1016-00006 · Dunmore Energy Holdings · Legal Analysis

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the attorneys and personnel identified herein in connection with their representation of Dunmore Energy Holdings Ltd. Any disclosure, copying, or distribution of this memorandum or its contents to any person not authorized to receive it may constitute a waiver of applicable privileges. Do not forward or distribute without prior authorization from the Responsible Partner.

FROM: Cynthia Ho, Lead Associate (Real Estate Practice), Calderwood & Harkness LLP

TO: Sandra Tung, Responsible Partner; Oliver Mackenzie, Billing Partner; Devon Archer, Working Associate

DATE: July 14, 2025

RE: Insurance Coverage Analysis — Bridgemont Insurance Company Pollution Legal Liability Policy (Policy No. ENV-BIC-2024-07821) — Dunmore Wharton Terminal Site, 14200 FM 1301, Wharton, Wharton County, TX 77488

MATTER NO.: 1016-00006

CLIENT: Dunmore Energy Holdings Ltd.

REVIEWED BY: Sandra Tung

I. Executive Summary

This memorandum analyzes the scope and adequacy of insurance coverage available to Dunmore Energy Holdings Ltd. ("DEH") for environmental remediation liabilities at the legacy Dunmore Wharton Terminal site (the "Site") under the Pollution Legal Liability ("PLL") policy issued by Bridgemont Insurance Company (the "Bridgemont Policy" or the "Policy"), Policy No. ENV-BIC-2024-07821. This memorandum also assesses the availability of any coverage under historic comprehensive general liability ("CGL") policies issued by Piedmont Mutual Insurance Co. ("Piedmont Mutual") to DEH's predecessor, Dunmore Terminal Services, Inc. ("DTS").

Key Conclusions. The Bridgemont PLL Policy provides substantial coverage for DEH's anticipated remediation obligations at the Site. The Policy's $15,000,000 aggregate limit is well in excess of the $9.74 million total estimated remediation cost prepared by Pinehill Environmental Consulting LLC ("Pinehill") in April 2025, and it is significantly above DEH's own asserted share of approximately $5.48 million of those costs. Even under Pinehill's high-end cost scenario of $12.18 million, the Policy limit provides a meaningful buffer for cost overruns, third-party claims, and defense expenditures. The Policy's $500,000 self-insured retention ("SIR") will likely be exhausted within the first phase of active remediation, and a significant portion of the $387,000 in investigative costs already incurred through Pinehill may be creditable toward the SIR to the extent those costs were incurred after the Policy's March 1, 2024 effective date. Formal notice of the pollution condition was timely provided to Bridgemont by letter dated June 30, 2025, from Sandra Tung to Paul Neumann, Bridgemont's Senior Vice President of Environmental Lines. No meaningful recovery is expected from Piedmont Mutual's historic CGL policies due to Piedmont Mutual's entry into receivership in 2012 and the likely exhaustion of its receivership estate.

Recommendations. We recommend that the engagement team take the following principal steps: (1) maintain meticulous documentation of all remediation expenditures for SIR tracking purposes, in coordination with Gresham & Alford CPAs; (2) ensure ongoing compliance with Bridgemont's reporting requirements and obtain a claim number from Bridgemont at the earliest opportunity; (3) coordinate any settlement or recovery in the cost-recovery action against Rowan Creek Fuel Distributors, Inc. ("RCFD") with Bridgemont's subrogation rights, including by providing advance notice to Bridgemont before agreeing to any settlement terms; and (4) continue quarterly monitoring of downgradient receptors, including the Ingram Property well, and promptly notify Bridgemont of any potential third-party claims.

The balance of this memorandum sets forth the factual background, identifies the material terms of the Bridgemont Policy, provides a detailed coverage analysis, identifies coverage gaps, and presents specific recommendations for the engagement team.

II. Background

A. The Site and Contamination Summary

The Dunmore Wharton Terminal (the "Site") is a 48.7-acre former petroleum bulk-storage facility located at 14200 FM 1301, Wharton, Wharton County, Texas 77488. The Site is identified by Tax Parcel ID WC-0241-0034 and is legally described as Lots 3 and 4 of the H.T. & B.R.R. Survey, Abstract No. 241, Wharton County, Texas, as more particularly described in the deed recorded at Volume 1892, Page 417, Official Public Records, Wharton County, Texas.

The Site was formerly operated as a petroleum bulk-storage and distribution terminal by Dunmore Terminal Services, Inc. ("DTS"), a Texas corporation that was dissolved on December 31, 2017. DTS operated the terminal continuously from 1974 through 2015, at which point active operations ceased. Upon DTS's dissolution, environmental liabilities associated with the Site were assumed by DEH, a Cayman Islands exempted company (Registration No. MC-318574), pursuant to a Plan of Dissolution and Assignment of Liabilities dated October 15, 2017 (the "Plan of Dissolution"). DEH is therefore the party bearing responsibility for investigation and remediation of contamination at the Site, subject to its contractual and statutory rights of cost recovery against other responsible parties.

The Site is divided into two principal operational areas. The southern tank farm consists of Tanks S-1 through S-12, with an aggregate storage capacity of approximately 315,000 barrels, situated on approximately 18 acres in the southern portion of the Site. The southern tank farm was co-operated by RCFD under a Joint Operating Agreement executed in 1991 and remaining in effect through 2010. During that period, RCFD had operational control over the southern tank farm's petroleum storage, handling, and distribution activities, and was responsible for maintenance of the tanks, containment structures, and associated piping within that area. The northern tank farm consists of Tanks N-1 through N-12, with an aggregate storage capacity of approximately 420,000 barrels, and was operated solely by DTS throughout the life of the terminal.

The contaminants of concern ("COCs") at the Site include benzene, toluene, ethylbenzene, and xylenes (collectively, "BTEX"); total petroleum hydrocarbons ("TPH"); methyl tert-butyl ether ("MTBE"); and dissolved-phase lead. These COCs are consistent with the types of contamination typically associated with legacy petroleum bulk-storage facilities of this nature and vintage.

The current understanding of contamination at the Site is based on the Phase II Environmental Site Assessment ("Phase II ESA") prepared by Pinehill Environmental Consulting LLC ("Pinehill") in June 2024, together with a supplemental investigation completed thereafter. The key contamination data from these investigations are summarized below:

Soil Contamination. TPH concentrations in soil were detected at levels up to 14,200 mg/kg in the southern tank farm, particularly in the vicinity of Tank S-7. In the northern tank farm, TPH concentrations were detected at levels up to 8,750 mg/kg in the vicinity of Tank N-3. Benzene concentrations in soil were detected at levels up to 42 mg/kg, which significantly exceed the Texas Commission on Environmental Quality ("TCEQ") Tier 1 Protective Concentration Levels ("PCLs") for both residential use (1.8 mg/kg) and commercial/industrial use (5.3 mg/kg). The benzene soil concentrations are approximately 23 times the residential PCL and approximately 8 times the commercial/industrial PCL, indicating the need for active soil remediation regardless of the anticipated future use of the Site.

Groundwater Contamination. A dissolved-phase benzene plume has been identified extending approximately 2,400 feet downgradient (in a south-southwest direction) from the southern tank farm. The maximum dissolved benzene concentration detected in groundwater was 3.8 mg/L, which is 760 times the federal Maximum Contaminant Level ("MCL") of 0.005 mg/L. MTBE was detected in groundwater at concentrations up to 1.2 mg/L, and dissolved lead was detected at concentrations up to 0.087 mg/L, which exceeds the federal action level of 0.015 mg/L by a factor of approximately 5.8. The affected aquifer is the Chicot Aquifer (shallow zone), which was encountered at approximately 22 feet below ground surface during the Phase II ESA drilling program. The Chicot Aquifer serves as a drinking water source for rural properties in the surrounding area, which heightens the significance of the groundwater contamination.

Documented Releases. Five documented releases of petroleum products at the Site are reflected in the historical record:

1. 1996 Release (Tank S-4): Approximately 8,000 gallons of diesel fuel were released from Tank S-4 in the southern tank farm. This tank was under RCFD's operational control at the time of the release.

2. 2001 Release (Tank S-7): Approximately 3,200 gallons of gasoline were released from Tank S-7 in the southern tank farm. This release was reported to the TCEQ and assigned Incident No. 142876. This tank was under RCFD's operational control at the time of the release.

3. 2003 Release (Tank N-3): Approximately 1,500 gallons of gasoline were released from Tank N-3 in the northern tank farm. This release was reported to the TCEQ and assigned Incident No. 158432. This tank was operated by DTS.

4. 2008 Release (Tank S-11): Approximately 5,600 gallons of diesel fuel were released from Tank S-11 in the southern tank farm. This release was reported to the TCEQ and assigned Incident No. 197503. This tank was under RCFD's operational control at the time of the release.

5. 2014 Release (Loading Rack): Approximately 600 gallons of diesel fuel were released at the loading rack facility. This release was reported to the TCEQ and assigned Incident No. 251044. The loading rack was operated by DTS.

Nearest Receptor. The nearest identified receptor is a residential well located at the Ingram Property, 16405 FM 1301, approximately 3,100 feet south-southwest of the leading edge of the dissolved benzene plume. Pinehill sampled the Ingram Property well in February 2025 and detected no COC concentrations above applicable MCLs as of that date. However, given the direction and rate of plume migration, the Ingram Property remains a receptor of concern and is the subject of ongoing monitoring.

B. Current Site Ownership and Remediation Status

The Site is currently owned by Calera Properties Group LLC ("CPG" or "Calera"), a Texas limited liability company that acquired the property at a tax foreclosure sale in March 2019 for $612,000. CPG is not a responsible party for the contamination at the Site. CPG acquired the Site through a tax sale, has had no involvement in the historical petroleum storage or distribution operations, and did not contribute to any release of contaminants. DEH and CPG have entered into a Site Access & Cost-Sharing Agreement (the "Calera Agreement") to facilitate DEH's access to the Site for investigation and remediation activities.

DEH has applied for admission to the TCEQ Voluntary Cleanup Program ("VCP"). The VCP application was filed on June 25, 2025, accompanied by the required $1,000 application fee, and has been assigned VCP Tracking No. VCP-2517. The VCP provides a framework for DEH to conduct the necessary investigation and remediation under TCEQ oversight, and upon successful completion of the cleanup, DEH will receive a certificate of completion ("CoC") from TCEQ that provides regulatory closure and a release from further liability for the conditions addressed.

Pinehill prepared a remediation cost estimate in April 2025, projecting total remediation costs of $9.74 million, with a range of $7.81 million (low estimate) to $12.18 million (high estimate). The component breakdown of the base-case estimate is as follows:

DEH's asserted share of the total remediation cost is $5.48 million, which reflects DEH's position that costs attributable to contamination from the northern tank farm (operated exclusively by DTS/DEH) and a proportionate share of common costs are DEH's responsibility. The balance of $4.26 million is attributed to RCFD's share, reflecting contamination caused by releases in the southern tank farm during RCFD's period of operational control. The sum of the two shares ($5.48 million + $4.26 million) equals the total estimated remediation cost of $9.74 million.

To date, DEH has incurred $387,000 in investigative costs through Pinehill, encompassing the Phase I Environmental Site Assessment, the Phase II ESA, and supplemental investigation activities conducted from January 2024 through the present. These costs have been paid by DEH and represent the principal expenditures incurred to date.

C. Cost-Recovery Action Against RCFD

Calderwood & Harkness transmitted a pre-suit demand letter to RCFD on May 12, 2025, demanding payment of $4,647,000, consisting of RCFD's $4.26 million allocated share of future remediation costs plus the $387,000 in investigative costs incurred to date. The demand letter asserted claims under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a), and Section 361.344 of the Texas Health and Safety Code.

RCFD responded through its counsel, Thomas Kessler of Whitfield Barr LLP, by letter dated July 8, 2025. In its response, RCFD denied liability for the contamination at the Site and counter-proposed a global settlement of $750,000, representing approximately 17.6% of DEH's demand and approximately 7.7% of the total estimated remediation cost. The counter-proposal did not include any explanation of RCFD's basis for the proposed amount, nor did it address the factual record of documented releases in the southern tank farm during RCFD's period of operational control.

