Court Orders Insurer to Pay for Cleanup : Ruling: Panel says Farmers is liable for fuel-leak work, despite its policy provision that excludes pollution.

An insurance company is liable for the cleanup of toxic leakage caused by the rupture of an underground fuel tank in Placentia during an earthquake, an appeals court ruled Wednesday.

In a unanimous decision, the 4th Circuit Court of Appeal reversed an earlier trial verdict, that the Farmers Insurance Group did not have to pay for cleaning up oil seepage at Brian Chuchua’s Jeep Inc. in Placentia.

According to the decision, Chuchua discovered a leaking underground gasoline tank in 1988. Tests revealed that the tank had been ruptured as a result of the 1987 earthquake centered in Whittier.

Chuchua settled with the manufacturer for damage to the tank. Chuchua then filed a claim with Farmers for extensive and expensive toxic-waste cleanup, but the insurance company refused. The cleanup, which is still continuing, has cost him over $760,000, Chuchua said in an interview, requiring him to file for Chapter 11 bankruptcy proceedings to cover his costs.

A jury found that Chuchua’s business insurance, which included earthquake coverage, also contained a provision excluding payment for pollution damage. Orange County Superior Court Judge William F. Rylaarsdam then ruled that the insurer was not responsible for the cleanup because of the provision.

But the appellate court reversed, ruling that because the seepage was the result of an earthquake, the cleanup costs should be paid by the insurer. The appeals court ordered the case returned to Superior Court to decide how much money Farmers has to pay.

Terry L. Kelly, Chuchua’s attorney, said that the appeals court ruling sends a message to insurers that, in such cases, they will have to pay claims “no matter how many pollution exclusion endorsements they attach to a policy.”