Appeals court affirms no coverage for building not listed in policy

A business cannot be insured for a building that did not exist when an insurance policy was issued, a federal appeals court said Wednesday, in affirming a lower court ruling in favor of a Hanover Insurance Group unit.

In 2013, Portland, Oregon-based Sector Corp., a property management company that owned a roughly five-acre parcel of land in Billings, Montana, that contained an office, warehouse and shop space, reached an agreement with Saint Cloud, Minnesota-based PSC Custom LLC, which operates in the tank trailer and tank truck industry, to lease premises on the property, according to court papers in PSC Custom LLC, DBA Polar Service Center, v. Hanover American Insurance Co.; Sector Corp; St. Johns Corp.

The lease required Sector, as landlord, to acquire fire and casualty insurance on the entire premises and for any improvements built on it, with Sector to be listed as primary on the insurance and PSC as an additional insured.

Sector purchased commercial general liability insurance policies from Hanover unit Hanover American Insurance Co. for the premises beginning in 2013 and continuing through 2019.

In 2014, PSC erected a 6,100-square-foot structure on the property, which it used as a truck wash and truck tank draining/cleaning facility. In May 2019, a fire and explosion destroyed the building and led to a little more than $400,000 in repair costs.

PSC and Portland, Oregon-based St. Johns, which procures and manages insurance policies on Sector’s behalf for the premises, submitted claims to Hanover for the structure’s loss. Hanover denied both claims, asserting there was no coverage because the policy did not expressly list the center as covered property on the premises.

PSC sued the insurer, Sector and St. Johns in U.S. District Court in Billings, Montana, which ruled in the insurer’s favor. A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco affirmed the decision.

The policy provides coverage for physical loss or damage to “covered property,” which is defined to include a building or structure described in the policy’s declarations, a three-judge panel said.

“In 2013, when Hanover issued this policy, the (tank wash center) did not yet exist…The only plausible reading of the policy is that the office building and not the (center) is covered under the policy,” it said, in affirming the lower court.

Attorneys in the case had no comment or did not respond to a request for comment.