A federal district court judge in Florida recently ruled that an insurer cannot retroactively rescind a liability policy insuring underground storage tanks (“USTs”) for an alleged material misrepresentation in the policy application.  Rather, the only remedy for such a misrepresentation is the denial of coverage for future claims.  In Mid-Continent Casualty Co. v. L.B. King, d/b/a King Oil and Tires, No. 06-cv-00128 (N.D. Fla. Mar. 11, 2008), on cross-motions for summary judgment, the insured pointed out that EPA regulations provide only for prospective termination of UST policies as a remedy for material misrepresentation.  The insured argued that Florida law provides for retroactive rescission of the policy as a remedy for material misrepresentation.

Relying on Zurich American Insurance Co. v. Whittier Properties Inc., 356 F.3d 1132 (9th Cir. 2004), which held that EPA financial responsibility regulations, rather than state law, govern UST insurance policies and the remedies for misrepresentation, the Court granted the insured’s Motion for Partial Summary Judgment.  Expressing concern for the environment and third parties, the Court stated, “While Mid-Continent is surely correct in pointing out that insurers might be less likely to insure gasoline stations under this interpretation, the Court agrees with Whittier and the EPA that rescission ab initio would have a greater negative effect on UST operator’s ability to fund cleanup of contamination.  Allowing rescission ab initio would widen the ‘gaps’ during which an operator would not be insured and would fail to protect the environment and innocent third arties during these widened gaps.”  Mid-Continent Casualty Co., No. 06-cv-00128 at 8.