Crude Oil Contracting Co. v. Insurance Co., 2152.
| Decision Date | 18 March 1941 |
| Docket Number | No. 2152.,2152. |
| Citation | 118 F.2d 476 |
| Parties | CRUDE OIL CONTRACTING CO. et al. v. INSURANCE CO. OF NORTH AMERICA. |
| Court | U.S. Court of Appeals — Tenth Circuit |
John E. Curran, of Tulsa, Okl. (Morris L. Bradford, of Tulsa, Okl., and A. M. Hoenny, of St. Louis, Mo., on the brief), for appellants.
Walter D. Hanson, of Oklahoma City, Okl. (F. A. Rittenhouse, of Oklahoma City, Okl., on the brief), for appellee.
Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.
Gulf Refining Company, a corporation,1 owns a pipeline through which it transports petroleum products for storage at its tank farm in East Henry County, Indiana. A basic substance commonly known as B. S., consisting of the impurities in crude oil, accumulates in the bottom of storage tanks and it is necessary at times that this sediment be removed.
April 8, 1938, Gulf entered into a contract with Crude Oil Contracting Company, a corporation,2 for the removal of the B.S. in eleven of its tanks on this farm. The contract provided that Gulf was to sell to Crude, for a stated consideration, approximately 125,983.76 barrels of tank bottoms in these eleven tanks. Crude was to remove the B.S., clean all the tanks, and remove all the inflammable material therefrom. The storage tanks were 117 feet in diameter and were surrounded by an earthen wall six feet high and 340 feet in diameter.
Gasoline in crude oil stored in tanks continues to vaporize. The gaseous vapors escape through a valve in the top of the tank and during normal conditions dissipate in the air, but when atmospheric conditions are unfavorable the escaping gas settles and spreads out along the ground. It is to prevent this and to retain the gas within the fire wall until it may escape into the air that the fire wall was constructed.
An opening sufficient in width to permit the entrance and exit of trucks and equipment used in its operations was made in the fire wall surrounding a tank when Crude went to work on it. It had completed its work on six of the tanks and was working on the seventh one when an explosion occurred, causing the death of two employees and resulting in the destruction of the tank by fire. Gulf carried insurance on these tanks with the Insurance Company of North America.3 Plaintiff paid Gulf for the loss of this tank, took a subrogation agreement from it of its claim against Crude and the National Surety Company which had written the performance bond for Crude, and filed an action against them to recover the amount it had been compelled to pay Gulf. Judgment was for Plaintiff, from which this appeal is taken. The assignments of error may be summarized as follows: 1. Gulf was guilty of negligence which precluded recovery by it. 2. No negligence was established on the part of Crude. 3. No contractual liability was shown on the part of Crude requiring it to respond in damages.
One of the established and recognized methods of transporting gasoline for storage through pipelines is to intermingle it with crude oil. Gulf had employed this method for years. It had added three per cent casinghead gasoline to the crude that had been transported and stored in these tanks. Gulf did not inform Crude of the addition of this casinghead gasoline. Crude takes the position that the addition of this three per cent casinghead gasoline created a more dangerous substance than the ordinary B.S. and that Gulf should have informed Crude of this addition so it could have taken added precautions, and that failure on its part to do so was such negligence as bars recovery for the resultant loss. Assuming, without deciding, that Gulf was negligent in failing to inform Crude of the addition of the gasoline, does such negligence bar recovery? We think not. Before its failure to inform Crude of the addition of the gasoline would bar recovery, it must appear that such failure proximately contributed to the loss.
Under the contract, Gulf removed the contents of these tanks until the mixture showed ten per cent B.S. This would result in a removal of the greater portion of the gasoline. Also, the greater the amount of lighter and more volatile elements in the mixture, the more evaporation would result while the crude was stored in the tanks. So it may well be doubted whether the B.S. delivered to Crude contained an appreciably greater amount of gasoline than is found in ordinary crude. But, be that as it may, Crude had full knowledge of the dangers resulting from these tank bottoms under adverse atmospheric conditions. On a number of preceding occasions, the...
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