The Delaware Supreme Court ruled Monday that Zurich American Insurance Co. is not obligated to advance defense costs to a crude oil trading and logistics company related to a soured business deal with a railway company.
The three-justice panel in Ferrellgas Partners LP et al. v. Zurich American Insurance Co. agreed with the trial court that alleged wrongful conduct by Ferrellgas occurred within a runoff period exclusion that barred coverage for acts occurring after June 24, 2015.
Ferrellgas failed to persuade the justices that the exclusion was inapplicable because the alleged wrongful acts were related to other conduct that occurred prior to the runoff period.
The justices said the February 2017 lawsuit filed by Eddystone Rail Co. against Ferrellgas, Bridger Logistics, Julio Rios and Jeremy Gamboa did not center on alleged fraudulent inducement by Ferrellgas that occurred prior to June 2015 but rather transfers of money it made out of Bridger Transfer Services to financially gut the company in order to avoid liability that took place during the runoff period.
In 2013, the price of crude oil from North Dakota wellheads was significantly less than crude oil from other states. In order to transport the North Dakota crude oil to refineries in Delaware, BTS and Eddystone entered into a contract for Eddystone to construct a $170 million transloading facility. Under the agreement, BTS would provide a designated number of barrels of oil to the facility or pay a prescribed amount for a shortage, court records say.
Another Bridger unit was able to reach a deal with Monroe Energy LLC, which owned a refinery in Trainer, Pennsylvania, that helped Bridger meet its quota on oil barrels sent to Eddystone, court records show.
In 2015, changes in crude oil prices made Bridger’s agreement with Monroe unprofitable and affected its ability to send the minimum number of barrels to Eddystone. Ferrellgas then started to transfer money out of BTS and stripped it of its assets.
After Eddystone filed its lawsuit, Ferrellgas requested an advance of defense costs from Zurich, which refused. Ferrellgas then sued the insurer in Delaware state court.
Zurich moved for summary judgment, arguing that the allegations of wrongful conduct were subject to the runoff exclusion because the acts occurred after June 2015. The trial judge agreed and relieved the insurer from paying Ferrellgas’ defense costs.
Representatives for the parties did not respond to requests for comment.
