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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Insurers Deny Business Interruption Claim from Pipeline Break

October 15th, 2013 - ACE American Insurance Co. has joined 15 other insurers in suing operators of an Arkansas oil refinery that has claimed $80 million in damages from a pipeline rupture.
The ACE Group unit denies that it owes Delek U.S. Holdings Inc and Lion Oil Co. $44 million due to an interruption of business at their refinery in El Dorado, Ark. It further denied an extra expense claim of $36.4 million.
ACE and other insurers that include Lexington Insurance Co. and XL Insurance Co. had issued various policies to Lion Oil and then Delek. The policies provided all-risk insurance for direct physical loss or damage to real and personal property and coverage for business interruption.
On April 28th, 2012, a crude oil pipeline operated by ExxonMobil Pipeline Co. ruptured near Torbert, Louisiana and cut off its flow of feedstock to the refinery. The pipeline operator reportedly determined that the cause of the break was a weld defect in the pipeline.
ExxonMobil repaired the break but then had to conduct tests on it. The 80,000 barrel per day refinery did not receive further oil from the pipeline until January of 2013. 
The insurers denied the Delek-Lion claim on September 27th. They cited exclusions to the policies against faulty workmanship, ordinary wear and tear, and latent defect.
The cause of the pipeline rupture was not a covered peril, said the insurers, and the interruption of crude oil supply does not apply because “the plain language of the provision shows the coverage is for loss resulting from damage to utilities that provide services needed to operate the refinery.”
ACE and the other insurers asked in their suit, which was filed in U.S. District Court in Nashville, Tennessee, that the court rule they owe the Insureds no coverage.

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