Hazardous Environmental Contamination in Texas, and No Insurance Coverage

Arrowood Indemnity Co. v. The Lubrizol Corporation, et. al.,

United States District Court for the Northern District of Ohio Eastern Division, March 30, 2013

The defendant, The Lubrizol Corporation, a specialty chemicals company, released hazardous substances and/or arraigned for the disposal of hazardous substances at a site in Houston known as the Patrick Bayou Site. On September 5, 2002, acting pursuant to CERCLA (Superfund), the EPA placed the Patrick Bayou Site on the national priorities list, thus designating it a Superfund site. In 2002, the EPA sent Lubrizol a letter placing it on notice of potential CERCLA liability, notifying Lubrizol that it may be responsible for investigation and cleanup costs. Subsequently Lubrizol entered into a consent order to conduct and finance a remedial investigation study and admitted that it was a responsible party. Lubrizol has incurred approximately $2.9 million in costs involving the Patrick Bayou Site to date.

Lubrizol had previously entered into an agreement with its insurer, plaintiff Arrowood Indemnity’s predecessor in interest, whereby it agreed to release its insurer from all claims Lubrizol could have asserted against the insurer related to liability for claims asserted or filed by the EPA arising out of a subject site, Lubrizol’s Deer Park Facility. The prior agreement specifically stated that it only applied to subject sites, and the Patrick Bayou Site was not listed as a subject site.

Arrowood argued that the terms of the settlement agreement released it from covering the Patrick Bayou claim, while Lubrizol argued that because Patrick Bayou was not a listed site in the agreement, Arrowood was obligated to provide coverage. The court determined that Lubrizol misconstrued the settlement agreement, and that the agreement was not “confined to contamination that occurs at a subject site; rather, the settlement agreement applies to contamination arising out of Lubrizol’s actions at the subject sites.” The court then determined that the contamination at the Patrick Bayou site did arise out of Lubrizol’s activities at the listed subject site,Deer Park. The court found that the causal connection was clear as the listed subject site encompassed a portion of the Patrick Bayou Superfund site and was the source of contamination. The court therefore granted Arrowood summary judgment, finding that it owed no coverage to Lubrizol.