Court erred in ordering insurer to pay costs of cleanup

A trial court misinterpreted a previous ruling involving an insurance coverage dispute for environmental cleanup costs, and as such, erred when it ordered the insurer to pay costs that were incurred as a result of a settlement, the Indiana Court of Appeals held.

Maplehurst Farms sold its property to Dean Foods Co. in 1997. In 2000, Dean discovered environmental contamination on the property as a result of underground storage tanks Maplehurst installed in the 1950s to store heating oil. In December 2002, Maplehurst entered into a settlement agreement with Dean. The parties also acknowledged that Maplehurst had submitted a corrective action plan to the Indiana Department of Environmental Management in September 2002.

Maplehurst sought coverage for the costs from three of its insurers; at issue in Travelers Casualty and Surety Company of America, et al v. Maplehurst Farms, Inc., et al, 49A02-1311-PL-965, is coverage provided by Travelers Casualty and Surety Co. of America. Travelers, which was notified of the claim in May 2003, denied Maplehurst’s claim and refused to provide a defense. IDEM later approved a revised CAP in May 2004.

The denial made it to the Court of Appeals in 2011, in which the judges held that Travelers does not have to pay pre-notice costs and expenses, but the company remains liable for the costs and expenses under the policy that Maplehurst incurred after it notified Travelers of the claim.

On remand, the trial court entered judgment against Travelers for more than $512,000.

In Tuesday’s opinion, the judges had to decide when Maplehurst incurred the costs and expenses at issue.

“Maplehurst clearly obligated itself to remediate the property when it entered into the Dean Settlement, not when IDEM approved the final CAP. The final CAP merely described how Maplehurst would be required to remediate the property; Maplehurst agreed in the Dean Settlement to remediate to IDEM’s standards long before Travelers was notified of the claim,” Judge Michael Barnes wrote.

“Although some of the remediation occurred after notice to Travelers, all of the post-notice costs at issue flowed from the Dean Settlement. As Travelers points out, an award of such costs would allow an insured to settle a claim, notify the insurer, and obligate the insurer to cover the settlement. Such a result would violate the policy provision that prevents an insured from voluntarily assuming any obligation without the insurer’s consent.”

The judges reversed summary judgment in favor of Maplehurst and remanded for further proceedings.