THE $50 MILLION NAMING ERROR: FEDERAL COURT HOLDS OUT HOPE FOR POLICY REFORMATION

March 25, 2013

The Western District of Texas, San Antonio Division, recently opined on a case involving the misnaming of the insured on a pollution liability policy with a $50 million self-insured retention.  See Chartis Specialty Ins. Co. v. Tesoro Corporation, No. SA-11-CV-00927-DAE. 2013 WL 944254 (W.D. Tex. March 11, 2013).  Tesoro Refining purchased a refinery, and as part of the purchase  transaction, became the named insured on a pollution liability policy previously issued by Chartis.  However, the entity named on the policy amendment was not Tesoro Refining, but its parent company, Tesoro Corporation.  The policy had a $50 million self-insured retention for scheduled and known pollution conditions. 

In conjunction with environmental cleanup costs alleged to exceed $69 million, Tesoro Corporation demanded coverage from Chartis.  Chartis denied the claim, relying in part on the fact that Tesoro Corporation, the named insured on the policy, had not incurred any legal liability or costs, and the legal liability for the cleanup costs was borne by its subsidiary, Tesoro Refining, who was not a named insured on the policy.  Because Tesoro Corporation had not paid any part of the alleged cleanup costs and had no legal liability for them, Chartis maintained Tesoro Corporation had not satisfied the $50 million SIR.