Jury must decide on cover for damaged gas plant

A federal appeals court has overturned a lower court ruling in favor of a Chubb Ltd. unit and held a jury must decide whether the insurer must provide coverage for a damaged gas purification plant.

Richmond, Virginia-based Ingenco Holdings LLC and its wholly owned subsidiary, Bio Energy (Washington) LLC, operate a gas purification plant at the Cedar Hills landfill in Kings County, Washington, according to Monday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Ingenco Holdings LLC et al. v. ACE American Insurance Co.

At issue in the complex case are absorbent beads that remove excess nitrogen from the landfill gas. In an Oct. 1, 2010, incident, brackets securing the diffuser basket that surrounded the beads’ pressure vessel broke, which led to the plant shutting down until Oct. 5, 2010.

Unknown to Ingenco, pulverized beads from that incident infiltrated other parts of the system, which led to the plant’s automatic shutdown in March 2011, and the plant did not resume operations until August 2012, according to the ruling.

The Cedar Hills facility was insured for $35 million for buildings and contents, and had $12 million in coverage for business interruption and extra expense, according to the complaint. It alleged it had sustained $3.6 million in property losses and $6.4 million in business interruption losses.

Ingenco filed a property damage and business interruption claim with Ace American, now a Chubb Ltd. unit. It denied coverage on several grounds including that Ingenco’s losses were not caused by an external cause, and therefore not covered under its policy.

Ingenco filed suit in U.S. District Court in Seattle on charges including breach of contract. The court granted Ace summary judgment, holding the losses did not result from an external cause.

In its unanimous ruling overturning the lower court, a three-judge panel raised the issue of fortuitousness. It “appears that Ingenco’s loss was indeed fortuitous, or that there is, at the very least, a triable issue of fact regarding the issue,” the ruling said. “A determination that a particular loss is fortuitous could obviate the need to examine whether that loss was caused by an external force,” it said.

“The district court, and to some extent, the parties, failed to consider the role of fortuity in all risks insurance disputes,” said the ruling, in overturning the lower court’s ruling and remanding the case for further proceedings.

The appeals panel did uphold sanctions the lower court issued against Ingenco for failing to disclose statutory damages information.

An Ingenco attorney had no comment while an Ace attorney could not immediately be reached for comment.