Montana High Court Rejects Compensation Board’s Lawsuits

The Montana Supreme Court has upheld a lower court’s rulings against the state Petroleum Tank Release Compensation Board. The board had sued four insurance companies for compensation for more than $2 million in payments it made to cover the cleanup of petroleum leaks at several gas stations across the state.

The advisory board administers a fund that owners and operators of petroleum storage tanks in Montana contribute to. The fund reimburses cleanup costs when their underground tanks leak or spill.

In 2003, the board brought four separate lawsuits against insurance companies after paying to clean up several petroleum facilities across the state.

In the lead case, leaks were discovered at a gas station in Belgrade and two in Billings owned by Mountain States Petroleum Corp. Inc.

Mountain States was insured by Federal Service Insurance Co. but didn’t file claims with the company for payment of its cleanup costs, according to court records. Instead, Mountain States applied to the compensation board for reimbursement.

The board says it has paid Mountain States $490,197 over 16 years toward its cleanup costs.

In April 2002, more than eight years after it began making payments, the board made a demand against Federated Service for repayment of its advances to Mountain States. After getting no response, the board filed suit against the insurer in April 2003.

According to court records, the circumstances of the board’s other three lawsuits were similar:

The board says it reimbursed Robertson Oil $698,384 over 15 years for cleanup of leaks at its service station and bulk plant in Big Sandy. Robertson Oil also was insured by Federated Service but apparently didn’t file claims for the cleanup expenses under its policy.

The board made a demand for payment to Federated Service in August 2002, more than 10 years after the leaks were discovered, and filed suit in April 2003.

The board says it reimbursed Farmer’s Union Oil Co. of Kremlin $411,048 over 15 years for cleanup of leaks at its service station. Farmer’s Union Oil didn’t notify either of its insurers — National Farmers Union Property and Casualty Co. or Mutual Service Casualty Insurance Co. — of the spills or make claims for them.

The board made a demand for payment to Kremlin’s insurers, which was denied in January 2003. It filed suit in August 2003.

The board also says it reimbursed Oran and Elskeline Pratton $458,762 over 15 years for cleanup of a leak at their service station in Reedpoint. No claim was made to Mountain West Farm Bureau Mutual Insurance Co. But the company maintains it didn’t insure the Prattons and was improperly included in the suit.

District Court judges in Lewis and Clark County ruled in favor of the insurers, saying the board’s claims fell outside the eight-year statute of limitations for a contract action.

The board argued on appeal that precedent calls for a separate period of limitation after each of its payments to the petroleum facilities’ owners.

But in a decision issued the week of June 2, 2008, the state Supreme Court disagreed.

“The statute of limitations in these cases is based not on payment, request for payment, or denial of payment,” the high court wrote. “Rather, it is based on when the claim accrues; that is, upon discovery of the leak and the subsequent obligation on the part of the owners to clean up the spilled petroleum, which triggered their right to maintain an action under an applicable insurance policy.”

The cases were consolidated for the appeal because the issues raised in each were so similar, according to court records.