Special Bulletin
March 2002

INSURANCE COVERAGE
FOR ENVIRONMENTAL CLAIMS

Indiana Supreme Court Issues New Opinion
on Owned Property Exclusion

by Brent W. Huber
huberb@icemiller.com

If anyone has raised a question about soil or groundwater contamination on your property, stop what you are doing and read this. The Indiana Supreme Court recently issued a new decision that is generally favorable for policyholders seeking coverage for environmental claims in Allstate Insurance Company v. Dana Corporation, — N.E.2d —, 2001 WL 1641235 (Ind. Dec. 20, 2001). The Court’s opinion addressed a number of important insurance coverage issues that often come up when policyholders make claims in environmental cases involving soil and/or groundwater contamination.

First, the Court held a landowner owns both the soil and groundwater under his or her property. Accordingly, the application of the owned property exclusion — a common exclusion in general third-party liability policies — will not hinge on the distinction between soil and groundwater contamination. Whether the owned property exclusion will apply turns on a two-part analysis: (1) whether the coverage grant in the policy limits the definition of “property damage” to property other than that owned or occupied by the insured; and (2) whether the owned property exclusion distinguishes between property damage to owned property and third-party liability for property damage to owned property. The standard owned property exclusion at issue in the case did not address third party liability separately and, according to the Court, was therefore ambiguous. The Court reasoned that the owned property exclusion could fairly be read to apply only to exclude repair or replacement of the policyholder’s property. The Court held this ambiguity must be construed in favor of coverage as a matter of law and ordered the trial court to enter judgment accordingly. The Court’s analysis of the owned property exclusion was favorable to policyholders and will likely have the effect of greatly limiting insurance companies’ ability to rely on the owned property exclusion to bar coverage for environmental claims.

Second, the Supreme Court held that contamination migrating onto the property of adjacent landowners did not constitute a “wrongful eviction” or “invasion of the right of privacy” for purposes of the policyholder’s personal injury theory of coverage. Although the Court’s reasoning indicates the personal injury theory of coverage will likely not be available to policyholders in cases of on-site contamination, the Court did not disturb the prior Indiana appellate court decisions that had held off-site migration of contamination may constitute a “wrongful entry” for purposes of policies that define covered “personal injuries” to include a “wrongful entry.” This is a theory of coverage that can help policyholders in cases of off-site contamination.

Third, the Supreme Court agreed with the Court of Appeals’ decision to apply the “all sums” rule to the case. This is a rule that is favorable to policyholders. Although the Supreme Court did not use the term “all sums rule” in its opinion, its reasoning generally tracks this rule. The Court made it clear that the umbrella carrier in the case, Allstate, was required to indemnify the policyholder for “all sums” for which the policyholder was liable, even though some of the damage or loss continued beyond the term of Allstate’s policy period. The Court concluded that the policyholder was entitled to seek indemnity on “any or all” of the policies potentially on the risk for any single occurrence up to policy limits, notwithstanding any “other insurance” or cost sharing clauses in the policy.

Although portions of the Supreme Court’s opinion were mixed, most of the Court’s conclusions tend to favor policyholders in cases involving environmental claims. Both policyholders and insurers in Indiana should be apprised of the Court’s opinion.

For more information on this topic, please contact Brent W. Huber of Ice Miller at (317) 236-5942.