Bankruptcy court ruling secures $93 million in additional coverage for refinery owners

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The owner of a Philadelphia refinery that was shut down after an explosion in June 2019 has secured at least $93 million in additional coverage from his insurers after a US bankruptcy court judge ruled in favor of policyholders’ interpretation of the policy, the plaintiffs’ law firm said. .

U.S. Bankruptcy Court Judge Mary Walrath on Wednesday granted partial summary judgment in favor of PES Holdings LLC on two policy provisions and denied the insurers’ motion to dismiss a bad faith claim. She rejected the insurers’ argument that a “stipulated loss value” of $250 million included in the policy did not apply to PES’ claim because it would result in a payment greater than the actual value of the property.

“While the final replacement cost and actual cash value amounts remain in dispute, the filing indicates that the insurers calculated these amounts at approximately $166 million and $73 million, respectively,” the firm said. attorneys for the plaintiff, Cohen Ziffer Frenchman & McKenna, in a statement. Press release. “Now that the court has determined that PES is entitled to a minimum replacement cost of up to $250 million, insurers will be required to make up the difference.”

A fire at the Philadelphia Energy Solutions refinery’s hydrofluoric alkylation unit resulted in a series of explosions that rendered the refinery inoperative. PES filed for Chapter 11 bankruptcy a month after the explosions.

PES had a mortgage on the property with ICBC Standard Bank which required it to maintain at least $750 million of insurance on the site. PES purchased policies from 30 insurers who provided $1.25 billion in coverage.

Rather than rebuild, the company sold the property to Hilco Redevelopment Partners, which plans to build a logistics facility on the 1,300-acre site.

The decision not to replace the refinery, however, led to a dispute with PES insurers, which included Allianz Global Risks US Insurance, several Lloyd’s of London syndicates, HDI Global Insurance Co., Liberty Mutual, XL Insurance America, Ace American and Zürich. American Insurance Co.

PES filed a lawsuit against 26 of these insurers in February 2020, alleging breach of contract and breach of their duty of good faith and fair dealing.

The insurers argued that PES could only recover the actual cash value of the refinery, which was an amount equal to the replacement cost less a deduction for “physical depreciation”. But Walrath ruled that a “stipulated loss value clause” in the policies allowed PES to recover either actual cash value or full replacement cost, up to $250 million.

The parties also disputed the amount that could be deducted from the amortization payment. Insurers argued that labor costs should be included in this depreciation because PES had decided not to rebuild. This resulted in an actual cash value of $73 million, compared to the insurer’s estimated replacement cost of $166 million.

Cohen Ziffer says Judge Walrath’s decision means PES owes at least $166 million, but he continues to seek payment of the full $250 million limit.

Walrath also rejected the insurers’ argument that PES cannot pursue its claim in bad faith because it did not show the amount of its damages by submitting the legal bills which have been paid. The insurers also argued that New York law, which governs the insurance contract, does not allow parties to recover attorneys’ fees as “consequential damages” from bad faith claims.

Walrath said in her view that she was not persuaded by the case law submitted by the insurers.

“The court agrees with the PES that the time to consider any claim it may have for legal fees is after the trial,” the opinion read. “These consequential damages are only due if, and when, the court determines that the insurers acted in bad faith.”

That being decided, Walrath “bifurcated” the case so that liability for damages and the amount of those damages would be decided in separate trials. The bankruptcy court has scheduled the first trial, which will determine liability, to begin Jan. 24.

“It’s been a long road, but as the trial nears, this decision goes a long way toward securing PES the insurance coverage it is entitled to,” law firm Cohen Ziffer said in a statement. “We look forward to establishing our entitlement to the remaining disputed funds at trial.”

About the photo: Flames and smoke emerge from the Philadelphia Energy Solutions refining complex in Philadelphia, Friday, June 21, 2019. (AP File Photo/Matt Rourke)

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