Clean Up of Underground Tank Leakage Covered by Insurance Policy

 

In Montana Petroleum Tank Release Compensation Bd. v. Crumley's, Inc., 2008 WL 44596 (Mont., 2008), the Montana Petroleum Tank Release Compensation Board brought suit in the First Judicial District Court against Federated Service Insurance Company to recover the costs of cleaning up a leak from an underground diesel tank owned and operated by Visocan Petroleum Company, Federated's insured. The district court granted partial summary judgment to the Board, and found that the Board, as Visocan's subrogee, had the authority to assert Visocan's rights and claims against Federated. The district court held that the leak was partially covered under a portion of the insurance policy, and that Federated had breached its duty to indemnify Visocan. The district court also held that the Board could recover any other damages that arose from Federated's breach. A jury awarded the Board $25,317.50 in administrative costs as consequential damages. Federated appealed from both the district court's grant of partial summary judgment and the jury's award of consequential damages.

 

The Supreme Court affirmed the decision, holding that the Board had the right to bring the subrogation action; that as a matter of first impression, diesel fuel was a “pollutant” within the meaning of the absolute pollution exclusion and the endorsement extending coverage; that the notice provision of the endorsement was void and unenforceable; that the administrative costs of corrective action to respond to the leak in the underground diesel tank were recoverable as “consequential damages” for the liability insurer's breach; that the Board chart showing the average cost per cleanup claim received and cost per claim paid over several years was admissible summary; and the award of administrative costs was not speculative.

In reaching its decision, the court first determined that the statutes directing the Board to deposit money received in the form of reimbursements from any source into the Fund and authorizing the Board to undertake legal action granted statutory right of subrogation and that the term “reimbursements” encompassed money the Board received from insurers or other liable third parties, whether by subrogation or other agreement.

Also, the Board rule requiring a tank owner or operator to agree to subrogate claims against responsible parties to the Board was valid, as it was consistent with the Board's existing power of statutory subrogation, and subrogation was necessary to effectuate the purpose of the Underground Storage Tank Act since the Board could use subrogation to ensure adequate financial resources and to replenish the Fund by seeking reimbursement from liable insurers .

In addition, the court explained that it was required to give the same meaning and construction throughout the policy to the term “pollutant” in the pollution exclusion of the CGL policy and in the endorsement providing coverage for expenses up to $100,000 to extract pollutants from land or water. As such, the diesel fuel that leaked from the underground tank at the service station was a “pollutant” within the meaning of the pollution exclusion of the CGL policy and the endorsement, as most consumers would consider diesel a pollutant if it contaminated soil and groundwater, and the exclusion was unambiguous.

The court also explained that the administrative costs of corrective action to respond to the leak in the underground diesel tank were “consequential damages” for the liability insurer's breach and, therefore, were recoverable by the Board in the subrogation action against the insurer under the endorsement providing coverage for expenses to extract pollutants from land or water. The endorsement required the insurer to pay for testing in the course of extracting pollutants and contained no exclusion for consequential damages; moreover, the parties anticipated the costs at the time of contracting, and they were the natural consequence of the insurer's breach.