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A Houston-based oil and gas trader, Grey Rock Gathering and Marketing LLC, has set its sights on recovering over $2.4 million from Liberty Mutual Insurance Co., alleging wrongful denial of coverage concerning a contaminated oil shipment. In a move that has ignited a legal firestorm, Grey Rock contends that Liberty Mutual's refusal is based on a perilous interpretation of the policy's perils and property exclusion.

 Liberty Mutual Contamination Lawsuit : Exclusion Under Scrutiny

Grey Rock asserted in a motion filed on Monday that it is unequivocally entitled to summary judgment in its coverage lawsuit against Liberty Mutual. The oil trader argued that the insurer's actions constitute a breach of its all-risks warehouse policy and further, a case of bad faith.

Grey Rock argued passionately, stating, "The exclusion relied upon by defendant is vague and ambiguous," adding that Liberty Mutual's interpretation of the exclusion "results in illusory coverage." The trader claims that this interpretation does not hold water when considering the broader declaration page covering contamination.

 A Costly Discovery

The dispute between Grey Rock and Liberty Mutual stems from an alarming discovery made by the oil trader in July 2021. It was revealed that their inventory of crude oil at the primary storage facility in Lake Charles, Louisiana, had become contaminated with organic chlorides, potentially causing extensive damages.

Grey Rock's investigation uncovered that the oil contamination could be traced back to one of its providers, Phoenix Oil and Firebird Bulk Carriers. The oil trader wasted no time in informing Liberty Mutual of this loss and even took measures to mitigate the damage by selling the contaminated oil at distressed prices.

However, Grey Rock claims that Liberty Mutual failed in its obligations by not conducting a timely investigation and refusing to make a swift decision regarding coverage and payment.

The Basis for Denial

Liberty Mutual's denial of coverage was grounded in the perils and property exclusion clause. This clause specifically precludes coverage for "loss or damage due to any process or while the property is actually being worked upon."

Grey Rock countered, alleging that Liberty Mutual's interpretation of the term "process" is overly restrictive, which led to the denial of their contamination-related claims. Grey Rock urged a broader reading of the exclusion clause, arguing that it should not extend to mere storage and mixing of oils in tanks, as it would render the entire policy contradictory.

 The Nature of the Event

Grey Rock emphatically rejected Liberty Mutual's argument that the oil contamination was caused by an inherent defect or latent vice. To substantiate their claim, they cited lab analysis reports demonstrating that the oil was uncontaminated before being introduced to Phoenix oil.