Boardman Petroleum, Inc. v. FEDERATED MUT. INS.

• Decision Date: 23 February 1998
• Docket Number: No. S97Q1883.,S97Q1883.
• Citation: 269 Ga. 326,498 S.E.2d 492
• Parties: BOARDMAN PETROLEUM, INC. v. FEDERATED MUTUAL INSURANCE COMPANY.
• Court: Georgia Supreme Court

498 S.E.2d 492

269 Ga. 326

BOARDMAN PETROLEUM, INC. v. FEDERATED MUTUAL INSURANCE COMPANY.

No. S97Q1883.

Supreme Court of Georgia.

February 23, 1998.

Reconsideration Denied April 2, 1998.

Raymond G. Chadwick, Jr., Kilpatrick & Cody, Robert Perry Sentell, III, Kilpatrick Stockton, LLP, Augusta, for Boardman Petroleum, d/b/a Red & Jack Oil Company.

Richard R. Mehrhof, Jr., Allgood, Childs, Mehrhof & Millians, Augusta, Laura J. Hanson, Meagher & Geer, P.L.L.P., Minneapolis, MN, for Federated Mutual Insurance Company.

Linda B. Foster, Weissman, Nowack, Curry & Wilco, Atlanta, for Amicus Appellee. THOMPSON, Justice.

This case is before the Court on certification from the United States Court of Appeals for the Eleventh Circuit. Boardman Petroleum v. Federated Mutual Insurance Co., 119 F.3d 883 (11th Cir.1997). The issues involve interpretation of a general liability insurance policy issued to a petroleum distributor.

From 1955 to 1986, Boardman Petroleum, Inc. (Boardman) leased and operated a retail gasoline station in Augusta, Georgia. During that time, Boardman used underground storage tank systems on the property to store and dispense petroleum products. The tanks were removed from the site when the station was closed in 1986, and they did not appear to be compromised at that time.

Between 1977 and 1985, Boardman was insured under general liability policy packages issued for petroleum products distributors by Federated Mutual Insurance Company (Federated). These "Petro-Pac" insurance packages covered the station for property damage and bodily injury to third parties. The policies specifically excluded coverage for underground contamination of property "owned or occupied by or rented to the insured." Boardman elected to purchase first-party coverage from Federated as part of a "Special Multi-Peril" option to the Petro-Pac policy. In addition, Federated sold umbrella policies to Boardman providing excess third-party coverage above the third-party policy limits.

In May 1988, an environmental consultant employed by the owner of the property in connection with a prospective sale, discovered that gasoline had, at some undetermined time, leaked from the underground storage tanks, resulting in petroleum contamination at the site. As required by Georgia law, Boardman informed the Georgia Department of Natural Resources (DNR) of the contamination. The DNR notified Boardman that remedial measures were required to remove the contamination, which was shown to be limited to the service station site. Boardman submitted a corrective action plan which was acceptable to the DNR, and the necessary clean-up was ultimately completed. Boardman also notified Federated, and sought defense and indemnification under the third-party and umbrella policies.¹ Federated denied coverage, and brought the present action in the United States District Court for the Southern District of Georgia seeking a declaration of its duty to defend.² During the pendency of that lawsuit, the DNR certified that the necessary remedial action had been accomplished, that "no further corrective action is required for free product removal and that no additional groundwater monitoring is necessary for the subject site, at this time."³

Cross-motions for summary judgment were filed. Federated argued in part that the owned or rented exclusion precluded coverage because the contamination was limited to the soil and groundwater at the site of the station. The district court, however, adopted Boardman's position and entered judgment in its favor, concluding (1) that clean-up costs solely for contamination on the insured's leased premises are covered, despite the exclusion for damage to property "owned, occupied or rented" by the policyholder; and (2) that an "exposure" trigger of coverage applied to the policies under Georgia law (i.e., coverage is triggered when property damage occurs within the policy period, even if not discovered within the policy period), as opposed to a "manifestation" trigger of coverage (i.e., coverage is triggered only when the property damage occurs and is discovered within the policy period). Federated appealed to the Eleventh Circuit. The Eleventh Circuit determined that resolution of the case involves unsettled questions of Georgia law regarding contract interpretation. It certified the following questions:

1. What is the appropriate trigger of coverage under general liability policies such as the ones at issue in this case?

2. Does an "owned or rented" coverage exclusion in general liability policies such as the ones at issue bar coverage of all or a portion of an insured's claims for indemnification for the cost of a state-ordered contamination clean-up when that clean-up involves soil and groundwater contamination which has not yet damaged surrounding soil and/or groundwater?

