Insurer owes no coverage in $50M Elkhart damages ruling, 7th Circuit affirms

A federal court ruling in favor of the insurer of a wood processing facility in Elkhart that was the subject of years of environmental litigation brought by neighbors was affirmed Thursday. The 7th Circuit Court of Appeals held Westfield Insurance owed no duty to cover its insured against an environmental damages award of more than $50 million.

The 7th Circuit’s ruling was the culmination of three lawsuits in state and federal court, and the panel affirmed the grant of summary judgment in the Northern Indiana District Court for Westfield, which insured wood processor VIM Recycling. Neighbors of the site claimed VIM and owner Kenneth Will’s operation created dust and odors that caused health problems and hurt their property values, among other things. Ultimately, the neighbors won a default judgment of $50.56 million.

“What began as a case about environmental pollution has evolved into a joint garnishment action against VIM’s insurer, Westfield Insurance, to satisfy some of that $50.56 million judgment,” Judge Joel Flaum wrote for the panel. “Now that the neighbors share their litigation interests with VIM — both want Westfield to pay the judgment — they had to adjust some of their positions to argue that VIM’s Westfield policies apply. The neighbors labor to distance themselves from certain facts they previously pleaded were true to show that VIM did not know the extent of the pollution at the time its Westfield insurance policy went into effect. This task proves too difficult. Because two exceptions in the insurance agreement apply, we affirm summary judgment for Westfield Insurance.”

The panel concluded that coverage was excluded under the known claims and expected of intended injury terms of the policy because there was “overwhelming evidence” that Will knew about Indiana Department of Environmental Management Enforcement Actions against VIM and neighbors’ complaints before the Westfield policy went into effect in 2004.

The 7th Circuit rejected neighbors’ arguments that the court should overrule the exclusions because, among other things, Westfield had indirect knowledge of the complaints.

“The district court held that inadequate notice was yet another reason to grant summary judgment for Westfield. But given our conclusion about the known claims and expected or intended injury exclusions, it is unnecessary for us to wade into this area of Indiana insurance law addressing indirect notice and prejudice. Indeed, we decline to do so,” Flaum wrote, calling this area of Indiana law “murky.”

“Even if the indirect notice triggered Westfield’s duty to defend VIM, Westfield would not be equitably estopped from raising its policy defenses. … The record does not support a conclusion that Westfield has acted in bad faith by flatly refusing VIM coverage in this federal case. Its actions in the state case indicate that — had VIM tendered proper notice — Westfield would likely have taken steps to investigate and the neighbors may have faced a defense in the underlying case. Our consideration is equitable and Westfield in no way avoided or breached its duty to defend by leaving its insured out in the cold. At best it had only indirect notice of the lawsuit and no indication that VIM or the neighbors —  who were both in possession of the facts essential to provide direct notice — would ever seek coverage. Westfield shirked no responsibilities in the face of VIM’s and the neighbors’ belated, opportunistic pursuit of policy coverage. In the totality of the facts and circumstances, we cannot conclude that principles of equity have a role to play.”

The case is Carmine Greene v. Westfield Insurance Company, 19-2260.