Most underground storage tank (UST) dispensing facility owners utilize their respective state cleanup fund as a means of covering expenses related to petroleum releases.  State fund programs have certain limitations with respect to what is covered and what is not.    As a means of minimizing the risk of loss, many owners purchase commercial insurance to be utilized as a resource for limitations under the state fund.

One such type of policy is Business Owner’s Property Coverage which provides for, among other things, coverage for damage to physical structures and their contents as well as business interruption in the event that business could not be conducted as usual.   The United States District Court for the Eastern District of Pennsylvania recently made a determination on a motion for summary judgment relative to an insured’s Business Owner’s Property Coverage policy in that state.

In that case, a rupture in a flex hose beneath a dispenser caused a massive discharge of diesel fuel. The insured’s maintenance contractor testified during deposition that the leak was likely caused by wear and tear.  The released fuel caused contamination at the insured’s property, requiring corrective action and temporary closure of the station as ordered by Pennsylvania Department of Environmental Protection.  The insured contended that it intended to purchase an all-risk policy covering all losses related to the business of operating a gas station.

The insured filed a claim for loss of income under the Business Owner’s Property Coverage policy. The insurer denied the claim. At issue was the interpretation of the “pollution” exclusion under the policy.

The policy, in relevant part, provided coverage for the actual loss of business income due to the suspension of the insured’s operations.  The suspension must have caused direct physical loss of or damage to Covered Property at the insured premises. Covered Property under the policy included the underground storage tanks and associated piping and in this case, the ruptured flex hose.  The loss or damage must have been caused by or resulted from a Covered Cause of Loss.  In the simplest terms, a Covered Cause of Loss was defined as risks of direct physical loss to Covered Property unless the loss was specifically excluded or limited under the policy.

Among the policy exclusions was the pollution exclusion, which stated that loss or damage caused by or resulting from the discharge, dispersal, seepage, migration, release or escape of “pollutants” was not covered unless the loss or damage was caused by any of the Specified Causes of Loss. A Specified Cause of Loss was defined as “fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.”

During oral argument, the insured argued that the rupture may have been caused by an explosion. As there was no evidence supporting the fact that the loss was caused by a Specified Cause of Loss, the court granted judgment in favor of the insurers thereby denying the insured’s claim for loss of income.

While the outcome of this case may appear unfortunate from the perspective of an insured, it hopefully is viewed as a guide for those considering insurance in the context of their business operations. As with the purchase of any consumer product, attention to the details is critical.  It is important, therefore, to be clear as to what your objectives are when discussing your needs with an insurer. Expectations premised on assumptions very rarely work out.

This article is intended to be a basic overview of environmental business operation requirements.  It is not intended to provide the reader with any form of advice or opinion pertaining to legal, technical or insurance matters.  Any such reliance in connection therewith is specifically disclaimed.

William Alpine is Corporate Counsel/Director of Cost Recovery for ATC.  He was previously the Executive Director of the Commonwealth of Massachusetts 21J Fund.  ATC has served the petroleum industry with its environmental, due diligence and regulatory compliance needs for over 30 years.  Bill can be reached at (781) 932-9400 or william.alpine@atcassociates.com.