WASHINGTON, DC—In a stunning insurance coverage win in the energy sector, an Arkansas jury awarded Lion Oil Co. $72 million in damages from lost income and expenses stemming from a 2012 breach of a pipeline carrying oil from Louisiana production fields to a Lion refinery in Arkansas.

A team of Pillsbury lawyers represented Lion Oil in the case, which was heard in federal court in the Western District of Arkansas. The jury delivered its verdict after deliberating for just two hours on Nov. 4.

Lion was seeking coverage for business income losses and expenses resulting from the rupture of a critical crude oil supply pipeline built in 1956 and operated by Exxon-Mobil subsidiary EMPCo. The North Line pipeline carries some 440,000 barrels oil more than 200 miles from EMPCO production fields to reach the Lion refinery in El Dorado, Arkansas.

The rupture caused the pipeline to be shut down for 10 months, a period the insurers argued should not be covered. Lion asserted that comprehensive “all-risk” policies it had purchased from 14 different insurance companies should collectively cover the company for its massive business disruption while the El Dorado refinery—which typically processes around 80,000 barrels of crude each day—was forced to operate at a lower capacity and find alternative sources of oil to maintain operations for nearly a year.

During the six-day trial heard by U.S. District Judge Susan Hickey, Mr. Greeves reviewed the multiple delays created as a consequence of the burst pipe—that “domino effect” stemming directly from the rupture was the source of the company’s substantial business loss, jurors found. The insurance carriers denying Lion’s claims—principally AIG—had argued that the rupture was not the predominant cause of Lion Oil’s loss; rather it was the result of an independent decision by Exxon to test and inspect the pipeline.

In their verdict, jurors awarded Lion Oil $60.4 million dollars in income loss that was “dominantly, directly and efficiently caused by damage to EMPCo’s property.” An additional $11.3 million was awarded to cover the large expenses incurred by Lion as a direct result of the damaged pipeline, for a combined $71.7 million verdict. The case was especially significant considering that EMPCO was a third-party service provider to Lion Oil and so Lion Oil did not directly suffer property damage to its refinery.

“We are genuinely pleased but not surprised that the El Dorado jury concluded that Lion Oil's insurers breached their obligations by failing to live up to their all-risk insurance contracts,” Mr. Greeves said.

Pillsbury partner Peter Gillon, head of the firm’s Insurance Recovery practice who served as trial co-counsel, added: “Proving a company's rights to insurance for damages to a supplier can be challenging, and we are pleased that both the jury and the court understood the way these policies are supposed to work and awarded our client the compensation they were owed. We particularly want to credit Lion Oil for having the fortitude not to cave when its insurers sought to evade their obligations to cover the company’s losses.”

Other members of the Pillsbury trial team included senior associate Vernon Thompson and associate Ashley Joyner. The firm was assisted by Arkansas counsel Brian Ratcliff and Julie Greathouse of the Little Rock firm of PPGMR Law PLLC.

About Pillsbury Winthrop Shaw Pittman LLP

Pillsbury is a full-service law firm with an industry focus on energy & natural resources, financial services including financial institutions, real estate & construction and technology. Based in the world's major financial, technology and energy centers, Pillsbury counsels clients on global business, regulatory and litigation matters. We work in multidisciplinary teams that allow us to understand our clients’ objectives, anticipate trends and bring a 360-degree perspective to complex business and legal issues—helping clients to take greater advantage of new opportunities, meet and exceed their objectives and better mitigate risk. This collaborative work style helps produce the results our clients seek.