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Court Grants Insurer Partial Summary Judgment in Diesel Fuel Discharge Case

Blogs, Insurance Coverage

On December 14, 2012, the United States District Court for the Eastern District of Kentucky granted partial summary judgment in favor of Nationwide Agribusiness Insurance Company, holding that there was no coverage related to remediation costs for a diesel fuel spill. Hardy Oil Company, Inc. v. Nationwide Agribusiness Insurance Co., Civil Action No. 11-75-JBC, 2012 WL 6561766 (E.D.Ky., Dec. 14, 2012).

On April 21, 2010, Hardy Oil Company discovered a failed diesel fuel line in one of its bulk plants in Richmond, Kentucky, and filed a claim with Nationwide for remediation costs, as well as business interruption. Nationwide denied the claim, and Hardy filed suit, alleging that the policy covered the claimed losses. In its lawsuit, Hardy claimed that the losses were covered under several separate sections of Nationwide’s policy, including: (1) the Property Coverage Part; (2) the Income Coverage Part; (3) the Petroleum Property Endorsement; and (4) the Flood Endorsement. Both parties moved for summary judgment, and the Court denied Hardy’s motion in its entirety and granted Nationwide’s motion in part.

The Court held that no coverage existed under the Property Coverage Part because the property was not a “covered property” under the meaning of the policy. In reaching its conclusion, the Court noted that while “buildings and structures” were covered properties under the policy, the term “structure” (which the policy did not define) was unambiguous, and that the proper interpretation of the term “structure” was “something that was built or constructed like a building.” Hardy’s claim related to various areas of its property including a secondary containment dike, above-ground storage tanks, and piping and the Court held these were not “structures” under the policy, as they were not constructed as “buildings.” Further, to the degree the term “structure” was ambiguous, the policy specifically stated that retaining walls, underground pipes drains, and paved surfaces were not covered. The Court also noted there was no coverage under the Flood Endorsement, as Hardy had not presented any evidence that a flood caused the claimed damages.

Finally, the Court denied both motions for summary judgment as they related to the policy’s Income Coverage Part and Petroleum Property Endorsement, finding that a factual issue regarding what caused the leak precluded summary judgment. Hardy had presented the argument that vehicles driving over the underground pipes on its property had caused the leak, while Nationwide presented evidence supporting a different theory (the Court did not discuss Nationwide’s theory of the loss, but it was likely a theory it was caused by a non-covered peril such as contamination, deterioration, or wear and tear). The Court held that as there was a fact issue as to the cause of the leak, summary judgment was inappropriate as to the claim of coverage under either the Income Coverage Part or Petroleum Property Endorsement.

A jury trial as to the remaining issues in the case is set for February 11, 2013, before the Honorable Joseph M. Hood.

A copy of the decision may be obtained by clicking here.