Legal Watch: Volume 14

Prepared by William H. Bode
Bode & Grenier, LLP
1150 Connecticut Ave., NW
Washington, D.C. 20036
Telephone: 202-862-4300 | Email: wbode@bode.com

TRANSPORTER DENIED RECOVERY OF CLEAN-UP COSTS FROM NATIONAL POLLUTION FUNDS CENTER BECAUSE OF SETTLEMENT WRONGDOER

Case Summary: A truck tanker owned by Kenan Transportation Company and transporting diesel fuel was struck by a Ford pick-up truck owned by Lisa Harrison. The accident resulted in the discharge of approximately 3,000 gallons of diesel fuel into a stormwater catch basin which flows into the Chattahoochee River, a navigable water way. Kenan conducted emergency clean-up operations of the spill incurring costs of $105,575. The truck was declared a total loss and was valued at $34,884. Kenan settled with Allstate Insurance Company, Harrison’s insurer, for the policy limit of $25,000. The Release signed by Kenan stated that it released and discharged Harrison from all costs “on account of property damage … already sustained … or I may hereafter sustain … ” Kenan then applied for reimbursement from the National Pollution Funds Center (“Fund” or “NPFC”). The Fund is managed by the U.S. Coast Guard and reimburses a party for costs remediating the release of petroleum that threatens navigable water – so long as the party incurring the clean-up costs is not the party responsible for the release. The NPFC agreed that Kenan was not responsible for the spill, but denied payment contending that Kenan did not preserve all potential claims against the responsible party. Kenan appealed the decision and the federal court sitting in Atlanta, Georgia upheld the Coast Guard. The court cited a requirement in the Oil Pollution Act regulation that “Payment of a claim by the Fund shall be subject to the United State Government acquiring … all rights of the claimant to recovery from the responsible party.” The Court then concluded that because Kenan executed a Release discharging Harrison from all claims, Kenan was not entitled to any compensation from the Fund.

LESSON: This case was a tough lesson for Kenan, but an important one for terminal operators. If a third-party is responsible for a spill at a terminal, the clean-up costs incurred by the terminal operator– which can run into the millions of dollars – can be completely reimbursed from the National Pollution Fund. But if the terminal operator settles for a small amount and releases from damages even one party, its forfeits its entitlement to reimbursement of clean-up costs. (Kenan Transport Company v. National Pollution Fund Center)

INSURANCE COMPANY MUST PAY SHELL OIL FOR DAMAGES ARISING FROM OPERATION OF INDEPENDENT SHELL DEALER OUTLET

Case Summary: Powell-Christensen, a Shell Oil branded jobber, was required under its Franchisee Agreement to add Shell Oil as an insured in its commercial general liability (CGL) policy, but only for liability arising out of its operations. Aba Sheikh, a sixteen year old, was badly beaten by other youths on the premise. Mr. Sheikh thought the “Shell” sign would have afforded him some protection. Mr. Sheikh sued Powell-Christensen – and Shell under the theory of “apparent agency” – for damages. When the trial court refused to dismiss the claim against it, Shell settled for $300,000. Shell then sued Powell-Christensen’s insurance company, Great American Alliance Insurance Company, for failure to defend and indemnify from the law suit. The trial court granted Great American’s motion for summary judgment, agreeing that Sheikh’s injuries did not arise out of Powel-Christensen’s operations. Shell Oil appealed and the Court of Appeals of Washington (King County) reversed. First, the appellate court noted that the insurance policy named Shell as an additional insured not for injuries arising from the operations of the outlet, but for liabilities. Next, the court ruled that the term “arising out of” has been interpret broadly by the courts, not narrowly as Great American argued, and did encompass the liability Shell suffered. Finally, the court held that coverage is not limited to coverage arising out of the negligence of the insured; indeed, coverage has been found when the insured is not even named as a defendant in a suit. The court then ruled that Great American was obligated not only to defend the lawsuit, but also to indemnify Shell. The court awarded Shell the $300,000 settlement monies, $550,000 in defense costs and expenses, and the costs of its appeal. (Equilon Enterprises v. Great American Alliance Insurance Company)

LESSON: Insurance companies are not known for interpreting their policies liberally, but the courts do. It is an established rule of law that any ambiguity in an insurance policy is interpreted against the insurance carrier. And it is a great idea to have any party doing business on your property over a period of time, to name your company as a party insured for liabilities arising from operations on the property.

Please address any comments or questions to Mr. Bode at 202-862-4300 or wbode@bode.com.

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