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Sinclair Oil Seeks Coverage of Defense Fees in Wyoming High Court

October 30, 2020 | Posted in : Coverage of Fees, Defense Fees / Costs, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Request, Fees & Insurance Policy

A recent Law 360 story by Jeff SIstrunk, “Oil Co. Can Pursue Atty Fees From Insurer, Wyo. Justices Told,” reports that a Sinclair Oil Corp. unit urged the Wyoming Supreme Court to hold that the state's law applies to its property policy with Infrassure Ltd. and other insurers, which would permit the company to pursue attorney fees from Infrassure in a dispute over coverage for a 2014 petroleum refinery fire. 

During a 45-minute video conference, attorney for Sinclair Wyoming Refining Co., Marc J. Ayers of Bradley Arant Boult Cummings LLP, told the Wyoming justices that the $250 million policy that Infrassure and its co-insurers issued to Sinclair, its parent companies and more than 30 affiliates around the country was effectively "delivered" in the Cowboy State, such that the state's law applies to the policy.  The case came to the state high court in May via a certified question from the Tenth Circuit, which is reviewing a federal judge's January 2018 decision dismissing Sinclair's claim for attorney fees against Infrassure under Wyoming law.

The lower court judge, U.S. District Judge Nancy D. Freudenthal, had concluded that the energy company's fee bid was not viable because there was no evidence that the property policy was delivered or "issued for delivery" in Wyoming, as required under Section 26-15-101 of the state's insurance code.  Instead, the district judge found, available evidence indicates the policy was either delivered in London — where Infrassure and its 17 co-insurers operate — or Utah, where Sinclair Wyoming's overall parent company is based.  The Salt Lake City address of the parent company, The Sinclair Companies, was the only one listed in the policy, according to court filings.

However, Ayers emphasized during the hearing that the policy contains language providing that, for each of the separate insured businesses, coverage "shall apply in the same manner, and to the same extent, as if individual policies had been issued to each such insured party."  For legal purposes, that language can be interpreted to say that all the insureds — including Sinclair — "got a separate policy," Ayers said.  At a minimum, he argued, this establishes "constructive delivery" of the policy in Wyoming, which does not require the delivery of a physical copy of the policy to the insured.

Ayers further asserted that, before the Wyoming Legislature enacted the state insurance laws at issue, both legal precedent and insurance law treatises supported the notion that policies can be constructively delivered.  "If anything is to be assumed about the Legislature's use of the terms 'delivered' and 'delivery,' it would be that this industry-acknowledged meaning is incorporated into that," he said.

However, Infrassure's counsel, Guyon H. Knight of McDermott Will & Emery LLP, countered that Sinclair Wyoming's arguments flout the "plain language" meanings of "delivery" and "issued for delivery" as they appear in the Wyoming statutes.  Applying the common dictionary definitions of those terms, it is clear that they refer to the actual location where a physical copy of a policy is delivered, he contended.

Knight highlighted the fact that only the Salt Lake City address of Sinclair Wyoming's parent company is listed in the policy.  In addition, he noted that the policy granted the parent company the sole authority and responsibility to "negotiate terms and coverage limits, negotiate payments, and act on behalf of all insureds."

"For every single one of those companies, the person that gets to deal with the insurers is The Sinclair Companies.  And where do they do that? In Utah, not Wyoming," Knight said.  Knight warned that a ruling adopting Sinclair Wyoming's position could result in a "scattered approach" where many different states' laws could apply to the policy for different claims, depending on where a given insured is located.  "The policy expressly covers risks located all over the place," he said.  "That is why a delivery-focused approach really makes sense, because it cuts out the prospect — which is what Sinclair admits has to happen — of multiple states' insurance codes covering a policy." 

The coverage dispute stems from a September 2013 fire and explosion in a hydrotreater unit at Sinclair Wyoming's petroleum refinery.  As a result of the incident, Sinclair Wyoming claimed it suffered more than $50 million in property damage and $100 million in business income and expense losses.  Infrassure had contracted to cover a 7.5% share of Sinclair's $250 million property insurance program.  After months of negotiations after the explosion, Sinclair submitted three proofs of loss totaling $60 million to Infrassure and 17 of its other insurers between September 2014 and June 2015, according to court documents.

All of the insurers but Infrassure paid the full sums requested by Sinclair, although Infrassure agreed to shell out $2.1 million based on its own estimate of the total value of the refinery owner's losses, court documents indicated.  Sinclair initially sued Infrassure in October 2015 in Wyoming federal court, asserting claims for breach of contract, anticipatory breach of contract and first-party bad faith.  Ultimately, while the case was pending, Infrassure requested appraisal of Sinclair's losses, and a three-member appraisal panel in 2018 issued an award directing the insurer to pay an additional $4.5 million.

The case yielded two separate appeals to the Tenth Circuit: Sinclair's instant appeal of the January 2018 decision dismissing its claim for attorney fees and Infrassure's appeal of the judgment confirming the appraisal award.