Orrick Lawyers Gain Key Trial Victory for CITGO Petroleum on Rights to Coverage

June.13.2012

CITGO Petroleum Corporation last week overcame the claims of Century Indemnity Company and Certain Underwriters at Lloyd’s London and Certain London Companies that CITGO has no “right of action” under more than 150 insurance policies. With this victory CITGO removed a major obstacle on its way toward recovering insurance proceeds for environmental investigation and cleanup costs at the fifth largest oil refinery in the United States.

In the 14th Judicial District Court in Calcasieu Parish in Lake Charles, Louisiana, CITGO sued certain insurers that had issued third-party liability policies to CITGO’s former parent company, Cities Service Company, and its subsidiaries from 1944 to 1983. In the suit, CITGO seeks coverage for moneys it has spent and will spend in the future investigating and remediating environmental contamination arising out of Cities Service’s historical operations at the Lake Charles Oil Refinery in Lake Charles, Louisiana. Cities Service created CITGO as a subsidiary in 1983, immediately transferred ownership of the Lake Charles Oil Refinery to CITGO, and later sold CITGO’s stock to another company.  Because CITGO is the current owner and operator of the Refinery, it is liable to the U.S. Environmental Protection Agency (EPA) and other government regulatory agencies as a matter of law under the federal Resource Conservation and Recovery Act (RCRA) and other statutes for known or alleged contamination arising out of Cities Service’s pre-1983 operations, before CITGO owned or operated the Refinery.

Cities Service’s historical insurers—Century and London Insurers—filed peremptory exceptions of no right of action, contending that CITGO was not among the class of persons with rights or standing to make an insurance claim under the policies. A peremptory exception of no right of action is subject to being tried in Louisiana, and it was in this case. 

After more than two years of fact and expert discovery, three summary judgment motions, and eight days of trial, Judge David Ritchie denied the insurers’ peremptory exception. The Court found that the insurers had the burden of proof on their peremptory exception. At the end of the insurers’ cases-in-chief, CITGO moved to dismiss on the ground that Insurers had not met their burden. The Court agreed. It ruled that CITGO qualifies as a “Named Insured” under the insurance policies in dispute because CITGO complied with the insurance policies’ wording (it “became a subsidiary” or was “hereinafter constituted” as a subsidiary of Cities Service). Moreover, the Court ruled that allowing CITGO rights to coverage does not change the insurers’ risk because the Lake Charles Refinery was always understood to be an insured risk and because the pre-1983 accidents and occurrences already had happened. The Court deferred ruling on whether CITGO had rights under certain additional primary policies by assignment or by operation of law until a final trial on the merits.

 

The case now will proceed toward a determination of whether CITGO’s claim is covered.

CITGO was represented by Mark Plumer, Alex Lathrop, Jon Direnfeld and Matt Jeweler of Orrick, Bradley Myers from Kean Miller, and Terry Thibodeaux from Frohn Thibodeaux.