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PETROTERMINAL DE PANAMA, S.A. v. HOUSTON CASUALTY COMPANY et al

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Case Number: 
1:14-cv-09554 Search Pacer
Opposing Party: 
Petroterminal De Panama, S.A.
Court Type: 
Federal
US District Court: 
Southern District of New York
Date Filed: 
Dec 3 2014

Plaintiff, Petroterminal de Panama, S.A. (“PTP”), by and through its undersigned
counsel, alleges for its Complaint herein, against the insurance companies set forth as
“defendants” in the caption above (collectively, the “Defendant Insurance Companies”), as
follows:

NATURE OF THE ACTION AND RELATED ACTION IN THIS COURT
1. This is an action for breach of contract and declaratory relief.
2. This action is related to a prior action instituted in this Court by PTP against some
of the Defendant Insurance Companies, Petroterminal de Panama, S.A. v. Houston Casualty Co.,
et al., 08 CV 00547 (JSR) (described more fully below), which gave rise to an interim agreement
(entered into by all of the Defendant Insurance Companies) providing for the provisional, partial
funding of PTP’s defense of a civil action then pending against PTP in the Supreme Court of the
State of New York, captioned Castor Petroleum Ltd. v. Petro Terminal de Panama, S.A., Index
No. 600243/2008 (the “Interim Castor Action Defense Agreement" and the “Castor Action,"
respectively), all as described more fully below.
3. Pursuant to the Interim Defense Agreement, the Defendant Insurance Companies
agreed to pay 50% of the costs and expenses of PTP’s defense in respect of the Castor Action,
until the Castor Action was concluded, whereupon the parties to the Interim Defense Agreement
had the right, based on the said final adjudication, to seek either (i) in the case of PTP, as against
the Defendant Insurance Companies, payment of the remaining unreimbursed 50% of the
incurred Castor Action defense costs, or (ii) in the case of the Defendant Insurance Companies,
as against PTP, refund o f the 50% of Castor Action defense costs paid to PTP—all depending on
the final adjudication of the Castor Action, and the law.
4. The Castor Action was adjudicated in PTP’s favor; and PTP thereupon demanded
that the Defendant Insurance Companies reimburse the 50% of the costs of defending the Castor
Action incurred by PTP but not paid by the Defendant Insurance Companies. PTP’s demand for
payment of the unreimbursed defense costs was based on the facts that (i) the claims against PTP
in the Castor Action could potentially have given rise to a liability on PTP’s part within the
coverage of liability insurance policies issued to PTP by the Defendant Insurance Companies
(collectively, the “Insurance Policies” [identified with specificity below]), and (ii) PTP’s
exoneration from liability established, ipso facto, that PTP was not liable to the plaintiff in the
Castor Action on a ground within any coverage exclusion contained in the Insurance Policies.
5. The Defendant Insurance Companies nevertheless failed and refused to pay to
PTP PTP’s incurred but not previously reimbursed costs of defending the Castor Action, in
violation of their contractual obligations under the Insurance Policies.

THE PARTIES
6. Plaintiff PTP is a corporation organized under the laws of Panama and maintains
its principal place of business in Panama.
7. Upon information and belief, defendant Houston Casualty Company is a
corporation organized under the laws of Texas that maintains its principal place of business in
Houston, Texas. Upon information and belief, Houston Casualty Company is an insurance
company that is doing business in the State of New York, among other places.
8. Upon information and belief, defendant National Liability & Fire Insurance
Company a/k/a National Fire & Liability Insurance Company is a corporation organized under
the laws of Connecticut that maintains its principal place of business in Omaha, Nebraska. Upon
information and belief, National Liability & Fire Insurance Company a/k/a National Fire &
Liability Insurance Company is an insurance company that is doing business in the State of New
York, among other places.
9. Upon information and belief, defendant Liberty Mutual Insurance Company is a
corporation organized under the laws of Massachusetts that maintains its principal place of
business in Boston, Massachusetts. Upon information and belief. Liberty Mutual Insurance
Company is an insurance company that is doing business in the State of New York, among other
places.
