Texas court allows chemical manufacturer to pursue a $100 million claim with FM

By Isha Marathe

Aug 13 - (The Insurer) - FM subsidiary Factory Mutual Insurance Co must face a $100 million business interruption claim from chemicals manufacturer Indorama, which sued the insurer for allegedly failing to fully cover plant explosion losses, a Texas federal court ruled.

FM and counsel for Indorama did not immediately respond to a request for comment.

The dispute stems from a 2019 explosion at a TPC Group chemicals plant in Port Neches, Texas, which reportedly caused $450 million in on-site damage and $153 million in off-site damage to nearby homes and businesses.

Indorama had bought the chemical plants at the TPC facility property from Huntsman months before the explosion, the acquisition for which was completed in January 2020. FM as the reinsurer to Huntsman's captive consented that all of its rights, duties and obligations concerning any claims under the policy for property damage and/or business interruption based on the TPC explosion to Indorama.

Indorama, which submitted a business interruption claim to FM, said in the complaint that it suffered nearly $100 million in losses from the explosion and subsequent damage, as well as certain repair and restoration costs.

While Factory Mutual has made a payment for the loss of $50 million, Indorama alleged that the carrier wrongfully denied coverage for the remaining loss by strategically covering the loss under the policy’s “contingent time element extension” coverage, which had the lowest applicable sublimit of $50 million.

As such, Indorama brought claims for a declaratory judgment, breach of contract and violations of the Texas Insurance Code against FM.

FM, in turn, sought a dismissal, alleging that Indorama did not have the right to bring a direct claim against it as a reinsurer as per a provision in the state's insurance law. The carrier also said Indorama was seeking benefits under a reinsurance agreement, and therefore was subject to the exclusive forum-selection clause, which requires any disputes to be brought in Rhode Island state court.

"Factory Mutual’s counterargument is unpersuasive," said Judge Michael Truncale in his decision.

"We do not view the Insurance Code as immunizing a party against any allegations of deceptive claims-settlement practices simply because the party may also have certain reinsurance duties," Truncale quoted Equitas Reinsurance Ltd. v. Browning-Ferris Indus.

Additionally, Indorama said that FM is "more than a traditional reinsurer" as it “is responsible for adjusting insurance claims and ultimately paying loss under the policy”.

Truncale agreed.

"Indorama has sufficiently pled a right to sue Factory Mutual directly based on an implied agreement outside the reinsurance agreement," Truncale said, thereby denying FM's motion to dismiss and allowing Indorama to pursue its $100 million business interruption claim.