Lion Oil: update on Pillsbury trial

In a stunning insurance coverage win in the energy sector, an Arkansas jury has awarded Lion Oil Co. US$72 million in damages from lost income and expenses stemming from a 2012 breach of a pipeline carrying oil from Louisiana production fields to a Lion refinery in Arkansas.

A team of lawyers from Pillsbury represented Lion Oil in the case, which was heard in federal court in the Western District of Arkansas. The jury delivered its verdict after deliberating for just two hours on 4 November. Washington insurance recovery partner Geoffrey Greeves led the Pillsbury trial team.

Lion was seeking coverage for business income losses and expenses resulting from the rupture of a critical crude oil supply pipeline built in 1956 and operated by Exxon-Mobile subsidiary EMPCo. The North Line pipeline carries some 440 000 bbls oil more than 200 miles to reach the Lion refinery.

The rupture caused the pipeline to be shut down for 10 months; a period the insurers argued should not be covered. Lion asserted that all-risk policies it had purchased from 14 different insurance companies should collectively cover the company for its massive business disruption while its refinery was forced to operate at a lower capacity and find alternative sources of crude oil.

During the six day trial, Mr. Greeves reviewed the multiple series of delays created as a consequence of the burst pipe – that ‘domino effect’ stemming directly from the rupture was the source of the company’s substantial business loss, the jurors found. The insurance carriers denying Lion’s claims – principally AIG – had argued that the rupture was not the predominant cause of Lion Oil’s loss, but rather it was the result of an independent decision by Exxon to test the pipeline.

In their verdict, jurors awarded Lion Oil US$60.4 million in income loss that was “dominantly, directly and efficiently caused by damage to EMPCo’s property.” An additional US$11.3 million was given to cover the large amount of expenses incurred by Lion as a direct result of the damaged pipeline.

"We are genuinely pleased but not surprised that the El Dorado jury concluded that Lion Oil's insurers breached their obligations by failing to live up to their all-risk insurance contracts,” Mr. Greeves said.

Pillsbury partner Peter Gillon, head of the firm’s insurance recovery practice who served as trial co-counsel, added: “Proving a company's rights to insurance for damages to a supplier can be challenging, and we are pleased that both the jury and the court understood the way these policies are supposed to work and awarded our client the compensation they were owed.”

Edited from source by Stephanie Roker

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