Arizona Court of Appeals Division One Holds That Separate Insurance Coverage is a Prerequisite to Additional State Assurance Fund Coverage.

Western States Petroleum, Inc. (“Western”) owned a gas station in Carefree, Arizona.  In 1994, a release from an underground storage tank was discovered.  The Arizona Department of Environmental Quality (“ADEQ”) asked Western to prepare reports regarding the release to determine Western’s eligibility for State Assurance Fund (“SAF”) coverage.  Western requested and received more than $400,000, but ADEQ denied Western’s request for an additional $500,000 because Western had failed to demonstrate that it actually made use of private insurance to the maximum extent possible under A.R.S. § 49-1054(A).  Western appealed ADEQ’s decision and, after a two day hearing, an Administrative Law Judge affirmed.  Western filed a complaint in superior court for judicial review and, after oral argument, the superior court affirmed as well.  This appeal followed.

The Court of Appeals rejected Western’s argument that because the version of § 49-1054 which was in place when the leak was reported did not require separate insurance, Western’s lack of insurance did not disqualify it from additional coverage.  In 1994, the SAF funds were $200,000.  The legislature increased the amount to $1,000,000 in 1996 but also required owners and operators to carry private insurance.  In 2004, the coverage limit was retroactively reduced to $500,000, but the legislature allowed owners and operators to “preserve” their right to the full $1,000,000 if they utilized to the “maximum extent” their private insurance.  Under the common definition of “preserve,” an entity cannot preserve something that it never had in the first place.  Because Western did not have insurance in 1996, it was not entitled to the full $1,000,000 and therefore it could not preserve its right in 2004. 

PRACTICE NOTE: Western challenged the superior court’s decision to only have oral argument, rather than a full evidentiary hearing.  Western claimed that ADEQ’s decision was arbitrary and capricious.  The Court of Appeals found that “a single example of a ten-year-old decision”—from a different version of the statute—even if the decision was incorrect is insufficient as a matter of law to show “arbitrary or capricious” conduct. 

Judge Swann authored the opinion; Judges Hall and Thumma concurred.