Insured’s Expenses Were Not “Reasonable and Necessary Cleanup Costs,” Court Decides

A federal district court in Michigan was asked to consider whether certain expenses incurred by the insured fell within the definition of “cleanup costs” required by governmental regulation resulting from a release of contaminants into the ground from scheduled storage tank systems. 

The Case

After H & M Petro Mart discovered a “release” of contaminants at its property, it reported the release to its insurer, Zurich American Insurance Company. Zurich ultimately paid over $190,000 in costs relating to the remediation of the contamination. 

Thereafter, H & M submitted two additional invoices to Zurich requesting payment. The first was for installation of new product lines, electrical wire and conduits, sewer system and canopy drain, dispenser islands and bumper guards, and re-installation and calibration of dispensers. The second was for replacement of concrete above the surface of the property. 

Zurich’s underground storage tank expert determined that the services reflected in the invoices related to site enhancement, re-installation of items, and replacement of items not associated with the required remedial activity. As a result, Zurich notified H & M of its intention to deny the costs (except for $2,250) as not “reasonable and necessary cleanup costs” covered under the policy. 

Arguing that it was entitled to the costs because they were “necessary” under the policy in order to clean up and remediate the contamination, H & M sued Zurich. 

The Court’s Decision 

The court granted judgment to Zurich. With respect to the first invoice, it observed that the policy excluded costs associated with reconstruction, repair, removal, maintenance, replacement, upgrading, or rebuilding of any scheduled storage tank system.  The unpaid costs associated with the first invoice, it concluded, were excluded by the policy. 

The court reached the same result with respect to the unpaid costs associated with the second invoice, ruling that replacing excavated concrete did not qualify as “cleanup costs” under the policy. The court concluded that although these costs might have been “necessary” to locate and remove the contamination, the policy explicitly excluded them. 

The case is H & M Petro Mart, Inc. v. Zurich American Ins. Co., No. 11-13140 (E.D. Mich. Nov. 15, 2012). 

The Rivkin Rule 

The court’s decision in this case is a good reminder that insurance companies should carefully review invoices and requests for payment that they receive from their insureds to make certain that they are required to pay them under their policies – even after they have agreed that there is coverage.