In 5200 Keystone Limited Realty, LLC v. Netherlands Ins. Co., ___ N.E.3d ___, 2015 WL 1573324 (Ind. Ct. App. April 8, 2015), the Court of Appeals of Indiana, applying Indiana law, affirmed the trial court’s grant of summary judgment, finding that an insured’s coverage claim was conclusively barred by the known loss doctrine.
In this case, the plaintiff purchased a piece of property in 2004 with knowledge of a previously commissioned environmental report that found extensive contamination in concentrations above regulatory action levels. Id. at *2. As part of the purchase agreement, the plaintiff acknowledged that it had received, reviewed and understood this report. Id. In addition, the plaintiff was assigned all of the seller’s claims or causes of actions against third parties, including the seller’s suit seeking recovery of environmental cleanup costs from prior owners of the land. Id. Simultaneously with the land purchase, the plaintiff obtained a commercial general liability policy, which was in effect from 2004 through 2005, and it thereafter obtained policies from two other insurers for subsequent years. Id. There was no evidence that the environmental contamination was ever disclosed to any of the insurers. Id. at *5.
In or around 2012, the Indiana Department of Environmental Management (IDEM) learned of the environmental contamination at this site and initiated contact with the insured. Id. at *2. The IDEM thereafter identified the insured as a potentially responsible party for remediation of the site. Id. at *3. The insured notified its insurers and requested defense and indemnification. Id. The insurers declined to defend or indemnify, citing several reasons, including that the insured “was aware of the contamination at the Site prior to its purchase of the property, which was prior to the inception of the ... policies.” Id. at *3. The insured filed a coverage action, and the parties filed cross-motions for summary judgment. Id. The trial court granted the insurers’ motion, and the insured appealed. Id.
On appeal, the court found that summary judgment was warranted under the common law “known loss” doctrine. Id. at *5. That doctrine, adopted in Indiana in 2000, derives from the fundamental concept in insurance law that a loss must be fortuitous. Id. at *4. The court explained that, “if an insured has actual knowledge that a loss has occurred, is occurring, or is substantially certain to occur on or before the effective date of the policy, the known loss doctrine will bar coverage.” Id. (citation omitted). The lack of an existing IDEM enforcement action at the time the insured bought the property and obtained insurance was held “essentially irrelevant,” since the insured was aware that contamination levels were above IDEM regulatory standards and that remediation would be required. Id. at *6.
The court then rejected, as “self-serving,” the insured’s affidavit, in which it stated that it “did not believe—and had no reason to believe—that it might ever be held responsible for contamination caused by former owners/operators.” Id. The court looked to Indiana precedent, where courts had rejected affidavits at odds with prior deposition testimony and prior letters from the affiant. Id. The court extended this legal proposition to the present case, noting that the insured was aware of the environmental contamination and had accepted assignment of the seller’s lawsuit against the prior owners. Id. The court concluded that the insured could not “have it both ways” by pursuing a third party for cleanup costs, while claiming it “had no idea it could be responsible for such costs.” Id. It, thus, found the affidavit insufficient to create a genuine issue of material fact regarding application of the known loss doctrine, and it affirmed summary judgment in favor of the insurers. Id.
The decision of the Indiana Court of Appeals in 5200 Keystone Limited Realty is a logical extension of existing precedent. It demonstrates that, under Indiana law, summary judgment is warranted where an insured was aware, prior to policy issuance, that a loss was substantially certain to occur, even where no definitive regulatory action had yet been taken. It also confirms that a party cannot defeat summary judgment through a self-serving affidavit at odds with its prior actions and acknowledgements.