The potential litigation forum for a cost-recovery action against RCFD is the United States District Court for the Southern District of Texas, Houston Division. The strategic and tactical considerations relating to the RCFD cost-recovery action are addressed in a separate memorandum and are not the primary subject of this analysis. However, the interplay between the RCFD cost-recovery action and Bridgemont's subrogation rights under the PLL Policy is analyzed in Section IV.H below.

III. The Bridgemont PLL Policy — Key Terms

A. Policy Identification and Period

The PLL Policy at issue was issued by Bridgemont Insurance Company, a Delaware corporation with offices at 200 Galleria Parkway, Suite 1800, Atlanta, Georgia 30339. The underwriter contact for the Policy is Paul Neumann, Senior Vice President, Environmental Lines. The Policy is identified as Policy No. ENV-BIC-2024-07821.

The Policy has an effective period of ten years, commencing on March 1, 2024 and expiring on March 1, 2034. This extended policy term is typical of PLL policies underwritten for known environmental conditions, as it provides coverage over the anticipated duration of the remediation project and a period of post-remediation monitoring.

The Named Insured under the Policy is Dunmore Energy Holdings Ltd. The Dunmore Wharton Terminal at 14200 FM 1301, Wharton, Texas 77488 is specifically listed as a scheduled known-condition location in the Policy's schedule of covered locations. The significance of this scheduling is discussed in greater detail in Section IV.C below.

B. Aggregate Limit and Self-Insured Retention

The Policy provides an aggregate limit of liability of $15,000,000 for all claims and costs arising from pollution conditions at all scheduled locations during the entire ten-year policy period. This is a single aggregate limit that applies to the cumulative total of all covered costs, including cleanup costs, third-party claims, and defense costs, over the life of the Policy.

The Policy includes a self-insured retention of $500,000 per pollution condition. Under this structure, Bridgemont's coverage obligation does not commence until DEH has incurred $500,000 in eligible costs attributable to a given pollution condition. The SIR functions similarly to a deductible, requiring DEH to bear the first $500,000 of covered costs out of pocket before Bridgemont is obligated to reimburse or pay any portion of the remaining costs.

The entire contamination at the Site should constitute a single "pollution condition" under standard PLL policy definitions, which typically define a "pollution condition" as the discharge, dispersal, release, or escape of pollutants into or upon land, groundwater, or surface water at or from a covered location. All of the contamination at the Site — whether from the northern or southern tank farm, and regardless of which release event is the source — should be treated as a single pollution condition for purposes of the SIR. If Bridgemont were to attempt to treat each of the five documented releases as a separate "pollution condition" subject to separate SIR obligations, that position would significantly increase DEH's out-of-pocket exposure and should be vigorously contested.

C. Scope of Coverage

The Bridgemont Policy provides coverage for the following principal categories of costs and liabilities:

On-Site Cleanup Costs. The Policy covers costs of investigation, remediation, and monitoring of pollution conditions at scheduled locations, including the Site, above the SIR. This is the primary coverage provision relevant to DEH's anticipated remediation program and encompasses the full range of remediation activities contemplated in Pinehill's cost estimate, including soil excavation and off-site disposal, in-situ groundwater treatment, long-term groundwater monitoring, implementation of institutional controls, and project management and regulatory reporting.

Off-Site Cleanup Costs. The Policy covers the costs of remediating contamination that has migrated from a scheduled location to off-site areas. This coverage is directly relevant to the Dunmore Wharton Terminal, given the existence of the dissolved benzene plume extending approximately 2,400 feet south-southwest beyond the Site boundary. To the extent that remediation of the off-site plume is required — whether through monitored natural attenuation, active treatment, or other measures — those costs should fall within the Policy's coverage.

Third-Party Bodily Injury and Property Damage. The Policy covers claims by third parties for bodily injury and property damage arising from pollution conditions at scheduled locations. This coverage extends to claims arising from conditions first discovered during the policy period as well as from known conditions specifically scheduled in the Policy. Third-party claims are a material risk given the proximity of the dissolved benzene plume to downgradient residential properties, particularly the Ingram Property.

Defense Costs. Defense costs incurred in connection with covered claims are included within the Policy. Critically, the Policy appears to employ a "burning limits" structure, meaning that defense costs erode the $15 million aggregate limit. Under this structure, every dollar spent on defense costs reduces the total amount available for cleanup costs and indemnity payments. This is an important consideration for long-term claims management and is discussed further in Section IV.A below.

Known-Condition Scheduling. The Site is listed in the Policy with a summary of known contamination, and coverage is expressly extended notwithstanding DEH's prior knowledge of the pollution condition, subject to the specific terms of the schedule. This is a critical feature of the Policy, as standard PLL policies typically exclude coverage for conditions known to the insured prior to the policy inception date. The express scheduling of the Site as a known-condition location overcomes this exclusion and provides coverage for the remediation of the contamination described in the schedule, as well as for any worsening or expansion of the contamination discovered during the policy period.

D. Exclusions and Limitations

The Policy contains standard PLL exclusions that may limit coverage for certain types of costs and liabilities. The following exclusions and limitations warrant particular attention:

Intentional Non-Compliance. The Policy excludes coverage for costs and liabilities arising from the insured's intentional non-compliance with applicable environmental laws and regulations. There is no indication in the factual record that DTS or DEH intentionally violated environmental laws, and this exclusion should not be applicable.

Contractual Liability. The Policy excludes coverage for liability assumed under contract, except to the extent such liability arises from an "insured contract" as defined in the Policy. The Calera Agreement and the historical Joint Operating Agreement with RCFD should be reviewed against the "insured contract" definition to determine whether any contractual obligations assumed by DEH thereunder fall within or outside this exclusion.

Pre-Existing Conditions Not Scheduled. The Policy excludes coverage for pollution conditions known to the insured prior to policy inception that are not listed in the policy schedule. Because the Site is specifically scheduled as a known-condition location, this exclusion should not apply to the contamination at the Site. However, the scope of coverage for the known condition may be limited to the conditions as described in the schedule — any newly discovered conditions or expansions beyond what was scheduled may require separate analysis to determine whether they are covered as a "Discovery" during the policy period or are excluded as unscheduled known conditions.

Fines and Penalties. The Policy excludes coverage for fines and penalties imposed by governmental authorities. If TCEQ were to assess any fines or penalties against DEH in connection with the contamination at the Site, those amounts would not be covered under the Policy.

Workers' Compensation and Employer's Liability. The Policy excludes coverage for claims arising under workers' compensation statutes or for employer's liability. Any occupational-exposure claims by former DTS employees relating to their work at the terminal would fall outside PLL coverage and would need to be addressed under separate insurance programs (which may no longer be available given DTS's dissolution).

IV. Analysis

A. Adequacy of the $15M Aggregate Limit

The $15 million aggregate limit of the Bridgemont Policy significantly exceeds the total estimated remediation cost of $9.74 million prepared by Pinehill. The Policy limit provides a margin of approximately $5.26 million above the base-case cost estimate, which represents approximately 54% additional capacity beyond the estimated cleanup cost.

Even at the high end of Pinehill's cost estimate range ($12.18 million), the Policy limit would provide a remaining buffer of approximately $2.82 million. This buffer, while less generous, should be sufficient to accommodate reasonable contingencies including incremental defense costs, additional investigation that may be required by TCEQ during the VCP process, and potential third-party claims.

If DEH is required to bear 100% of remediation costs pending recovery from RCFD — that is, if DEH funds the entire $9.74 million remediation program and subsequently seeks reimbursement from RCFD for RCFD's $4.26 million share — the full $9.74 million less the $500,000 SIR, or $9.24 million, would need to be covered by the Policy. This amount is well within the $15 million aggregate limit.

However, two factors warrant ongoing monitoring. First, the Policy's "burning limits" structure means that defense costs incurred in connection with any coverage dispute with Bridgemont, any third-party bodily injury or property damage claim, or any proceeding in which Bridgemont provides a defense, will erode the aggregate limit. If significant third-party litigation materializes — for example, if the Ingram Property or other downgradient landowners assert claims for property damage, diminution in value, or personal injury arising from benzene exposure — defense costs could consume a meaningful portion of the available aggregate. Second, if the cost-recovery litigation against RCFD generates counterclaims or cross-claims that implicate the Policy (for example, if RCFD asserts counterclaims for contribution or indemnification relating to contamination at the Site that Bridgemont is obligated to defend), those defense costs would further erode the aggregate.

Assessment. The aggregate limit appears adequate for the currently estimated remediation scope, inclusive of reasonable cost overruns, defense costs, and potential third-party claim exposure. However, the aggregate limit should be monitored on an ongoing basis as remediation progresses. If total incurred and projected costs approach the $12.18 million high-end estimate, or if significant third-party claims or defense costs materialize, the engagement team should assess whether additional coverage is needed and whether the Policy's aggregate limit can be increased by endorsement or a supplemental policy.

B. Self-Insured Retention — Timing of Exhaustion

The $500,000 SIR applies per pollution condition, and as discussed in Section III.B, the entire contamination at the Site should constitute a single "pollution condition" under the Policy. Accordingly, DEH's total SIR obligation should be $500,000, not a multiple thereof.

DEH has already incurred $387,000 in investigative costs through Pinehill, encompassing the Phase I ESA, the Phase II ESA, and supplemental investigation work performed from January 2024 through the present. A threshold question is whether these costs — or a portion thereof — qualify toward exhaustion of the SIR. This depends on whether the costs were incurred during the Policy period (on or after March 1, 2024):

• Phase I ESA: The Phase I ESA was commenced in January 2024, prior to the Policy's March 1, 2024 effective date. Costs incurred before March 1, 2024 in connection with the Phase I ESA would likely not count toward SIR exhaustion, as they were incurred outside the Policy period. However, if any Phase I costs were incurred on or after March 1, 2024 (for example, if the Phase I report was finalized in March or April 2024), those costs may be eligible for SIR credit.

• Phase II ESA: The Phase II ESA was completed in June 2024, after the Policy effective date. Costs incurred in connection with the Phase II ESA on or after March 1, 2024 should be eligible for SIR credit. Depending on when the Phase II fieldwork commenced (and whether any Phase II costs were incurred before March 1, 2024), a substantial portion of the Phase II ESA costs should qualify.

• Supplemental Investigation: The supplemental investigation was conducted after the Phase II ESA and thus entirely within the Policy period. All costs associated with the supplemental investigation should be eligible for SIR credit.

To determine the precise allocation of the $387,000 between pre- and post-effective-date costs, we need to obtain a detailed breakdown of all Pinehill invoices by date of service, amount, and description of services rendered. This breakdown will establish the exact amount of investigative costs creditable toward the SIR.

Based on a preliminary assessment, assuming that the Phase I ESA costs were in the range of $25,000 to $50,000 and that a portion of the Phase II ESA costs may have been incurred before March 1, 2024, DEH's remaining SIR obligation is likely in the range of $113,000 to $250,000. This range reflects the assumption that somewhere between $250,000 and $387,000 of the total investigative costs were incurred during the Policy period and are creditable toward the SIR.

Regardless of the precise remaining SIR balance, the SIR will almost certainly be exhausted during the early phases of active remediation, which is projected to commence in approximately June 2026 following submission and approval of the Voluntary Cleanup Work Plan. In the interim, additional investigation and Affected Property Assessment Report ("APAR") preparation costs will likely reduce or fully exhaust the remaining SIR balance. The APAR is targeted for submission by October 31, 2025, and the costs of its preparation — including additional field sampling, data analysis, risk assessment, and report drafting — could easily range from $100,000 to $250,000, which would fully exhaust any remaining SIR obligation.

Recommendation. Maintain a detailed SIR exhaustion ledger documenting all eligible costs by date, amount, payee, and description of services. Each expenditure should be categorized by cost component (investigation, remediation, monitoring, project management, etc.) and flagged as pre- or post-effective-date. Coordinate with Gresham & Alford CPAs (Christine Lau, engagement partner) on expense tracking and alignment with DEH's financial reporting obligations under ASC 410 (Asset Retirement Obligations) and ASC 450 (Contingencies). Once the SIR is exhausted, all subsequent eligible costs should be submitted to Bridgemont for reimbursement in accordance with the Policy's claims-reporting procedures.

