IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re PACIFIC ENERGY RESOURCES LTD., et al.

, Debtors, CERTAIN UNDERWRITERS AT LLOYDS, LONDON, AND CERTAIN OF THOSE COMPANIES SUBSCRIBING TO COMBINED COVER NOTE JHB-CJP-1654, including but not limited to ZURICH N.A., Plaintiffs, vs. PACIFIC ENERGY RESOURCES LTD., Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 09-10785(KJC) (Jointly Administered) Chapter 11

Adv. Proc. No. ____________

COMPLAINT FOR DECLARATORY JUDGMENT NOW COME Certain Underwriters at Lloyds, London, and certain of those Companies subscribing to Combined Cover Note JHB-CJP-1654, each for his own part only, and not jointly for any other party, as Plaintiffs, and pursuant to the Declaratory Judgment Act, 28 U.S.C. 2201, and Rule 57, Fed. R. Civ. P., file this Declaratory Judgment action, naming Pacific Energy Resources, Ltd., Insured on said Cover Note, as Defendant, and show as follows: PARTIES 1. Plaintiffs are Certain Underwriters at Lloyds, London, and certain of those Companies

subscribing to Combined Cover Note JHB-CJP-1654, each for his own part only, and not jointly for any other party, hereinafter referred to collectively as Underwriters. 2. Defendant is insured under said Cover Note and is a debtor in this bankruptcy

proceeding.

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JURISDICTION AND VENUE 3. This Honorable Court has jurisdiction over this matter as an adversary proceeding

pursuant to 28 U.S.C. 134 and 157 in that this proceeding arises under Title 11 of the United States Code (the Bankruptcy Code) and is related to the above titled and numbered bankruptcy proceeding. 4. Defendant contends there is coverage under the Cover Note for a loss described in detail

below. Plaintiffs contend there is no coverage for the loss. An actual and justiciable controversy exists between the parties to this action within the meaning of the Declaratory Judgment Act, 28 U.S.C. 2201, and Rule 57, Fed. R. Civ. P., and this Honorable Court is vested with the power to declare and adjudicate the rights and other legal relationships of the parties to this action. 5. 6. This is a core proceeding that the Court may hear pursuant to 28 U.S.C. 157. Venue is proper in the District of Delaware pursuant to 28 U.S.C. 1408 and 1409. FACTS OF CASUALTY 7. Effective July 8, 2008, Underwriters issued Combined Cover Note JHB-CJP-1654

(hereinafter referred to as the Policy). The Policy, subject to all of its terms, conditions, and exclusions, provided certain coverage for losses arising from the Insureds ownership and operation of oil and gas wells near Cook Inlet, Alaska. exclusions will be set forth below. 8. On March 22, 2009, Mount Redoubt, an active volcano located some 25 miles from Cook Relevant terms, conditions, and

Inlet, erupted, causing volcanic mud flows, ash and water to flow down the Drift River. The Drift River Terminal (DRT), which was located near the mouth of the Drift River where the river emptied into Cook Inlet, was partially flooded by the mud flows, ash and water. 9. Defendant owned and operated certain oil and gas wells, and had a non-operating interest

in other oil and gas wells in the general vicinity of Cook Inlet. Some of the wells were onshore,

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and some were offshore. The production from the oil wells ultimately was transported to the DRT by a 20-inch pipeline (the CIPL Pipeline), which was owned and operated by the Cook Inlet Pipeline Company. Defendant had a 50 percent ownership interest in CIPL. The purpose of the DRT was to store oil in tanks until the oil could be loaded onto ocean tankers at a nearby loading dock known as the Christy Lee. 10. The partial flooding caused by the March 22, 2009 eruption temporarily disrupted the

operation of the DRT, preventing the production of oil from the wells from being sent to the DRT. 11. When the March 22, 2009 eruption subsided, the disruption of the DRTs operations was

resolved sufficiently to permit the resumption of the transport of oil to the DRT and the loading of such oil onto tankers. A loading was scheduled for April 4, 2009, and full operations were expected to resume shortly thereafter. 12. On April 4, 2009 another eruption of Mount Redoubt occurred, again causing mud flows,

ash and water to flow down the Drift River and partially flood the DRT. The partial flooding caused by the April 4, 2009 eruption again disrupted the DRTs operations, but this disruption was resolved promptly. 13. On April 56, 2009, 76,864 barrels of oil were loaded from the DRT tanks into an ocean

tanker. On April 2830, 2009, another 99,000 barrels of oil were loaded from the DRT tanks into an ocean tanker. 14. After the first eruption on March 22, 2009 an Incident Command System Unified

