District Court Grants Summary Judgment To Insurer Holding Environmental Claims Were Reported Outside Claims-Made Policy Term

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Webb Operating Co. v. Zurich American Ins. Co. (United States District Court, Eastern District Michigan, July 18, 2011)

This environmental coverage dispute arose from an underlying property damage suit and environmental cleanup involving a leaking underground storage tank.  The insurer denied insured’s claim to defend or indemnify under the policy alleging that the claims were made outside the policy period. 

Specifically, the policyholder (Webb Operating Company) operated a gas station in Highland Park, Michigan and purchased "Storage Tank System Third Party Liability and Cleanup Policy" from Defendant Zurich American Insurance Company in 2002.  The policy covered clean up costs resulting from a leak or "release" of fuel from the underground storage tanks located on Plaintiff's property. The insurer sold Plaintiff policies on an annual basis and the policyholder renewed with Defendant every year since 2002. 

In June 2006, one of Webb’s underground storage tanks failed a "tank tightness" test during an inspection. The policyholder hired Huron Environmental L.L.C. ("Huron") to perform remediation services in connection with the failing tank. Webb and Huron decided to "close" the tank; however, the policyholder’s President decided not to submit Huron's bill ($8,050) to the insurer under the 2005-2006 Policy because the deductible was $5,000 and because he did not want a policy claim to raise premiums or affect future insurability.

Huron continued to monitor the tank and oversee remediation efforts at Webb’s gas station for the next three years. During this time, the cost of the remediation services grew to a point at which the policyholder became unable to pay. As a result, the policyholder filed a claim with the insurer sometime in October 2009 believing the loss was covered under the 2005-2006 Policy, or alternatively, under the 2009-2010 Policy.

The court determined that the policies in question were “claims-made” policies, and thus, coverage was unquestionably conditioned upon the policyholder filing a claim within the specifically defined reporting period and not upon the release simply occurring.  Moreover, the court held that under Michigan law, the insurer was not required to show prejudice on a claims-made policy.   Therefore, as it was undisputed that the policyholder discovered the release in 2006, but did not give the insurer notice of the claim until late 2009, there was no coverage for the release.  Likewise, the court rejected coverage under the 2009-2010 policy because it was the discovery of a release that triggered coverage, not the discovery of the costs to remediate.  Accordingly, the court held the insurer had no coverage obligations under either policy.

For a copy of the decision click here

Paul Steck and Tom Segalla