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EXXON SEEKS MORE SPILL COVER

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IRVING, Texas-Exxon Corp. still is seeking about $1 billion from its cargo insurers to cover pollution and other damages stemming from the massive Exxon Valdez oil spill in Alaska-even after reaching a tentative $300 million partial settlement with the underwriters.

The settlement for half of the policy limits, which the insurers are expected to accept by a Feb. 15 deadline, applies only to the portion of Exxon's manuscript global corporate excess policy that covers the Irving, Texas-based oil giant for physical damage to cargo it owns.

A jury trial on a coverage dispute over a section of the policy covering Exxon's pollution liabilities as a cargo owner is set to begin in Texas state court in April.

After the Texas litigation ends, the two sides will arbitrate their dispute over a third section of the policy that covers non-marine third-party liability claims.

However, a federal appellate court decision earlier this month raises questions about the remaining coverage dispute.

The 2nd U.S. Circuit Court of Appeals in New York has reversed a lower federal court's decision that deferred to the Texas state court and dismissed the insurers' motion for a declaratory judgment that Exxon is not covered.

The Texas trial would begin seven years after the nation's worst oil spill fouled the waters, aquatic life and shoreline of Alaska's pristine Prince William Sound.

About 11 million gallons of heavy crude oil poured into the sound from the crippled Exxon Valdez after the oil tanker ran aground on March 24, 1989, while under the command of a captain with a history of alcohol abuse.

Exxon says its spill costs total about $3.8 billion: $2.5 billion in cleanup costs; $1 billion to settle state and federal civil charges (BI, Oct. 7, 1991); and $300 million to settle claims by 12,000 fishermen and other claimants.

Exxon took a $1.35 billion aftertax charge in 1989 for spill-related costs.

Exxon also has asked a federal court judge in Alaska to set aside the $5 billion of punitive damages a jury ordered it to pay to 15,000 plaintiffs (BI, Sept. 19, 1994).

Exxon contends that various sections of the cargo policy cover its pollution cleanup costs and third-party claims.

But, Exxon has sought nearly $3 billion from its cargo insurers-well above its $600 million of property limits and $250 million of liability limits under the policy, said attorney Harry Reasoner, managing partner with Vinson & Elkins in Houston, who represents the insurers.

An Exxon spokesman would not comment, but Mr. Reasoner said the company sought $2.15 billion of damages for bad faith, trebling of damages under Texas law, interest and attorneys' fees.

More than 150 insurers participated in the cargo insurance program, which is written above a self-insured retention that sources say totals between $200 million and $250 million.

The coverage is led by Lloyd's of London syndicate 79/650, managed by Janson Green Ltd. Underwriters at Lloyd's; London and Scandinavian companies; Allianz International Insurance Co. (Ltd.); and units of American International Group Inc., CIGNA Corp. and Continental Corp. participated in the program.

Marsh & McLennan Inc. of New York and London affiliate C.T. Bowring & Co. (Insurance) Ltd. placed the coverage.

Besides the cargo coverage, Exxon had $400 million of pollution liability limits from the International Tanker Indemnity Assn., a Bermuda protection and indemnity club (, Sept. 6, 1993).

The cargo insurers denied coverage for several reasons.

The cargo policy, they said, excludes pollution liability coverage because Exxon already had such coverage from the P&I club.

The insurers also argued in court papers that the spill resulted from "Exxon's willful, wanton, reckless and/or intentional misconduct."

The National Transportation Safety Board concluded, in part, that the ship's captain was impaired by alcohol when the spill occurred.

And, the jury that ordered Exxon to pay punitive damages found that, because of Capt. Joseph Hazelwood's drinking problems, Exxon and the captain were reckless (BI, June 20, 1994).

In addition, the cargo insurers argued that Exxon, as a cargo owner, had no legal duty to clean up the spill and that it undertook cleanup measures only to bolster its sagging public relations image.

But, the $300 million settlement is one "which I support, as do the other market leaders," said Richard Youell, director and underwriter at Janson Green.

Exxon's remaining cargo insurance claims exceed $250 million, plus interest and punitive damages, the spokesman said.

Mr. Reasoner, the insurers' attorney, said the remaining damages sought by Exxon are less than $1 billion.

But, the 2nd Circuit's Jan. 12 decision that a lower federal court should not have backed away from the insurers' case could have one of numerous possible implications for the coverage dispute.

The case raises the issue of "whether maritime losses caused by an insured's recklessness are fortuitous" and therefore uninsurable, the 2nd Circuit said. That "is a novel issue of federal admiralty law" that a federal court should review, the 2nd Circuit said.

The appeals court reached the same decision last year under a different standard of review, which the U.S. Supreme Court overturned last fall (BI, Oct. 9, 1995).

The Texas litigation could influence the federal court case in New York, or the federal court could reach a conflicting decision, said insurer attorney Travis Broesche, another partner with Vinson & Elkins.

And, there is no telling how the two court cases may influence the arbitration discussions, Mr. Broesche said.

Meanwhile, wrapping up the final phase of its oil spill liability litigation with thousands of plaintiffs in federal court in Anchorage, Alaska, Exxon has agreed to a $3.5 million settlement. However, the amount is fully offset by previous payments to the plaintiffs, the Exxon spokesman said.

Sarah Goddard contributed to this report.