C. Known-Condition Scheduling and Coverage Scope

The Site is expressly scheduled as a known-condition location in the Policy. This scheduling is the foundation of DEH's coverage for the contamination at the Site, as it overcomes the standard PLL exclusion for pollution conditions known to the insured prior to policy inception.

The scope of coverage for a known condition scheduled in a PLL policy is typically limited to the conditions as described in the schedule plus any worsening, expansion, or new discovery during the policy period. The policy schedule should describe the nature and extent of known contamination at the time of policy inception. As of the Policy's March 1, 2024 effective date, the Phase I ESA had been commenced (January 2024), but the Phase II ESA was not completed until June 2024. Accordingly, the information available at policy inception was limited to historical records, including the five TCEQ incident reports (1996, 2001, 2003, 2008, and 2014), preliminary indications of contamination from the Phase I ESA process, and whatever environmental information was available from DTS's historical operations.

The full delineation of the contamination — including the extent of the dissolved benzene plume (~2,400 feet downgradient), the maximum benzene concentration of 3.8 mg/L in groundwater (760 times the MCL), and the full extent of soil contamination in both the northern and southern tank farms — was not established until the Phase II ESA was completed in June 2024. Because this delineation was completed after the Policy effective date, it should be treated as a "Discovery" during the policy period. This characterization strengthens DEH's coverage arguments, as the Policy would cover not only the conditions described in the schedule at inception but also the additional contamination discovered through the Phase II ESA.

Potential Coverage Dispute. There is a risk that Bridgemont could argue that the contamination was more extensive than what was described in the schedule at inception and, on that basis, seek to limit coverage to the scope of contamination as described in the schedule. For example, Bridgemont might contend that the schedule contemplated remediation of localized contamination at five specific release points, not a 2,400-foot dissolved benzene plume or widespread soil contamination across both tank farms. If Bridgemont took this position, it could argue that the difference between the scheduled condition and the actual condition represents an unscheduled known condition that falls outside coverage.

DEH should be prepared to counter this argument on multiple grounds. First, the scheduling was done in good faith based on the information reasonably available to DEH at the time of policy inception. The full extent of the contamination was not known until the Phase II ESA was completed in June 2024, after the policy effective date. Second, the discovery of the full extent of the contamination during the policy period is precisely the type of event that the known-condition scheduling is designed to address — PLL policies with known-condition scheduling are underwritten with the understanding that the true scope of contamination may not be fully known at inception and that further investigation may reveal conditions more extensive than initially described. Third, the premium charged for the Policy was presumably calculated based on underwriting assumptions about the potential scope and cost of contamination at the Site; Bridgemont accepted the risk of a known condition and cannot now disclaim coverage because the condition proved to be more extensive than the underwriting assumptions. Finally, to the extent the Policy requires the known condition to be scheduled "in good faith" or "to the best of the insured's knowledge," DEH can demonstrate that it disclosed all information available at inception, including the five TCEQ incident reports and the fact that a Phase II ESA was underway.

We recommend reviewing the precise language of the known-condition schedule and the Policy's definitions of "pollution condition" and "scheduled condition" to confirm our analysis and prepare for any potential coverage dispute.

D. On-Site Cleanup Costs

The Policy covers on-site remediation costs at scheduled locations above the SIR. Based on the Pinehill April 2025 remediation cost estimate, the following remediation components should be covered as on-site cleanup costs under the Policy:

Soil Excavation and Off-Site Disposal. The two largest single components of the remediation cost estimate are soil excavation in the southern tank farm ($3.42 million) and the northern tank farm ($1.87 million), totaling $5.29 million. These costs encompass excavation of contaminated soils, characterization and profiling of excavated materials, loading and transportation to a licensed disposal facility, and confirmation sampling to verify that remediation objectives have been achieved. These are quintessential "cleanup costs" under PLL policies and should be covered without dispute.

In-Situ Groundwater Treatment. The proposed groundwater remedy involves a combination of in-situ chemical oxidation ("ISCO") and enhanced bioremediation, estimated at $2.15 million. ISCO involves the injection of chemical oxidants (such as sodium persulfate or potassium permanganate) into the subsurface to destroy dissolved-phase contaminants. Enhanced bioremediation involves the injection of amendments (such as oxygen-releasing compounds or electron donors) to stimulate naturally occurring microbial populations that degrade petroleum hydrocarbons. Both are recognized and widely used remediation technologies. These costs should be covered as on-site cleanup costs.

Long-Term Groundwater Monitoring. Pinehill's estimate includes $1.06 million for long-term groundwater monitoring, consisting of 32 quarterly monitoring events at $33,125 per event, spanning approximately eight years. Groundwater monitoring is an integral component of the remediation program and is typically required by TCEQ to demonstrate that remediation objectives are being achieved and that the groundwater plume is not migrating further. Monitoring costs are standard "cleanup costs" under PLL policies and should be covered.

Institutional Controls and Deed Restrictions. Pinehill estimates $180,000 for the implementation of institutional controls, including the preparation and recording of deed restrictions limiting future use of the Site to commercial or industrial purposes (to prevent residential use of contaminated areas). Institutional controls are a standard component of risk-based corrective action in Texas and should be covered as cleanup costs.

Project Management, Reporting, and Regulatory Liaison. Pinehill estimates $1.06 million for project management, reporting, and regulatory liaison over the course of the remediation project. This includes preparation of the APAR, the Voluntary Cleanup Work Plan, interim progress reports, and the final closure report, as well as ongoing coordination with TCEQ's VCP project manager. These costs are integral to the remediation effort and should be covered.

TCEQ Oversight Fees. TCEQ charges oversight fees for VCP projects at a rate of approximately $225 per hour. Based on the scope and duration of the project, TCEQ oversight fees may total approximately $135,000 over the life of the remediation. Whether these fees qualify as "cleanup costs" under the Policy depends on the Policy's specific definition. Some PLL policies expressly include governmental oversight costs within the definition of "cleanup costs," while others are silent or ambiguous. We recommend reviewing the applicable definition and, if necessary, seeking Bridgemont's confirmation that TCEQ oversight fees will be treated as covered costs.

VCP Application Fee. The $1,000 VCP application fee is de minimis but should be included in cost tracking for SIR exhaustion purposes.

All costs should be meticulously documented and submitted to Bridgemont for reimbursement once the SIR is exhausted, in accordance with the Policy's claims-submission procedures. Supporting documentation should include invoices from Pinehill and any other contractors, TCEQ correspondence, receipts for TCEQ fees, and evidence of the date and amount of each expenditure.

E. Off-Site Groundwater Migration

The dissolved benzene plume extends approximately 2,400 feet south-southwest from the southern tank farm, beyond the boundaries of the Site and onto adjacent properties. The existence of this off-site plume triggers the Policy's coverage for remediation of contamination that has migrated from a scheduled location to off-site areas.

Off-site groundwater remediation may be required to the extent that the dissolved plume affects downgradient properties or threatens water-supply wells. The nearest identified receptor is the Ingram Property at 16405 FM 1301, which is located approximately 3,100 feet south-southwest of the leading edge of the plume. As of the most recent sampling event in February 2025, Pinehill detected no COC concentrations above MCLs at the Ingram Property well. However, the benzene plume is migrating in the direction of the Ingram Property, and the current separation of approximately 3,100 feet between the plume's leading edge and the Ingram Property well may not be sufficient to prevent future impacts, depending on groundwater flow velocity, contaminant retardation, and the effectiveness of the proposed in-situ treatment program.

If the plume reaches the Ingram Property or other off-site receptors and requires additional remediation, alternate water supply, or other response actions, those costs should be covered under the PLL Policy as off-site cleanup costs. Such costs would be in addition to the on-site remediation cost estimate of $9.74 million and could increase DEH's total remediation exposure. However, the $15 million aggregate limit should accommodate reasonable off-site remediation scenarios, particularly given that off-site groundwater treatment costs (if needed) would likely be a fraction of the on-site remediation program.

It is also possible that TCEQ could require DEH, as part of the VCP, to conduct off-site plume delineation or remediation as a condition of receiving a certificate of completion. If so, those costs would fall within the Policy's coverage for off-site cleanup and should be submitted to Bridgemont accordingly.

F. Third-Party Bodily Injury and Property Damage Claims

The most significant potential third-party exposure arises from the proximity of the dissolved benzene plume to downgradient residential properties, principally the Ingram Property at 16405 FM 1301 and potentially other rural properties located south and southwest of the Site. The most likely categories of third-party claims include:

Property Damage and Diminution in Value. Owners of downgradient properties may assert claims for property damage or diminution in the value of their properties based on the actual or perceived contamination of their land and groundwater. Even if contamination has not reached a particular property, the mere proximity of the plume and the associated stigma may be alleged to reduce property values.

Bodily Injury. If the benzene plume migrates to residential wells and those wells are used for drinking water, affected residents may assert claims for bodily injury arising from exposure to benzene, which is a known human carcinogen classified as a Group 1 carcinogen by the International Agency for Research on Cancer (IARC). Chronic exposure to benzene in drinking water is associated with an increased risk of leukemia and other hematological malignancies. Claims for medical monitoring — even in the absence of current illness — may also be asserted.

Alternate Water Supply. If contamination reaches residential wells, affected property owners may incur costs for connection to a public water supply system or installation of point-of-use treatment systems, and may seek recovery of those costs from DEH.

The PLL Policy covers third-party bodily injury and property damage claims arising from pollution conditions at scheduled locations, including the Site. Defense costs associated with such claims are also covered, although they erode the $15 million aggregate limit.

Although no MCL exceedances have been detected at the Ingram Property well as of the most recent February 2025 sampling event, the plume's current trajectory and the relatively short separation distance of approximately 3,100 feet between the plume's leading edge and the Ingram Property well warrant continued vigilance. If the proposed in-situ groundwater treatment program is effective in arresting plume migration, the risk of third-party claims will be substantially reduced. However, there is no assurance that the treatment program will fully contain the plume, particularly during the initial phases of implementation.

Recommendation. Continue quarterly monitoring of the Ingram Property well and any other downgradient receptor wells identified by Pinehill. If any MCL exceedances are detected at any receptor well, promptly notify Bridgemont of the potential third-party claim in accordance with the Policy's notice requirements. In addition, consider proactive outreach to the Ingram Property owner (and other downgradient landowners) to maintain open communication and mitigate the risk of adversarial claims.

G. Notice Obligations and Claims-Reporting Procedures

Formal notice of the pollution condition at the Site was provided to Bridgemont on June 30, 2025, via letter from Sandra Tung, Responsible Partner, to Paul Neumann, Senior Vice President, Environmental Lines, at Bridgemont's Atlanta, Georgia office. The notice letter contained the following principal elements:

• Identification of the Site as a scheduled known-condition location under Policy No. ENV-BIC-2024-07821;

• A summary of the contamination at the Site, including the identification of COCs (BTEX, TPH, MTBE, dissolved lead), the extent of the dissolved benzene plume (approximately 2,400 feet downgradient), and the maximum benzene concentration detected in groundwater (3.8 mg/L, representing 760 times the federal MCL of 0.005 mg/L);

• Reference to the Pinehill April 2025 remediation cost estimate of $9.74 million, including the component breakdown and the cost range of $7.81 million to $12.18 million;

• Notification of DEH's entry into the TCEQ Voluntary Cleanup Program (VCP Tracking No. VCP-2517);

• Identification of the potential third-party exposure at the Ingram Property, 16405 FM 1301;

• A reservation of DEH's rights under the Policy, including claims for on-site cleanup costs, off-site cleanup costs, and third-party claims, all above the $500,000 SIR;

• A request for Bridgemont's acknowledgment of receipt and assignment of a claim number.

Timeliness of Notice. The Policy became effective on March 1, 2024. The full Phase II ESA results were available in June 2024, and the Pinehill remediation cost estimate was delivered in April 2025. Notice was provided to Bridgemont on June 30, 2025 — approximately 12 months after the Phase II ESA and approximately 3 months after the remediation cost estimate. Whether this constitutes "prompt" notice depends on the Policy's specific notice provisions, which typically require the insured to provide notice "as soon as practicable" after discovery of a pollution condition or a claim.

