In its decision handed down today, the Indiana Court of Appeals again affirmed that the common law “known loss” doctrine obviates an insurance company’s obligation to defend or indemnify its insured regarding remediation action required by the Indiana Department of Environmental Management (IDEM).

We frequently stress to clients the importance of performing appropriate due diligence investigation prior to acquiring commercial and industrial properties so that defense can be available against liability for environmental conditions later discovered. We also regularly counsel clients regarding avenues available under Indiana’s statutes and case law for recovering remediation costs from prior owners and insurance companies for environmental conditions later discovered. However, the Court of Appeals’ decision in 5200 Keystone Limited Realty, LLC v. Netherlands Insurance Comp., Consolidated Insurance Comp., and Indiana Insurance Comp., 49A02-1410-PL-763, illustrates that insurance companies will not be similarly liable when its insured was aware of the environmental problems prior to acquiring the property.

By way of background, 5200 Keystone Limited Realty, LLC (KLR) acquired property in Indianapolis from Apex Mortgage Corp. in 2004. The purchase agreement between Apex and KLR referenced reports Apex provided to KLR identifying both soil and groundwater contamination requiring clean up. The purchase agreement also disclosed Apex’s ongoing lawsuit against prior business owners for cleanup of the property. Apex further assigned its interest in the lawsuit to KLR.

Upon acquiring the property, KLR purchased commercial general liability insurance from Netherlands Insurance. Subsequent insurance policies were obtained by KLR from Consolidated Insurance and then Indiana Insurance. The environmental conditions were not disclosed by KLR to any of the insurers.

IDEM learned of the property’s contamination when one of its employees read a 2012 court decision regarding KLR’s ongoing litigation with the prior owners. After IDEM wrote KLR to inquire about the property and its environmental condition, KLR provided a “Notice of Claim” to the insurance companies and requested that they indemnify and defend KLR for remediation required by IDEM.

In 2009, the Court of Appeals considered a similar scenario in Crawfordsville Square, LLC v. Monroe Guar. Ins. Co., 906 N.E. 2d 934.  In Crawfordsville Square, the Court of Appeals determined that knowledge of a property’s contamination prior to its purchase barred the buyer from coverage by its insurer. Here again, the Court of Appeals finds that the “known loss” doctrine precludes KLR from coverage under its CGL (commercial general liability) policies. This consistent decision by the Court of Appeals makes it fairly clear that buyers should not expect insurance coverage to later be available for remediation of environmental conditions known to the buyer prior to purchase of the property.

If you have questions about an environmental due diligence or other environmental matters, contact Kent Brasseale at (812) 423-3183 or; or contact any member of the KDDK Environmental Law Practice Team. Our attorneys take pride in professionally and cost-effectively steering our clients through the environmental due diligence, site investigation and remediation process.

About the Author

Kent A. Brasseale II

With a degree in Chemical Engineering and more than 20 years’ experience practicing law, Kent A. Brasseale II, is equipped with the skills and knowledge to efficiently and effectively represent clients in environmental, mineral, intellectual property, construction, business and real estate matters. Kent takes the time to understand his clients’ needs and objectives. Kent’s experience, combined with his active service in civic and professional organizations and as a real estate licensing instructor, have yielded the skills to achieve efficient “win-win” results. 

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