In its recent decision in H & M Petro Mart v. Zurich Am. Ins. Co., 2012 U.S. Dist. LEXIS 163205 (E.D.Mich. Nov, 15, 2012), the United States District Court for the Eastern District of Michigan had occasion to consider the scope of an insurer’s coverage obligations under a storage tank liability policy.

Zurich insured H&M Petro Mart under a Storage Tanks System Third Party Liability and Cleanup Policy, providing environmental cleanup coverage for releases of product from four insured underground storage tanks.  The policy defined “tank” to include “any connected piping, ancillary equipment and containment system that is on, within, or under a 'scheduled location.'”  Further, the policy defined “cleanup costs” as necessary costs related to the “investigation, removal, remediation, neutralization or immobilization of contaminated soil, surface water, groundwater, or other contamination.”  Notably, the policy contained an exclusion applicable to:

L.  any costs for the reconstruction, repair, removal, maintenance, replacement, upgrading, or rebuilding of any "scheduled storage tank system", personal property, fixtures, buildings, or any other improvements and any site enhancement or routine maintenance on, within, or under the "schedule location(s).

H&M reported a release to Zurich in 2009, and Zurich subsequently paid in excess of $190,000 in costs identified as “cleanup costs.”  Zurich, however, disclaimed coverage for certain costs submitted by H&M that related to reinstallation and/or reconstruction of gas pumps, such as installation of new product lines, electrical wire and conduits, reconstruction of a sewer system and canopy drain, installation of dispenser islands and bumper guards, and re-installation and calibration of dispensers.  H&M also sought coverage for costs associated with pouring of 5,800 square feet of concrete on the ground above where the new tanks had been installed.  Zurich determined that such costs were for site enhancement and not properly categorized as remediation costs.

H&M argued in a subsequent declaratory judgment action that the denied costs were integral to the remediation of its site and thus should qualify as “cleanup costs.”  Specifically, H&M argued that in order to effectuate the environmental cleanup required by the state, H&M was required to rip up the concrete at its gas station and remove its tanks, in order to gain access to the contaminated soils.  As such, argued H&M, these items were damaged by the release, and their replacement costs should come within the policy’s coverage.  H&M also argued that it was required to replace certain portions of its tanks and repour the concrete in order to comply with applicable regulations.

The court agreed that while it may have been necessary to remove portions of the tanks and concrete in order to effectuate the remediation, this did not mean that the costs of replacing such items came within the policy’s coverage.   On the contrary, the policy specifically excluded coverage for such items as indicated in exclusion L, which explicitly barred coverage for tank repairs or reconstruction.  The court drew a distinction between costs necessary to effectuate the remediation and costs covered under the policy:

Zurich assumed the costs for cleaning up the soil and groundwater to bring its quality up to standards required by governmental regulations. Zurich satisfied this obligation when MDEQ issued a "closed" designation  to the site. It appears as if the services invoiced may be "necessary" in remediating the contaminated area because excavation of the site was required to treat the surrounding affected area. Inevitably, items on the surface of the location required removal in order to remediate the contamination. Although they may be necessary in order to effectuate remediation, these costs are explicitly excluded in Section IV.L of the Policy.

The court held similarly with respect to repouring concrete at H&M’s station.  The court agreed that while such work was necessary to restore the site to its original condition, Zurich’s policy did not afford coverage for such work.  Rather, Zurich’s coverage obligations were limited to remediating any environmental contamination.   As the court explained, the policy “unambiguously excluded coverage for costs associated with restoring the entire premises back to its original condition.”