Several factors support a finding that DEH's notice was timely. First, the contamination at the Site was a known condition scheduled at policy inception. The notice provided on June 30, 2025 pertained not to the initial discovery of contamination, but rather to the results of the remediation cost analysis and DEH's entry into the TCEQ VCP — both of which occurred in the weeks and months immediately preceding the notice. The notice was sent within five days of the VCP application filing date of June 25, 2025. Second, the known-condition scheduling fundamentally alters the notice calculus: because Bridgemont was aware of the contamination at inception (it underwrote the risk with full knowledge of the known condition), the purpose of notice is to inform the insurer of the specific claim or cost that the insured intends to submit, not to alert the insurer to a previously unknown condition. Third, there is no indication that Bridgemont was prejudiced by the timing of the notice; the remediation has not yet commenced, no costs above the SIR have been incurred, and no third-party claims have been asserted.

Notwithstanding these defenses, there is a residual risk that Bridgemont could argue that notice should have been provided when the Phase II ESA results were received in June 2024, on the theory that the Phase II ESA results constituted the "Discovery" of the full extent of the pollution condition. However, this argument is weakened by the fact that the condition was scheduled at inception, and the Phase II ESA merely confirmed and delineated a condition that Bridgemont already knew existed. Moreover, the notice was provided well in advance of any request for reimbursement from Bridgemont, and Bridgemont has suffered no identifiable prejudice.

Ongoing Reporting Obligations. The Policy likely contains ongoing reporting obligations that require DEH to provide Bridgemont with periodic updates on the status of the remediation, copies of TCEQ correspondence, and summaries of costs incurred. In addition, the Policy almost certainly requires notice of any third-party claim or suit within a specified period (typically 30 to 60 days after the insured becomes aware of the claim or receives service of process).

Recommendation. Follow up with Paul Neumann at Bridgemont to obtain formal acknowledgment of the June 30, 2025 notice and assignment of a claim number. Establish a regular reporting protocol with Bridgemont, including quarterly or semi-annual updates on remediation progress, TCEQ correspondence, and cumulative cost summaries. Provide copies of the APAR (target submission date October 31, 2025) and the Voluntary Cleanup Work Plan (target submission date April 2026) to Bridgemont when they are submitted to TCEQ. If any third-party claim or suit is asserted, notify Bridgemont immediately and in any event within the timeframe specified in the Policy.

H. Interaction with RCFD Cost Recovery — Subrogation

Under standard PLL policy provisions, the insurer has subrogation rights against third parties responsible for the pollution condition to the extent the insurer pays covered claims. That is, when Bridgemont reimburses DEH for cleanup costs above the SIR, Bridgemont steps into DEH's shoes and acquires DEH's right to seek recovery of those costs from third parties responsible for the contamination, including RCFD.

The interaction between Bridgemont's subrogation rights and DEH's cost-recovery action against RCFD raises several important considerations:

Preservation of Subrogation Rights. DEH must not settle with or release RCFD without Bridgemont's consent if doing so would prejudice Bridgemont's subrogation rights. PLL policies typically contain anti-impairment provisions that prohibit the insured from settling with or releasing a responsible third party without the insurer's prior written consent, and that authorize the insurer to deny or reduce coverage if the insured's actions impair the insurer's subrogation rights. If DEH were to settle with RCFD on terms that Bridgemont considers inadequate or that release RCFD from further liability, Bridgemont could assert that DEH has impaired its subrogation rights and reduce its coverage accordingly.

Settlement Coordination. Any settlement with RCFD should be structured to preserve or coordinate with Bridgemont's subrogation interest. This could take several forms: (a) obtaining Bridgemont's written consent to the settlement terms prior to execution; (b) including a carve-out in the settlement agreement that expressly preserves Bridgemont's subrogation rights against RCFD; or (c) structuring the settlement so that RCFD's payment is allocated in a manner that Bridgemont agrees does not prejudice its subrogation position.

Allocation of Recoveries. If DEH recovers amounts from RCFD (whether through settlement or judgment), Bridgemont may be entitled to a pro-rata share of the recovery to the extent Bridgemont has reimbursed DEH for costs attributable to RCFD-caused contamination. The contamination in the southern tank farm is primarily attributable to RCFD (based on the three documented releases during RCFD's period of operational control: the 1996 Tank S-4 release, the 2001 Tank S-7 release, and the 2008 Tank S-11 release). If Bridgemont reimburses DEH for remediation costs attributable to the southern tank farm, Bridgemont would have a subrogation interest in any recovery from RCFD for those same costs.

Timing of Settlement. From a strategic perspective, it would be advantageous for DEH to negotiate any RCFD settlement before Bridgemont has paid significant claims, thereby minimizing subrogation complications. If a settlement with RCFD is reached before the SIR is exhausted and before Bridgemont has reimbursed any costs, Bridgemont would have no subrogation interest to assert, and DEH would have full discretion in the settlement negotiations. However, if the SIR is exhausted and Bridgemont begins paying claims before a RCFD settlement is reached, the settlement process becomes more complex due to the need to coordinate with Bridgemont's subrogation rights.

Alternatively, DEH could enter into a subrogation cooperation agreement with Bridgemont to formalize the coordination of the cost-recovery effort against RCFD. Such an agreement would establish the respective rights and obligations of DEH and Bridgemont with respect to the prosecution of the cost-recovery action, the allocation of legal fees, the authority to make settlement decisions, and the allocation of any recovery.

RCFD's $750,000 Counter-Offer. RCFD has counter-proposed a global settlement of $750,000. This amount represents approximately 17.6% of DEH's demand of $4,647,000 and approximately 7.7% of the total estimated remediation cost of $9.74 million. If DEH were to accept this amount, Bridgemont might object on the grounds that the settlement is significantly below the fair value of RCFD's allocated share ($4.26 million), and that accepting an inadequate settlement impairs Bridgemont's subrogation rights. In particular, if Bridgemont subsequently pays cleanup costs attributable to southern tank farm contamination (which DEH asserts is RCFD's responsibility), Bridgemont would be unable to recover those costs from RCFD because RCFD has been released. Bridgemont could assert that DEH's acceptance of the below-value settlement constitutes a voluntary impairment of subrogation rights and reduce its coverage accordingly.

Recommendation. Notify Bridgemont promptly of the pending cost-recovery action against RCFD and of RCFD's $750,000 counter-offer. Seek Bridgemont's input before making any counter-proposal or agreeing to any settlement terms. Ensure that any settlement agreement with RCFD includes either (a) Bridgemont's express written consent to the settlement terms, or (b) a carve-out expressly preserving Bridgemont's subrogation rights against RCFD. Consider entering into a formal subrogation cooperation agreement with Bridgemont to coordinate the cost-recovery effort. Do not accept RCFD's $750,000 counter-offer without Bridgemont's prior approval.

I. Historic CGL Policies — Piedmont Mutual Insurance Co.

DTS maintained comprehensive general liability ("CGL") insurance policies issued by Piedmont Mutual Insurance Co., a North Carolina corporation, from approximately 1974 through 2000. These policies predate the Bridgemont PLL Policy and could, in theory, provide "occurrence"-based coverage for pollution events during their respective policy periods. Of the five documented releases at the Site, three occurred during the period covered by the Piedmont Mutual CGL policies: the 1996 release from Tank S-4, the 2001 release from Tank S-7, and the 2003 release from Tank N-3 (the 2001 and 2003 releases fall within the 1974–2000 coverage period, and the 1996 release clearly falls within that period as well; the exact expiration date of the last Piedmont Mutual policy may need to be confirmed to verify coverage for the 2003 release).

However, Piedmont Mutual entered receivership in 2012. The company ceased writing new business several years before entering receivership, and the receivership estate has been in the process of winding down claims for over a decade. Based on information available from public records and the North Carolina Department of Insurance (which supervises the receivership), no meaningful recovery is expected from Piedmont Mutual. The receivership estate is likely substantially exhausted, and any remaining assets are subject to statutory priority rules that subordinate general policyholder claims to administrative expenses, policyholder claims in liquidation, and other priority categories. Claims filed against a receivership estate are typically subject to significant delays (often measured in years), substantial haircuts (recoveries of 10 to 30 cents on the dollar or less), and administrative priority issues that may further reduce the amount available for general policyholder claims.

Even if Piedmont Mutual were solvent, coverage under the CGL policies would raise significant issues relating to the pollution exclusion. CGL policies issued from the mid-1980s onward typically contain an "absolute pollution exclusion" that eliminates coverage for all claims arising from the discharge, dispersal, release, or escape of pollutants, regardless of whether the discharge was sudden or gradual. Earlier CGL policies (pre-1986) typically contained a "sudden and accidental" exception to the pollution exclusion, which preserves coverage for discharges that are both sudden and accidental. The documented releases at the Site (tank failures releasing thousands of gallons of petroleum products) might arguably qualify as "sudden and accidental" events, depending on the specific facts and circumstances of each release. However, the gradual leaching and migration of contamination into the subsurface and groundwater over decades would likely be excluded under either version of the pollution exclusion.

Assessment. No meaningful recovery is expected from Piedmont Mutual. The receivership estate is likely insufficient to pay claims, and any recovery would be subject to delays, reductions, and priority issues that render it economically insignificant relative to the magnitude of DEH's remediation liability.

Recommendation. Do not rely on any recovery from Piedmont Mutual for purposes of remediation budgeting, financial projections, or insurance coverage planning. If the firm wishes to preserve the claim as a precautionary measure, a nominal proof of claim should be filed in the Piedmont Mutual receivership proceeding, accompanied by supporting documentation identifying the relevant CGL policies, the applicable policy periods, the documented releases occurring during those periods, and the estimated costs of remediation. However, the expected recovery is zero, and the time and expense associated with pursuing the claim should be weighed against the negligible likelihood of any meaningful recovery.

V. Coverage Gap Analysis

Based on the foregoing analysis, the following summary identifies the costs and liabilities that are covered under the Bridgemont PLL Policy, those that are potentially uncovered, and the overall adequacy of the available coverage.

Covered Costs. The following categories of costs and liabilities are expected to be covered under the Bridgemont PLL Policy, subject to the $500,000 SIR and the $15 million aggregate limit:

• On-site cleanup costs, including soil excavation and off-site disposal, in-situ groundwater treatment, long-term groundwater monitoring, institutional controls, and project management and regulatory reporting (estimated at $9.74 million in the aggregate);

• Off-site groundwater remediation costs, to the extent that remediation of the downgradient benzene plume beyond the Site boundary is required;

• Third-party bodily injury and property damage claims arising from pollution conditions at the Site, including claims by downgradient property owners for property damage, diminution in value, personal injury, or alternate water supply costs;

• Defense costs incurred in connection with third-party claims or coverage disputes (subject to the burning-limits structure, which erodes the aggregate limit).

Potentially Uncovered Costs. The following categories of costs and liabilities are potentially not covered under the Bridgemont PLL Policy and may represent out-of-pocket exposure for DEH:

• Pre-Effective-Date Investigation Costs. Some portion of the $387,000 in investigative costs incurred through Pinehill may have been incurred before the Policy's March 1, 2024 effective date. Costs incurred before the effective date are outside the Policy period and would not be covered or creditable toward the SIR. The precise amount of pre-effective-date costs requires a detailed review of Pinehill's invoices.

• TCEQ Fines or Penalties. If TCEQ assesses any fines or penalties against DEH in connection with the contamination at the Site — for example, for failure to timely report a release or for non-compliance with a regulatory order — those amounts are typically excluded from PLL coverage. At present, there is no indication that TCEQ intends to assess fines or penalties, and DEH's proactive enrollment in the VCP should mitigate this risk.

• Legal Fees for the RCFD Cost-Recovery Action. DEH's legal fees for the cost-recovery litigation against RCFD are offensive litigation costs — that is, costs incurred by DEH in prosecuting its own affirmative claims against a third party. These costs are not "cleanup costs" or "defense costs" as typically defined in PLL policies and are likely excluded from coverage. DEH's estimated legal fees for the RCFD cost-recovery action, through either VCP completion or litigation resolution, range from approximately $1.1 million to $1.6 million. These fees are likely DEH's own obligation and should be budgeted separately from the remediation costs covered by the Policy.

