Richard W. Neely v. St. Paul Fire and Marine Insurance Company and Standard Oil Company of California

In 1976 three natural-gas-powered engines used for irrigation purposes on farms owned and operated by appellant Neely became inoperable due to damage caused by contaminated lubricating oil. The oil used in these engines was purchased exclusively from appellee Standard Oil Company of California (Standard Oil). At the time an insurance policy issued to Neely by appellee St. Paul Fire and Marine Insurance Company (St. Paul) provided coverage for damage to the engines caused by vandalism. Both appellees are foreign corporations lawfully doing business in Arizona.

Neely brought suit in the Arizona Superi- or Court against Standard Oil and St. Paul, seeking to recover his direct and consequential damages. His theory was that either the contaminant was in the oil at the time of purchase, in which case Standard Oil would be liable, whether on the ground of strict liability, negligence, or warranty, or the contaminant was placed in the oil by a vandal, in which case St. Paul would be liable under the terms of the insurance policy. The suit was subsequently removed to the United States District Court for the District of Arizona pursuant to 28 U.S.C. § 1441 (a) on the petition of both…