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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. A sad end to a prolific gadfly. Indiana has suffered a great loss in the journalistic realm.

  2. Good riddance to this dangerous activist judge

  3. What is the one thing the Hoosier legal status quo hates more than a whistleblower? A lawyer whistleblower taking on the system man to man. That must never be rewarded, must always, always, always be punished, lest the whole rotten tree be felled.

  4. I want to post this to keep this tread alive and hope more of David's former clients might come forward. In my case, this coward of a man represented me from June 2014 for a couple of months before I fired him. I knew something was wrong when he blatantly lied about what he had advised me in my contentious and unfortunate divorce trial. His impact on the proceedings cast a very long shadow and continues to impact me after a lengthy 19 month divorce. I would join a class action suit.

  5. The dispute in LB Indiana regarding lake front property rights is typical of most beach communities along our Great Lakes. Simply put, communication to non owners when visiting the lakefront would be beneficial. The Great Lakes are designated navigational waters (including shorelines). The high-water mark signifies the area one is able to navigate. This means you can walk, run, skip, etc. along the shores. You can't however loiter, camp, sunbath in front of someones property. Informational signs may be helpful to owners and visitors. Our Great Lakes are a treasure that should be enjoyed by all. PS We should all be concerned that the Long Beach, Indiana community is on septic systems.

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