FW: In re Enron Petrochemicals, Inc. Claim Against Underwriters

Clarification of item 2.: a stipulation, contract or agreement that
establishes a limitations period that is shorter than two years for bringing
suit for the breach of that stipulation, contract or agreement is void in the
State of Texas, but for certain situations not here relevant that involve the
stipulation, contract or agreement for the purchase or sale of a business
entity.

Britt

-----Original Message-----
From: Davis, Britt
Sent: Friday, March 02, 2001 4:02 PM
To: Sanders, Richard
Cc: Guinn, Linda; Elliott, Steven; Studdert, James; Zikes, Becky; Carrier, Lee
Subject: In re Enron Petrochemicals, Inc. Claim Against Underwriters

PRIVILEGED AND CONFIDENTIAL: ATTORNEY-CLIENT COMMUNICATION, ATTORNEY
WORK-PRODUCT

Richard,

This will acknowledge receipt of and thank you for the above-referenced new
matter, which you and I first spoke about February 15. I understand that
Enron Petrochemicals, Inc. has made a claim against Underwriters for over
$900,000 as the result of the contamination of a load of styrene monomer that
was discovered on or about November 4, 1999 in a tank facility located in
Texas.

You asked me initially to investigate Underwriters' claim that they may have
been prejudiced by Enron's failure to either obtain a time bar from or sue
Baytank, which owns the tank at issue, within one year from the date of the
incident. You will recall that I thought little of that defense, for the
following reasons:

1. The general Texas statute of limitations for breach of contract is four
years, and for torts, two years.

2. By statute, Texas does not permit parties to contract to shorten
limitations periods to less than two years.

3. The only party with whom I can see that Enron has a contract is Philchem,
the lessor of the tank ("the Marketing Agreement"). The Marketing Agreement,
which specifically applies Texas law, makes no attempt to shorten any
limitations period as far as I can tell.

4. There does exist a contract between Philchem and Baytank (the
"Terminalling Agreement"). The Terminaling Agreement, which also
specifically applies Texas, does require, under section 12.4 on page 6, that
the parties submit to mandatory arbitration with the following language:
"Within one year of a dispute arising under this AGREEMENT, a party desiring
to arbitrate any issue arising hereunder, shall serve written notice of
intent to arbitrate upon all other parties to this AGREEMENT." However,
Enron is not a party to the contract. Enron and Philchem are reportedly
corporately unrelated. Philchem is reportedly not an insured. Further, the
terms "dispute" is undefined. It is certainly arguable that no "dispute"
would arise in this circumstance until Enron obtained a recovery from
Philchem.

I caution that I have not yet spoken to any representative of Underwriters
about this point. Also, if anyone sees any arguments for Underwriters'
position that I have missed, let me know.

You further asked me to evaluate Underwriters' last offer of approximately
$250,000, and provide you with my view of whether it is reasonable in light
of the facts and circumstances of our claim. I will have my assistant, Lee,
arrange a meeting next week with me, Becky Zikes, my legal assistant, Steve,
and whoever helped Steve put together the spreadsheet on the numbers that you
sent to me.

Also, by copy of this e-mail, I am asking Jim if he could send me a copy of
the applicable policy.

As always, we greatly appreciate the kind referral.

Britt