• Workers' Compensation and Occupational-Exposure Claims. Any claims by former DTS employees for occupational exposure to petroleum hydrocarbons, benzene, or other contaminants during their employment at the terminal are excluded from PLL cove

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the attorneys and personnel identified herein in connection with their representation of Dunmore Energy Holdings Ltd. Any disclosure, copying, or distribution of this memorandum or its contents to any person not authorized to receive it may constitute a waiver of applicable privileges. Do not forward or distribute without prior authorization from the Responsible Partner.
FROM: Cynthia Ho, Lead Associate (Real Estate Practice), Calderwood & Harkness LLP
TO: Sandra Tung, Responsible Partner; Oliver Mackenzie, Billing Partner; Devon Archer, Working Associate
DATE: July 14, 2025
RE: Insurance Coverage Analysis — Bridgemont Insurance Company Pollution Legal Liability Policy (Policy No. ENV-BIC-2024-07821) — Dunmore Wharton Terminal Site, 14200 FM 1301, Wharton, Wharton County, TX 77488
MATTER NO.: 1016-00006
CLIENT: Dunmore Energy Holdings Ltd.
REVIEWED BY: Sandra Tung
I. Executive Summary
This memorandum analyzes the scope and adequacy of insurance coverage available to Dunmore Energy Holdings Ltd. ("DEH") for environmental remediation liabilities at the legacy Dunmore Wharton Terminal site (the "Site") under the Pollution Legal Liability ("PLL") policy issued by Bridgemont Insurance Company (the "Bridgemont Policy" or the "Policy"), Policy No. ENV-BIC-2024-07821. This memorandum also assesses the availability of any coverage under historic comprehensive general liability ("CGL") policies issued by Piedmont Mutual Insurance Co. ("Piedmont Mutual") to DEH's predecessor, Dunmore Terminal Services, Inc. ("DTS").
Key Conclusions. The Bridgemont PLL Policy provides substantial coverage for DEH's anticipated remediation obligations at the Site. The Policy's $15,000,000 aggregate limit is well in excess of the $9.74 million total estimated remediation cost prepared by Pinehill Environmental Consulting LLC ("Pinehill") in April 2025, and it is significantly above DEH's own asserted share of approximately $5.48 million of those costs. Even under Pinehill's high-end cost scenario of $12.18 million, the Policy limit provides a meaningful buffer for cost overruns, third-party claims, and defense expenditures. The Policy's $500,000 self-insured retention ("SIR") will likely be exhausted within the first phase of active remediation, and a significant portion of the $387,000 in investigative costs already incurred through Pinehill may be creditable toward the SIR to the extent those costs were incurred after the Policy's March 1, 2024 effective date. Formal notice of the pollution condition was timely provided to Bridgemont by letter dated June 30, 2025, from Sandra Tung to Paul Neumann, Bridgemont's Senior Vice President of Environmental Lines. No meaningful recovery is expected from Piedmont Mutual's historic CGL policies due to Piedmont Mutual's entry into receivership in 2012 and the likely exhaustion of its receivership estate.
Recommendations. We recommend that the engagement team take the following principal steps: (1) maintain meticulous documentation of all remediation expenditures for SIR tracking purposes, in coordination with Gresham & Alford CPAs; (2) ensure ongoing compliance with Bridgemont's reporting requirements and obtain a claim number from Bridgemont at the earliest opportunity; (3) coordinate any settlement or recovery in the cost-recovery action against Rowan Creek Fuel Distributors, Inc. ("RCFD") with Bridgemont's subrogation rights, including by providing advance notice to Bridgemont before agreeing to any settlement terms; and (4) continue quarterly monitoring of downgradient receptors, including the Ingram Property well, and promptly notify Bridgemont of any potential third-party claims.
The balance of this memorandum sets forth the factual background, identifies the material terms of the Bridgemont Policy, provides a detailed coverage analysis, identifies coverage gaps, and presents specific recommendations for the engagement team.
II. Background
A. The Site and Contamination Summary
The Dunmore Wharton Terminal (the "Site") is a 48.7-acre former petroleum bulk-storage facility located at 14200 FM 1301, Wharton, Wharton County, Texas 77488. The Site is identified by Tax Parcel ID WC-0241-0034 and is legally described as Lots 3 and 4 of the H.T. & B.R.R. Survey, Abstract No. 241, Wharton County, Texas, as more particularly described in the deed recorded at Volume 1892, Page 417, Official Public Records, Wharton County, Texas.
The Site was formerly operated as a petroleum bulk-storage and distribution terminal by Dunmore Terminal Services, Inc. ("DTS"), a Texas corporation that was dissolved on December 31, 2017. DTS operated the terminal continuously from 1974 through 2015, at which point active operations ceased. Upon DTS's dissolution, environmental liabilities associated with the Site were assumed by DEH, a Cayman Islands exempted company (Registration No. MC-318574), pursuant to a Plan of Dissolution and Assignment of Liabilities dated October 15, 2017 (the "Plan of Dissolution"). DEH is therefore the party bearing responsibility for investigation and remediation of contamination at the Site, subject to its contractual and statutory rights of cost recovery against other responsible parties.
The Site is divided into two principal operational areas. The southern tank farm consists of Tanks S-1 through S-12, with an aggregate storage capacity of approximately 315,000 barrels, situated on approximately 18 acres in the southern portion of the Site. The southern tank farm was co-operated by RCFD under a Joint Operating Agreement executed in 1991 and remaining in effect through 2010. During that period, RCFD had operational control over the southern tank farm's petroleum storage, handling, and distribution activities, and was responsible for maintenance of the tanks, containment structures, and associated piping within that area. The northern tank farm consists of Tanks N-1 through N-12, with an aggregate storage capacity of approximately 420,000 barrels, and was operated solely by DTS throughout the life of the terminal.
The contaminants of concern ("COCs") at the Site include benzene, toluene, ethylbenzene, and xylenes (collectively, "BTEX"); total petroleum hydrocarbons ("TPH"); methyl tert-butyl ether ("MTBE"); and dissolved-phase lead. These COCs are consistent with the types of contamination typically associated with legacy petroleum bulk-storage facilities of this nature and vintage.
The current understanding of contamination at the Site is based on the Phase II Environmental Site Assessment ("Phase II ESA") prepared by Pinehill Environmental Consulting LLC ("Pinehill") in June 2024, together with a supplemental investigation completed thereafter. The key contamination data from these investigations are summarized below:
Soil Contamination. TPH concentrations in soil were detected at levels up to 14,200 mg/kg in the southern tank farm, particularly in the vicinity of Tank S-7. In the northern tank farm, TPH concentrations were detected at levels up to 8,750 mg/kg in the vicinity of Tank N-3. Benzene concentrations in soil were detected at levels up to 42 mg/kg, which significantly exceed the Texas Commission on Environmental Quality ("TCEQ") Tier 1 Protective Concentration Levels ("PCLs") for both residential use (1.8 mg/kg) and commercial/industrial use (5.3 mg/kg). The benzene soil concentrations are approximately 23 times the residential PCL and approximately 8 times the commercial/industrial PCL, indicating the need for active soil remediation regardless of the anticipated future use of the Site.
Groundwater Contamination. A dissolved-phase benzene plume has been identified extending approximately 2,400 feet downgradient (in a south-southwest direction) from the southern tank farm. The maximum dissolved benzene concentration detected in groundwater was 3.8 mg/L, which is 760 times the federal Maximum Contaminant Level ("MCL") of 0.005 mg/L. MTBE was detected in groundwater at concentrations up to 1.2 mg/L, and dissolved lead was detected at concentrations up to 0.087 mg/L, which exceeds the federal action level of 0.015 mg/L by a factor of approximately 5.8. The affected aquifer is the Chicot Aquifer (shallow zone), which was encountered at approximately 22 feet below ground surface during the Phase II ESA drilling program. The Chicot Aquifer serves as a drinking water source for rural properties in the surrounding area, which heightens the significance of the groundwater contamination.
Documented Releases. Five documented releases of petroleum products at the Site are reflected in the historical record:
1. 1996 Release (Tank S-4): Approximately 8,000 gallons of diesel fuel were released from Tank S-4 in the southern tank farm. This tank was under RCFD's operational control at the time of the release.
2. 2001 Release (Tank S-7): Approximately 3,200 gallons of gasoline were released from Tank S-7 in the southern tank farm. This release was reported to the TCEQ and assigned Incident No. 142876. This tank was under RCFD's operational control at the time of the release.
3. 2003 Release (Tank N-3): Approximately 1,500 gallons of gasoline were released from Tank N-3 in the northern tank farm. This release was reported to the TCEQ and assigned Incident No. 158432. This tank was operated by DTS.
4. 2008 Release (Tank S-11): Approximately 5,600 gallons of diesel fuel were released from Tank S-11 in the southern tank farm. This release was reported to the TCEQ and assigned Incident No. 197503. This tank was under RCFD's operational control at the time of the release.
5. 2014 Release (Loading Rack): Approximately 600 gallons of diesel fuel were released at the loading rack facility. This release was reported to the TCEQ and assigned Incident No. 251044. The loading rack was operated by DTS.
Nearest Receptor. The nearest identified receptor is a residential well located at the Ingram Property, 16405 FM 1301, approximately 3,100 feet south-southwest of the leading edge of the dissolved benzene plume. Pinehill sampled the Ingram Property well in February 2025 and detected no COC concentrations above applicable MCLs as of that date. However, given the direction and rate of plume migration, the Ingram Property remains a receptor of concern and is the subject of ongoing monitoring.
B. Current Site Ownership and Remediation Status
The Site is currently owned by Calera Properties Group LLC ("CPG" or "Calera"), a Texas limited liability company that acquired the property at a tax foreclosure sale in March 2019 for $612,000. CPG is not a responsible party for the contamination at the Site. CPG acquired the Site through a tax sale, has had no involvement in the historical petroleum storage or distribution operations, and did not contribute to any release of contaminants. DEH and CPG have entered into a Site Access & Cost-Sharing Agreement (the "Calera Agreement") to facilitate DEH's access to the Site for investigation and remediation activities.
DEH has applied for admission to the TCEQ Voluntary Cleanup Program ("VCP"). The VCP application was filed on June 25, 2025, accompanied by the required $1,000 application fee, and has been assigned VCP Tracking No. VCP-2517. The VCP provides a framework for DEH to conduct the necessary investigation and remediation under TCEQ oversight, and upon successful completion of the cleanup, DEH will receive a certificate of completion ("CoC") from TCEQ that provides regulatory closure and a release from further liability for the conditions addressed.
Pinehill prepared a remediation cost estimate in April 2025, projecting total remediation costs of $9.74 million, with a range of $7.81 million (low estimate) to $12.18 million (high estimate). The component breakdown of the base-case estimate is as follows:
DEH's asserted share of the total remediation cost is $5.48 million, which reflects DEH's position that costs attributable to contamination from the northern tank farm (operated exclusively by DTS/DEH) and a proportionate share of common costs are DEH's responsibility. The balance of $4.26 million is attributed to RCFD's share, reflecting contamination caused by releases in the southern tank farm during RCFD's period of operational control. The sum of the two shares ($5.48 million + $4.26 million) equals the total estimated remediation cost of $9.74 million.
To date, DEH has incurred $387,000 in investigative costs through Pinehill, encompassing the Phase I Environmental Site Assessment, the Phase II ESA, and supplemental investigation activities conducted from January 2024 through the present. These costs have been paid by DEH and represent the principal expenditures incurred to date.
C. Cost-Recovery Action Against RCFD
Calderwood & Harkness transmitted a pre-suit demand letter to RCFD on May 12, 2025, demanding payment of $4,647,000, consisting of RCFD's $4.26 million allocated share of future remediation costs plus the $387,000 in investigative costs incurred to date. The demand letter asserted claims under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a), and Section 361.344 of the Texas Health and Safety Code.
RCFD responded through its counsel, Thomas Kessler of Whitfield Barr LLP, by letter dated July 8, 2025. In its response, RCFD denied liability for the contamination at the Site and counter-proposed a global settlement of $750,000, representing approximately 17.6% of DEH's demand and approximately 7.7% of the total estimated remediation cost. The counter-proposal did not include any explanation of RCFD's basis for the proposed amount, nor did it address the factual record of documented releases in the southern tank farm during RCFD's period of operational control.
The potential litigation forum for a cost-recovery action against RCFD is the United States District Court for the Southern District of Texas, Houston Division. The strategic and tactical considerations relating to the RCFD cost-recovery action are addressed in a separate memorandum and are not the primary subject of this analysis. However, the interplay between the RCFD cost-recovery action and Bridgemont's subrogation rights under the PLL Policy is analyzed in Section IV.H below.
III. The Bridgemont PLL Policy — Key Terms
A. Policy Identification and Period
The PLL Policy at issue was issued by Bridgemont Insurance Company, a Delaware corporation with offices at 200 Galleria Parkway, Suite 1800, Atlanta, Georgia 30339. The underwriter contact for the Policy is Paul Neumann, Senior Vice President, Environmental Lines. The Policy is identified as Policy No. ENV-BIC-2024-07821.
