Mired in years of litigation alleging widespread coating failure on Nova Scotia’s Sable Energy Project, Ameron International Corp. is now suing its own insurer for refusing to pay for Ameron’s multimillion-dollar defense in the case.
Canada-Nova Scotia Offshore Petroleum Board
|The suit against Ameron alleges that the coatings on the Sable Energy Project are failing prematurely, causing ongoing damage to onshore and offshore structures.|
Ameron has already spent more than $6 million to defend itself in the eight-year-old case, according to Ameron International Corp. et al. v. American Home Assurance Co., (Case No. BC491626), filed Sept. 6 in California’s Superior Court.
And the case is far from over. Sable Project officials are contending that the coating problems caused ongoing corrosion and property damage at the $1.4 billion facility and that repairs could cost hundreds of millions of dollars.
Greenwich Insurance Co., another Ameron insurer, has spent more than $5.4 million in legal fees and costs in the case and joined Ameron in the suit against American Home. (Greenwich had also balked earlier at covering its claim, and Ameron won a settlement with that company.)
Ameron’s suit against American Home contends that the coating provider held “one or more” Commercial General Liability insurance policies in force for one year beginning July 1, 2002. The policy provided $1 million per occurrence "and $2 million aggregate for each annual period of part thereof....”
And yet, Ameron’s suit says, American Home “has refused and continues to refuse to provide Ameron and Ameron B.V. with any defense to the [Sable Project] Action, including the failure to pay for any of the defense costs.”
Information on attorneys for American Home was not immediately available, and the company could not be reached for comment.
American Home is affiliated with scandal-plagued AIG, which was the world’s largest insurance company until it collapsed in 2008.
Troubled Coating Project
The case dates to 1998, when Sable Offshore Energy Inc. (SOEI) began construction of offshore and onshore facilities on Sable Island, in Nova Scotia, to produce natural gas and natural gas liquids. The SOEI consortium consists of ExxonMobil, Shell Oil, and three other oil companies.
Ameron International and Ameron B.V. supplied the paint systems used on portions of all of the structures. Some of the paint was also supplied by Allcolour Paint Limited, Amercoat Canada, and others.
On April 28, 2004, the Sable consortium filed suit in the Supreme Court of Nova Scotia, Canada, against Ameron, Ameron B.V. and a dozen other contractors and applicators involved in the manufacture, sale and application of the coating system, alleging negligence, negligent misrepresentation, and breach of a collateral warranty.
Sable’s allegations (reiterated in Ameron’s new suit) say the project “began to experience premature failure of the Amercoat 132 / PSX 700 system, including failure of the paint system to preferentially corrode, thus avoiding corrosion of the steel beneath the paint.”
Sable alleges “that these failures are due in part to the fact that the Amercoat 132 primer is not zinc-rich, and contains less than the 85% by weight zinc specified,” the defendant reports.
Because of the coatings, Sable says, onshore and offshore structures at the C$1.4 billion facility “experienced and are continuing to experience property damage in the form of corrosion” and “the structural integrity of the facilities is being compromised by ongoing corrosion damage,” court papers say.
Damage and Damages
Sable's suit sought unspecified damages, but damage estimates in various court documents have ranged from $135 million to $440 million, depending on the repairs required. Most of the defendants named in the original suit have settled their claims with SOEI. Ameron is the principal remaining defendant.
Sable alleges that structural damage “has continued and progressed” over the years and that “repairs will be required to protect the safety of the workers” on the project.
Whatever happens, Ameron is determined to have American Home help pay for it.
“American Home has this obligation to defend,” Ameron attorney Cary B. Lerman said in a statement. "The costs are mounting, and it's important now that they be ordered to perform and take this mounting defense burden off the shoulder of Ameron.”