Known loss doctrine bars claim against insurers

April 8, 2015

The insurers of a company that purchased property it knew was contaminated are not required to defend or indemnify the company regarding the Indiana Department of Environmental Management’s remediation action, the Indiana Court of Appeals concluded Wednesday.

KLR purchased property in Indianapolis in 2004 from Apex Mortgage Co. that Apex discovered had extensive soil and water contamination from previous businesses operated on the site. Apex disclosed this to KLR and assigned the company its interest in the lawsuit Apex filed against previous business owners to cover cleanup of the site.

KLR obtained commercial general liability policies through Netherland Insurance Co., then Consolidated Insurance Co. and later Indiana Insurance Co., but did not inform them of any environmental contamination.  In 2012, IDEM learned about the contamination after reading about a court case involving the property and ordered KLR and others to take steps to remediate the site unless it was later determined to not be a responsible person.

KLR’s insurers declined to defend or indemnify because KLR knew of the contamination prior to purchasing the site, which predates the insurers’ policies.

In 5200 Keystone Limited Realty, LLC v. Netherlands Insurance Comp., Consolidated Insurance Comp., and Indiana Insurance Comp, 49A02-1410-PL-763, the appeals court affirmed summary judgment in favor of the insurers. The known loss doctrine applies in this case, which bars coverage. The judges likened this case to Crawfordsville Square LLC v. Monroe Guar. Ins. Co., 906 N.E.2d 934 (Ind. Ct. App. 2009).

There is no genuine issue of material fact regarding the doctrine, despite KLR’s claim that an affidavit submitted by owner Demetrios Emmanoelides stating that the company did not believe or have reason to believe it might ever be held responsible for the contamination caused by former owners and operators on the site should preclude summary judgment. The affidavit is insufficient to create a genuine issue of material fact, the COA held.  



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