Command (the Unified Command) was established to oversee the emergency created by the eruption. The Unified Command consisted of a number of agencies of the United States and the State of Alaska, and it included Chevron Oil Company as the operator of the CIPL system.

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15.

As a result of the second eruption on April 4, 2009, the Unified Command directed that

the DRT not accept any further shipments of oil through the CIPL pipeline. 16. The apparent reason for the directive of the Unified Command not to accept any further

shipments of oil into the DRT was the possibility of further eruptions from Mount Redoubt. The DRT, the operation of which was restored following both of the eruptions, was not shut down and/or did not continue to be shut down because of physical damage to the DRT. The DRT remained shut down in accordance with the Unified Command directives until August 5, 2009, when the DRT was restarted with regulatory approval, after modifications were made to the DRT consisting of a Tight Line system. 17. The eruptions of Mount Redoubt caused no physical damage to property listed under the

Policy as Insured Premises, as defined and scheduled. That is, there was no physical damage to any oil or gas wells or other production facilities owned or operated by Defendant or any wells in which Defendant had a non-operating interest. Any cessation of production from those wells that occurred was caused exclusively by the shutdown of the DRT. The DRT is not defined or scheduled by the Policy as Insured Premises, but instead is defined and scheduled as Dependency Premises. 18. Defendant has made a claim for coverage under the Policy solely because of a loss of

production income by reason of the shutdown of the DRT. This claim is for a contingent business income (CBI) loss. POLICY PROVISIONS 19. The Policy is divided into four sections and provides four distinct types of coverage.

Section I provides control of well, redrill, pollution, and similar types of coverage. Section II provides coverage for physical damage to offshore wells and facilities. Section III provides coverage for physical damage to onshore wells and facilities. Section IV provides coverage for
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business interruption coverage, in the form of debt service coverage and loss of production income (LOPI), including CBI coverage, resulting from the inability to use dependency premises. There is at least a 45-day waiting period under Section IV before any loss of

production is covered. 20. Defendant has made claim only under Section IV for CBI coverage, resulting from the

inability to use the DRT. 21. Defendant has made no claim that any occurrence took place that would give rise to

coverage under Section I, nor has Defendant claimed that any offshore damage occurred that would give rise to coverage under Section II, nor that any onshore damage occurred that would give rise to coverage under Section III. 22. Section I of the policy defines an Occurrence as one loss, disaster, or casualty or

series of losses, disasters or casualties arising out of one event. The definition goes on to clarify as regards volcanoes that: (2) Each earthquake shock or volcanic eruption, unless excluded by Paragraph 5(d) of these Common Conditions, shall constitute one event hereunder, provided that, if more than one earthquake shock or volcanic eruption shall occur within any period of seventy-two (72) consecutive hours commencing during the period of this insurance, such earthquake shocks or volcanic eruptions shall be deemed to be one event within the meaning hereof.

Section I, Common Conditions, 8(g)(2). 23. The insuring language of Section IV provides LOPI coverage as follows: A. COVERAGE Subject to the EXCLUSIONS, CONDITIONS AND DEFINITIONS of the Policy, and also to the following ADDITIONAL EXCLUSIONS, CONDITIONS AND DEFINITIONS, this Section shall, following necessary interruption of the business, indemnify the Insured for: (i) Loss of Production during the Recovery Period at the Insureds Premises as defined hereunder; 5

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(ii)

Increased Cost of Working as defined hereunder;

directly caused by either: (a) accidental physical loss of or physical damage to real or personal property in respect of an Occurrence giving rise to a claim which would be recoverable, if the applicable retention were nil, under the Offshore Property Physical Damage Section of this Policy and/or, if applicable, the Onshore Property Physical Damage Section of this Policy; or an Occurrence giving rise to a claim which would be recoverable, if the applicable retention were nil, under the Control of Well Section of this Policy

