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AIG not obligated to cover petroleum refinery’s losses

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Oil refinery

AIG Specialty Insurance Co. has prevailed in a dispute with Tesoro Corp., with a federal appeals court upholding a lower court ruling that concluded the insurer was not obligated to provide coverage for an environmental claim because the petroleum refinery firm had failed to list a subsidiary as the named insured.

The Golden Eagle Refinery in Martinez, California, which had been subject to a prolonged series of federal and state environmental remediation orders, was sold by Santa Monica, California-based Tosco Corp. to San Antonio, Texas-based Ultramar Diamond Shamrock Corp. in 2000, according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in AIG Specialty Insurance Co., formerly known as Chartis Specialty Insurance Co. v. Tesoro Corp.

Ultramar, which had purchased $100 million in excess coverage from New York-based Chartis, ultimately sold the refinery to San Antonio-based Tesoro.
 
Chartis did provide a transfer endorsement in connection with the sale, but the endorsement named Tesoro Corp. as the new named insured rather than its subsidiary, Tesoro Refining, which was the actual purchaser of the refinery, according to the ruling.

Meanwhile, litigation between Tosco and Tesoro Refining over the severity of environmental liabilities resulted in Tesoro Refining receiving $58.5 million from Tosco’s successor, Houston-based ConocoPhillips Co. 

In October, 2009, Chartis received a formal demand for coverage, indicating Tesoro Refining was the refinery’s buyer and it owed cleanup liabilities. It demanded Chartis pay under the policy, but Chartis contended it owed coverage only to Tesoro Corp., not its subsidiary. Litigation then ensued over the issue of which entity was the insured under the policy.

The U.S. District Court in San Antonio ruled in Chartis’ favor, and a three- judge panel of the appellate court agreed. 

“The Tesoro Parties have not directed this court to any evidence that they relied on Chartis to know that Tesoro Refining actually owned the refinery in question and to therefore draft the policy to include Tesoro Refining as an additional insured (i.e. a policy that covered both Tesoro Corporation and a separate entity, Tesoro Refining,” said the ruling, which also held the claim had been filed too late.