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Policy provisions preclude coverage in settlement of class claims

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Because the “voluntary payment” and “legally obligated to pay” provisions precluded coverage, a trial court properly entered partial judgment in favor of an insurer of a distillery involved in a settlement over damages caused to nearby buildings by the distillation process.

Pernod Ricard USA operated the Seagram Lawrenceburg Distillery, which became embroiled in a class-action lawsuit with neighboring property owners, including William Klepper, over damages caused by ethanol released in the air, which made mold grow on building exteriors. The property owners also alleged nuisance, negligence, trespass and illegal dumping.

Pernod was insured by XL Insurance America and by ACE American Insurance under a commercial general liability policy. ACE’s policy included a “legally obligated to pay” provision and a “voluntary payment” provision, which said no insured should voluntarily make a payment, assume obligation or incur any expense without ACE’s consent.

ACE initially did not contribute to Pernod’s defense, but later reimbursed XL for costs. The property owners, XL and ACE entered into settlement negotiations, but ACE declined to contribute $1 million toward a settlement, offering only $250.000. At a second mediation attempt, ACE left before it was over. XL and Pernod agreed a $5.2 million judgment would be entered against the distillery, with Pernod contributing $1.2 million, XL contributing $1 million and ACE contributing the remaining $3 million under the insurance policy.

Eventually the case made it to a special master, who concluded the “legally obligated to pay” and “voluntary payment” defenses were available to ACE because it provided a defense under a reservation of rights. The special master also found Pernod breached its obligation by entering the agreed judgment without the consent of ACE. The trial court declined to enter a final judgment on all issues, only the six ruled on by the special master.

The Court of Appeals unanimously held that ACE did not abandon Pernod or breach the policy.

“ACE may rely on the Policy’s ‘voluntary payment’ and ‘legally obligated to pay’ provisions, and those provisions preclude coverage under the Policy. To hold otherwise, would, effectively require us to write the ‘voluntary payment’ and ‘legally obligated to pay’ provisions out of the Policy, which we cannot do. We recognize and understand the dissent’s concerns. We simply believe that the rationale in (American Family Mutual Insurance co. v. C.M.A. Mortgage Inc.), the fact that ACE did not abandon Pernod or breach the Policy, and the extended analysis we have provided guide us to this result,” Judge Michael Barnes wrote in William Klepper, on behalf of himself and all others similarly situated v. Ace American Insurance Company, 15A05-1212-CC-645.

Judge Terry Crone disagreed with the majority that ACE may avoid the settlement agreement based on the “voluntary payment” and “legally obligated to pay” provisions.

“An insurer who defends an insured under a reservation of rights should not be able to use those policy provisions as both a shield and a sword,” he wrote. “Courts should not reward insurers for putting their insureds in a perilous position, nor should they penalize insureds for trying to protect themselves.”
 

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  1. It is amazing how selectively courts can read cases and how two very similar factpatterns can result in quite different renderings. I cited this very same argument in Brown v. Bowman, lost. I guess it is panel, panel, panel when one is on appeal. Sad thing is, I had Sykes. Same argument, she went the opposite. Her Rooker-Feldman jurisprudence is now decidedly unintelligible.

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  3. My mother got temporary guardianship of my children in 2012. my husband and I got divorced 2015 the judge ordered me to have full custody of all my children. Does this mean the temporary guardianship is over? I'm confused because my divorce papers say I have custody and he gets visits and i get to claim the kids every year on my taxes. So just wondered since I have in black and white that I have custody if I can go get my kids from my moms and not go to jail?

  4. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  5. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

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