Pollution Claims for Oil Production Waste Barred by Retroactive Date

The United States District Court for the District of Montana, applying Montana law, held on summary judgment that claims-made Petroleum Industry Insurance Coverage did not apply to pollution claims where contamination began before the policies’ retroactive date. Murphy Exploration & Prod. Co. v. Ballard Petroleum Holdings, LLC, 2025 WL 3157906 (D. Mont. Nov. 12, 2025).

An oil company sold its oil field interests to another oil company in 2002. Years later, unrelated property owners sued the seller for brine and other oil-production-byproducts pollution beginning in the 1950s and occurring until the 1990s. The seller sought a defense and indemnification for the lawsuit from the purchaser under their purchase agreement, which the purchaser denied.  At arbitration, a panel found that the purchaser was obligated to defend and indemnify the seller in the lawsuit. Consequently, the insured purchaser sought coverage for the arbitration and the lawsuit under its Petroleum Industry Insurance Policy and the relevant Excess Policy.

The insurers denied coverage, arguing that the claims fell outside the policies’ scope. The primary policy included a retroactive date of May 21, 2001. It covered “pollution incidents” that “commence” on or after the retroactive date. The insurers argued that the pollution at issue began before May 21, 2001, and related to the seller’s operations from the 1950s through the 1990s.  The insured countered that exceptions for contractual indemnity and ongoing pollution after the retroactive date should trigger coverage.

The court explained that the insured bears the burden of establishing coverage under the insuring agreement and that the insured failed to meet that burden. Because the underlying claims and EPA findings related to pollution that began decades earlier, the purchaser could not show a covered “pollution incident” that “commenced” after the retroactive date. The court rejected the argument that ongoing pollution or failure to remediate after the retroactive date constituted a new covered incident, noting that the policies defined “pollution incident” to include continuous or related discharges, all deemed to have commenced with the original releases.

The insured also argued that a carve-out to the contract exclusion for indemnity contracts applied. The court rejected that argument, reasoning that a carve-out to an exclusion could not independently create coverage where the insuring agreement did not provide such coverage in the first instance.