Home » Case Summaries » 1997 » Enron Oil Trading & Transportation Co. v. Walbrook Ins.

 
 

Enron Oil Trading & Transportation Co. v. Walbrook Ins.

 

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Enron Oil Trading & Transportation Company brought a state indemnification action against its excess insurer under a commercial general liability policy. After the defendant removed the case to federal court, the District Court for the District of Montana granted the defendant’s motion for judgment on the pleadings. The Ninth Circuit held that public policy in Montana did not entitle the insurer-defendant to judgment on the pleadings. The Ninth Circuit also held that the policy’s pollution exclusion was not a bar to the indemnity action.

The underlying dispute was between Ashland Oil Company (Ashland) and Enron Oil Trading & Transportation Company (Enron). Ashland alleged that it had suffered damage as a result of the injection of a foreign substance (B-G mix) into the pipeline carrying crude oil to Ashland’s refinery. Ashland claimed negligence, strict liability, breach of contract and warranty, fraud, and tariff violations. Prior to trial, Enron settled the dispute for $5 million. Enron’s primary insurer provided the defense and contributed $500,000. Enron’s excess insurer, however, refused to participate. Enron brought a subsequent action against the excess insurer.

After removing the case to federal court, the excess insurer claimed that Enron’s action was barred by the insurance policy’s pollution exclusion and by Montana’s public policy that barred recovery by insureds of indemnity for intentional acts. The District of Montana granted the insurer’s claim on the public policy grounds. The Ninth Circuit reviewed the district court’s grant of judgment on the pleadings de novo and held that Montana public policy did not afford the insurer-defendant a valid defense. Ashland’s underlying action against Enron contained negligence and strict liability aspects that were not barred by public policy. Consistent with the theory of notice pleadings, Enron did not have to allege in its complaint the evidentiary facts in support of its own theory of recovery against its insurer. Accordingly, even if Montana’s public policy would provide the insurer a defense, judgment for the insurer on the pleadings was improper.

Turning next to the issue of the pollution exclusion, the Ninth Circuit held that the exclusion would not bar Enron’s action against the insurer. The insurer claimed that Montana law was unambiguous, and “contamination” included Enron’s injection of “B-G mix” into the Ashland oil pipeline. According to the insurer, such injection rendered the oil “impure, less valuable and less useful.”[1] The Ninth Circuit noted that a Montana insurance clause is considered ambiguous when different persons looking at the clause in light of its purpose cannot agree upon its meaning. The court went on to note that adoption of the insurer’s interpretation of the pollution exclusion would lead to virtually limitless results.[2]

Policy considerations also favored denying the insurer’s motion for judgment on the pleadings. For example, ambiguities in insurance policies, exclusions, and words of limitation are generally construed against the insurer because they are directly contrary to the fundamental protective purpose of insurance policies. Therefore, the Ninth Circuit concluded that the specific pollution exclusion dealt with environmental-type harms and not those of the nature before the court. The Ninth Circuit reversed the district court’s grant of judgment on the pleadings and remanded the case for further proceedings.


[1]Duensing v. Travelers’ Co., 849 P.2d 203, 206-07 (9th Cir. 1993).

[2]For example, the court noted that the insurer’s interpretation could be used to deny product liability claims (where a bottle was manufactured with impure glass) or negligence claims (where spoiled food was served in a restaurant).

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