ILNews

Policy provisions preclude coverage in settlement of class claims

Back to TopCommentsE-mailPrintBookmark and Share

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.”
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Such things are no more elections than those in the late, unlamented Soviet Union.

  2. It appears the police and prosecutors are allowed to change the rules halfway through the game to suit themselves. I am surprised that the congress has not yet eliminated the right to a trial in cases involving any type of forensic evidence. That would suit their foolish law and order police state views. I say we eliminate the statute of limitations for crimes committed by members of congress and other government employees. Of course they would never do that. They are all corrupt cowards!!!

  3. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  4. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  5. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

ADVERTISEMENT