Old Republic unit not responsible for oil well pollution costs
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An Old Republic Insurance Group unit that issued an umbrella policy to a Montana oil and gas company is not obligated to drop down and provide pollution coverage, a federal appeals court said Monday in affirming a lower court ruling.
Havre, Montana-based J. Burns Brown Operating Co. sued its umbrella insurer, Old Republic unit Bitco General Insurance Corp., in U.S. District Court in Great Falls, Montana, for costs incurred after one of its wells discharged oil and related contaminants into a reservoir, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Bitco General Insurance Corp. v. J. Burns Brown Operating Co.
The district court ruled in Bitco’s favor, and was affirmed by a unanimous three-judge appeals court panel.
The ruling said J. Burns Brown’s Bitco policy excludes coverage for pollution-caused property damage with one exception — the exclusion does not apply if the company has “underlying insurance” for pollution costs “at the limits shown in the schedule of underlying insurance.”
That schedule, in turn, lists a $1 million each-occurrence limit on J. Burns Brown’s primary policy. But the company’s primary policy provides only $100,000 in pollution coverage, the ruling said.
“So while J. Burns’s ‘underlying insurance’ does cover some of the company’s cleanup costs, it does not do so at the requisite limits. Accordingly, the narrow exception to the pollution exclusion does not apply, and the umbrella policy bars coverage,” the ruling said.
The appeals court panel said it disagreed with J. Burns Brown’s position that the policy is ambiguous. “Contrary to the company’s contention, a reasonable policyholder would understand the need to have $1 million in pollution coverage,” the ruling said.
Attorneys in the case had no comment or did not respond to a request for comment.
