United States: Tustin Field Gas & Food, Inc. V. Mid-Century Insurance Company

In Tustin Field Gas & Food, Inc. v. Mid-Century Insurance Company, 13 Cal.App.5th 220 (2017), the Court of Appeal of California, Second Appellate District affirmed the trial court's ruling that "splitting" of a fiberglass sheath of an underground gasoline storage tank after 16 years resting on a rock does not constitute a "collapse" as a matter of law.

Tustin Field Gas & Food, Inc. (plaintiff), owns a gas station and minimart in Palm Springs, California. The station stores the gas dispensed by its pumps in two underground 15,000-gallon tanks. The tanks are located approximately 30 feet from the minimart, and are buried beneath a six- or seven-inch concrete slab and five or six feet of dirt. The tanks themselves are cylinders approximately 30 feet long and nine feet in diameter, and are double walled: They have an inner wall made of steel, wrapped in a synthetic honeycomb, and then sheathed with an outer wall made of "fragile" fiberglass. The tanks are connected to the pumps through pipes carrying the fuel and are connected to the minimart with electrical conduit.

When these tanks were originally placed underground in 1997, the installer did not follow the tank manufacturer's instructions to bury them in pea gravel or crushed rock. Instead, the installer just dug a hole, placed the tanks into that hole, and then covered them with "native soil" containing rocks, boulders, chunks of asphalt, rusted pipes, and other debris. The first tank, referred to as "Underground Storage Tank-1" or "UST-1," was set atop a boulder with a nine-inch diameter as well as atop pockets of air.

* * *

In September 2013, plaintiff conducted its annual test of UST-1's integrity and learned that its fiberglass sheath was no longer intact. (Health & Saf. Code, § 25284.2 [requiring annual testing of underground tanks].) This was the first time either tank had failed a test in the 16 years since the tanks were installed. The tanks were excavated. The fiberglass sheath on the underside of UST-1 had a long, narrow crack that partially touched the nine-inch boulder, which had itself cracked in two. UST-1's inner steel wall was still intact, and UST-1's outer fiberglass sheath had not lost its cylindrical shape. There was no "imminent danger" that UST-1's inner steel wall would be crushed inward. Plaintiff paid to have UST-1's fiberglass sheath patched.

Plaintiff made a claim to its property insurer, Mid-Century, for the costs to excavate and repair the pipe. The policy provides coverage for "direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss." The policy's definition of Covered Property includes fixtures as well as permanently installed machinery and equipment. The policy excludes coverage for collapse, except as provided in the Additional Coverage for Collapse, which provides coverage for collapse if caused by hidden decay; weight of people or personal property; use of defective materials or methods in construction, remodeling, or renovation, if the collapse occurs during the construction, remodeling, or renovation (or, if collapse occurs after construction, remodeling or renovation, it is caused in part by decay or weight of people or personal property). This provision also specifies that "Collapse does not include settling, cracking, shrinkage, bulging or expansion." Mid-Century denied the claim as (1) the damage to UST-1 is not damage to a building or part of a building, and (2) the efficient proximate cause did not appear to be collapse. Plaintiff brought suit for breach of contract, bad faith, and declaratory relief as to the duty to indemnify. 

Plaintiff moved for summary adjudication as to its declaratory relief cause of action, and Mid-Century moved for summary judgment. The trial court granted summary judgment for Mid-Century, and denied summary adjudication to Plaintiff. The trial court concluded (1) UST-1 was covered property under the policy, both based on an apparent concession by Mid-Century and its qualification as permanently installed equipment or a fixture, but (2) there was no covered cause of loss as there had not been a "collapse." The trial court found Plaintiff would need to show an "actual" collapse despite that the policy did not defined that term and Plaintiff did not do so – a "mere 'impairment of [UST-1's] structural integrity' did not constitute an 'actual collapse.'" The trial court concluded all of Plaintiff's claims therefore failed as a matter of law.

The Court summarized the issues on appeal, noting Plaintiff's three causes of action all rely on an entitlement to coverage under the policy:

Whether plaintiff is entitled to coverage under the Policy turns initially on two questions: (1) What does the Policy mean by the term "collapse"? and (2) Has plaintiff raised a triable issue of fact as to whether the damage to UST-1 was caused by a collapse, once that term is defined?

In analyzing these issues, the Court stated it is Plaintiff's burden that "(1) UST-1 suffered 'direct physical loss or damage ... caused by a collapse'; and (2) that collapse was 'caused by' (a) '[h]idden decay,' (b) the '[w]eight of people or personal property,' or (c) the 'use of defective material or methods in construction' 'if the collapse occurs after construction' and was 'caused in part' by either (a) or (b)." 

