Great American Drops Coverage Action with $20M Damages

Great American Insurance Company (“Great American”) dropped its lawsuit seeking a declaration it did not have a duty to defend Alpha Marine Installations, LLC (“Alpha Marine”) for hitting an underwater electrical cable that costs over $20 million to replace. The incident arose out of a property owner hiring Alpha Marine to install a boat moorage buoy. While drilling to complete its work, Alpha Marine hit the cable that serves “as a backup to support the primary undersea cable” bringing electricity to Anderson Island. (Rachel Riley. “Insurer Says No Coverage In $20M Damage Case.” Law 360. www.law360.com/articles/2436230).  

Alpha Marine faces a negligence suit from Tanner Electric Cooperative (“Tanner Electric”) for not properly identifying existing infrastructure, not meeting statutory requirements for their work, and not heeding warning signs for the cable crossing and against anchoring. A Tanner Electric contractor explained the cable could not be repaired, and installation of a replacement would cost between $20 and $25 million. Great American initially agreed to defend under a complete reservation of rights. Yet, it still pursued judicial declaration its policy did not cover the damages due to an exclusion for explosion, collapse, and underground property damage. (Danielle Ferguson. “Insurer Ends Coverage Suit Over $20M Cable Damage Case.” Law 360. www.law360.com/insurance/articles/2529747). Great American articulated the exclusion applied because the cable damage occurred due to mechanical drilling equipment, it clearly fell into the policy’s defined “underground property damage hazard.”

Great American additionally asserted that a separate property exclusion applied because the damage to the real property “arose out of” Alpha Marine's operations and work (based on its “arising out of” policy language). This, even though Alpha Marine was not performing work on the real property itself. This “arising out of” argument is one frequently made by insurers, who urge that it allows them to broadly construe the scope of this exclusion. Not so. My Choice Software, LLC v. Travelers Cas. Ins. Co. of Am., 823 Fed. Appx. 510 (9th Cir. (Cal.) Aug. 19, 2020) (“Applying the "arising out of" exclusionary language to the allegations asserted in the Trusted Tech cross-complaint runs counter to the principle that. . . exclusionary clauses are interpreted narrowly against the insurer.")

Other courts have followed. Indeed, no court has criticized My Choice and four cases support its conclusion: (1) Hitchman Fiduciaries, LLC v. Dominion Ins. Servs., 2026 Utah Dist. LEXIS 2, 19 (applying California law); (2) Liberty Mut. Fire Ins. Co. v. LX Hausys Am., Inc., No. 2:25-cv-07207-CAS-KSx, 2026 U.S. Dist. LEXIS 72870, at 27 (C.D. Cal. Mar. 31, 2026); (3) Statewide Enters., Inc. v. RLI Ins. Co., No. 2:25-cv-08038-CAS-Ex, 2026 U.S. Dist. LEXIS 158120, at *30 (C.D. Cal. July 15, 2026); and (4) Susan Spath Hegedus, Inc. v. ACE Fire Underwriters Ins. Co., 538 F. Supp. 3d 457, 462 (E.D. Pa. 2021) (applying California law).

In the dismissal by Great American, it refers to the coverage action as “settled,” and both parties agree to pay their own attorneys’ fees. The litigation continues with Tanner Electric, with trial set for November 9th, 2026. Alpha Marine may have secured a better result by raising this legal issue to exit this dispute.