Ahluwalia v. Allied Property and Casualty Ins. Co.
(United States District Court, Eastern District of California, July 5, 2012)
This environmental coverage dispute arises out of a property damage claim in which the policyholder sought coverage for water damage to the underground fuel tanks and fuel pumps at a gas station/convenient mart.
The insurer disclaimed coverage in a written declination advising its investigation revealed that “the below ground wells that house the fuel pump mechanisms were partially filled with water” and that pursuant to the policy provisions, several exclusions applied to preclude coverage for the loss; namely, damage caused by surface or ground water, as well as exclusions for negligent work. The denial letter further advised that the claim fell with the ground water exclusion or was otherwise excluded on the basis of improper construction.
A follow-up investigation revealed that the damage to the underground fuel storage system was caused by (1) elevated water tables which caused water to crest the top of and fill the underground storage tanks and pumps; and (2) the underground secondary containment piping (which was defectively designed) had sustained a breach allowing either ground water or sub-surface water to enter the piping system and fill the underground storage tanks and pumps.
The policyholder asserted that significant issues of fact existed and that defendant’s reports were unreliable. However, in interpreting the policy and underlying facts, the court noted that despite the actual cause, it was undisputed that the fuel tanks and fuel pumps were damaged by water. As such, the issue was whether, as a matter of law, the policy exclusions applied to the loss. Further the court rejected the policyholder’s argument on the applicability of the “efficient proximate cause doctrine” which allows recovery when a covered risk was the efficient proximate cause as opposed to only a remote cause of the loss.
In granting summary judgment to the insurer, the court concluded that both the surface water and ground water exclusions applied as there was ample evidence in the record supporting a surface or underground source of water, as opposed to the policyholder’s rainfall theory. Likewise the court found the defective design exclusion applied as there were no material issues of fact that the exclusion was unambiguous. Specifically, the court held that that the policyholder did not present any reasonable alternative to the facts as set forth by the insurers, much less established that there are any material disputed issues of fact. Nor had plaintiff demonstrated that the policy and particularly the exclusions at issue were anything but plain and unambiguous. As the property at issue was damaged by either surface or ground water, the loss was precluded based on the referenced exclusions.
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