The Policy has an effective period of ten years, commencing on March 1, 2024 and expiring on March 1, 2034. This extended policy term is typical of PLL policies underwritten for known environmental conditions, as it provides coverage over the anticipated duration of the remediation project and a period of post-remediation monitoring.
The Named Insured under the Policy is Dunmore Energy Holdings Ltd. The Dunmore Wharton Terminal at 14200 FM 1301, Wharton, Texas 77488 is specifically listed as a scheduled known-condition location in the Policy's schedule of covered locations. The significance of this scheduling is discussed in greater detail in Section IV.C below.
B. Aggregate Limit and Self-Insured Retention
The Policy provides an aggregate limit of liability of $15,000,000 for all claims and costs arising from pollution conditions at all scheduled locations during the entire ten-year policy period. This is a single aggregate limit that applies to the cumulative total of all covered costs, including cleanup costs, third-party claims, and defense costs, over the life of the Policy.
The Policy includes a self-insured retention of $500,000 per pollution condition. Under this structure, Bridgemont's coverage obligation does not commence until DEH has incurred $500,000 in eligible costs attributable to a given pollution condition. The SIR functions similarly to a deductible, requiring DEH to bear the first $500,000 of covered costs out of pocket before Bridgemont is obligated to reimburse or pay any portion of the remaining costs.
The entire contamination at the Site should constitute a single "pollution condition" under standard PLL policy definitions, which typically define a "pollution condition" as the discharge, dispersal, release, or escape of pollutants into or upon land, groundwater, or surface water at or from a covered location. All of the contamination at the Site — whether from the northern or southern tank farm, and regardless of which release event is the source — should be treated as a single pollution condition for purposes of the SIR. If Bridgemont were to attempt to treat each of the five documented releases as a separate "pollution condition" subject to separate SIR obligations, that position would significantly increase DEH's out-of-pocket exposure and should be vigorously contested.
C. Scope of Coverage
The Bridgemont Policy provides coverage for the following principal categories of costs and liabilities:
On-Site Cleanup Costs. The Policy covers costs of investigation, remediation, and monitoring of pollution conditions at scheduled locations, including the Site, above the SIR. This is the primary coverage provision relevant to DEH's anticipated remediation program and encompasses the full range of remediation activities contemplated in Pinehill's cost estimate, including soil excavation and off-site disposal, in-situ groundwater treatment, long-term groundwater monitoring, implementation of institutional controls, and project management and regulatory reporting.
Off-Site Cleanup Costs. The Policy covers the costs of remediating contamination that has migrated from a scheduled location to off-site areas. This coverage is directly relevant to the Dunmore Wharton Terminal, given the existence of the dissolved benzene plume extending approximately 2,400 feet south-southwest beyond the Site boundary. To the extent that remediation of the off-site plume is required — whether through monitored natural attenuation, active treatment, or other measures — those costs should fall within the Policy's coverage.
Third-Party Bodily Injury and Property Damage. The Policy covers claims by third parties for bodily injury and property damage arising from pollution conditions at scheduled locations. This coverage extends to claims arising from conditions first discovered during the policy period as well as from known conditions specifically scheduled in the Policy. Third-party claims are a material risk given the proximity of the dissolved benzene plume to downgradient residential properties, particularly the Ingram Property.
Defense Costs. Defense costs incurred in connection with covered claims are included within the Policy. Critically, the Policy appears to employ a "burning limits" structure, meaning that defense costs erode the $15 million aggregate limit. Under this structure, every dollar spent on defense costs reduces the total amount available for cleanup costs and indemnity payments. This is an important consideration for long-term claims management and is discussed further in Section IV.A below.
Known-Condition Scheduling. The Site is listed in the Policy with a summary of known contamination, and coverage is expressly extended notwithstanding DEH's prior knowledge of the pollution condition, subject to the specific terms of the schedule. This is a critical feature of the Policy, as standard PLL policies typically exclude coverage for conditions known to the insured prior to the policy inception date. The express scheduling of the Site as a known-condition location overcomes this exclusion and provides coverage for the remediation of the contamination described in the schedule, as well as for any worsening or expansion of the contamination discovered during the policy period.
D. Exclusions and Limitations
The Policy contains standard PLL exclusions that may limit coverage for certain types of costs and liabilities. The following exclusions and limitations warrant particular attention:
Intentional Non-Compliance. The Policy excludes coverage for costs and liabilities arising from the insured's intentional non-compliance with applicable environmental laws and regulations. There is no indication in the factual record that DTS or DEH intentionally violated environmental laws, and this exclusion should not be applicable.
Contractual Liability. The Policy excludes coverage for liability assumed under contract, except to the extent such liability arises from an "insured contract" as defined in the Policy. The Calera Agreement and the historical Joint Operating Agreement with RCFD should be reviewed against the "insured contract" definition to determine whether any contractual obligations assumed by DEH thereunder fall within or outside this exclusion.
Pre-Existing Conditions Not Scheduled. The Policy excludes coverage for pollution conditions known to the insured prior to policy inception that are not listed in the policy schedule. Because the Site is specifically scheduled as a known-condition location, this exclusion should not apply to the contamination at the Site. However, the scope of coverage for the known condition may be limited to the conditions as described in the schedule — any newly discovered conditions or expansions beyond what was scheduled may require separate analysis to determine whether they are covered as a "Discovery" during the policy period or are excluded as unscheduled known conditions.
Fines and Penalties. The Policy excludes coverage for fines and penalties imposed by governmental authorities. If TCEQ were to assess any fines or penalties against DEH in connection with the contamination at the Site, those amounts would not be covered under the Policy.
Workers' Compensation and Employer's Liability. The Policy excludes coverage for claims arising under workers' compensation statutes or for employer's liability. Any occupational-exposure claims by former DTS employees relating to their work at the terminal would fall outside PLL coverage and would need to be addressed under separate insurance programs (which may no longer be available given DTS's dissolution).
IV. Analysis
A. Adequacy of the $15M Aggregate Limit
The $15 million aggregate limit of the Bridgemont Policy significantly exceeds the total estimated remediation cost of $9.74 million prepared by Pinehill. The Policy limit provides a margin of approximately $5.26 million above the base-case cost estimate, which represents approximately 54% additional capacity beyond the estimated cleanup cost.
Even at the high end of Pinehill's cost estimate range ($12.18 million), the Policy limit would provide a remaining buffer of approximately $2.82 million. This buffer, while less generous, should be sufficient to accommodate reasonable contingencies including incremental defense costs, additional investigation that may be required by TCEQ during the VCP process, and potential third-party claims.
If DEH is required to bear 100% of remediation costs pending recovery from RCFD — that is, if DEH funds the entire $9.74 million remediation program and subsequently seeks reimbursement from RCFD for RCFD's $4.26 million share — the full $9.74 million less the $500,000 SIR, or $9.24 million, would need to be covered by the Policy. This amount is well within the $15 million aggregate limit.
However, two factors warrant ongoing monitoring. First, the Policy's "burning limits" structure means that defense costs incurred in connection with any coverage dispute with Bridgemont, any third-party bodily injury or property damage claim, or any proceeding in which Bridgemont provides a defense, will erode the aggregate limit. If significant third-party litigation materializes — for example, if the Ingram Property or other downgradient landowners assert claims for property damage, diminution in value, or personal injury arising from benzene exposure — defense costs could consume a meaningful portion of the available aggregate. Second, if the cost-recovery litigation against RCFD generates counterclaims or cross-claims that implicate the Policy (for example, if RCFD asserts counterclaims for contribution or indemnification relating to contamination at the Site that Bridgemont is obligated to defend), those defense costs would further erode the aggregate.
Assessment. The aggregate limit appears adequate for the currently estimated remediation scope, inclusive of reasonable cost overruns, defense costs, and potential third-party claim exposure. However, the aggregate limit should be monitored on an ongoing basis as remediation progresses. If total incurred and projected costs approach the $12.18 million high-end estimate, or if significant third-party claims or defense costs materialize, the engagement team should assess whether additional coverage is needed and whether the Policy's aggregate limit can be increased by endorsement or a supplemental policy.
B. Self-Insured Retention — Timing of Exhaustion
The $500,000 SIR applies per pollution condition, and as discussed in Section III.B, the entire contamination at the Site should constitute a single "pollution condition" under the Policy. Accordingly, DEH's total SIR obligation should be $500,000, not a multiple thereof.
DEH has already incurred $387,000 in investigative costs through Pinehill, encompassing the Phase I ESA, the Phase II ESA, and supplemental investigation work performed from January 2024 through the present. A threshold question is whether these costs — or a portion thereof — qualify toward exhaustion of the SIR. This depends on whether the costs were incurred during the Policy period (on or after March 1, 2024):
• Phase I ESA: The Phase I ESA was commenced in January 2024, prior to the Policy's March 1, 2024 effective date. Costs incurred before March 1, 2024 in connection with the Phase I ESA would likely not count toward SIR exhaustion, as they were incurred outside the Policy period. However, if any Phase I costs were incurred on or after March 1, 2024 (for example, if the Phase I report was finalized in March or April 2024), those costs may be eligible for SIR credit.
• Phase II ESA: The Phase II ESA was completed in June 2024, after the Policy effective date. Costs incurred in connection with the Phase II ESA on or after March 1, 2024 should be eligible for SIR credit. Depending on when the Phase II fieldwork commenced (and whether any Phase II costs were incurred before March 1, 2024), a substantial portion of the Phase II ESA costs should qualify.
• Supplemental Investigation: The supplemental investigation was conducted after the Phase II ESA and thus entirely within the Policy period. All costs associated with the supplemental investigation should be eligible for SIR credit.
To determine the precise allocation of the $387,000 between pre- and post-effective-date costs, we need to obtain a detailed breakdown of all Pinehill invoices by date of service, amount, and description of services rendered. This breakdown will establish the exact amount of investigative costs creditable toward the SIR.
Based on a preliminary assessment, assuming that the Phase I ESA costs were in the range of $25,000 to $50,000 and that a portion of the Phase II ESA costs may have been incurred before March 1, 2024, DEH's remaining SIR obligation is likely in the range of $113,000 to $250,000. This range reflects the assumption that somewhere between $250,000 and $387,000 of the total investigative costs were incurred during the Policy period and are creditable toward the SIR.
Regardless of the precise remaining SIR balance, the SIR will almost certainly be exhausted during the early phases of active remediation, which is projected to commence in approximately June 2026 following submission and approval of the Voluntary Cleanup Work Plan. In the interim, additional investigation and Affected Property Assessment Report ("APAR") preparation costs will likely reduce or fully exhaust the remaining SIR balance. The APAR is targeted for submission by October 31, 2025, and the costs of its preparation — including additional field sampling, data analysis, risk assessment, and report drafting — could easily range from $100,000 to $250,000, which would fully exhaust any remaining SIR obligation.
Recommendation. Maintain a detailed SIR exhaustion ledger documenting all eligible costs by date, amount, payee, and description of services. Each expenditure should be categorized by cost component (investigation, remediation, monitoring, project management, etc.) and flagged as pre- or post-effective-date. Coordinate with Gresham & Alford CPAs (Christine Lau, engagement partner) on expense tracking and alignment with DEH's financial reporting obligations under ASC 410 (Asset Retirement Obligations) and ASC 450 (Contingencies). Once the SIR is exhausted, all subsequent eligible costs should be submitted to Bridgemont for reimbursement in accordance with the Policy's claims-reporting procedures.
C. Known-Condition Scheduling and Coverage Scope
The Site is expressly scheduled as a known-condition location in the Policy. This scheduling is the foundation of DEH's coverage for the contamination at the Site, as it overcomes the standard PLL exclusion for pollution conditions known to the insured prior to policy inception.
