Friday, March 26, 2010

West Bend Mutual Ins v. Federated Mutual Ins

Mar 25: In the U.S. Court of Appeals, Seventh Circuit, Case No. 09-2519. Plaintiff-appellant West Bend Mutual Insurance Company (West Bend) appeal from the grant of summary judgment in favor of appellees, who consist of a group of insurance companies that includes the United States Fidelity and Guaranty Company (Fidelity) and Federated Mutual Insurance Company (Federated). West Bend initially sued the defendants for breach of contract because Federated declined to defend a mutual insured in a class action alleging that insured's gas station contaminated groundwater in a residential neighborhood.
    The case revolves around "whether the pollution exclusion contained in Federated's policy effectively limited coverage for gasoline spills under Indiana law." The district court found that a clause in Federated's policy excluded coverage for this type of claim and granted summary judgment in favor of Federated, Fidelity, and other insurers. West Bend appealed the judgment as it applies to Federated and the Appeals Court, in a 2-1 split decision, affirmed the district court decision.
    The majority Appeals Court said, ". . .despite weak wording, the Federated products-hazard clause covered only knowingly completed market transactions and abandoned product. . . There is no doubt that the Bowens action was predicated on accidental leak of gasoline from MDK's storage tanks and West Bend never contended that the gas station abandoned its product. Therefore, the Federated Umbrella policy does not provide an independent source of recovery for the appellants."

    The dissenting Justice indicated, "I agree with my colleagues that the pollution exclusion in Federated's 2001-2003 CGL policy bars coverage under that policy. I do not agree, however, that the Indiana Supreme Court's decision in B & R Farm Services, Inc. v. Farm Bureau Mutual Insurance Co., 483 N.E.2d 1076 (Ind. 1985), precludes coverage under Federated's 2001-2002 umbrella policy.
That policy provides additional insurance for losses covered under '[t]he 'products-completed operations hazard' anywhere in the world.'"
    Access the complete opinion (click here). [Please Note: The 7th circuit has a temporary web hyperlink nomenclature system. If the link does not work click on this link and enter the case number above (click here).]