10. Upon information and belief, defendant Great American Insurance Company of
New York is a corporation organized under the laws of New York that maintains its principal
place of business in Cincinnati, Ohio. Upon information and belief. Great American Insurance
Company is an insurance company that is doing business in the State of New York, among other
places.
11. Upon information and belief, defendant Indemnity Insurance Company of North
America is a corporation organized under the laws of Pennsylvania that maintains its principal
place of business in Philadelphia, Pennsylvania. Upon information and belief, Indemnity
Insurance Company of North America is an insurance company that is doing business in the
State of New York, among other places.
12. Upon information and belief, defendant Continental Insurance Company is a
corporation organized under the laws of Pennsylvania that maintains its principal place of
business in Chicago, Illinois. Upon information and belief, Liberty Mutual Insurance Company
is an insurance company that is doing business in the State of New York, among other places.
13. Upon information and belief, defendant Fireman’s Fund Insurance Company is a
corporation organized under the laws of Illinois that maintains its principal place of business in
Novato, California. Upon information and belief, Fireman’s Fund Insurance Company is an
insurance company that is doing business in the State of New York, among other places.
14. Upon information and belief, defendant American Home Assurance Company is a
corporation organized under the laws of New York that maintains its principal place of business
in New York, New York. Upon information and belief, American Home Assurance Company is
an insurance company that is doing business in the State of New York, among other places.

JURISDICTION AND VENUE
15. This Court has jurisdiction of this action pursuant to 28 U.S.C. Sections
1332(a)(2) and (c)(1) as the amount in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between a citizen of a foreign state and citizens o f various
states of the United States.
16. This Court also has jurisdiction of this matter in that it arises directly out of
Orders issued by this Court in a previous (and related) action, Petrolerminal de Panama, S.A. v.
Houston Casualty Company, et ah, 08 CV 00547 (JSR).
17. Venue is proper in this District pursuant to 28 U.S.C. Section 1391 because the
Defendant Insurance Companies are subject to personal jurisdiction in this District and because a
substantial part of the events and omissions giving rise to PTP’s claims occurred in this District.

BACKGROUND FACTS AND PREVIOUS PROCEEDINGS
The Oil Spill
18. On or about February 4, 2007, there was a spill of approximately 5,000 gallons of
oil from a failed valve at PTP’s facility at Chiriqui Grande, Panama (the “Oil Spill" and the “PTP
Atlantic Facility,” respectively).
19. A number of civil lawsuits were instituted against PTP alleging that the plaintiffs
in those lawsuits had sustained damages by reason of the Oil Spill (collectively, the “Civil
Suits”). Administrative proceedings were also instituted against PTP by agencies of Panama for
the purpose of, inter alia, assuring that any environmental damage caused by the Oil Spill would
be remediated (collectively, the “Administrative Proceedings”).
20. One of the Civil Suits was instituted in the Maritime Tribunal of Panama
captioned, Comunidades de Cayo de Agua, et al. v. Unicom Management Service, et al.
[including PTP and “Castor Americas (Castor Petroleum)”] (the “Cayo de Agua Suit”). That
Cayo de Agua Suit not only named PTP as a defendant, but (as noted) also asserted claims
against Castor Petroleum, Ltd. (“Castor”), a company that had an ownership interest in PTP, and
which—as a petroleum company in its own right—had oil in storage at PTP’s Atlantic Facility at
the time of the Oil Spill, under the terms of a contract between PTP and Castor.
The Attachment And The Castor Action
21. For the ostensible purpose, on information and belief, of securing the Panama
court's jurisdiction over Castor (a company not registered to do business in Panama), and at the
same time assuring his clients' right to recover the damages that they would purportedly be
awarded against Castor in the Cayo de Agua Suit, counsel for the plaintiffs in the latter suit
obtained from the Maritime Court of Panama, on or about June 8, 2007, an Order restraining the
movement of the oil that Castor had in storage at PTP’s Atlantic Facility (the “Attachment ”).
22. PTP and Castor challenged the Attachment. On July 16, 2007, a justice of the
Supreme Court of Panama vacated the Attachment, finding that it was arbitrary, excessive and
contrary to the law. (That ruling was affirmed by the full panel of the Supreme Court of Panama
in April 2011.)
