Greene v. Westfield Ins. Co., 2020 WL 3476959 (7th Cir. 2020)
The case of Greene v. Westfield has a convoluted history that involves three separate lawsuits over the course of ten years. Although the decision is worth reading in its entirety, we discuss its history only as needed to understand the basis for applying the exclusions to the facts.
In 2009, the residents of a residential community in Elkhart, Indiana, sued a nearby wood recycling facility in federal court, claiming that the facility’s waste disposal practices violated environmental laws, exposed the residents to dust and odors, and deprived them of the use of their property. The facility, which began operating around 2000, had secured four general liability policies that collectively ran from January 1, 2004, through January 1, 2008, and that each provided coverage up to $2 million for any judgment against the facility for “bodily injury” or “property damage” that occurred during the policy period. Those policies, however, contained two relevant exclusions.
The first exclusion, a “known claim” exclusion, barred coverage for bodily injury or property damage if “a listed insured or authorized employee knew prior to the policy period, that the bodily injury or property damage occurred” and that “any continuous, change or resumption” of the property damage or bodily injuries “during or after the policy period will be deemed to have been known prior to the policy period.” The second exclusion, an “expected or intended injury” exclusion, barred coverage for bodily injury or property damage “expected or intended from the standpoint of [the facility].”
Without notifying its insurer, the facility hired counsel to defend against the neighbors’ lawsuit. At first the facility had success, persuading the district court to dismiss the lawsuit, but that success was temporary. The Seventh Circuit reversed the dismissal of the neighbors’ lawsuit and remanded the case to the district court. From there, things went downhill for the facility. The facility’s counsel withdrew from the case, and the facility never retained new counsel or informed its insurer, let alone sought coverage from it for the lawsuit. (As the decision notes, the insurer had indirectly learned of the lawsuit after it had been dismissed and was pending on appeal.). The facility’s inaction led to the district court finding for the neighbors and entering a default judgment of $50.56 million, plus $273,000 in litigation costs, against the facility.
Unable to recover much from the facility itself, the neighbors instituted garnishment proceedings to recover part of the judgment from the facility’s insurer. The district court entered summary judgment for the insurer, holding it owed no insurance coverage because the facility failed to provide the insurer with timely notice of the lawsuit, as the policies required, and because the “known claim” and the “intended or expected injury” exclusions applied. On appeal, the Seventh Circuit affirmed.
Although the “known claim” and the “intended or expected injury” exclusions are different, the Seventh Circuit noted that they could be evaluated together. Both exclusions focused on when the facility first learned about the bodily injuries and property damage that led to the neighbors’ lawsuit in 2009. If the facility knew about the injuries and damage before the first policy went into effect on January 1, 2004, then both exclusions applied in all four policies. As the Seventh Circuit explained, the “known claim” exclusion applied to the continuation or resumption of those pre-policy injuries and damages after January 1, 2004, and through the last policy period ending on January 1, 2008. The “expected or intended injury” exclusion also applied because after learning of those pre-policy injuries and damages, the facility continued with the same disposal practices, so it should have reasonably expected that the later injuries and damages would continue.
Turning to the facts, the Seventh Circuit found “overwhelming evidence” that the facility, and particularly its owner, knew about the fugitive dust and resulting injuries before the first policy went into effect on January 1, 2004. Neighbors complained to the Indiana Department of Environmental Management (“IDEM”) between 2000 and 2003, and the owner of the facility admitted in his affidavit that he had paid to have their vehicles washed because of the fugitive dust. Around that same time, the owner of the facility received from IDEM several letters about the facility’s violations and the neighbors’ complaints. Because all of this occurred before 2004, the Seventh Circuit concluded that the injuries and damages that occurred later, during the policy periods, were known claims and expected injuries subject to the “known claim” and “intended or expected injury” exclusions.
Because it concluded that the exclusions applied, the Seventh Circuit found it unnecessary to reevaluate the district court’s conclusion that the insurer’s indirect notice of the neighbors’ lawsuit did not trigger its duty to defend the facility. Still, the Seventh Circuit offered its thoughts. “At best,” the Seventh Circuit noted, the insurer had “only indirect notice of the lawsuit” and “no indication that [the facility] or [the neighbors]—who were in possession of the facts essential to provide direct notice—would ever seek coverage.” Thus, the Seventh Circuit stated, even if indirect notice triggered a duty to defend, the insurer would not be estopped from relying on the “known claims” and the “intended or expected injury” exclusions.
This case showcases how the “known claim” and the “intended or expected injury” exclusions can work in concert to preclude coverage for pre-policy liabilities, such as environmental contamination, that continue or worsen after the policy is issued. And though dicta, the discussion of whether indirect notice can trigger an insurer’s duty to defend may be helpful for insurance practitioners faced with similarly worded “notice” conditions.