Because we find that the owned or rented exclusion is dispositive, we do not reach the trigger of coverage inquiry.

Under Georgia law, contracts of insurance are interpreted by ordinary rules of contract construction. Park `N Go v. U.S. Fidelity, etc., Co., 266 Ga. 787, 791, 471 S.E.2d 500 (1996). "Three well known rules... apply. Any ambiguities in the contract are strictly construed against the insurer as drafter of the document; any exclusion from coverage sought to be invoked by the insurer is likewise strictly construed; and insurance contracts are to be read in accordance with the reasonable expectations of the insured where possible." (Citations omitted.) Richards v. Hanover Ins. Co., 250 Ga. 613, 615(1), 299 S.E.2d 561 (1983). Where the terms are clear and unambiguous, and capable of only one reasonable interpretation, the court is to look to the contract alone to ascertain the parties' intent. Park `N Go, supra at 791, 471 S.E.2d 500. The contract is to be considered as a whole and each provision is to be given effect and interpreted so as to harmonize with the others. McCann v. Glynn Lumber Co., 199 Ga. 669, 34 S.E.2d 839 (1945).

The owned or rented property exclusion in issue provides:

This insurance does not apply ... to property damage to (1) property owned or occupied by or rented to the insured, (2) property used by the insured, or (3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control.

Terms in an insurance policy are given their ordinary and common meaning, unless otherwise defined in the contract. Claussen v. Aetna Cas., etc., Co., 259 Ga. 333(1), 380 S.E.2d 686 (1989). The owned or rented exclusion clearly and unequivocally precludes coverage for the costs of remediating contamination that is limited exclusively to the policyholder's property. As Boardman was the lessee of the affected property, the first-party exclusion precludes coverage for its claim for damage limited to the site.

In recognition of that exclusion, Boardman opted to purchase Federated's first-party property insurance to cover:

[T]he insured's interest in all real and personal property, both above and below ground (except as otherwise excluded) including underground tanks, contents of tanks, piping and connections, petroleum products and other products and merchandise usual or incidental to the insured's business of an oil distributing station.

This policy specifically covers pollution clean-up expenses, as follows:

The insured may apply the amount stated under the limit of liability for this section to cover pollution clean-up expenses resulting from a direct loss in any one occurrence at a designated location on this form. This will include expenses for testing and clean-up work where required by the governmental pollution control authorities. Coverage does not apply to fines and penalties imposed on the insured as a result of a pollution occurrence nor to any expenses for clean-up of the designated premises.

By its express terms, this optional first-party insurance provides coverage for government mandated pollution clean-up expenses on the insured's own property. As such, it covers expenses which are specifically excluded in the third-party policy. The unambiguous language of both the first and third-party provisions must be given effect and harmonized with one another. McCann, supra. If the exclusion is not applied to property rented by Boardman, the exclusion is rendered totally meaningless and would eliminate the need for first-party coverage altogether. And, by purchasing the optional first-party insurance, Boardman's expectations were such that the third-party policy would not cover pollution clean-up costs to its own property. Otherwise, why would the policyholder elect to pay a premium for unnecessary and redundant coverage?⁴

In concluding that coverage is not barred by the owned or rented exclusion, the district court relied solely on Claussen v. Aetna Cas., etc., Co., 754 F.Supp. 1576 (S.D.Ga.1990), a case interpreting a similar policy exclusion under Florida law. But Claussen is distinguishable for several reasons. First, because a Florida property owner does not own the groundwater beneath the property, the Claussen court determined that contamination below ground extends to property not owned by the insured; thus, the owned property exclusion does not bar coverage. Id. at 1580. In contrast, Georgia law provides that a property owner owns everything that is above and below his real estate. OCGA §§ 44-1-2; 51-9-9. Applying similar principles of private ownership of groundwater led a Texas federal court to hold that an identical exclusion barred third-party coverage for groundwater contamination under the policyholder's site. American States Ins. Co. v. Hanson Industries, 873 F.Supp. 17, 24 (S.D.Tex.1995). The same law is applicable here—contamination of on-site groundwater alone is damage to the insured's own property.

An equally critical distinction in Claussen was evidence that "hazardous substances polluted not only the ground water...