A high-stakes court battle over a $278 million industrial chlorine spill has clarified how major insurers must handle exclusions in complex property claims.
On November 13, 2025, the Intermediate Court of Appeals of West Virginia issued a decision in the dispute between Westlake Chemical Corporation and Axiall Corporation and a group of commercial insurers, including National Union, Allianz, ACE, Zurich, Great Lakes, XL, and others. The case arose from a 2016 chlorine spill at Westlake’s Natrium Plant, after a repaired railroad tank car ruptured and released a large quantity of chlorine, causing significant damage at the facility.
Westlake, which held a multi-layered property insurance program with 13 policies from 12 insurers, filed claims for damages that eventually reached $278 million. The insurers denied coverage, citing exclusions for corrosion, faulty workmanship, and pollution. Westlake responded with a lawsuit in West Virginia, alleging breach of contract and seeking a declaratory judgment, while also pursuing the repair vendors in a separate Pennsylvania lawsuit that resulted in a $12.8 million verdict, including $5.9 million for plant damage.
The insurance policies’ exclusions and exceptions became the focus of the litigation. The corrosion exclusion barred coverage for loss or damage “caused by or resulting from…corrosion,” but included an exception for “resultant physical loss or damage from a covered peril.” The faulty workmanship exclusion similarly excluded loss from “faulty methods of construction, errors or omissions…or workmanship,” but did not apply to “resultant physical loss or damage not otherwise excluded.” The pollution exclusion stated that the policy did not cover “loss, damage, costs or expenses in connection with any kind or description of seepage and/or pollution and/or contamination,” but contained an exception for direct physical loss or damage caused by resulting pollution if the insurer had paid or agreed to pay for the initial loss.
The appeals court’s decision was mixed. The court affirmed that the faulty workmanship exclusion did not bar Westlake’s claim, since the chlorine spill was a covered peril resulting from the repairs, and the ensuing loss clause preserved coverage. On the pollution exclusion, the court found that while the exclusion was broad and unambiguous, an exception preserved coverage for damages caused by pollution resulting from a covered peril – except under the National Union policy, which contained a separate, stricter pollution exclusion that did bar coverage.
Regarding the corrosion exclusion, the court applied the efficient proximate cause doctrine, holding that if the chlorine spill – a covered peril – caused the corrosion damage, the exclusion would not apply. However, the court found there was a factual dispute over whether some corrosion predated the spill, and remanded the case for a jury to determine the cause and extent of the corrosion damage.
The court also reversed the lower court’s grant of summary judgment on collateral estoppel, finding that the damages determined in the Pennsylvania action were not identical to those recoverable under the insurance policies, which used a different measure of loss. The court affirmed the dismissal of Westlake’s bad faith claim, citing the insurers’ reasonable grounds for contesting coverage.
Ultimately, the court affirmed in part, reversed in part, vacated in part, and remanded the case for further proceedings, including a jury trial on the cause and amount of corrosion damage and the calculation of Westlake’s breach of contract damages. The decision provides important guidance on the interpretation of property insurance exclusions and the handling of complex industrial claims, with significant implications for insurers and insureds alike.