23. In January 2008, Castor instituted suit against PTP in the Supreme Court of the
State of New York, New York County, alleging that (i) Castor had sustained financial damages
by reason of the Attachment, and (ii) PTP was legally answerable for the damages sustained by
Castor because, inter alia, PTP had negligently permitted the Oil Spill to occur (the “Castor
Action,” as that term has previously been used and defined herein).
The Insurance Policies
24. As relevant, PTP had two liability insurance policies in force at the time of the Oil
Spill, Marine Comprehensive Liability Insurance Policy No. 06/662 (the “Primary Liability
Policy”) and Bumbershoot Excess Marine Liability Insurance Policy No. 06/663 (the
“Bumbershoot Liability Policy”), for which PTP had paid all required premiums. The Defendant
Insurance Companies underwrote either the Primary Liability Policy or the Bumbershoot
Liability Policy (or, in the case o f two o f the Defendant Insurance Companies, both) as follows:
Defendant Insurance Companies that Underwrote the Primary Liability
Policy:
Fireman’s Fund Insurance Company
Great American Insurance Company
Indemnity Insurance Company of North America
American Home Assurance Company
Defendant Insurance Companies that Underwrote the Bumbershoot
Liability Policy:
Houston Casualty Company
National Liability & Fire Insurance Company a/k/a National
Fire & Liability Insurance Company
Liberty Mutual Insurance Company
Great American Insurance Company
Indemnity Insurance Company of North America
Continental Insurance Company
The Insurance Companies Raise Issues Regarding Coverage Under The
Insurance Policies For Spill-Related Claims Against And Liabilities
Of PTP; PTP Institutes The Bumbershoot Policy Coverage action
25. PTP gave timely notice of the Oil Spill and of the institution of the Civil Suits and
the Administrative Proceedings to the Defendant Insurance Companies, and in all other respects
fulfilled conditions precedent to the enjoyment of PTP's coverage rights under the Insurance
Policies in respect of Oil Spill-related claims and liabilities. PTP demanded from the Defendant
Insurance Companies indemnity in respect of Oil Spill-related damages incurred by PTP, and
payment of the costs of defending the Civil Suits and the Administrative Proceedings (including,
specifically, the Castor Action).
26. After some discussion, the underwriters of the Primary Liability Policy accepted
their indemnity responsibilities to PTP in respect of Oil Spill-related liabilities, and paid the
entire per-occurrence liability limit of the Primary Liability Policy in fulfilling those obligations.
27. The costs of PTP’s defense in respect of claims covered by the Primary Liability
Policy are payable under a separate coverage afforded by that Primary Liability Policy (that
Policy's "Cost Clause"), up to $1,000,000 of costs for claims and suits arising out of any one
'‘occurrence." The underwriters o f the Primary Liability Policy therefore also agreed to pay the
costs of PTP’s defense in respect o f Oil Spill-related Civil Actions and Administrative
Proceedings—with the exception o f the Castor Action—up to the relevant limit of that Policy's
Cost Clause.
28. The underwriters of the Bumbershoot Liability Policy, however, initially disputed
any obligations to PTP in respect of any Oil Spill-related liabilities and expenses. Accordingly,
on January 22, 2008, PTP instituted suit in this Court against the underwriters of the
Bumbershoot Liability Policy, that action being captioned Petroterminal de Panama, S.A. v.
Houston Casually Co., et a i, 08 Civ. 00547 (JSR) (the “Bumbershoot Policy Coverage Action”).
29. Some months after PTP had instituted the Bumbershoot Policy Coverage Action,
the underwriters of the Bumbershoot Liability Policy accepted their obligations to indemnify
PTP against Oil Spill-related liabilities, and to pay in full the costs of PTP’s defense in respect of
Oil Spill-related Civil Actions and Administrative Proceedings (in proportions separately agreed
upon among the underwriters of the Primary Liability Policy and the Bumbershoot Liability
Policy), with the exception of the Castor Action. The principal elements of that agreement
between PTP and the underwriters of the Bumbershoot Liability Policy were embodied in an
Agreement and Order entered in the Bumbershoot Policy Coverage Action on April 28, 2008 (a
copy of which is annexed hereto as Exhibit A (the “2008 Agreement”).
