(Article from Insurance Law Alert, October 2025)
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Holding
A general liability insurer has no duty to cover the testing and tenant relocation costs its insured incurred in responding to air contamination at the insured’s property. Thompson Thrift Dev., Inc. v. Cincinnati Ins. Co., 2025 U.S. Dist. LEXIS 186548 (S.D. Ind. Sept. 23, 2025).
Background
Thompson Thrift is the owner of an apartment complex in Arizona located next to a dry-cleaning business. In 2022, environmental testing showed a high concentration of perchloroethylene (“PCE”), a toxic substance, in the air at the property. Concerned that the dry-cleaning business was the origin of the contamination, Thompson Thrift performed additional sampling at the property and then submitted a notice of claim to Cincinnati indicating the presence of PCE. Thereafter, Thompson Thrift notified the Arizona Department of Environmental Quality (“ADEQ”) as well as the apartment tenants.
In response to elevated levels of PCE in one apartment unit, Thompson Thrift allowed a tenant to break her lease and paid for relocation expenses. The ADEQ confirmed that the unit should remain vacant. Additionally, the ADEQ requested the results of environmental testing the following year. In 2023, Thompson Thrift and the dry-cleaning company enrolled in the ADEQ’s Joint Voluntary Remediation Program (“VRP”).
In ensuing coverage litigation, Thompson Thrift and Cincinnati cross-moved for summary judgment. The court ruled in the insurer’s favor, finding that its liability and umbrella policies do not cover the costs that Thompson Thrift incurred in responding to the contamination under Indiana law.
Decision
Cincinnati’s policy covers sums that Thompson Thrift is “legally obligated to pay as damages” because of bodily injury or property damage. It also gives Cincinnati the right and obligation to defend against any “suit,” defined as “a civil proceeding in which money damages . . . are alleged,” including arbitration proceedings, alternative dispute resolution proceedings, or appeals. Since no actual suit had been filed against Thompson Thrift, the central issue in dispute was whether the ADEQ’s demands were “sufficiently coercive” to qualify as a “suit.”
Under Indiana law, a “suit” includes actual lawsuits as well as “coercive and adversarial administrative proceedings.” However, “‘[l]ess coercive actions’ – such as ‘mere notification or investigation when no enforcement action is contemplated’ – do not rise to the level of ‘suit.’” Applying this framework, the court concluded that the conduct at issue did not constitute a “suit” for purposes of coverage under Cincinnati’s policies. The court emphasized the absence of specific allegations of liability against Thompson Thrift or an “immediate threat of liability or enforcement actions.”
While Thompson Thrift alleged that it was concerned about ramifications if it did not cooperate with the ADEQ, the court noted that the factual record lacked evidence of any threats of liability, penalties or other repercussions. More specifically, the court rejected the notion that the ADEQ’s communication about the contaminated unit was a “keep vacant order” or that any other investigation-related communications rose to the level of a “formal demand” or administrative order.
Additionally, the court rejected Thompson Thrift’s assertion that its participation in the VRP was a “suit.” The court noted that a decision cited by Thompson Thrift in support of this assertion, Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 917 N.E.2d 170 (Ind. Ct. App. 2009), had no precedential or persuasive authority, and that even if it was considered, was distinguishable because the VRP in that case subjected the insured to potential enforcement actions and penalties, whereas here, Thompson Thrift enrolled in the VRP to pursue a “no further action” determination. Finally, the court ruled that the tenant’s demand to be released from her lease did not qualify as a “suit” since there was no measure of coercion involved in that decision.
Comments
The mere potential for future litigation against a policyholder, even when coupled with notifications or investigations by regulatory agencies that relate to the presence of injury-causing substances, does not constitute a “suit.” Similarly, an insured’s voluntary remediation payments are not damages that the insured is legally obligated to pay, even when made in order to avoid or mitigate future liability.