ExxonMobil Oil Corporation v. TIG Insurance Company

Background

This case concerned an excess liability insurance policy between ExxonMobil Oil Corporation, which the court called “Mobil,” and TIG Insurance Company. The policy provided TIG’s $25 million layer of general liability coverage and used New York law. It also required the policy to be interpreted evenhandedly, without presumptions favoring either the insured or the insurance company.

The underlying insurance dispute involved lawsuits seeking damages for contamination involving methyl tertiary butyl ether, a gasoline additive Mobil had used. At least some alleged contamination resulted from leaks from underground storage tanks at service stations. The policy generally excluded pollution-related property damage but included an exception for product liability. The parties disputed whether the leaks arose from the “end-use” of products manufactured, sold, tested, handled, or distributed by Mobil.

The arbitration tribunal rejected both parties’ proposed definitions of “end-use.” It concluded that end-use occurred when MTBE-treated gasoline reached the end of its distribution process and became the finished product available for purchase and use by an end user. The tribunal also concluded that the leaks had a sufficient connection to the general operation of producing and distributing gasoline. It therefore found coverage and awarded Mobil the policy’s full $25 million limit.

The tribunal declined to award pre-judgment interest. It interpreted the policy’s alternative-dispute-resolution provision, which limited an arbitration “decision” or “award” to the policy limits, as preventing it from awarding interest that would cause the total arbitration award to exceed $25 million. The tribunal stated that a court might nevertheless be able to award interest.

TIG’s Motion to Vacate

TIG asked the court to vacate the award under the Federal Arbitration Act, arguing that the tribunal had acted in “manifest disregard of the law.” That doctrine permits a court to set aside an arbitration award in the rare case where the arbitrators knowingly disregard clearly applicable law and the disregard produces an erroneous result.

TIG focused on the tribunal’s statement that it was guided by “common speech and the reasonable expectation and purpose of the ordinary businessman.” TIG argued that this method was based on the rule that ambiguous insurance language is construed against the insurer and therefore violated the policy’s requirement of evenhanded interpretation.

The court rejected that argument. It held that the “ordinary businessman” method and the rule construing ambiguities against the insurer were separate principles under the New York authorities cited by the tribunal. The court also found no indication that the tribunal applied the ordinary-businessperson method in a one-sided way. The tribunal had considered both parties’ interpretations and explained why its own interpretation was consistent with the commonly understood meaning of the term and with the parties’ expectations.

The court further held that TIG could not show an erroneous outcome. The tribunal had stated that even under TIG’s proposed definition of “end-use,” the leaks would still be covered because they had a sufficiently close connection to the general operation of producing and distributing gasoline. Because the tribunal supplied at least a minimally reasonable explanation for its interpretation, TIG had not met the heavy burden required for vacatur.

Interest

The court concluded that the tribunal had determined it lacked authority to award pre-judgment interest when doing so would exceed the $25 million policy limit. The court therefore could consider whether to award interest itself.

The court rejected TIG’s argument that the alternative-dispute-resolution provision also barred a court from awarding interest. It read the provision’s references to a “decision” and “award” as referring to decisions or awards by alternative-dispute-resolution bodies, not judicial orders or judgments. The court also concluded that the policy did not clearly waive Mobil’s right to statutory pre-judgment interest under New York law.

The court awarded Mobil interest at nine percent per year from October 30, 2016, through August 17, 2019, the date the award was emailed to the parties, and nine percent per year from that date through the date of the court’s judgment. The opinion stated that this interest covered the period before and after the arbitration award as specified by New York law.

Disposition

Judge Edgardo Ramos granted Mobil’s motion to lift the stay and confirm the arbitration award. He denied TIG’s cross-motion to vacate the award, granted Mobil’s request for pre-judgment interest, and directed the parties to submit a proposed judgment. The court also lifted the stay that had been entered while the parties arbitrated the dispute.