Gas Station’s Leak Not Covered Under Property Policy, Court Decides

When a gas station is notified of a vapor leak, it turns to its insurer for aid. But the insurer says no dice, because the actual property the gas station is on received no damage.
By: | June 14, 2021

Centinela Gas Station Inc. operated a gas station in Culver City, California. In March 2018, it purchased a property policy through AMCO Insurance Company for this location, under which direct physical loss or damage would be covered.

In November 2018, Centinela’s gas station discovered a vapor leak stemming from an underground gas line. It reported the damage to AMCO in December, requesting coverage for the repair under its property policy.

An AMCO adjuster went to review the site in January 2019. The adjuster learned that the leak was discovered during routine testing conducted by a third party hired by Centinela. That third party company suggested the leak was caused by a poorly secured “bushing,” a threaded fitting that connects two gas lines. The leak was not spewing fuel, only vapor, they said.

The adjuster advised the leak did not require the gas station to shut down.

Based on this information, AMCO then denied the claim. It said that because there was no apparent direct physical damage to the property, and instead the leak likely stemmed from the result of normal wear and tear and/or deterioration, the policy excluded coverage.

Centinela filed suit in November 2019, alleging two claims of breach of contract and breach of the implied covenant of good faith and fair dealing.

However, after a year, Centinela failed to follow through. AMCO filed a motion for summary judgment in December 2020.

Under the policy, it argued, the following items were excluded from coverage: “Wear and tear; rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself.”

Additionally, the policy excluded any “faulty, inadequate or defective … design, specifications, workmanship, work methods, repair, construction, renovation, remodeling, grading, compaction” from coverage.

AMCO alleged the evidence at the leak site showed wear and tear, not actual property damage. Further, if the line had been damaged during original installation, the policy would still exclude coverage, the insurer said, because of the clause on defective workmanship and construction.

Scorecard: The court sided with AMCO, granting a motion for summary judgment in favor of the insurer. The claim is not covered under the policy.

Takeaway: While a property policy is designed to cover physical assets, like buildings and structures, it doesn’t hurt to review coverage types available for niche services that might be better suited in the event of a loss. &

Autumn Demberger is the content strategist at Risk & Insurance®. She can be reached at [email protected].

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