30. Even after agreement on the terms that were incorporated in the 2008 Agreement,
the underwriters of the Bumbershoot Liability Policy continued to disclaim any obligations to
PTP under that policy in respect of the Castor Action. PTP and the underwriters of the
Bumbershoot Liability Policy and the Primary Liability Policy, however, agreed that litigation of
PTP’s coverage rights in respect of the Castor Action would be premature while the Castor
Action still was being litigated, and that the adjudicated outcome of the Castor Action could
make it easier to resolve issues respecting insurance rights and obligations in respect of that
action.
31. For the foregoing reasons, PTP and the underwriters of the Bumbershoot Liability
Policy entered into an agreement to share, 50%-50%, the expenses of PTP’s defense in respect of
the Castor Suit (previously referred to as the “Interim Castor Action Defense Agreement”).
Because the Cost Clause of the Primary Liability Policy had not yet been exhausted by Oil Spillrelated
defense payments made on PTP’s behalf, and the underwriters of the Primary Liability
Policy also disclaimed obligations to PTP in respect of the Castor Action, those underwriters also
deemed it expedient to enter into the Interim Castor Action Defense Agreement, and to share
with the underwriters of the Bumbershoot Liability Policy (in accordance with a formula not
disclosed to PTP) the 50% of the costs of the Castor Action defense to be paid by the Defendant
Insurance Companies (until the exhaustion of the Primary Liability Policy’s obligation under its
Cost Clause, whereupon the 50% payment obligation would be owed entirely by the underwriters
of the Bumbershoot Liability Policy).
32. The Interim Castor Action Defense Agreement (dealing exclusively with the
expenses of defending the Castor Action) was embodied in a more comprehensive agreement
between PTP and the Defendant Insurance Companies, entered into in April 2008, that addressed
responsibilities for funding PTP’s defense in respect of ah actions and proceedings arising from
the Oil Spill—not just the Castor Action. That comprehensive defense agreement, titled,
“Agreement between [PTP] and Primary Underwriters and Bumbershoot Underwriters
Regarding Defense Expenses" (the “Comprehensive Defense Agreement”) was annexed to and
incorporated into the 2008 Agreement. See Ex. A. For pertinent purposes, those provisions of
the comprehensive defense agreement that represent the Interim Castor Action Defense
Agreement are embodied in Paragraphs 1(b), II, III and IV of the Comprehensive Defense
Agreement. See Ex. A at Comprehensive Defense Agreement ^ 1(b), II, III and IV.
33. As pertinent to the instant action, the Interim Castor Action Defense Agreement
expressly provides, inter alia, that “[a]II parties [hereto] agree that they reserve their rights and
defenses to seek a determination of coverage rights and obligations in respect of the Castor Suit,
after that suit is concluded . . . and all parties further agree that the prevailing party(ies) in
respect of such coverage determination will be reimbursed by the adverse party(ies) for the
portion of the Castor Suit Defense Expenses such prevailing party(ies) shall have paid.” Id. at
H 1(B)(3).
Adjudication Of The Castor Action
34. After discovery had been completed, the parties to the Castor Action made cross
motions for summary judgment in that action. In an Opinion and Order dated September 27,
2012 (the “Trial Court’s Castor Judgment” [annexed hereto as Exhibit B]), the trial court
described the underlying suit against Castor (and PTP as one “arising out of the [February 4,
2007] oil spill.” Id. at 2. After reviewing the facts and the relevant law, the trial court denied
Castor’s motion, and granted PTP’s motion for judgment dismissing the Castor Action. Id.
35. The trial court held, in the Trial Court’s Castor Judgment, that the Attachment of
Castor’s oil in storage at PTP’s Atlantic Facility represented a force majeure event, within the
meaning o f that term in the contract defining the respective rights and obligations of Castor and
PTP, and therefore absolved PTP of liability for the consequences of the Attachment. See Ex. B
at 4 et seq. Implicitly, the Castor Action trial court held that the applicability of the force
majeure clause of the contract between PTP and Castor made it unnecessary to determine
whether or not PTP was negligent in permitting the Oil Spill to occur (as Castor had alleged in its
complaint in the Castor Action).
