Appeals court rules on gas station’s insurance coverage case

Determining that an insurance company was obligated to defend and indemnify a Warsaw service station for contamination cleanup, the Indiana Court of Appeals has reversed a Kosciusko Superior Court decision finding otherwise.

The case, Indiana Farm Insurance Company as subrogee of Joseph Koors d/b/a Koors Amoco v. Harleysville Insurance Company, involves an Amoco station in Warsaw owned by Joseph Koors, who in 1998 notified the Indiana Department of Environmental Management of his desire to remove the underground storage tank system at the service station. An environmental site assessment found some contamination, including water contamination, had occurred. Koors later demanded that its insurance carriers during that period, Indiana Farm Bureau Insurance and Harleysville Insurance Company, defend and indemnify relating to IDEM’s actions, environmental testing and remediation. Harleysville in April 2009 notified Koors that it didn’t believe it had a duty to defend and indemnify him on the basis that any loss relating to the IDEM action came before its insurance coverage began in August 1998, that Koors had breached the policy by failing to notify Harleysville as soon as practicable that a loss had occurred, and that the pollution exclusion in the contract barred at least some of the coverage, if not all.

Farm Bureau filed a complaint for contribution from Harleysville in November 2009, and in August 2011 Kosciusko Superior Judge Duane Huffer granted summary judgment for Harleysville and against Farm Bureau.

On appeal, Farm Bureau contends that the “known loss” doctrine – first recognized by the Indiana Court of Appeals in 2000 – does not excuse Harleysville from its obligation to defend and indemnify Koors. The common law concept comes from the fundamental requirement in insurance law that the loss be fortuitous, and the appellate panel in this case found that Harleysville is not entitled to summary judgment on the basis that the known loss doctrine precludes coverage.

The appellate panel determined that the question of unreasonable delay in Koors notifying Harleysville about the loss is one for the jury to address, as is the question about prejudice in regard to the delay.

In analyzing whether gasoline can be considered a “pollutant” under Harleysville’s policies, the appellate panel relied on a decision from the Indiana Supreme Court in Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind. 1996). The language was similar to the policy language in that case, Judge Cale Bradford wrote, and so the court held that gasoline is not considered a “pollutant” under the Harleysville policy just as it wasn’t in Kiger. Harleysville is not entitled to summary judgment on the basis that the pollution exclusion applies to gasoline leaks.

The case is remanded for further proceedings consistent with this appellate opinion.