The insured's claim for contingent business interruption ("CBI") coverage was denied in Millennium Inorganic Chemicals Ltd. v. Nat. Union Fire Ins. Co. of Pittsburgh Pa., 2014 U.S. App. LEXIS 3096 (4th Cir. Feb. 20, 2014).
Millenium processed titanium dioxide, a compound used for its white pigmentation, at its plant in Western Australia. Millennium purchased natural gas to process the titanium dioxide from Alinta Sales Pty Ltd., a natural gas supplier. Alinta purchased gas from Apache Corporation. Once Apache processed the natural gas, it was injected into a pipeline. The gas from Apache's facility was commingled with that obtained from other producers, resulting in a mix of gas in a single pipeline.
Alinta had sole ownership of the gas once it entered the pipeline. Under Alinta's contract with Millennium, title to the gas passed to Millenium only at the time of delivery, i.e., when the gas left the pipeline and was delivered to Millennium's facility through a separate delivery line. Millennium had no contract or business relationship with Apache, and the contract it had with Alinta made no reference to Apache.
An explosion occurred at Apache's facility causing its natural gas production to cease. As a result, Millennium's gas supply was curtailed, and it was force to shut down its operations for a number of months.
Millennium's had property policies with National Union and Ace, including coverage for CBI loss. The CBI endorsement to the policies insured Millennium against certain losses resulting from the disruption of the supply of materials to Millennium caused by damage to certain "contributing properties." The endorsement provided coverage,
only against loss directly resulting from necessary interruption of business conducted on premises occupied by Millennium, caused by damage to or destruction of any of the real or personal property described above and referred to as CONTRIBUTING PROPERTY(IES) and which is not operated by Millennium, but the perils insured against during the term of this Policy, which wholly or partially prevents the delivery of materials to Millennium or to others for the account of Millennium and results directly in a necessary interruption of Millennium's business.
Millennium did not list any "contributing property" that created a risk of business interruption. Coverage was denied for the CBI loss because Apache was not a direct supplier to Millennium.
Millennium sued the insurers. The district court concluded that coverage extended only to "direct contributing properties." The court found that Apache was a "direct" supplier to Millennium and Apache's natural gas production facility was a "direct contributing property" within the meaning of the properties because Apache's facility physically provided a direct supply of natural gas to Millennium, despite the fact that Apache and Millennium had no direct contractual relationship. Judgement was entered for Millennium in the amount of $10,850,000.
The Fourth Circuit reversed. Neither Apache nor Apache's facilities had a direct physical relationship with Millennium. Whatever the relationship between Apache and Millennium, it was interrupted by "an intermediary," Alinta, who took full physical control of Apache's gas before delivering indistinguishable commingled gas to Millennium. Apache was only an indirect contributing property to Millennium, coverage of which was not included under the policy.
