defendants are
obligated to cover Lion Oil's claims for financial losses
under the policies. Defendants argue that Lion Oil's
claims for financial loss are not covered under the insurance
policies. Defendants, therefore, ask the Court to grant
summary judgment in their favor.
judgment is appropriate when there is no genuine issue of
material fact and the record entitles the moving party to
judgment as a matter of law. Fed.R.Civ.P. 56(a). When making
this determination, the Court views the evidence in the light
most favorable to the non-moving party. Progressive
Northern Ins. Co. v. McDonough., 608 F.3d 388, 390 (8th
Cir. 2010), and the Court gives the non-moving party the
benefit of all reasonable ...