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A Tokio Marine unit does not have to defend or indemnify a Louisiana chemical plant for a 2018 fire under its policy’s terms because of a preceding recent change in ownership, a federal appeals court ruled Friday in affirming a lower court ruling.
In May 2018, a fire broke out at a Rayne, Louisiana, chemical blending facility owned and operated by Flow-Chem Technologies LLC, which had become a wholly owned subsidiary of Mumbai, India-based Dorf Ketal Chemicals LLC, in January 2018, according to court papers in Tokio Maine Specialty Insurance Co. v. Flow-Chem Technologies LLC.
As a result, Flow-Chem incurred millions of dollars in environmental remediation expenses and faced at least three lawsuits in Louisiana state court for personal injuries and other losses resulting from the incident.
Before it was acquired by Dorf Ketal, Flow-Chem obtained primary and excess general liability and environmental exposure insurance policies from Aspen Specialty Insurance Co.
In September 2017, Tokio Marine Specialty had issued a premises environmental insurance policy to Dorf Ketal and its subsidiaries that provided coverage for environmental liability and remediation expenses from September 2017 through September 2021 at specific locations Dorf Ketal had identified and included in the policy.
The Tokio Marine policy provided up to $10 million in coverage for bodily injuries, property damage and remediation expenses resulting from contamination at locations, including “scheduled non-owned locations.”
Following the fire, Aspen assumed coverage under a reservation of rights. It claimed it had exhausted the $1 million primary policy liability limit for on-site remediation and incurred more than $2 million in additional off-site and litigation-related expenses under the access policy. In addition, Flow-Chem alleged it had unreimbursed on-site education expenses of more than $2.5 million.
Flow-Chem sought coverage under the Tokio Marine policy for expenses and costs not covered under either of Aspen’s insurance policies, which Tokio Marine denied.
Tokio Marine filed suit against Flow-Chem and Aspen in U.S. District Court in Houston, seeking a declaratory judgment it did not owe defense, indemnity or other insuring obligations to Flow-Chem and that Aspen had no right of reimbursement or contribution for any payments it had made under its Flow-Chem coverage.
The district court ruled in Tokio Marine’s favor. Flow Chem appealed the ruling, and a three-judge appeals court ruled in the insurer’s favor in a two-page ruling.
Tokio Marine’s policy “provides coverage for environmental and remediation expenses at specific locations identified by Dorf Ketal. One such location is Flow-Chem’s Rayne Facility, which the policy categorizes as a ‘scheduled non-owned location,’” it said.
“The policy defines ‘scheduled non-owned location’ as a ‘site that is not owned, leased, managed or operated by you, your partner, subsidiaries or affiliates and scheduled to this policy in this endorsement.’
“Since Dorf Ketal acquired Flow-Chem before the fire at the Rayne Facility, the Rayne Facility was a site owned by a subsidiary of Dorf Ketal at the time of the fire” and therefore “no longer qualifies as a ‘scheduled non-owned location’” under the Tokio Marine policy’s “plain meaning,” the ruling said, in affirming the lower court.
Aspen was not a party to this appeal.
Attorneys in the case did not respond to requests for comment.