AIG Unit Says It Wrongly Paid $1M For Oil Spill Cleanup


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An American International Group Inc. subsidiary has launched counterclaims in Sprague Energy Corp.'s suit seeking insurance coverage for an oil spill cleanup, claiming that it has already wrongly shelled out over $1 million.

American Homes Assurance Co. filed its counterclaims in the U.S. District Court for the District of Connecticut on Wednesday, alleging that the energy supplier failed to advise AIG that it had another insurance policy from Liberty Surplus Insurance Corp. to cover the cleanup.

The dispute centers on cleanup costs for a 30,000-gallon oil spill in 2006 at a Sprague marine oil terminal in Stamford, Conn. Sprague filed suit in July 2009 looking to keep AIG on the hook for coverage of the cleanup costs, after the insurer, which had previously been paying up, denied further coverage.

The suit accuses AIG of abruptly terminating its coverage in a willful breach of its obligations under a policy it sold the company in 2006.

The energy company further alleges that AIG's decision to refuse more coverage for the spill violates the Connecticut Unfair Insurance Practices Act and constitutes a breach of the insurer's duty of good faith and fair dealing.

Sprague is seeking reimbursement of at least $535,000 for allegedly covered cleanup costs, as well as unspecified damages and legal costs.

“Sprague gave timely notice to its insurers within three days of the oil spill. AIG is not denying this, it simply determined that it had paid enough, and stopped paying,” said John G. Nevius of Anderson Kill & Olick PC, who represents Sprague.

But AIG contends that it should never have coughed up anything for the cleanup of the Stamford spill or another spill that occurred at a Sprague facility in Mount Vernon, N.Y., in light of a policy that the energy company holds from Liberty.

AIG — which claims to have paid more than $1 million in coverage connected to the two oil spills — maintains that it is an excess insurer for Sprague's claims, and that its coverage should not have kicked in until the company had exhausted Liberty's policy. Sprague is the one that has breached the covenant of good faith and fair dealing, the insurer argues.

The defendant has asked the court to dismiss Sprague's complaint, as well as to award AIG damages or the reimbursement of funds not covered by its policy, as well as litigation costs.

“It is unfortunate that AIG would choose to sue its policyholder, and it smacks of desperation,” Nevius told Law360.

An attorney for AIG did not immediately respond to a request for comment Thursday.

AIG is represented by Meiselman Denlea Packman Carton & Eberz PC.

Sprague is represented by Anderson Kill & Olick PC.

The case is Sprague Energy Corp. v. American Home Assurance Co. et al., case number 09-cv-01136, in the U.S. District Court for the District of Connecticut.

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