This article is a companion piece to this video
What happens when bad fuel purchase by your insured causes damage to their vehicle, requiring you to pay for the repairs and then later pursue those damages via subrogation? In the above episode of On Subrogation: Subrogation of Bad Fuel Claims, insurance attorney Jason Sullivan explains how fuel can become contaminated, how to properly investigate a subrogation claim involving bad fuel, and where to look for potential liable parties.
Bad Fuel, Bad Faith: When Corrupted Fuel Causes Catastrophic Failure
The composition and quality of the fuel a vehicle runs on is integral to its operations. As such, contaminated, diluted or otherwise corrupted fuel can cause anything from minor damage to catastrophic failure. Consider the human body: you run at your best when you have had 3-4 litres of water per day. If you instead consumed 3-4 litres of alcohol, however, you’ll end up totaled – just like a car full of bad fuel.
Bad fuel claims are not uncommon in the field of insurance subrogation because, between extraction, manufacture, transport, and storage, there are many things that can go wrong. There are 3 ways fuel might become corrupted:
1. Water in the Storage Tank
Accidentally filling your tank with diluted gasoline is especially a problem with ethanol-based fuels. This is because, over time, the ethanol absorbs all the water, becoming saturated, separating from the gasoline, and sinking to the bottom of the tank. If you are drawing your gas from the bottom of the tank, you may end up getting a mix of gasoline and water-based ethanol.
2. Stale Fuel
With developments in industry standards and environmental protections, the shelf life of gas is shorter than it used to be. At a high-traffic gas station, this is not really a worry. But consider a middle-of-nowhere gas station with a single pump. How long has it been since their storage tank was refilled? It’s possible you may pump your car full of stale fuel.
3. Contaminants
Tanks break down over time, whether it is the one at the manufacturer, the distributor truck or the underground tank at the station, an older or poorly-maintained tank may contaminate the fuel with particles of chipped paint, dirt, rust, etc. These can easily clog your engine once you drive away from the gas station.
Who is Liable in a Motor Vehicle Subrogation Claim of Bad Fuel?
When weighing the viability of a bad fuel claim, there are two facets a subrogating carrier must address: liability and cause of action.
Possible Liable Entities
- Gas station liability: The station may claim they have nothing to do with handling the gas – they are just the retailer. Depending on in which state you have brought your subrogation suit, they may be right. You need counsel focused in insurance disputes and knowledgeable in the specific state statutes regarding your case.
- Distributor liability: The distributor has duties about how fuel is transported, tanks are emptied, filled, etc. If the fuel was contaminated within the scope of their work, they may be liable for the damages to your insured’s car, and you may find cause of action to pursue subrogation recovery from them.
- Refinery liability: If there was a defect in the course of the fuel being extracted, purified, mixed, etc, the refinery might be held responsible for the damages.
Causes of Action
- Negligence: Did the station, distributor and producer all perform at or above industry standard? This may be difficult to prove.
- Breach of warranty of merchantability: This is an implied warranty that does not require a contract. It asserts that the goods you purchase (fuel) are reasonably fit for their intended purpose (running the car without ruining the car). Should you be able to prove it was the bad fuel that caused the car failure, this COA is often easier to carry than negligence.
Necessary Evidence for a Subrogation Claim on Bad Fuel
There are 4 types of evidence a subrogating attorney might look to in order to prove bad fuel was the cause of the damage to the insured’s vehicle:
1. Proof of Purchase
There must be a receipt of purchase for gasoline to prove the particular location and time.
2. Proof the Fuel was Contaminated
This is usually accomplished with a purity test that measures components, water content and contaminant presence.
3. Circumstantial Evidence
Recall that burden of proof in civil court is limited to preponderance of evidence (read: more likely than not), so circumstantial claims are often useful in these cases. Did the car break down a block after leaving the gas station? That is a pretty direct implication the gas was the problem.
4. Proof the Bad Fuel Caused the Damages
What type of damage was there to the vehicle? You are looking for issues with the fuel tank, fuel lines, spark plugs, etc. For instance, consider the example where the car broke down 1 block after getting gas. If the car is inspected and the actual cause was the head gasket failing and polluting the engine with oil, you do not have a bad fuel claim.
Between the several entities, processes and scientific analysis at play, carriers would do best to outsource their motor vehicle subrogation claims to an insurance-focused law firm with lawyers licensed in many state and federal jurisdictions. This ensures claims are handled by subrogation professionals knowledgeable in the specifics of different state laws on insurance disputes, and it also prevents you from leaving money on the table in more difficult claims.For more education on subrogation, visit Rathbone Group’s YouTube channel and podcast library, where our attorneys break down complex topics in subrogation in digestible ways, discussing strategies and case studies along the way. Have a question we haven’t yet answered? Reach out at [email protected] or [email protected] to suggest material for a new episode of On Subrogation.