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(Article from Insurance Law Alert, November 2015)

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An Arkansas federal district court ruled that an insurance policy provided Contingent Extra Expense (“CEE”) coverage for losses incurred in connection with an oil pipeline rupture.  Lion Oil Co. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2015 WL 6680900 (W.D. Ark. Nov. 2, 2015). 

Lion Oil, a refinery owner, experienced an interruption in business for several months due to pipeline repairs and remediation by its oil supplier.  Lion Oil sought coverage from its insurers for business losses incurred during the pipeline shutdown.  Although the parties disputed the applicability of numerous policy provisions, the sole question before the court on the parties’ cross motions for summary judgment was whether an insurance policy provided CEE coverage.

The policy contained only one reference to CEE coverage.  That reference was in the definition of the term “Time Element” for the purposes of explaining “Contingent Time Element” coverage.  The policy  states:  “The term Time Element means any one or all of the following coverages:  Business Interruption, Extra Expense, Contingent Business Interruption, Contingent Extra Expense . . . and all other Time Element extensions provided.”  The insurers argued that the absence of any other reference to CEE coverage in the policy demonstrates that the parties did not intend to include CEE coverage.  The insurers further contended that interpreting the policy to provide CEE coverage would lead to the “absurd result” of providing $700 million of CEE coverage (because no specific sub-limits were provided for CEE) whereas the Direct Extra Expense coverage was limited to $15 million.  The court rejected these arguments.

The court held that the lack of a formal definition for CEE in the policy did not indicate the absence of CEE coverage.  The court explained that the policy did not define other types of coverage (such as Contingent Business Interruption Coverage), and yet the parties did not dispute the existence of those other coverages.  In addition, the court deemed it irrelevant that the policy did not provide a sub-limit for CEE, even though sub-limits were provided for other types of contingent coverages.  The court concluded that “[b]ecause CEE is listed as an available coverage in the Time Element definition, and has not been excluded in any way,” the policy unambiguously provides CEE coverage.