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
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Indianapolis employers harassment among minorities AFRICAN Americans needs to be discussed the metro Indianapolis area is horrible when it comes to harassing African American employees especially in the local healthcare facilities. Racially profiling in the workplace is an major issue. Please make it better because I'm many civil rights leaders would come here and justify that Indiana is a state the WORKS only applies to Caucasian Americans especially in Hamilton county. Indiana targets African Americans in the workplace so when governor pence is trying to convince people to vote for him this would be awesome publicity for the Presidency Elections.

  2. Wishing Mary Willis only God's best, and superhuman strength, as she attempts to right a ship that too often strays far off course. May she never suffer this personal affect, as some do who attempt to change a broken system: https://www.youtube.com/watch?v=QojajMsd2nE

  3. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  4. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  5. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

ADVERTISEMENT