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Heri Krupa, Inc. v. Tower Group Companies

March 18, 2013


The opinion of the court was delivered by: Savage, J.


At issue in this insurance dispute is the "pollution" exclusion in a business owner's property insurance policy issued to the owner and operator of a convenience store, car wash, and gas and diesel service station. The plaintiff, Heri Krupa, Inc. ("Krupa"), asserts that the defendant insurer, Preserver Insurance Company*fn1 ("Preserver"), breached the insurance contract when it failed and refused to pay business income loss benefits arising from the shut-down of the business after the release and discharge of diesel fuel from a ruptured hose.*fn2 Preserver contends that the loss is not covered and is specifically excluded by the policy.

The parties disagree what the policy language means and whether the pollution exclusion applies.*fn3 The facts material to the interpretation of the policy are undisputed.

A rupture in a flex hose caused a massive discharge of diesel fuel.*fn4 The released fuel caused contamination at the insured's property, requiring corrective action and temporary closure of the station as ordered by Pennsylvania Department of Environmental Protection ("DEP"). As a result of action taken by DEP, Krupa was forced to shut down its business operations, suffering financial losses. At the time, Krupa was covered by the Preserver policy, which provides business income loss benefits. The policy includes a pollution exclusion. Absent the exclusion, the losses are otherwise covered.

After giving effect to the plain language of the policy and strictly construing the exclusion against Preserver, we conclude that the pollution exclusion applies to the business income loss benefit. Therefore, we shall grant Preserver's motion for summary judgment.

Factual Background

Krupa owned and operated a convenience store, car wash, and retail gasoline and diesel service station in Pottstown, Pennsylvania. In March 2010, Krupa discovered a release of diesel fuel from a rupture in a flex-hose beneath the diesel fuel dispenser. Bristol Environmental and Service Company, Krupa's maintenance firm, notified and filed a Notice of Contamination with DEP identifying the source of contamination as the underground piping system. DEP ordered Krupa to take corrective and remedial action. There followed a series of violation notices from DEP and attempted corrective actions by Krupa and Brilliant Lewis Environmental Services ("Brilliant"), Krupa's contractor.

In July 2010, dissatisfied with Krupa's corrective actions, DEP issued a cease and desist order pursuant to the Storage Tank and Spill Prevention Act. In its findings, DEP determined that there had been a release of more than 7,000 gallons of petroleum that contaminated soil and groundwater at the site, which required an "aggressive interim remedial response" to "protect human health and the environment."*fn5 The cease and desist order required Krupa to stop using its fuel tanks until it completed the corrective action as ordered. In compliance with the order, Krupa emptied its fuel tanks and shut down petroleum service.

Corrective actions continued through 2011 and 2012. The Underground Storage Tank Indemnification Fund paid for all remediation activities at the site. In September 2012, a Remedial Action Plan confirmed a decreasing trend in contamination levels. At his deposition on December 11, 2012, Pritesh Patel, Krupa's president, testified that although the site was no longer contaminated, Krupa still did not have permission to operate a business.*fn6

In the meantime, due to contamination of water at the site, DEP prohibited service of food products at the convenience store. Consequently, Krupa's tenant, Dunkin' Donuts, shut down its operation and canceled its lease.

Krupa submitted a claim under the Preserver policy, which was in effect from December 17, 2009 through December 17, 2010. Relying on the pollution and ordinance exclusions,*fn7 Preserver denied the claim. Krupa then brought this action for breach of the insurance contract and insurance bad faith in state court, seeking damages for loss of rent, loss of business income, loss of inventory and damage to the covered property, and other damages under the policy. Preserver removed the action to this court.

Legal Standard

The interpretation of an insurance contract is a question of law. Am. Auto. Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011) (citations omitted). Whether a claim is within a policy's coverage or barred by an exclusion may be determined on a motion for summary judgment. Bishops, Inc. v. Penn Nat'l Ins., 984 A.2d 982, 989 (Pa. Super. Ct. 2009) (quoting Nationwide Mut. Ins. Co. v. Nixon, 682 A.2d 1310, 1313 (Pa. Super. Ct. 1996)).

A court must give effect to the plain language of the insurance contract read in its entirety. Am. Auto Ins. Co., 658 F.3d at 320 (citation omitted). When the policy language is ambiguous, the provision is construed in favor of the insured. Id. (quoting Med. Protective Co. v. Watkins, 198 F.3d 100, 104 (3d Cir. 1999)); 401 Fourth St., Inc. v. Investors Ins. Grp., 879 A.2d 166, 174 (Pa. 2005) (citing Mohn v. Am. Cas. Co. of Reading, 326 A.2d 346, 352 (Pa. 1974)). Contract language is ambiguous if it is reasonably susceptible to more than one construction and meaning. 401 Fourth St., Inc., 879 A.2d at 171 (quoting Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (1999)). ...

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