In Court, Will This Power Supplier Receive Coverage for a Negligent Suit?

An oil refinery filed a complaint against its power supplier due to it being “unreliable" and “subject to intermittent and unexpected disruptions.”
By: | February 20, 2019

In an underlying suit, U.S. Oil & Refining Co. filed a complaint against its power supplier, the City of Tacoma, Washington, Department of Public Utilities (Tacoma Utilities), due to it being “unreliable” and “subject to intermittent and unexpected disruptions.”

U.S. Oil and Tacoma Utilities decided, in an effort to secure a more reliable power source, they would enter into a written agreement for Tacoma Utilities to supply power to U.S. Oil through a separate and dedicated substation.

However, “without notice and through no fault of U.S. Oil and solely because of Tacoma [Utilities’] actions, U.S. Oil suffered a complete loss of power, which caused an unanticipated total shutdown of the refinery’s operations.”

Further, while Tacoma Utilities attempted to restart, another power outage caused damage to U.S. Oil’s production, keeping them from restarting for more than a month.

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U.S. Oil asserted breach of contract, breach of implied contract, breach of the covenant of good faith and fair dealing, and negligence.

Tacoma Utilities turned to their insurer, Indian Harbor Insurance Company. Indian Harbor agreed to defend the claim, subject to a reservation of rights. Once U.S. Oil filed its lawsuit, Indian Harbor sought declaratory relief.

The insurer asserted it had no duty to defend or indemnify Tacoma Utilities based on the policy’s exclusion provisions.

Indian Harbor argued that, while the policy covers “wrongful acts,” the underlying suit identifies the employees at Tacoma Utilities, acting on behalf of their employer, as negligent.

But the court didn’t see it that way, instead denying Indian Harbor’s motion.

Scorecard: Indian Harbor Insurance Company will not receive declaratory relief from the underlying suit between power supplier Tacoma Utilities and U.S Oil & Refining Co.

Takeaway: Actions of employees, when acting on behalf of their employer, are not separate from the company itself.

Autumn Heisler is the digital producer at Risk & Insurance®. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]