The scope of coverage for a known condition scheduled in a PLL policy is typically limited to the conditions as described in the schedule plus any worsening, expansion, or new discovery during the policy period. The policy schedule should describe the nature and extent of known contamination at the time of policy inception. As of the Policy's March 1, 2024 effective date, the Phase I ESA had been commenced (January 2024), but the Phase II ESA was not completed until June 2024. Accordingly, the information available at policy inception was limited to historical records, including the five TCEQ incident reports (1996, 2001, 2003, 2008, and 2014), preliminary indications of contamination from the Phase I ESA process, and whatever environmental information was available from DTS's historical operations.
The full delineation of the contamination — including the extent of the dissolved benzene plume (~2,400 feet downgradient), the maximum benzene concentration of 3.8 mg/L in groundwater (760 times the MCL), and the full extent of soil contamination in both the northern and southern tank farms — was not established until the Phase II ESA was completed in June 2024. Because this delineation was completed after the Policy effective date, it should be treated as a "Discovery" during the policy period. This characterization strengthens DEH's coverage arguments, as the Policy would cover not only the conditions described in the schedule at inception but also the additional contamination discovered through the Phase II ESA.
Potential Coverage Dispute. There is a risk that Bridgemont could argue that the contamination was more extensive than what was described in the schedule at inception and, on that basis, seek to limit coverage to the scope of contamination as described in the schedule. For example, Bridgemont might contend that the schedule contemplated remediation of localized contamination at five specific release points, not a 2,400-foot dissolved benzene plume or widespread soil contamination across both tank farms. If Bridgemont took this position, it could argue that the difference between the scheduled condition and the actual condition represents an unscheduled known condition that falls outside coverage.
DEH should be prepared to counter this argument on multiple grounds. First, the scheduling was done in good faith based on the information reasonably available to DEH at the time of policy inception. The full extent of the contamination was not known until the Phase II ESA was completed in June 2024, after the policy effective date. Second, the discovery of the full extent of the contamination during the policy period is precisely the type of event that the known-condition scheduling is designed to address — PLL policies with known-condition scheduling are underwritten with the understanding that the true scope of contamination may not be fully known at inception and that further investigation may reveal conditions more extensive than initially described. Third, the premium charged for the Policy was presumably calculated based on underwriting assumptions about the potential scope and cost of contamination at the Site; Bridgemont accepted the risk of a known condition and cannot now disclaim coverage because the condition proved to be more extensive than the underwriting assumptions. Finally, to the extent the Policy requires the known condition to be scheduled "in good faith" or "to the best of the insured's knowledge," DEH can demonstrate that it disclosed all information available at inception, including the five TCEQ incident reports and the fact that a Phase II ESA was underway.
We recommend reviewing the precise language of the known-condition schedule and the Policy's definitions of "pollution condition" and "scheduled condition" to confirm our analysis and prepare for any potential coverage dispute.
D. On-Site Cleanup Costs
The Policy covers on-site remediation costs at scheduled locations above the SIR. Based on the Pinehill April 2025 remediation cost estimate, the following remediation components should be covered as on-site cleanup costs under the Policy:
Soil Excavation and Off-Site Disposal. The two largest single components of the remediation cost estimate are soil excavation in the southern tank farm ($3.42 million) and the northern tank farm ($1.87 million), totaling $5.29 million. These costs encompass excavation of contaminated soils, characterization and profiling of excavated materials, loading and transportation to a licensed disposal facility, and confirmation sampling to verify that remediation objectives have been achieved. These are quintessential "cleanup costs" under PLL policies and should be covered without dispute.
In-Situ Groundwater Treatment. The proposed groundwater remedy involves a combination of in-situ chemical oxidation ("ISCO") and enhanced bioremediation, estimated at $2.15 million. ISCO involves the injection of chemical oxidants (such as sodium persulfate or potassium permanganate) into the subsurface to destroy dissolved-phase contaminants. Enhanced bioremediation involves the injection of amendments (such as oxygen-releasing compounds or electron donors) to stimulate naturally occurring microbial populations that degrade petroleum hydrocarbons. Both are recognized and widely used remediation technologies. These costs should be covered as on-site cleanup costs.
Long-Term Groundwater Monitoring. Pinehill's estimate includes $1.06 million for long-term groundwater monitoring, consisting of 32 quarterly monitoring events at $33,125 per event, spanning approximately eight years. Groundwater monitoring is an integral component of the remediation program and is typically required by TCEQ to demonstrate that remediation objectives are being achieved and that the groundwater plume is not migrating further. Monitoring costs are standard "cleanup costs" under PLL policies and should be covered.
Institutional Controls and Deed Restrictions. Pinehill estimates $180,000 for the implementation of institutional controls, including the preparation and recording of deed restrictions limiting future use of the Site to commercial or industrial purposes (to prevent residential use of contaminated areas). Institutional controls are a standard component of risk-based corrective action in Texas and should be covered as cleanup costs.
Project Management, Reporting, and Regulatory Liaison. Pinehill estimates $1.06 million for project management, reporting, and regulatory liaison over the course of the remediation project. This includes preparation of the APAR, the Voluntary Cleanup Work Plan, interim progress reports, and the final closure report, as well as ongoing coordination with TCEQ's VCP project manager. These costs are integral to the remediation effort and should be covered.
TCEQ Oversight Fees. TCEQ charges oversight fees for VCP projects at a rate of approximately $225 per hour. Based on the scope and duration of the project, TCEQ oversight fees may total approximately $135,000 over the life of the remediation. Whether these fees qualify as "cleanup costs" under the Policy depends on the Policy's specific definition. Some PLL policies expressly include governmental oversight costs within the definition of "cleanup costs," while others are silent or ambiguous. We recommend reviewing the applicable definition and, if necessary, seeking Bridgemont's confirmation that TCEQ oversight fees will be treated as covered costs.
VCP Application Fee. The $1,000 VCP application fee is de minimis but should be included in cost tracking for SIR exhaustion purposes.
All costs should be meticulously documented and submitted to Bridgemont for reimbursement once the SIR is exhausted, in accordance with the Policy's claims-submission procedures. Supporting documentation should include invoices from Pinehill and any other contractors, TCEQ correspondence, receipts for TCEQ fees, and evidence of the date and amount of each expenditure.
E. Off-Site Groundwater Migration
The dissolved benzene plume extends approximately 2,400 feet south-southwest from the southern tank farm, beyond the boundaries of the Site and onto adjacent properties. The existence of this off-site plume triggers the Policy's coverage for remediation of contamination that has migrated from a scheduled location to off-site areas.
Off-site groundwater remediation may be required to the extent that the dissolved plume affects downgradient properties or threatens water-supply wells. The nearest identified receptor is the Ingram Property at 16405 FM 1301, which is located approximately 3,100 feet south-southwest of the leading edge of the plume. As of the most recent sampling event in February 2025, Pinehill detected no COC concentrations above MCLs at the Ingram Property well. However, the benzene plume is migrating in the direction of the Ingram Property, and the current separation of approximately 3,100 feet between the plume's leading edge and the Ingram Property well may not be sufficient to prevent future impacts, depending on groundwater flow velocity, contaminant retardation, and the effectiveness of the proposed in-situ treatment program.
If the plume reaches the Ingram Property or other off-site receptors and requires additional remediation, alternate water supply, or other response actions, those costs should be covered under the PLL Policy as off-site cleanup costs. Such costs would be in addition to the on-site remediation cost estimate of $9.74 million and could increase DEH's total remediation exposure. However, the $15 million aggregate limit should accommodate reasonable off-site remediation scenarios, particularly given that off-site groundwater treatment costs (if needed) would likely be a fraction of the on-site remediation program.
It is also possible that TCEQ could require DEH, as part of the VCP, to conduct off-site plume delineation or remediation as a condition of receiving a certificate of completion. If so, those costs would fall within the Policy's coverage for off-site cleanup and should be submitted to Bridgemont accordingly.
F. Third-Party Bodily Injury and Property Damage Claims
The most significant potential third-party exposure arises from the proximity of the dissolved benzene plume to downgradient residential properties, principally the Ingram Property at 16405 FM 1301 and potentially other rural properties located south and southwest of the Site. The most likely categories of third-party claims include:
Property Damage and Diminution in Value. Owners of downgradient properties may assert claims for property damage or diminution in the value of their properties based on the actual or perceived contamination of their land and groundwater. Even if contamination has not reached a particular property, the mere proximity of the plume and the associated stigma may be alleged to reduce property values.
Bodily Injury. If the benzene plume migrates to residential wells and those wells are used for drinking water, affected residents may assert claims for bodily injury arising from exposure to benzene, which is a known human carcinogen classified as a Group 1 carcinogen by the International Agency for Research on Cancer (IARC). Chronic exposure to benzene in drinking water is associated with an increased risk of leukemia and other hematological malignancies. Claims for medical monitoring — even in the absence of current illness — may also be asserted.
Alternate Water Supply. If contamination reaches residential wells, affected property owners may incur costs for connection to a public water supply system or installation of point-of-use treatment systems, and may seek recovery of those costs from DEH.
The PLL Policy covers third-party bodily injury and property damage claims arising from pollution conditions at scheduled locations, including the Site. Defense costs associated with such claims are also covered, although they erode the $15 million aggregate limit.
Although no MCL exceedances have been detected at the Ingram Property well as of the most recent February 2025 sampling event, the plume's current trajectory and the relatively short separation distance of approximately 3,100 feet between the plume's leading edge and the Ingram Property well warrant continued vigilance. If the proposed in-situ groundwater treatment program is effective in arresting plume migration, the risk of third-party claims will be substantially reduced. However, there is no assurance that the treatment program will fully contain the plume, particularly during the initial phases of implementation.
Recommendation. Continue quarterly monitoring of the Ingram Property well and any other downgradient receptor wells identified by Pinehill. If any MCL exceedances are detected at any receptor well, promptly notify Bridgemont of the potential third-party claim in accordance with the Policy's notice requirements. In addition, consider proactive outreach to the Ingram Property owner (and other downgradient landowners) to maintain open communication and mitigate the risk of adversarial claims.
G. Notice Obligations and Claims-Reporting Procedures
Formal notice of the pollution condition at the Site was provided to Bridgemont on June 30, 2025, via letter from Sandra Tung, Responsible Partner, to Paul Neumann, Senior Vice President, Environmental Lines, at Bridgemont's Atlanta, Georgia office. The notice letter contained the following principal elements:
• Identification of the Site as a scheduled known-condition location under Policy No. ENV-BIC-2024-07821;
• A summary of the contamination at the Site, including the identification of COCs (BTEX, TPH, MTBE, dissolved lead), the extent of the dissolved benzene plume (approximately 2,400 feet downgradient), and the maximum benzene concentration detected in groundwater (3.8 mg/L, representing 760 times the federal MCL of 0.005 mg/L);
• Reference to the Pinehill April 2025 remediation cost estimate of $9.74 million, including the component breakdown and the cost range of $7.81 million to $12.18 million;
• Notification of DEH's entry into the TCEQ Voluntary Cleanup Program (VCP Tracking No. VCP-2517);
• Identification of the potential third-party exposure at the Ingram Property, 16405 FM 1301;
• A reservation of DEH's rights under the Policy, including claims for on-site cleanup costs, off-site cleanup costs, and third-party claims, all above the $500,000 SIR;
• A request for Bridgemont's acknowledgment of receipt and assignment of a claim number.
Timeliness of Notice. The Policy became effective on March 1, 2024. The full Phase II ESA results were available in June 2024, and the Pinehill remediation cost estimate was delivered in April 2025. Notice was provided to Bridgemont on June 30, 2025 — approximately 12 months after the Phase II ESA and approximately 3 months after the remediation cost estimate. Whether this constitutes "prompt" notice depends on the Policy's specific notice provisions, which typically require the insured to provide notice "as soon as practicable" after discovery of a pollution condition or a claim.
