On June 21, 2019, there was a massive explosion and fire at the PES refinery in South Philadelphia, Penn., run by PERSM, resulting in the closure of the facility and the bankruptcy of its owner, Philadelphia Energy Solutions. The U.S. Chemical Safety Board (CSB) determined that the incident was caused by a ruptured, corroded pipe elbow in the hydrofluoric acid alkylation unit. The pipe had been made by Babcock & Wilcox in the 1970s.
The CSB, along with other federal, state, and local agencies, investigated the incident, including the Occupational Safety and Health Administration (OSHA), the U.S. Environmental Protection Agency (EPA), and the Philadelphia Fire Department.
The explosion and fire resulted in the shutdown of the refinery, which was the largest oil refining complex on the East Coast at the time, processing 335,000 barrels of crude oil daily.
The EPA filed a claim in US Bankruptcy Court in Delaware and reached a $4.2 million settlement over the 2019 explosion and fire.
PESRM and the PES Liquidating Trust, along with Westport, XL, Allianz, HDI, Zurich and Lloyds syndicates, filed a lawsuit against B&W in Pennsylvania state court, asserting negligence, strict liability, and breach of implied warranties. B&W, in turn, sought to dismiss the lawsuit in bankruptcy court, arguing that its 2000 Chapter 11 reorganization plan discharged all such claims.
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B&W argued that the confirmed reorganization plan from its 2000 bankruptcy case barred any non-asbestos-related claims arising from its pre-2000 activities. The company cited several provisions in the plan, including a broad definition of “contingent claims,” which it claimed should include any future liabilities stemming from its pre-bankruptcy products.
The court rejected this argument, ruling that the claims against B&W must be evaluated under the Fifth Circuit’s prepetition-relationship test. Under this standard, for a claim to be considered discharged in bankruptcy, two conditions must be met:
The court found that while B&W had notified Sunoco, the prior owner of the refinery, during its bankruptcy, there was insufficient evidence to determine whether the elbow joint’s failure was foreseeable at the time of the bankruptcy. Without resolving this factual question, the court could not conclude that the Pennsylvania claims were barred by the bankruptcy discharge.
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B&W also sought to avoid liability by citing provisions in its bankruptcy plan that disclaimed successor liability. However, the court ruled that whether B&W can be held liable under the successorship doctrine is a matter of state law, not federal bankruptcy law. The judge emphasized that such defenses must be raised in Pennsylvania state court, where the underlying lawsuit is pending.
By denying B&W’s motion for summary judgment, the court has left the door open for PESRM, the PES Liquidating Trust and the insurers to continue pursuing their lawsuit in Pennsylvania. The ruling underscores the limitations of bankruptcy discharge protections, particularly when future claims arise from long-standing industrial components.
B&W will now have to defend itself against the claims in state court, where the plaintiffs will argue that the company’s failure to ensure the safety of its product contributed to the refinery explosion.
