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Appeals court rules in favor of Travelers unit in burst pipe case

oil field

A federal appeals court on Tuesday affirmed a ruling in favor of a Travelers Cos. Inc. unit, holding an oil field services company’s building damage, which was caused by a burst water pipe, was not covered under its policies.

Bloomfield, New Mexico-based Naabani Twin Stars LLC and Twin Stars Ltd. hired two geotechnical consultants to assess the cause and extent of the damage, which occurred in 2016, according to the ruling by the 10th U.S. Circuit Court of Appeals in Denver in Naabani Twin Stars, LLC; Twin Stars, Ltd. v. St. Paul Fire & Marine Insurance Co. and Travelers Cos. Inc.

Both experts agreed the water from the burst pipe caused soil compression and settlement, and that in turn caused the damage to the building, which included cracks in the floor, the exterior’s buckling and the inability to open and close doors, according to the ruling.

Twin Stars filed a claim with Travelers unit St. Paul Fire & Marine Insurance Co. under its all-risk and additional coverages policies.  St. Paul denied coverage on the basis there was no collapse as defined in the policy and that an “earth movement” exclusion also applied.

Twin Stars sued the insurer, seeking coverage under its policies and charging bad faith.  The U.S. District Court in Las Cruces, New Mexico ruled in the insurer’s favor and was upheld by a unanimous three-judge appeals court panel.

“The definition of collapse in the policy was unambiguous, and the damage to the building was excluded by the definition,” the ruling said. “But even if the building had suffered a collapse, coverage would have been precluded by the earth movement exclusion,” it said.

In affirming the lower court’s ruling, the panel also held that Twin Stars had not provided sufficient evidence to demonstrate the insurer had acted in bad faith.

Attorneys in the case did not respond to requests for comment.