(b)

occurring while this Section is in force. Section IV, Insuring Clauses, 1.A. 24. The LOPI Section goes on to define Occurrence as it is defined in the Control of Well

Section of this Policy. Section IV, Definitions, 2.L. 25. The LOPI Section also provides the following: A. DIRECT DAMAGE No claim shall be payable under this Section: (i) unless and until a claim has been paid, or liability admitted, in respect of direct physical loss or physical damage to Insureds Premises under the Offshore Property Physical Damage Section of this Policy and/or, if applicable, the Onshore Property Physical Damage Section of this Policy or unless and until direct physical loss or physical damage to Dependency Premises occurs which would, if said Dependency Premises were scheduled herein as Insureds Premises, be indemnifiable by application of the terms, conditions and exclusions applicable to the Offshore Property Physical Damage Section of this Policy and/or, if applicable, the Onshore Property Physical Damage Section of this Policy; . . .

Section IV, Conditions, 4.A.

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26.

Endorsement No. 1 to Section IV provides that LOPI covers, in specified circumstances,

loss of income resulting from denial of access by order of civil or military authority. In pertinent part, the Endorsement provides as follows: Subject to the exclusions, conditions and definitions applicable to the Policy and to this Section, the Insured will be indemnified for Loss of Production during the Recovery Period at the Insureds Premises when, directly as a result of accidental physical loss or physical damage to real or personal property within 1,000 meters of the Insureds Premises, access to the Insureds Premises is specifically prohibited by order of civil or military authority. In any case, coverage hereunder shall be limited to 4 (four) weeks and shall not commence until the Insured has suffered Loss of Production consequent upon such Occurrence for the number of days stated in the DECLARATIONS as the Waiting Period. All other terms and conditions remain unchanged. Section IV, Endorsement No. 1. 27. The Policy defines Insureds Premises as those premises scheduled on the Policy as

Insured Premises. The Policy defines Dependency Premises as real or personal property on which the Insureds production is dependent. The schedule of Insured Premises lists the CIPL pipeline as Insureds Premises, but the DRT is not listed as Insured Premises. Instead, the Terminal is listed as Dependency Premises. 28. Defendant has submitted a written claim for CBI based on factual assertions that the DRT The

sustained physical damage that caused a shutdown of the DRT until August 2009.

undisputed evidence shows that the damage to the DRT was repaired promptly and efficiently, and the DRT was capable of resuming full operations within the Waiting Period. Any loss of income from the time of the first eruption of March 22, 2009, until the end of April 2009 is within the Waiting Period before any loss is covered. 29. Plaintiffs would show that the interruption of production from April until August 2009

was caused, not by any physical damage to the DRT, but by the directives of the Unified

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Command, and/or other causes which in turn were based on the possibility of a future eruption and were not based on any physical damage to the DRT. 30. Plaintiffs show that the Policy does not provide CBI coverage based upon the inability to

use Dependency Premises because of governmental orders or directives. 31. 32. Plaintiffs show that the Policy provides no coverage for the claim of Defendant. Plaintiffs pray that this Honorable Court issue a Declaratory Judgment finding that

Defendants claim is not covered under the Policy. Dated: December 10, 2010 Womble, Carlyle, Sandridge & Rice, PLLC __/s/ Kevin J. Mangan________________ Kevin J. Mangan (#3810) 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801 Telephone: 302-252-4361 Facsimile: 302-661-7729 Email: kmangan@wcsr.com -andSUTHERLAND ASBILL & BRENNAN LLP Steven L. Roberts Texas State Bar No. 17019300 Daniel Johnson Texas State Bar No. 24046165 First City Tower 1001 Fannin Street, Suite 3700 Houston, Texas 77010-1043 Telephone: 713.470.6100 Facsimile: 713.654.1301 Email: steve.roberts@sutherland.com daniel.johnson@sutherland.com COUNSEL FOR CERTAIN UNDERWRITERS AT LLOYDS, LONDON, AND THOSE COMPANIES SUBSCRIBING TO COMBINED COVER NOTE JHB-CJP-1654 including but not limited to ZURICH N.A.

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