In Bridger Lake, LLC v. Seneca Insurance Company, Inc., Civil Action No. 11-0342, 2014 WL 849893 (W.D. La. Mar. 4, 2014), the Western District of Louisiana, applying Wyoming law, granted summary judgment to an insurer that sought restitution of $100,000 it had provided to its policyholder after the policyholder’s underground oil pipeline ruptured, holding that an insurer who advances funds to its policyholder following an event appearing to be covered under the policyholder’s insurance policy is entitled to reimbursement of those funds if the event is ultimately not covered under the policy. 

The policyholder in Bridger Lake owned and operated a twenty-seven mile long underground crude oil pipeline that transported oil from wells in Northwestern Utah to a storage tank in Wyoming.  In April 2010, the pipeline ruptured and released over 2,700 barrels of crude oil into the environment.  In May 2010, the insurer advanced $100,000 to its policyholder for remediation expenses but reserved its rights to deny coverage under its commercial general liability policy and seek reimbursement of the payment if coverage was later found not to be due.  The reservation of rights letter also stated that “[t]his advance is not to be construed as a[n] admission of coverage.”  Id. at *2 (internal quotation marks omitted).  On March 2, 2011, the policyholder filed suit seeking $900,000 of additional coverage and also brought claims under a Louisiana state statute based on allegations that the insurer acted arbitrarily and capriciously in adjusting its claims.  The insurer filed a counterclaim seeking $100,000 in restitution.  In June 2013, the court dismissed all of the policyholder’s claims against the insurer, determining that the policyholder’s damages resulting from the pipeline rupture were excluded from coverage by the policy’s pollution exclusion and that the policy’s short-term pollution event exception to the pollution exclusion did not apply.  See Bridger Lake, LLC v. Seneca Ins. Co., Inc., Civil Action No. 11-0342, 2013 WL 2458758 (W.D. La. June 6, 2013).

In granting the insurer’s counterclaim for restitution, the court determined that the policyholder had been unjustly enriched by the $100,000 advance since, as it had previously decided, the insurer owed the policyholder no coverage for the ruptured pipeline.  The court noted that

Had Seneca simply withheld all funds and forced Bridger Lake to sue to resolve the dispute over whether coverage existed, Bridger Lake would have no claim to any funds from Seneca. It is unclear to this court why Bridger Lake should now be entitled to keep the funds that Seneca chose to advance to aid with environmental cleanup and remediation efforts, when Seneca made it clear it was not conceding that coverage existed.

Bridger Lake,2014 WL 849893, at *2.  The court also recognized that insurers would have no incentive to advance funds to policyholders before coverage was definitively established if they could not recoup these funds later in the event that it was later determined that no coverage exists.  Id. at *4.  The court concluded:  “The more equitable policy is to allow insurers who advance funds but expressly reserve objections regarding coverage to seek reimbursement if it is later determined that no coverage existed.”  Id.

Bridger Lake is an important decision discussing justification for permitting an insurer to obtain reimbursement of money that it advances to its policyholder after a court later determines that coverage is not owed.