The cracking of an underground storage tank’s sheathing was not a “collapse” where the policy expressly stated “collapse” did not include “cracking” and where the tank, although in a state of “substantial impairment,” was not in a state of “imminent” collapse. ( Tustin Field Gas & Food, Inc. v. Mid-Century Insurance Exchange (2017) WL 2839138)
Facts
Tustin Field Gas & Food, Inc. (TFGFI) owned a gas station and mini-mart. The station stored fuel in two 15,000-gallon cylindrical tanks, which were buried about six feet beneath the surface of the ground. Each tank was made of steel, and each tank was covered with fiberglass sheathing.
When the tanks were placed underground years earlier, the installer did not follow the manufacturer’s instructions to bury them in pea gravel or crushed rock. Instead, the installer simply dug a hole, placed the tanks into that hole, and then backfilled the hole with soil, rocks, boulders, chunks of asphalt, rusted pipes and other debris. One of the two tanks was set atop a nine-inch diameter boulder as well as atop pockets of air.
During state-mandated annual testing, TFGFI discovered that the fiberglass sheathing around one of the tanks (the tank sitting on the nine-inch boulder) had damage. TFGFI had the tank excavated, and determined that the fiberglass sheathing on the underside of the tank had a narrow crack that partially touched the nine-inch boulder, which had itself cracked in two. However, the tank’s steel wall was still intact, and its outer fiberglass sheathing had not lost its cylindrical shape. There was no imminent danger that the tank’s inner steel wall would be crushed inward, but the tank was no longer usable under California law, because its sheathing had failed.
At the time TFGFI discovered the damage, TFGFI was named as the insured on a policy issued by Mid-Century Insurance Company (Mid-Century). The policy covered TFGFI’s interest in “[b]uildings, meaning the buildings and structures at the premises …, including … (2) [f]ixtures, including outdoor fixtures; [and] (3) [p]ermanently installed: (a) [m]achinery; and (b) [e]quipment.”
In addition, the Mid-Century policy provided coverage for “collapse” of a “building or any part of a building” covered by the policy, if the collapse was caused by one or more of various named perils. The policy expressly provided that “collapse” did not include “settling, cracking, shrinkage, bulging or expansion,” but the policy did not further define what was (or was not) a “collapse.” Elsewhere, the policy excluded “[s]ettling, cracking, shrinking or expansion.”
TFGFI submitted a claim, which Mid-Century denied, asserting that the damaged tank was not a “building or any part of a building” and that, in any event, no “collapse” had occurred. TFGFI then sued Mid-Century for breach of contract, bad faith and declaratory relief. The trial court entered summary judgment in favor of Mid-Century, and TFGFI appealed.
Holding
The Court of Appeal affirmed the summary judgment in favor of Mid-Century. The Court noted that – unlike many property policies – the Mid-Century policy did not define collapse as the “actual” falling down or caving in of a building or part of a building. The Court also noted that the policy excluded “settling” and “cracking” and that the policy further expressly provided that “collapse” did not include “settling” and “cracking.”
In addition, the Court noted that – unlike some property policies – the Mid-Century policy did not broadly extend to ” risks of direct physical loss involving collapse of a building.” Importantly, the Court noted that, even if the policy could be construed to apply to something less than an “actual” collapse of part of a building, TFGFI would still need to show the tank was in a state of “imminent collapse,” and TFGFI had not done so. The Court also rejected TFGFI’s argument that mere “substantial impairment” of the tank’s structural integrity was enough to trigger the “collapse” coverage (the same argument the Court of Appeal rejected twenty years earlier in Doheny West Homeowners’ Assn. v. American Guarantee & Liability Ins. Co. (1997) 60 Cal.App.4th 400).
Because the Court of Appeal ruled no “collapse” had occurred, the Court did not address the issue of whether the tank was “Machinery,” “Equipment” or a “Fixture” and, therefore, “a building or part of a building.”
Comment
The Court’s holding that no actual “collapse” occurred is consistent with various prior California appellate decisions regarding this issue. Very briefly, if a policy does not specifically require a “collapse” to be a “complete” or “actual” falling down, then an “imminent” (i.e., impending) collapse is sufficient to trigger coverage. ( Doheny West Homeowners’ Assn., supra, 60 Cal.App.4th 400.) However, if a policy does specifically require a “collapse” to be a “complete” or “actual” falling down, then an “imminent” collapse is not sufficient. ( Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070; Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206; Grebow v. Mercury Ins. Co. (2015) 241 Cal.App.4th 564.)
Here, Mid-Century’s policy did not expressly require an “actual” collapse. However, unlike the policy involved in Doheny, Mid-Century’s policy also did not broadly extend to “ risksof direct physical loss involvingcollapse of a building.” Thus, even if the policy could have been construed to apply to an “imminent collapse,” TFGFI had not shown the tank was in a state of “imminent collapse.” At most, TFGFI had demonstrated a “substantial impairment” of the tank’s structural integrity, which is insufficient to constitute a “collapse” under California law.