(Article from Insurance Law Alert, January 2017)
For more information, please visit the Insurance Law Alert Resource Center. An Indiana federal district court ruled that a claims-in-process exclusion bars coverage for property damage caused by contamination that began prior to the policyholder’s ownership of land, even if the owners had no knowledge of the pollution. Atl. Cas. Ins. Co. v. Garcia, 2017 WL 67617 (N.D. Ind. Jan. 5, 2017).
In 2004, the Garcias purchased property that had previously been the site of a dry cleaning facility. The site housed underground storage tanks containing a toxic solvent. In or around 1999, a site assessment revealed that some tanks were leaking. Testing continued through 2004, but the Garcias were unaware of the contamination or testing until 2014, when the Indiana Department of Environmental Management filed a claim seeking payment for further investigation and remediation. The Garcias sought coverage from Atlantic, their general liability insurer, which denied the claim. Atlantic argued, among other things, that a claims-in-process exclusion barred coverage. The court agreed and granted Atlantic’s summary judgment motion.
The exclusion applies to any “loss or claim for damages, whether known or unknown, that (a) first occurred before the policy’s inception date, or (b) is alleged to be in the process of occurring as of the policy’s inception date . . . .” Although the Garcias did not dispute that the pollution predated the inception of the Atlantic policy, they argued that the relevant “loss” or “claim for damages” is the Department of Environmental Management’s claim, which was filed during the policy period. They also claimed that the exclusion did not apply because they did not begin incurring expenses related to the claim until they entered a remediation program, which was after the policy’s inception. The court disagreed, explaining that the Garcias’ position incorrectly interprets the exclusion as barring coverage for “claims or expenses” predating the policy, and that “the relevant question is when the
damage occurred or began occurring.” (Emphasis in original). Finally, the court rejected the Garcias’ argument that the claims-in-process exclusion merely limits Atlantic’s obligations to damages that occurred during the policy period (
i.e., its pro rata share).