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Legal Watch: Volume 20

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

HOMEOWNERS THREATENED BY GASOLINE SPILL MAY RECOVER DAMAGES FOR EMOTIONAL DISTRESS

Case Summary: Approximately five hundred home owners in the Riggs Park area of Washington D.C. sued Chevron U.S.A. based on the presence of gasoline below their properties. The plaintiffs asserted the contamination resulted from a discharge of gasoline from a retail gasoline outlet formerly owned and operated by Chevron. After discovery was concluded, Chevron sought to dismiss a number of the claims, including a claim for “emotional distress damages.” Before the federal court in Washington, Chevron argued that the plaintiffs were precluded from bringing a claim for negligent infliction of emotional distress because there was no accompanying physical injury, which is almost universally required to support this claim. The federal district court agreed that the failure to plead injury is fatal to a claim for intentional or negligent infliction of emotional distress but, nevertheless, permitted the claim for damages for emotional distress to stand. The court applied the law of the District of Columbia where the homeowners reside (rather than Maryland where the station was located) and found that the plaintiffs could recover damages for emotional distress under their independent trespass claim. Thus, the court ruled that the plaintiffs could recover damages for: 1) “fear and anxiety over whether plaintiffs or their families were exposed to toxic chemicals from the 15 year period when the release was discovered until 2004 when air tests showed no endangerment;” 2) “fear and anxiety over any possible diminution of the value of their homes;” and 3) “humiliation over the contaminated state of their neighborhood.”

LESSON: This case is important because it shows a path for plaintiffs to recover possibly huge damages for emotional distress through the “back door.” While normally damages for emotional distress are not recoverable unless a physical injury is present, this case permits plaintiffs to recover them as part of a claim for “trespass.” The case instructs on the need for terminal operators to assure themselves that their secondary containment area will without question retain a major spill. Olachukwu Nnadili, et al. v. Chevron U.S.A., Inc.

TERMINAL OPERATORS ENTITLED TO COVERAGE FOR CONTAMINATION DESPITE POLLUTION EXCLUSION CLAUSE AND LATE NOTICE TO INSURANCE CARRIER

Case Summary: Wolf Lake Terminals and Tanco Terminals operated a liquid storage business in Milwaukee, Wisconsin at the former Philips bulk storage facility. From April 1, 1980 to June 30, 1983, Mutual Marine Insurance Company provided comprehensive liability insurance coverage under an “occurrence” based policy. From June 30, 1983 through June 30, 1994, Somerset Insurance Company replaced Mutual Marine and also issued occurrence based policies. Fluids Engineering Corporation (FEC) began storing hazardous waste materials at Wolf Lake in 1980 and Rapid Liquid Waste (RLW) began operating a hazardous fuel blending operation in 1981. After FEC and RLW became insolvent and abandoned the hazardous materials in the tanks, the EPA conducted an investigation and issued a notice of violation to Wolf Lake and Tanco in February 1989 and an Administrative Order in 2000 requiring the clean-up of the hazardous chemicals found in the soil at the facility. The record was confused on whether Wolf Lake and Tanco provided adequate notices of the EPA orders, but Mutual Marine claimed that it first received notice of the demand for defense and indemnification when Tanco filed suit on February 27, 2004. The federal district court in Indiana handling the matter first agreed the “sudden and accidental” pollution exclusion clauses in the 1980-1985 policies did not bar coverage because the loss was “unexpected and unintended” from the perspective of Wolf Lakes and Tanco. Indiana law interprets “sudden and accidental” as meaning “unexpected and unintended” rather than in a temporal (“happening in a short or very brief time period”) sense. Next, the court agreed that the notice may not have been given to insurance broker Higgins and Johnson “as soon as practicable” as required by the policies. But the court further noted that the insurance carriers must show prejudice to them arising from an untimely notice. On this issue, the court ruled for the terminal operators, finding that the carrier had not met its burden. The court found no evidence that Mutual Marine inquired about, became involved in, or even asserted any rights, with respect to the remediation efforts at the Tanco facility. Therefore, the court ruled, “Mutual Marine was not prejudiced by the timing of Tanco’s notice and therefore has a duty to pay defense costs and indemnify Tanco on the contamination claims.”

LESSON: When a release of contaminants occurred many years ago, occurrence based comprehensive liability policies may provide coverage for the clean-up and defense costs. This is true in many States even if the CGL policy has a pollution exclusion clause. Finally, terminal operators should be alert to provide notice to their insurance broker and carrier as soon as the loss is known. But a failure to provide timely notice is not necessarily fatal: the carrier must show prejudice arising from the late notice. Wolf Lake Terminals, Inc. and Tanco Terminals, Inc. v. Mutual Marine Insurance Company, et al.

PETROLEUM TRADER DENIED $600,000 DEMURRAGE THAT SUN INTERNATIONAL AGREED WAS OWING

Case Summary: Arcadia Petroleum entered into two Charter Party Agreements with Sun International to ship crude oil from Nigeria to Sun’s refinery in Philadelphia. The crude oil under carriage under the 1999 Charter was delivered 11 days, 10 hours late and thus incurred demurrage at $27,000 per day. The crude oil under carriage under the 2000 Charter was 11 days and 9 hours late. After negotiations, Sun agreed in writing to pay Arcadia demurrage totaling $603,525. Just two days later, on October 27, 2000, Sun claimed that Arcadia owed it $630,000 demurrage in a separate transaction. With no compromise in sight, Arcadia finally filed suit in February 2004 in the Pennsylvania U.S. District Court seeking recovery of the $603,525. The District Court held that Arcadia was barred from recovering by the one-year limitation period in the Dispute Resolution Clause in the Charter Party Agreements and Arcadia appealed. The Third Circuit agreed, finding that the Charter Party Dispute Resolution Clause governed, and Arcadia had to file either a lawsuit in federal court or for arbitration within one year of completion of discharge as required by that Clause. The Third Circuit in so ruling rejected Arcadia’s argument that not the separate agreement in which Sun agreed to pay $603,525 demurrage to Arcadia was the relevant contract.

LESSON: Contracts setting demurrage charges often have a dispute resolution provision. Terminal Operators must be vigilant when a dispute about the charges arises, and follow strictly the terms of the dispute resolution clause or risk forfeiting any claim for demurrage. Arcadia Petroleum Limited v. Sun International Limited

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

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