Boardman Petroleum, Inc. v. Federated Mut. Ins. Co., 96-8362

Citation119 F.3d 883
Decision Date29 July 1997
Docket NumberNo. 96-8362,96-8362
Parties11 Fla. L. Weekly Fed. C 273 BOARDMAN PETROLEUM, INC. d.b.a. Red & Jack Oil Company, Plaintiff, Counter-Defendant, Appellee, v. FEDERATED MUTUAL INSURANCE COMPANY, Defendant, Counter-Claimant, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

Laura J. Hanson, William M. Hart, Aaron B. Latto, Meagher & Greer, Minneapolis, MN, Richard R. Mehrhof, Jr., Allgood, Childs, Mehrhof & Williams, Augusta, GA, for Counter-Defendant, Appellee.

Raymond Gordon Chadwick, Jr., Robert Perry Sentell, III, Kilpatrick & Cody, Augusta, GA, for Counter-Claimant, Appellant.

Appeal from the United States District Court for the Southern District of Georgia.

Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and LAY *, Senior Circuit Judge.






It appears to the United States Court of Appeals for the Eleventh Circuit that this case involves questions of Georgia law that will determine the outcome of the case for the parties. It also appears to this court and the parties that no controlling precedent of the Supreme Court of Georgia or any other Georgia court answers these questions, and that the answers are intertwined with important matters of Georgia public policy. We therefore certify the following questions to Georgia's highest court for resolution. See O.C.G.A. § 15-2-9 (1990); Ga.Sup.Ct.R. 37. 1


This case arises out of a dispute over whether an insurer is contractually liable for clean-up costs and defense expenses incurred as a result of underground petroleum contamination at an Augusta, Georgia gas station.

From 1955 to 1986, the appellee, Boardman Petroleum, Inc. (Boardman), leased and operated a gas station (the Smile Station) in the Daniel Village Shopping Center located in Augusta, Georgia. During the years the station operated, Boardman used underground storage tank systems to store and dispense petroleum products. When Boardman closed the Smile Station in 1986, it had the underground storage tanks removed from the site. At that time it does not appear that the tanks were leaking or had compromised integrity. In 1988, however, an environmental consultant discovered petroleum contamination at the Smile Station site during an assessment on behalf of a potential site buyer. The discovery of contamination eventually led to a lawsuit (the PGC Associates lawsuit) against Boardman in late 1990. The PGC Associates lawsuit alleged, among other things, that one of the Smile Station tanks leaked petroleum products and other hazardous chemicals that contaminated the site, groundwater and possible surrounding third-party owned property.

In February 1991, Boardman presented the PGC Associates lawsuit to its insurer, Federated Mutual Insurance Company (Federated), the appellant in this case. 2 In April 1991, Federated accepted defense of the PGC Associates lawsuit under a reservation of rights. Federated then filed a declaratory judgment action in the United States District Court for the Southern District of Georgia to determine if coverage existed for the claim arising from the PGC Associates lawsuit. Federated ultimately dismissed its declaratory judgment action without prejudice in December 1992, following the dismissal without prejudice of the PGC Associates lawsuit.

During the pendency of the PGC Associates lawsuit, Boardman and its insurers performed extensive environmental testing at the Smile Station site. This testing indicated that significant groundwater contamination existed in and around the tank bed that formerly housed Boardman's underground storage tanks. In accordance with Georgia law, in October 1992, Boardman notified the Georgia Department of Natural Resources (DNR) about the results of the testing. In response, DNR wrote Boardman on February 3, 1993, and ordered Boardman to begin corrective action measures to remove the petroleum contamination from the Smile Station site, and to submit additional information regarding the potential impact on surrounding properties. Boardman promptly notified Federated and sought defense and indemnification, but Federated refused to agree. Federated then added the insurance coverage dispute surrounding the Smile Station to a declaratory judgment action pending between the parties regarding another gas station site. Boardman and Federated ultimately settled the pending claims regarding the other site, leaving for litigation only issues relating to the extent of Boardman's coverage under general liability and umbrella insurance policies for the Smile Station site.

Federated issued the general liability policies in dispute between 1977 and 1985, to cover the Smile Station in cases involving property damage to third parties. In addition to the third-party policies, Federated issued first-party policies to Boardman as part of a special "Petro-Pac Special Multi-Peril" coverage option. Federated also issued umbrella policies to Boardman, providing excess third-party coverage above the Petro-Pac third-party policy limits. The Petro-Pac third-party policies contained the following coverage provisions:

The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence....


"Occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.


"Property Damage" means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss or use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

Boardman interprets these provisions to mean that coverage is triggered when property damage occurs within the policy period even if the property damage is not discovered within the policy period. Federated interprets these provisions to mean that coverage is triggered only when property damage occurs and is discovered within the policy period. Boardman calls its interpretation an "exposure" trigger of coverage rule. Federated calls its interpretation a "manifestation" trigger of coverage rule. Both parties agree that the interpretation issue is subject to Georgia law canons of contract interpretation.

The third-party policies also contain provisions indicating that insurance coverage does not apply "to property damage to ... (1) In any event, Boardman eventually arranged to remove 300 gallons of free product gasoline and 440 gallons of gasoline contaminated water from the subsurface groundwater at the Smile Station site. Based upon the fact that the contamination was removed and no longer appeared to threaten migration onto other property, DNR issued a "no further action" letter on February 17, 1996. DNR's letter stated in part:

property owned or occupied by or rented to the insured[.]" As discussed below, the parties differ markedly on the relevance of the so-called "owned or rented" coverage exclusion provision in this case: Boardman contends the coverage exclusion provision does not apply, Federated contends it does. Again, both parties agree that the interpretation of the coverage exclusion provision turns on Georgia law.

Based on the current requirements of the Georgia Underground Storage Tank Act and the Georgia Rules for Underground Storage Tank Management (GUST Rules) and on the final Certification of Completion, the Georgia Environmental Protection Division (EPD) has determined 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.

However, this site could be subject to further corrective action in the future if mandated through more stringent state or federal statutory or regulatory changes, or if drinking water systems are identified or installed within three miles of the site, or if surface water bodies are impacted by the dissolved contaminant plume, or if additional soil contamination and/or free product on groundwater are identified as originating from this site.

On cross-motions for summary judgment, the United States District Court for the Southern District of Georgia adopted Boardman's view on both the trigger of coverage issue and the "owned or rented" coverage exclusion issue. See Boardman Petroleum, Inc. v. Federated Mutual Insurance...

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