August 24, 2020

Expected-Intended Injury and Known Loss Exclusions of the Policies Preclude Coverage for Pollution Property Damage Case Under Indiana Law

Insurance Litigation Reporter

Washington, D.C., senior counsel Roland Goss discussed the Seventh Circuit’s decision in Greene v. Westfield Insurance Co., 963 F.3d 619 (7th Cir. June 25, 2020).

In his August 24, 2020, case note in Insurance Litigation Reporter, Rollie noted that the case involved a company, VIM Recycling, LLC, that operated a wood waste recycling facility in Indiana that faced many complaints from neighbors, had a dust control plan imposed on it by state environmental officials, and was cited for violation of that plan. After several additional years of complaints from neighbors, meetings, an agreed order and other legal concerns, the company started to buy liability insurance for its facility, failing to disclose its prior involvement with neighbors and environmental officials to its insurer. Later, it was sued by neighbors for property damage and bodily injury in both federal and state courts.

One can draw several tactical lessons from the series of cases that ensued. First, the success of the neighbors in proving VIM’s liability essentially proved them out of the possibility of the policies paying for any resulting judgment against VIM. This is not an uncommon conflict when the knowledge or intention of the insured is part of the required proof of claims against an insured and the policies contain a known loss or an expected injury exclusion. Second, the decision of Westfield Insurance Co. to limit the scope of its declaratory claim to its obligation to defend and indemnify in the state court case instead of encompassing its policy obligations generally, while understandable on one front, resulted in its inability to obtain an earlier exit from the proceedings supplemental due to the court’s restrictive application of the res judicata doctrine. Third, it can be very beneficial to obtain a ruling in a trial court on alternative grounds. While the district court principally relied on the notice provisions of the policies in granting Westfield summary judgment, with the two policy exclusions as alternative grounds for its ruling, the Court of Appeals relied solely on the two exclusions and declined even to address the notice issue, perhaps because the Court of Appeals was concerned that Indiana law on what the district court ruling discussed as possible “indirect notice” to Westfield was unclear. Federal courts frequently prefer not to weigh into resolving unclear issues of state law unnecessarily, instead leaving such resolution to state courts.

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