Several factors support a finding that DEH's notice was timely. First, the contamination at the Site was a known condition scheduled at policy inception. The notice provided on June 30, 2025 pertained not to the initial discovery of contamination, but rather to the results of the remediation cost analysis and DEH's entry into the TCEQ VCP — both of which occurred in the weeks and months immediately preceding the notice. The notice was sent within five days of the VCP application filing date of June 25, 2025. Second, the known-condition scheduling fundamentally alters the notice calculus: because Bridgemont was aware of the contamination at inception (it underwrote the risk with full knowledge of the known condition), the purpose of notice is to inform the insurer of the specific claim or cost that the insured intends to submit, not to alert the insurer to a previously unknown condition. Third, there is no indication that Bridgemont was prejudiced by the timing of the notice; the remediation has not yet commenced, no costs above the SIR have been incurred, and no third-party claims have been asserted.
Notwithstanding these defenses, there is a residual risk that Bridgemont could argue that notice should have been provided when the Phase II ESA results were received in June 2024, on the theory that the Phase II ESA results constituted the "Discovery" of the full extent of the pollution condition. However, this argument is weakened by the fact that the condition was scheduled at inception, and the Phase II ESA merely confirmed and delineated a condition that Bridgemont already knew existed. Moreover, the notice was provided well in advance of any request for reimbursement from Bridgemont, and Bridgemont has suffered no identifiable prejudice.
Ongoing Reporting Obligations. The Policy likely contains ongoing reporting obligations that require DEH to provide Bridgemont with periodic updates on the status of the remediation, copies of TCEQ correspondence, and summaries of costs incurred. In addition, the Policy almost certainly requires notice of any third-party claim or suit within a specified period (typically 30 to 60 days after the insured becomes aware of the claim or receives service of process).
Recommendation. Follow up with Paul Neumann at Bridgemont to obtain formal acknowledgment of the June 30, 2025 notice and assignment of a claim number. Establish a regular reporting protocol with Bridgemont, including quarterly or semi-annual updates on remediation progress, TCEQ correspondence, and cumulative cost summaries. Provide copies of the APAR (target submission date October 31, 2025) and the Voluntary Cleanup Work Plan (target submission date April 2026) to Bridgemont when they are submitted to TCEQ. If any third-party claim or suit is asserted, notify Bridgemont immediately and in any event within the timeframe specified in the Policy.
H. Interaction with RCFD Cost Recovery — Subrogation
Under standard PLL policy provisions, the insurer has subrogation rights against third parties responsible for the pollution condition to the extent the insurer pays covered claims. That is, when Bridgemont reimburses DEH for cleanup costs above the SIR, Bridgemont steps into DEH's shoes and acquires DEH's right to seek recovery of those costs from third parties responsible for the contamination, including RCFD.
The interaction between Bridgemont's subrogation rights and DEH's cost-recovery action against RCFD raises several important considerations:
Preservation of Subrogation Rights. DEH must not settle with or release RCFD without Bridgemont's consent if doing so would prejudice Bridgemont's subrogation rights. PLL policies typically contain anti-impairment provisions that prohibit the insured from settling with or releasing a responsible third party without the insurer's prior written consent, and that authorize the insurer to deny or reduce coverage if the insured's actions impair the insurer's subrogation rights. If DEH were to settle with RCFD on terms that Bridgemont considers inadequate or that release RCFD from further liability, Bridgemont could assert that DEH has impaired its subrogation rights and reduce its coverage accordingly.
Settlement Coordination. Any settlement with RCFD should be structured to preserve or coordinate with Bridgemont's subrogation interest. This could take several forms: (a) obtaining Bridgemont's written consent to the settlement terms prior to execution; (b) including a carve-out in the settlement agreement that expressly preserves Bridgemont's subrogation rights against RCFD; or (c) structuring the settlement so that RCFD's payment is allocated in a manner that Bridgemont agrees does not prejudice its subrogation position.
Allocation of Recoveries. If DEH recovers amounts from RCFD (whether through settlement or judgment), Bridgemont may be entitled to a pro-rata share of the recovery to the extent Bridgemont has reimbursed DEH for costs attributable to RCFD-caused contamination. The contamination in the southern tank farm is primarily attributable to RCFD (based on the three documented releases during RCFD's period of operational control: the 1996 Tank S-4 release, the 2001 Tank S-7 release, and the 2008 Tank S-11 release). If Bridgemont reimburses DEH for remediation costs attributable to the southern tank farm, Bridgemont would have a subrogation interest in any recovery from RCFD for those same costs.
Timing of Settlement. From a strategic perspective, it would be advantageous for DEH to negotiate any RCFD settlement before Bridgemont has paid significant claims, thereby minimizing subrogation complications. If a settlement with RCFD is reached before the SIR is exhausted and before Bridgemont has reimbursed any costs, Bridgemont would have no subrogation interest to assert, and DEH would have full discretion in the settlement negotiations. However, if the SIR is exhausted and Bridgemont begins paying claims before a RCFD settlement is reached, the settlement process becomes more complex due to the need to coordinate with Bridgemont's subrogation rights.
Alternatively, DEH could enter into a subrogation cooperation agreement with Bridgemont to formalize the coordination of the cost-recovery effort against RCFD. Such an agreement would establish the respective rights and obligations of DEH and Bridgemont with respect to the prosecution of the cost-recovery action, the allocation of legal fees, the authority to make settlement decisions, and the allocation of any recovery.
RCFD's $750,000 Counter-Offer. RCFD has counter-proposed a global settlement of $750,000. This amount represents approximately 17.6% of DEH's demand of $4,647,000 and approximately 7.7% of the total estimated remediation cost of $9.74 million. If DEH were to accept this amount, Bridgemont might object on the grounds that the settlement is significantly below the fair value of RCFD's allocated share ($4.26 million), and that accepting an inadequate settlement impairs Bridgemont's subrogation rights. In particular, if Bridgemont subsequently pays cleanup costs attributable to southern tank farm contamination (which DEH asserts is RCFD's responsibility), Bridgemont would be unable to recover those costs from RCFD because RCFD has been released. Bridgemont could assert that DEH's acceptance of the below-value settlement constitutes a voluntary impairment of subrogation rights and reduce its coverage accordingly.
Recommendation. Notify Bridgemont promptly of the pending cost-recovery action against RCFD and of RCFD's $750,000 counter-offer. Seek Bridgemont's input before making any counter-proposal or agreeing to any settlement terms. Ensure that any settlement agreement with RCFD includes either (a) Bridgemont's express written consent to the settlement terms, or (b) a carve-out expressly preserving Bridgemont's subrogation rights against RCFD. Consider entering into a formal subrogation cooperation agreement with Bridgemont to coordinate the cost-recovery effort. Do not accept RCFD's $750,000 counter-offer without Bridgemont's prior approval.
I. Historic CGL Policies — Piedmont Mutual Insurance Co.
DTS maintained comprehensive general liability ("CGL") insurance policies issued by Piedmont Mutual Insurance Co., a North Carolina corporation, from approximately 1974 through 2000. These policies predate the Bridgemont PLL Policy and could, in theory, provide "occurrence"-based coverage for pollution events during their respective policy periods. Of the five documented releases at the Site, three occurred during the period covered by the Piedmont Mutual CGL policies: the 1996 release from Tank S-4, the 2001 release from Tank S-7, and the 2003 release from Tank N-3 (the 2001 and 2003 releases fall within the 1974–2000 coverage period, and the 1996 release clearly falls within that period as well; the exact expiration date of the last Piedmont Mutual policy may need to be confirmed to verify coverage for the 2003 release).
However, Piedmont Mutual entered receivership in 2012. The company ceased writing new business several years before entering receivership, and the receivership estate has been in the process of winding down claims for over a decade. Based on information available from public records and the North Carolina Department of Insurance (which supervises the receivership), no meaningful recovery is expected from Piedmont Mutual. The receivership estate is likely substantially exhausted, and any remaining assets are subject to statutory priority rules that subordinate general policyholder claims to administrative expenses, policyholder claims in liquidation, and other priority categories. Claims filed against a receivership estate are typically subject to significant delays (often measured in years), substantial haircuts (recoveries of 10 to 30 cents on the dollar or less), and administrative priority issues that may further reduce the amount available for general policyholder claims.
Even if Piedmont Mutual were solvent, coverage under the CGL policies would raise significant issues relating to the pollution exclusion. CGL policies issued from the mid-1980s onward typically contain an "absolute pollution exclusion" that eliminates coverage for all claims arising from the discharge, dispersal, release, or escape of pollutants, regardless of whether the discharge was sudden or gradual. Earlier CGL policies (pre-1986) typically contained a "sudden and accidental" exception to the pollution exclusion, which preserves coverage for discharges that are both sudden and accidental. The documented releases at the Site (tank failures releasing thousands of gallons of petroleum products) might arguably qualify as "sudden and accidental" events, depending on the specific facts and circumstances of each release. However, the gradual leaching and migration of contamination into the subsurface and groundwater over decades would likely be excluded under either version of the pollution exclusion.
Assessment. No meaningful recovery is expected from Piedmont Mutual. The receivership estate is likely insufficient to pay claims, and any recovery would be subject to delays, reductions, and priority issues that render it economically insignificant relative to the magnitude of DEH's remediation liability.
Recommendation. Do not rely on any recovery from Piedmont Mutual for purposes of remediation budgeting, financial projections, or insurance coverage planning. If the firm wishes to preserve the claim as a precautionary measure, a nominal proof of claim should be filed in the Piedmont Mutual receivership proceeding, accompanied by supporting documentation identifying the relevant CGL policies, the applicable policy periods, the documented releases occurring during those periods, and the estimated costs of remediation. However, the expected recovery is zero, and the time and expense associated with pursuing the claim should be weighed against the negligible likelihood of any meaningful recovery.
V. Coverage Gap Analysis
Based on the foregoing analysis, the following summary identifies the costs and liabilities that are covered under the Bridgemont PLL Policy, those that are potentially uncovered, and the overall adequacy of the available coverage.
Covered Costs. The following categories of costs and liabilities are expected to be covered under the Bridgemont PLL Policy, subject to the $500,000 SIR and the $15 million aggregate limit:
• On-site cleanup costs, including soil excavation and off-site disposal, in-situ groundwater treatment, long-term groundwater monitoring, institutional controls, and project management and regulatory reporting (estimated at $9.74 million in the aggregate);
• Off-site groundwater remediation costs, to the extent that remediation of the downgradient benzene plume beyond the Site boundary is required;
• Third-party bodily injury and property damage claims arising from pollution conditions at the Site, including claims by downgradient property owners for property damage, diminution in value, personal injury, or alternate water supply costs;
• Defense costs incurred in connection with third-party claims or coverage disputes (subject to the burning-limits structure, which erodes the aggregate limit).
Potentially Uncovered Costs. The following categories of costs and liabilities are potentially not covered under the Bridgemont PLL Policy and may represent out-of-pocket exposure for DEH:
• Pre-Effective-Date Investigation Costs. Some portion of the $387,000 in investigative costs incurred through Pinehill may have been incurred before the Policy's March 1, 2024 effective date. Costs incurred before the effective date are outside the Policy period and would not be covered or creditable toward the SIR. The precise amount of pre-effective-date costs requires a detailed review of Pinehill's invoices.
• TCEQ Fines or Penalties. If TCEQ assesses any fines or penalties against DEH in connection with the contamination at the Site — for example, for failure to timely report a release or for non-compliance with a regulatory order — those amounts are typically excluded from PLL coverage. At present, there is no indication that TCEQ intends to assess fines or penalties, and DEH's proactive enrollment in the VCP should mitigate this risk.
• Legal Fees for the RCFD Cost-Recovery Action. DEH's legal fees for the cost-recovery litigation against RCFD are offensive litigation costs — that is, costs incurred by DEH in prosecuting its own affirmative claims against a third party. These costs are not "cleanup costs" or "defense costs" as typically defined in PLL policies and are likely excluded from coverage. DEH's estimated legal fees for the RCFD cost-recovery action, through either VCP completion or litigation resolution, range from approximately $1.1 million to $1.6 million. These fees are likely DEH's own obligation and should be budgeted separately from the remediation costs covered by the Policy.
• Workers' Compensation and Occupational-Exposure Claims. Any claims by former DTS employees for occupational exposure to petroleum hydrocarbons, benzene, or other contaminants during their employment at the terminal are excluded from PLL cove

MEMORANDUM

MATTER NO.: 1016-00006

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