Massey Energy Co. may have to pay $125 million in damages, the equivalent of more than half its estimated 2008 net income, if it loses a pollution case that insurers refuse to cover, reports Bloomberg.com.

The Richmond-based company is accused of contaminating ground water with waste from a mine in Rawl, W.Va., and causing two deaths. Suits brought by about 700 people were consolidated for a single state court trial. Plaintiffs are seeking $28.5 million for medical monitoring, about $95 million in lost earnings, plus more for property damage, replacement of the water supply, pain, suffering and emotional distress.

Massey may also be charged punitive damages of as much as $1 billion when it faces a jury in a state where three of the seven largest U.S. awards in 2007 were made, Bloomberg found.

"Massey's legal issues create a lot of headline risk that you just don't get with most of the other producers,'' said Eric Green, director of research and senior portfolio manager at Penn Capital Management. "There are better ways to play the strength in coal markets.'"

Meanwhile, the company is appealing a $220 million award to Wheeling-Pittsburgh Steel Corp. in a contract case, faces an October trial over two miners' deaths in a fire, and agreed in January to pay the U.S. Environmental Protection Agency $20 million for violations at Kentucky and West Virginia mines. Exposure to potential damages and fines totals $365 million – about 93 percent of Massey's $391 million cash on hand. Those numbers don't include possible punitive damages.

Massey, the fourth-biggest U.S. coal producer, is also battling its insurance carriers. Old Republic Insurance Co. and American International Group are among those who refused to cover claims in the Rawl case, asserting their policies exclude payments for pollution.

Said Tom Cady, a West Virginia University law professor: "This is a bet-the-company case.''