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Travelers wins fuel storage dispute in reversal

Posted On: Aug. 18, 2020 2:08 PM CST


A federal appeals court has reversed a lower court decision and ruled in favor of a Travelers Cos. Inc. unit in a dispute over damages associated with an underground fuel storage tank.

Travelers Property Casualty Co. of America had provided coverage to Meridian, Idaho-based Engineered Structures Inc. while ESI built a fueling station for Fred Meyer Stores Inc. in Portland, Oregon, according to Monday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Engineered Structures Inc. v. Travelers Property Casualty Co. of America.

After damages occurred in connection with the tank’s installation, Travelers determined they resulted from ESI or its subcontractor not placing enough ballast water into the tank to prevent flotation during a period of rainy weather. It denied coverage, citing an exclusion in the policy barring coverage for “fault, inadequate or defective….workmanship (or) construction,’” the ruling said.

ESI then filed suit against Travelers in U.S. District Court in Boise, Idaho, for breach of contract, negligence and bad faith, according to the ruling.

The court concluded the exclusion was ambiguous and granted summary judgment to ESI on its breach of contract claim, although it granted summary judgment to Travelers on ESI’s bad faith claim.

A three-judge appeals court panel unanimously concluded the exclusion was not ambiguous.  “The district court focused on ‘workmanship’ to find the Exclusion ambiguous and inapplicable.

“But that focus disregarded the Exclusion’s unambiguous, process-oriented use of ‘construction,’” the ruling said. 

“Because we find that ‘construction’ carries an unambiguous, process-oriented meaning in the Exclusion, remand is appropriate…further proceedings before the district court are necessary to resolve whether ESI’s losses were, in fact, ‘caused by or result(ed) from faulty, inadequate or defective…construction,’ thus making the Exclusion applicable,” the panel said, in reversing the lower court’s ruling.

The panel also affirmed dismissal of the bad faith claim.

Attorneys in the case could not be reached for comment.

Earlier this month, a federal appeals court upheld a lower court ruling and held a Travelers Cos. Inc. unit was not obligated to defend a trucking company for the damage caused by a hydrochloric acid cloud because of a pollution exclusion in its coverage.