In the case of Jack Nascimento, v. Preferred Mutual Insurance Company, WL 162660 (2008 C.A.1 Mass.), Nascimento purchased property in Ludlow, Massachusetts . That property was part of a larger lot that contained an underground storage tank (UST) with a fuel line connecting to an oil furnace on Nascimento's property. The UST was adjacent to the foundation of Nascimento's garage. Nascimento was the sole user of the UST, which stored the heating oil used to heat his automotive repair business.
Nascimento retired in 1982, sold his business, and leased his property. From 1982 to 1997, Leals, purchased heating oil and stored it in the UST for continued heating of Nascimento's property.
In 1997, Leals applied for a refinancing loan. The lender instructed them to remove the UST or render it inactive as a condition to financing. During the excavation, Leals discovered that oil had leaked causing substantial contamination to the soil. The Massachusetts Department of Environmental Protection issued a Notice of Responsibility to the Leals and Nascimento ordering them to clean up the spill. Leals asked Nascimento to take responsibility for the loss. He refused. Leals undertook the clean-up of the oil spill, incurring expenses for investigation, assessment, reporting, and remediation of the property damage. In 2005, Leals sued Nascimento.
Nascimento placed a claim with Preferred Mutual under his Commercial General Liability policy. Preferred Mutual denied coverage under the policy's pollution exclusion, which read in pertinent part: This insurance does not apply to: …
f. Pollution
1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:
a) At or from any premises, site, or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;
b) At or from any premises, site or location which is or was at any time owned or occupied by any insured or others for the handling, storage, disposal, processing or treatment of waste; …
2) Any loss, cost or expense arising out of any:
a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants; or
b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.
In March 2007, based on the pollution exclusion, the district court held that: home heating oil is a pollutant; and since the loss is not covered, Preferred Mutual had no duty to defend or indemnify Nascimento.
The appeals court found that under Massachusetts law, an insurer must examine plaintiff's allegations in conjunction with facts it knows or readily should know when determining whether coverage exists under policy.
Under Massachusetts law, the insured bears the burden of proving coverage under a CGL policy. If the insured satisfies his burden, then the insurer must prove that an exclusion applies in order to avoid coverage. In this case, Preferred Mutual asserts that the pollution exclusion bars coverage.
The court found that Nascimento was the sole user of the UST. He continuously heated his property using oil stored at the UST. So, under the usual and ordinary sense of the word “occupy,” Nascimento occupied the UST. Consequently, any property damage sustained because of the oil leak is barred from coverage under the total pollution exclusion. Once the pollution exclusion was triggered, Preferred Mutual had no duty to defend Nascimento in a suit.
Although Nascimento disputed the ownership of the UST, the district court held that the dispute was not material to the insurance coverage question because the uncontested facts show that Nascimento occupied the UST.