Guam Industrial Services, Inc. (Guam Industrial) owned and operated an 825’ dry dock in Apra Harbor, Guam. The business held two active policies: (1) a Hull and Machinery Policy written by Zurich American Insurance (Zurich) and Starr Indemnity and Liability Co. (Starr) and (2) an Ocean Marine Policy written by Zurich which by endorsement provided limited property damage pollution coverage. The dry dock sank on January 2, 2011 during a typhoon; the high surf water also took down multiple barrels that were on the dock. These barrels contained 113,000 gallons of oil.

The Hull and Machinery policy was written on a specified peril basis covering the dock for such things as lightning, earthquake, pirates, assailing thieves, and other types of incidents. The policy included a condition that required the dock to be Navy Certified as to its structural integrity. Guam Industrial had obtained a Commercial Certification which had been accepted by the providers. However, that certification had expired in October of 2010. The dry dock had been taken out of commission and Guam Industrial had major repairs in progress when it went down.

Guam Industrial acted promptly to recover the barrels of oil. At an expense of $647,000, the barrels were recovered without any oil leaking into the harbor.

Guam Industrial filed claims under both policies and both claims were denied. The Hull and Machinery policy did not provide coverage because there was no certification in place per policy conditions. The Ocean Marine policy did not provide coverage because there was no covered loss. The “barrels” were not considered a pollutant and no oil had leaked out so no pollution event had occurred. Guam Industrial brought suit against Zurich and Starr. Summary judgment was granted to the insurers and Guam Industrial appealed, seeking recovery under both policies anticipating that Zurich and Starr would need to prove relevance of the certification and also prove that no pollution event had occurred.

The ruling was affirmed. The certification warranty had been breached and there had been no “discharge, release, or escape” of a pollutant into the environment to trigger the coverage.

Guam Industrial Services, Inc. v. Zurich American Insurance Co., and Starr Indemnity and Liability Co. v United States of America. 13-17005, United States Court of Appeals, August 27, 2014.