Bad faith is the unreasonable failure of an insurance company to honor the terms of an insurance policy and deal with a policyholder in good faith. Insurance companies who are found to have acted in bad faith can be liable for punitive damages in addition to contract damages. Some states have bad faith statutes called "Unfair Insurance Claims Practices Acts."
Client Sues ACE Unit to Block Arbitration
December 3rd, 2012 - Operators of the nation’s largest oil refinery have sued ACE American Insurance Co., demanding emergency relief from plans by the insurer to seek resolution of a legal dispute by an arbitration panel in England.
Motiva Enterprises LLC instead believes that the wrangling needs to be settled in Delaware state court, which it said was the mutually agreed upon jurisdiction over a policy with ACE and 11 other insurers.
Motiva had bought a Construction All Risk policy from a group of insurers headed by Swiss Re International S.E. The policy covered an expansion project at Motiva’s Port Arthur, Texas, refinery that would more than double its output capacity.
The insurers had issued a policy with a payout cap of $750 million. Swiss Re, the lead, accepted $150 million of the risk while ACE American handled $30 million. The policy, which carried a premium of $22.29 million, began Sept. 1, 2007 and ended July 1, 2010.
News reports indicate that the $10 billion expansion’s completion was marked by a celebration on May 31, 2012. Just 10 days later a fire struck the sprawling complex, which is a joint refining and marketing operation between Royal Dutch Shell and Saudi Aramco Co.
Motiva filed a claim over the fire, and an adjustor was appointed. The adjustor issued a letter on August 22nd, indicating that the damages may be excluded by provisions of the policy.
That same day, Motiva filed suit in Delaware state court seeking a court order that the exclusion pertaining to corrosion at the facility does not apply.
Under what it called express terms of the policy, Motiva said that any disputes concerning terms, conditions or exclusions would be governed by Delaware law. They further said that Delaware state courts would have exclusive jurisdiction, with a lone exception being any dispute over payment of amounts due under the policy would go to arbitration.
Yet, the refiner said that the insurers improperly transferred its Aug. 22 lawsuit to federal court in Delaware. Further, on Nov. 6 the insurers notified Motiva that arbitration proceedings would begin in England, and they filed a motion to stay all proceedings in the Aug. 22 lawsuit pending its outcome.
Motiva has requested emergency relief to stop the defendants from pursuing arbitration in London. It also asked in its suit - which again was filed in Delaware state court (and now has likewise been removed to federal court there upon petition of the defendants) - for a declaration that the insurers have breached their contract and to award Motiva appropriate damages.
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