Jury awards $387 million in case over refinery fire

CHICAGO—Babcock & Wilcox Co. will appeal a jury's $387 million verdict against it for manufacturing pipe fittings that allegedly caused a massive 2001 fire at a Chicago-area Citgo Petroleum Corp. refinery, B&W's parent, McDermott International Inc., announced.

A Cook County Circuit Court jury returned the verdict Monday in a suit Citgo filed against B&W in 2003 to recoup $547 million in alleged damages, including about $312 million in business interruption losses during the more than nine months that the plant was shut down.

B&W's actual liability in the case will be capped at a maximum of $50 million, though, under a settlement the company reached with Citgo while B&W was still in bankruptcy proceedings. B&W filed for Chapter 11 protection in 2000; a bankruptcy judge later allowed the Citgo case to proceed, and B&W emerged from Chapter 11 in February 2006.

Under the December 2005 settlement, B&W paid Citgo $7.5 million immediately and agreed to pay up to an additional $42.5 million if the jury award exceeded $250 million. The $42.5 million will not become payable, though, until all appeals in the Citgo case are exhausted and until B&W claims against two of its excess liability insurers are decided, according to McDermott.

A unit of American International Group Inc. that provided B&W coverage of $125 million excess of $200 million has denied liability in the case on the grounds that it was not given timely notice of the claim; a second insurer that provided the next $50 million in limits has reserved its right to deny coverage, McDermott has reported. B&W has also filed suit against its broker at the time, McGriff, Seibels & Williams Inc., for damages in the event the excess insurers successfully avoid liability.

B&W's ultimate liability could also be affected by its counterclaim against Unocal Corp., now a unit of San Ramon, Calif.-based Chevron Corp. Unocal owned the Citgo refinery at the time the B&W pipe fittings were installed, and the Cook County jury found Unocal 40% responsible for the loss while finding B&W 45% responsible and Citgo itself 15% responsible.

A judge dismissed the B&W counterclaim a year ago, though, and Unocal has not been a party in the case since then; B&W is appealing that dismissal.

If an appeals court reinstates the counterclaim, B&W—now responsible for 100% of the jury award up to its $50 million cap—could seek indemnification from Unocal, noted Matthew J. Egan, a lawyer with Pretzel & Stouffer in Chicago, representing Citgo.