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January 16, 2014   Policyholder May Allocate ELTF Payments to Cover Pre-Tender Costs
By Colin E. Connor

In a unanimous decision, the Indiana Court of Appeals has ruled that an “insurer cannot avoid coverage for the [Excess Liability Trust Fund] ELTF deductible by assigning ELTF funds to a period before its policy took effect.” State Auto. Mut. Ins. Co. v. Majestic Block & Supply, Inc., No. 49A05-1210-PL-533 at *12 (Ind. Ct. App. Dec. 19, 2013).  The ruling affirmed summary judgment for Majestic Block & Supply, Inc. (“Majestic Block”) represented by Plews Shadley Racher & Braun (“PSRB”), against State Auto Mutual Insurance Company (“State Auto”).  A copy of the decision may be accessed here

During the removal of an underground storage tank (“UST”), on December 17, 1997, an independent contractor of Majestic Block’s environmental consultant took soil samples, which were sent to a lab for testing.  On January 1, 1998, Majestic Block purchased a commercial general liability insurance policy from State Auto.  When the lab tests were completed on January 6, 1998, they identified some petroleum contamination at the site.  On that same day, the independent contractor submitted an Initial Incident Report to the Indiana Department of Environmental Management (“IDEM”).  IDEM did not take any action until it requested a site investigation in February 2006.  It then issued a violation letter on September 22, 2006.  In October 2007 Majestic Block applied for and received ELTF funding for 91% of its reimbursable costs, minus the ELTF’s $35,000 deductible.  On July 15, 2009, Majestic Block filed an insurance claim with State Auto.  State Auto denied the claim based on late notice and known loss defenses. 

As of July 16, 2012, Majestic Block had incurred $74,389.46 in cleanup costs.  It incurred $36,131.34 in costs before notice to State Auto, and $38,258.12 in post-notice costs.  Majestic Block had recovered $36,844.41 from the ELTF (91% of the amount above the $35,000 deductible).  This left Majestic Block $38,545.05 short of full reimbursement.  State Auto argued that because Majestic Block satisfied its ELTF deductible before notice and because State Auto was only liable for post-notice costs, Majestic Block could not recover the ELTF deductible.  Majestic Block argued it should be allowed to recover all post-notice costs.  The Court of Appeals agreed with Majestic Block.  “The ELTF is not an insurance contract pursuant to which the date of notice might be determinative of coverage.” Id. at *12.  The Court of Appeals held that Majestic Block could maximize the benefit of its insurance coverage by treating all of its ELTF payments as pre-tender costs.  Thus, all pre-tender costs had been paid by the ELTF and Majestic Block was only seeking post-tender costs from State Auto.  The Court of Appeals held that State Auto must cover all post-notice costs.  The court also awarded Majestic Block prejudgment interest on this amount.
 This decision contains other important rulings as well.  The Court of Appeals held that even though preliminary observations had indicated possible contamination before the inception of the policy, the fact that IDEM took no action until 2006 shows that there was no “known loss” prior to the inception of the policy on January 1, 1998.  And in rejecting State Auto’s late notice claim, Judge May expressly recognized that Dreaded is limited to specific fact patterns. Id at *9 (“[O]ur Indiana Supreme court explicitly distinguished fact patterns that were not applicable to its holding in Dreaded.”).

George M. Plews and Colin E. Connor represented Majestic Block in this case.  If you have any questions about this or any other insurance coverage issues, please feel free to contact George or Colin.




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