36. On Castors appeal, the First Department o f the Appellate Division of New
York’s Supreme Court unanimously affirmed the Trial Court’s Castor Judgment; and leave for
Castor to appeal to New York’s Court o f Appeals later was denied.
PTP Demands The Unreimbursed Costs Of Its Defense Of The Castor Action
37. After the Castor Action was fully adjudicated, in PTP’s favor, as recounted above,
PTP demanded that the Defendant Insurance Companies pay to PTP the Castor Action defense
costs incurred by PTP but not reimbursed by the Defendant Insurance Companies (a sum which
exceeds $2,000,000). The Defendant Insurance Companies, however, have rejected PTP’s
demands in that regard, and have failed to make the demanded payments. Accordingly, PTP
now seeks a judgment of this Court awarding to PTP the amount o f those incurred but not
reimbursed defense costs, and declaring the Defendant Insurance Companies obligated to pay to
PTP the Castor Action defense costs that PTP incurs or pays in the future.
38. As the Interim Castor Action Defense Agreement implicitly contemplated, with
the Castor Action now fully adjudicated, any uncertainties posed by the pendency of Castor’s
claims, and the multiplicity o f legal theories advanced by Castor, no longer pose an impediment
to the adjudication of the respective rights and obligations of PTP and the Defendant Insurance
Companies under the Insurance Policies.
39. The Castor Action complaint clearly sought relief from PTP on a legal theory—
damages arising out o f negligently caused property damage—unquestionably within the
coverage o f both the Primary Liability Policy and the Bumbershoot Liability Policy. PTP was
not found liable to Castor, in the Castor Action, on a legal theory that could implicate an
exclusion in either the Primary Liability Policy or the Bumbershoot Liability Policy: indeed,
PTP was not found liable to Castor on any theory. Under these circumstances, there is no
justification for the failure and refusal of the Defendant Insurance Companies to fulfill their
contractual obligations to pay PTP’s Castor Action defense costs under the Insurance Policies
that they respectively underwrote, and their failure and refusal to make those payments
represents, in the case of each Defendant Insurance Company, breach of contract.
FIRST CLAIM FOR RELIEF
(Breach of Contract)
40. PTP repeats and realleges the allegations set forth in paragraphs 1 through 39 as
though fully set forth herein.
41. PTP has incurred costs of defending the Castor Action that are covered by each of
the Insurance Policies.
42. The Defendant Insurance Companies’ failure and refusal to pay under the
Insurance Policies PTP’s incurred costs of defending the Castor Action represents a breach of
contractual obligations by each of the Defendant Insurance Companies.
43. As the direct and proximate result of their breaches of contract, the Defendant
Insurance Companies have deprived PTP of the benefit of insurance coverage for which PTP
paid substantial premiums.

SECOND CLAIM FOR RELIEF
(Declaratory Judgment)
44. PTP repeats and realleges the allegations set forth in paragraphs 1 through 43 as
though fully set forth herein.
45. PTP may be required in the future to pay costs of defending the Castor Action
through the date of its final adjudication.
46. An actual and justiciable controversy exists between PTP and the Defendant
Insurance Companies regarding the parties’ respective rights and obligations in respect of the
costs incurred and to be incurred by PTP in defense of the Castor Action.
47. Pursuant to 28 U.S.C. Section 2201 and the Insurance Policies, PTP is entitled to
a declaration declaring that the Defendant Insurance Companies are obligated under the
Insurance Policies to pay the full cost of PTP’s defense in respect of the Castor Action.
WHEREFORE, PTP prays for judgment in its favor and against the Defendant Insurance
Companies as follows:
A. On its First Claim for Relief, a money judgment awarding PTP the full amount of
PTP’s incurred and not previously reimbursed costs of PTP’s defense in respect of
the Castor Action, in an amount to be proved at trial (but certainly exceeding
$2,000,000 exclusive of interest and costs);
B. On its Second Claim for Relief, a judgment declaring the Defendant Insurance
Companies’ obligation to pay the full costs of PTP’s defense in respect of the
Castor Action, including costs incurred by PTP in the future in connection with
that defense;
C. Pre-judgment and post-judgment interest on the amounts which Defendant
Insurance Companies have wrongfully refused to pay PTP; and
D. Such other and further relief as to this Court may appear proper and just.

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.