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S & L Oil, Inc. v. Zurich American Insurance Co.

July 8, 2009

S & L OIL, INC., A CALIFORNIA CORPORATION; S & L OIL, JV, A CALIFORNIA JOINT VENTURE; AND THREE WIVES, INC., A CALIFORNIA CORPORATION, PLAINTIFFS,
v.
ZURICH AMERICAN INSURANCE COMPANY, A NEW YORK CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER AND RELATED COUNTER ACTION.

This case arises from the refusal, by Defendant and Counter-Claimant Zurich American Insurance Company ("Zurich") to cover losses asserted by Plaintiffs, the alleged owners of underground petroleum storage tanks in Temecula, California, for pollution investigation and remediation expenses incurred as a result of tank discharges.

Zurich issued a so-called claims made and reported policy to Counter-Defendant Nick Goyal and denied coverage for Plaintiff's claims against the policy, primarily on grounds that no timely notice within the applicable coverage term was provided so as to trigger coverage. Plaintiffs proceeded to sue, alleging breach of contract, declaratory relief to establish coverage, and breach of the implied covenant of good faith and fear dealing stemming from Zurich's allegedly wrongful refusal to extend policy benefits. Zurich, for its part, counterclaimed for declaratory relief that its policy did not in fact provide coverage given the circumstances of the claim. Both sides now move for summary judgment, and Zurich alternatively also requests summary adjudication as to specific issues. As set forth below, the Court finds that summary judgment is warranted as to Zurich's counterclaim in its entirety.

BACKGROUND

At all times pertinent to this litigation, Plaintiff S & L Oil owned and operated the Ynez Shell Station located at 26880 Ynez Road in Temecula, California.*fn1 Zurich's Statement of Undisputed Facts ("UF"), No. 1.

Zurich issued a claims made and reported policy to Counter-Defendant Nick Goyal,*fn2 an individual affiliated with Plaintiffs, on the underground tanks at the Station on March 29, 2001. The Zurich policy were thereafter renewed on an annual basis. Zurich UF No. 21.

The facts here are largely uncontroverted. First, with respect to the Zurich policy itself, it is undisputed that its provisions remained unchanged from March of 2001 through 2005. Id. at 27.*fn3

The insuring clause provides coverage for cleanup activities occasioned by tank discharge in pertinent part as follows:

I. DISCOVERY INSURING AGREEMENT COVERAGE

A: FIRST PARTY CLEANUP

We will pay on behalf of the "insured" any "cleanup costs" required by "governmental authority" as a result of a "releases(s)" that "emanates from" a "scheduled storage tank system(s)" at a "scheduled location", that commences on or after the "retroactive date" and is first discovered by the "insured" during the "policy period", provided the "claim" is reported to us during the "policy period", or any applicable extended reporting authority.

Id. The policy is specifically denominated as a claims made and reported policy, since it is activated only where a claim for cleanup costs is asserted by a governmental authority as a result of a discharge both discovered during the applicable policy period and reported to Zurich within either the same policy period, or an extended period as provided in the policy.

The policy defines "cleanup costs" as including both investigation and remediation expenses with regard to tank leakage, stating that F. "Cleanup costs" means:

1. The necessary expenses incurred in the investigation, removal, remediation, neutralization, or immobilization or contaminated soil, surface water, groundwater, or other contamination.....

Id. The term "claim", in turn, is defined as the seeking of payment for cleanup costs required by governmental authority. Id. The policy specifically excludes any cleanup cost arising from a release known to the insured prior to effective date of the policy period, which in this case is the annual period set forth in the declarations:

IV. EXCLUSIONS

This insurance does not apply to "claim(s)", "cleanup costs" or "loss(es)' based upon or arising out of:

A. Any "release" known to an "insured" prior to the effective date of the policy Period;

Id.

Finally, in providing additional provisions for the reporting of claims, Zurich relaxes any requirement that a claim be both made and discovered within the same policy period by allowing the insured to report a potential claim and allowing that report to suffice for ...


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