Petrochemical company wins case against insurer over pollution buy back program

By Leslie Gamboni | Jun 27, 2013

U.S. Court of Appeals for the Fifth District

NEW ORLEANS – A Delaware corporation dealing in petrochemicals lost an appeal at the U.S. Court of Appeals for the Fifth District.

According to background information on the case, Starr Indemnity & Liability Company (Starr) of Texas provided the appellant, SGS Petroleum Service Corporation (SGS), with extended coverage to its original insurance policy with Allianz Global Risks US Insurance CO (Allianz).

Starr’s primary policy with Allianz was limited to $2 million. The extension provided Starr with what is commonly known as pollution “buy back” and would be used if costs exceeded $2 million. The extension detailed that SGS must notify Starr within 30 days in the event that pollution was released by the company in order to be covered by the buy back.

On Nov. 7, 2010, an accidental release of the chemical meta-toluene diamine occurred at Bayer Chemical Plant in Baytown, Texas when an SGS employee transported chemicals.

SGS was notified that day and did not notify Starr due to the fact that its primary insurance plan with Allianz covered the preliminary estimated cost of damages. However, on Dec. 20, 2010, Bayer provided SGS with an updated estimate for the cost of damages that reached over $4 million.

SGS notified Starr 59 days after SGS learned of the chemical release.

In the original case, filed on June 30, 2012, the court ruled that Starr was not required to cover the damages in a declaratory judgment, as SGS’s late notice failed to meet the requirements of the original insurance agreement.

SGS appealed the case claiming that the notice policy was ambiguous.

However, overseeing the case, Appeals Court Judges Edith Jones and Edith Clement and George P.  Kazen found the argument unpersuasive and affirmed the lower court's ruling.

Case No. 12-20545.

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