The definition of collapse in insurance policies varies.  When a policy defines the term, that definition controls.  [Citations.]  When a policy leaves the term "collapse" undefined, its meaning is derived from the context in which it is used in the policy.  When a policy's language reaches "'the entire collapse of a ... building structure,'" the policy covers "an actual, [but] not an imminent collapse."  [Citations.]  When a policy's language reaches "'loss or damage caused by or resulting from risks of direct physical loss involving collapse'" of a building [citations], the policy is "broad enough to embrace the threat of loss from an imminent collapse" [citation] and thus covers both (1) actual collapse and (2) imminent collapse, which means a collapse is "'likely to occur at any moment, impending.'"  [Citations.]  When a policy excludes from coverage "settling," "cracking," "shrinkage," or "expansion," the policy will not cover a collapse—whether actual or imminent—based solely on a "'substantial impairment of structural integrity'"; to do otherwise would negate the exclusionary clause for settling and the like.  [Citation.]

Under these interpretive guideposts, the trial court correctly concluded that plaintiff has not raised a triable issue of fact regarding coverage.  Several key facts are undisputed.  It is undisputed that the construction company that placed UST-1 in the ground did so negligently because it placed UST-1 on a big rock and next to several air pockets, and then buried it with debris-filled "native soil."  It is undisputed that, 16 years later, UST-1's fiberglass sheath and the big rock both split.  And it is undisputed that UST-1's inner steel wall remains intact and that UST-1's fiberglass sheath retained its cylindrical shape, but that UST-1 was not usable until its fiberglass sheath was patched.

These undisputed facts show that the damage to UST-1 constitutes at most a "'substantial impairment of [its] structural integrity.'"  [Citations.]  However, because the Policy excludes "settling" and the like, a "'substantial impairment of structural integrity'" is not a "collapse" as a matter of law.  [Citations.]

The Court rejected Plaintiff's four categories of arguments in turn: 

First, Plaintiff argued the term "collapse" should be construed broadly.  The Court pointed out that the cited case law Plaintiff relied on to argue "collapse" should include "material impairment," did not actually support Plaintiff's argument, both because Plaintiff was arguing based on the converse of the holding in Sabella v. Wisler, 59 Cal. 2d 21 (1963), which was rejected in Doheny West Homeowners' Association v. American Guarantee & Liability Insurance Company, 60 Cal. App. 4th 400 (1997) and Stamm Theaters v. Hartford Casualty Insurance Company, 93 Cal. App. 4th 531 (2001); and because Plaintiff's reliance on language in Grebow v. Mercury Insurance Company, 241 Cal. App. 4th 564 (2015) that was dicta and involved courts outside California, which was also the basis for the Court rejecting consideration of many of Plaintiff's cited treatises.  Both Doheny West and Stamm also hold against Plaintiff's next assertion, that California law defines "collapse as any 'substantial impairment of structural integrity' of a building."  The Court rejected Plaintiff's policy argument, finding the policy was not ambiguous as to the policy's exclusion of settling from collapse.  The Court also rejected Plaintiff's public policy argument that a lack of coverage would not incentivize repairs, first referencing "the fact that state environmental authorities would likely step in to prevent this interim environmental damage (as they did here)" and pointing to the California Supreme Court's rejection of this argument in Rosen v. State Farm General Insurance Company, 30 Cal.4th 1070 (2003). 

Second, Plaintiff argued the policy language was akin to broader definitions referenced in other California decisions, including Doheny West, supra, and Stamm Theaters, supra, based on inclusion of the phrase "risk."  The Court rejected this argument as the policy excludes coverage from its definition of covered causes of loss, and only creates a more limited "exception to the exception" for collapse-related damage, if the collapse is caused by one or more listed perils. 

Third, Plaintiff suggested the Court must credit its expert's testimony that UST-1 collapsed, as well as Mid-West's concession that UST-1 "collapsed."  The trial court sustained Mid-West's objections to the evidence that UST-1 collapsed (i.e. the expert's testimony as well as Plaintiff's owner parroting this characterization), and Plaintiff did not attack those rulings on appeal.  Further, the Court rejected Plaintiff's claim of estoppel based on a sentence in Mid-West's in opposition to Plaintiff's motion for summary adjudication: "'[t]he damaged tank, UST-1, along with its fiberglass jacket collapsed down onto the rock due to the improper installation of the tank,' this sentence is not, as plaintiff urges, a concession to the meaning of the term 'collapse' in the Policy that defendant is now judicially estopped from denying."

Fourth, Plaintiff argued "that, even as we interpret the term 'collapse,' there is a triable issue of fact warranting denial of summary judgment because there is a factual dispute over whether UST-1 pressed down onto the rock, or whether the rock pushed up into UST-1's fiberglass sheath."  The Court rejected this argument: "this dispute is not 'material' because no matter how it is resolved, the damage to UST-1 is the same and amounts at most to a 'substantial impairment of [its] structural integrity.'"

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