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Enron Oil Trading & Transp. Co. v. Walbrook Ins. Co.

ELR Citation: 28 ELR 20448
Nos. 96-35713, 132 F.3d 526/(9th Cir., 12/23/1997)

The court holds that a general liability insurance policy's pollution exclusion clause does not bar coverage for losses resulting from the addition of a foreign substance to crude oil travelling through a pipeline. An oil company that settled a claim made by a refinery due to an explosion caused by the oil company's injection of foreign substances into the pipeline sued its excess insurers to enforce its liability policies. The court first holds that Montana public policy does not bar suit, because the complaint in the underlying action showed that the refinery's claims were not limited to intentional wrongful acts but also included claims for negligence and strict liability not barred by Montana public policy. The oil company would be entitled to prove in this action that the settlement payment was, in whole or in part, attributable to the refinery's negligence and strict liability claims. Even if Montana's public policy provided a defense, it did not entitle defendants to judgment on the pleadings. The court next holds that the oil company's insurance policy's pollution exclusion clause does not bar coverage of the claimed loss. The court rejects the insurers' contention that the pollution exclusion clause bars the oil company's recovery for losses because the term contamination includes the oil company's injection of a foreign substance into the pipeline. Although the policy's pollution exclusion clause is ambiguous, the use of the words "seepage, pollution and contamination" together with the specific exclusion of the "cost of removing, nullifying or cleaning up seeping, polluting, or contaminating substances" sends an unmistakable message to the reasonable reader that the exclusion deals with environmental-type harms.

Counsel for Plaintiff
Jean E. Faure
Church, Harris, Johnson & Williams
Norwest Bank Bldg., 3d Fl., Great Falls MT 59403
(406) 761-3000

Counsel for Defendants
Patrick R. Watt
Jardine, Stephenson, Blewett & Weaver
First National Bank Bldg., 7th Fl., Great Falls MT 59403
(406) 727-5000

Before Beezer and Schroeder, JJ.