Editor’s note: This case is from 1995. We have decided to address it now as the summary may be helpful. This case has become a popular reference for many current cases involving business interruption as it revolves around the question of tangible loss.

At the time of a loss, Azalea Mobile Home Park (Azalea) was insured under both a Commercial Property and a Commercial Liability policy. The coverage was issued by American States Insurance Company (States).

Azalea’s premises included its own facility that treated the park’s sewage which, then, was released into an adjacent river. In Spring of ’93, Azalea filed a claim that sought reimbursement for having to shut down its facility, including testing, clean-up and rental costs for alternative waste treatment. States denied the loss. The insurer held that no tangible damage occurred to the facility, so no coverage obligation existed. Azalea sued and appealed after a lower court ruled against it.

Upon appeal, the same arguments made by both parties were reviewed. Azalea asserted that the damage was tangible. The problem was caused by an unknown party dumping an unidentified substance into the sewer treatment system. The substance was noticed by the facility’s management and it was closed down. Later, city authorities ordered that it remained closed until the situation was safely corrected. Eventually, Azalea suffered expenses for the work of engineers and for repairs. The substance killed off a bacterial colony used in waste treatment. The substance also stuck to walls of the facility. Azalea’s claim for damage included the costs to remove the substance from walls, flushing out and cleaning the facility and replacing the waste treatment materials.

The higher court reviewed the policy wording, noting the fact that the sewer treatment building was specifically included as an insured structure. It also noted that the policy included protection against vandalism. In the end, that court viewed things a bit differently than the lower court. In its view, the fact that the substance that was dumped into the treatment building adhered to its walls and damaged the treatment bacteria were instances of physical damage due to vandalism. It deemed the bacterial colony as a component of the treatment building. In light of this finding, the lower court decision was, in part, reversed. The lower court was found to have wrongfully denied coverage for a significant portion of claimed damages.

Azalea, Ltd., a California limited partnership, Appellant, versus American States Insurance Company, an Indiana corporation, Appellee. No. District Court of Appeal of Florida, First District. No 94-2147. Filed June 23, 1995. Reversed and Affirmed in Parts. https://scholar[dot]google[dot]com/scholar_case?case=8230416364903329974&hl=en&as_sdt=6&as_vis=1&oi=scholarr [downloaded 10/1/2020]