Indiana District Court: Claims-in-Process Exclusion Precluded Coverage for Pollution That Began Before Insureds Had Purchased Their Property

A federal district court in Indiana has ruled that a claims-in-process exclusion in a commercial general liability insurance policy precluded coverage for the insureds’ claim where pollution at the insureds’ property had begun before the insureds even had purchased the property.

The Case

Property in Lake Station, Indiana, was used as a dry cleaning facility from around 1945 to 2000. In connection with the dry cleaning operation, the site housed underground storage tanks containing “Stoddard solvent” (a petroleum-based solvent used in dry cleaning), “PCE” solvent, and heating oil.

Around 1999 or 2000, a site assessment revealed that some of the tanks containing Stoddard solvent were leaking. An environmental consulting company reported the leak to the Indiana Department of Environmental Management (IDEM), which requested further testing. Testing continued into 2004.

In that same year, Juan and Maria Garcia bought the site. The Garcias claimed that they had no knowledge of the preexisting contamination when they bought the property, nor did they for many years after.

After buying the property, the Garcias leased the site to tenants who operated an auto repair shop and a day spa.

In September 2014, the Garcias learned that IDEM was seeking to have them conduct and pay for further investigation and remediation of environmental contamination originating on the property. In November 2014, the Garcias notified their commercial general liability insurance carrier of the IDEM’s claim.

The Garcias also hired a company called Environmental Inc. to investigate the site. Environmental reported that the pollution consisted of chemicals from the site’s old dry cleaning operation’s underground storage tanks: Stoddard solvents, “PCE” solvents, and heating oil.

The Garcias’ insurer denied their claim and went to court, seeking a declaratory judgment that its policy did not provide coverage to the Garcias.

The parties moved for summary judgment.

The District Court’s Decision

The district court, applying Indiana law, granted summary judgment in favor of the insurer.

In its decision, the district court explained that the policy’s claims-in-process exclusion precluded coverage for losses or claims for damages arising out of property damage – known or unknown – that occurred or was in the process of occurring before the policy’s inception.

The district court found without question that the pollution at issue – and therefore, the damage to the Garcias’ property – had begun long before the Garcias purchased the property. Hence, the district court ruled that the exclusion applied and that the policy did not provide coverage to the Garcias.

The case is Atlantic Cas. Ins. Co. v. Garcia, No. 2:15-CV-66-JEM (N.D. Ind. Jan. 5, 2017).