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COA rules insurer has no duty to defend

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The Indiana Court of Appeals affirmed a trial court's ruling that an insurance company doesn't have the duty to defend its client in lawsuits arising out of environmental contamination on its property, noting that if the court were to rule in favor of the client's arguments, insurance business practices would dramatically change.

Accepting Crawfordsville Square's argument - that its insurer, Monroe Guaranty Insurance Co., knew about possible contamination of land Crawfordsville purchased because the insurer was aware a dry cleaner previously operated at that location - would burden insurers with essentially the same duty of due diligence as potential insureds to investigate and discover known losses, wrote Judge Cale Bradford.

In Crawfordsville Square, LLC, et al. v. Monroe Guaranty Ins. Co., No. 54A01-0807-CV-327, Crawfordsville argued there was a genuine issue of material fact as to whether it knew about contamination when it purchased a parcel of land and whether Monroe knew about it when it added the land to an existing insurance policy.

When Crawfordsville purchased the parcel in 1998, it contained a dry cleaner and car wash that sold gasoline. Crawfordsville member L.E. Kleinmaier Jr. sent a letter to the agent of the seller regarding testing and cleaning up of the site and that the company would still buy the land if an escrow account was established to pay an environmental firm for cleanup. Crawfordsville told Monroe there was a dry cleaner on the site and it wanted to add the parcel to its existing general commercial liability insurance policy. Crawfordsville didn't tell Monroe of any actual or potential contamination at the site, which turned out to exist.

The trial court granted summary judgment in favor of Monroe and denied summary judgment for Crawfordsville on the insurer's duty to defend.

The "known loss" doctrine precludes coverage and excuses Monroe from its duty to defend, the appellate court ruled. Crawfordsville contended there is a genuine issue of material fact as to whether it knew when it added the parcel to its insurance that a loss had occurred or could occur based on Kleinmaier's 1998 letter and his testimony in 2007 that the company only had knowledge of potential contamination at the site.

Crawfordsville is trying to create a genuine issue of material fact because of the contradictions of Kleinmaier's letter and testimony, but the law in Indiana doesn't allow for contradictory testimony contained in an affidavit of the non-movant to be used by him to create a summary judgment motion where the only issue of fact raised by the affidavit is the credibility of the affiant, wrote the judge. Although the facts are different than those stated in the "sham affidavit" case in Gaboury v. Ireland Rd. Grace Brethren, Inc., 446 N.E.2d 1310, 1314 (Ind. 1983), the rationale for the rule applies in the instant case.

Crawfordsville claimed it didn't have actual knowledge of the loss, but the letter it sent indicates knowledge of actionable contamination. Judge Bradford wrote in a footnote that ruling in favor of Crawfordsville on this point would "essentially reward" it for what may well have been "deceptive behavior on its part, and thereby serve as an unintended endorsement of the practice of exaggerating one's beliefs regarding possible or known contamination in order to negotiate a better price."

In addition, the mere knowledge that Monroe knew a dry cleaner had operated on the parcel at the time of closing doesn't create a genuine issue of material fact as to whether it had actual knowledge of actionable levels of contamination.

"Of course, such a ruling would have the effect of relieving the potential insureds of any practical duty of due diligence, as the insurance company would be performing it in any event, or failing to do so at its peril," wrote the judge in another footnote. "We are, to say the least, reluctant to endorse such a dramatic change in insurance business practice, i.e., to shift the financial incentive entirely to insurers to discover latent defects in property their insureds propose to buy and insure, thereby removing the incentive to do so from the insured - the party typically better positioned to carry out this task."

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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