The United States District Court for the Southern District of
Indiana has ruled that an insurer must bear the costs of a remediation
agreement entered into voluntarily by the policyholder without the insurer’s
knowledge or consent. Southern Pilot
Ins. Co. v. Matthews Auto Repair, Inc., 2017 BL 425647; No. 17-cv-01027
(S.D. Ind., November 29, 2017). In 2016,
an environmental investigation revealed toxic waste on Matthews Auto’s
property. Subsequently, Matthews Auto
entered into a voluntary remediation agreement with the Indiana Department of
Environmental Management ( “IDEM”) without notifying its insurer.
Matthews Auto claimed the agreement was covered by the insurance
policy. The insurer filed a Second
Amended Complaint for Declaratory Judgment asserting Matthews Auto breached the
insurance policy by entering into the remediation agreement with IDEM without
first obtaining the insurer’s consent.
The insurer argued Matthews Auto assumed both liability and the
obligation to remediate the property to IDEM’s standard, which is a violation
of the Voluntary Payment Provision and results in a loss of coverage.
The District Court rejected this argument, finding the remediation agreement
was merely a “plan” between Matthews Auto and IDEM. This “plan” did not establish that Matthews
Auto was in fact liable for the contamination on the Property, nor did it set
forth an amount of money Matthews Auto would pay IDEM to settle a legal dispute.
Matthews Auto could also withdraw from
the remediation agreement without penalty.
Based upon these factors, the District Court held the insurer failed to
establish Matthews Auto violated the policy’s Voluntary Payment Provision.
