Adkins et al v. Will et al

Filing 319

OPINION AND ORDER granting Garnishee Defendant Westfield Insurance Company's Motion for Summary Judgment 301 , Plaintiff's Motion in Limine 305 is DENIED WITHOUT PREJUDICE, Garnishee Defendant Westfield Insurance Company's Motion to Strike the June 25, 2018 Affidavit of Kenneth R. Will 310 is DENIED WITHOUT PREJUDICE. The Clerk shall enter judgment in favor of Garnishee Defendant Westfield Insurance Company and against the Plaintiff Class on its Proceedings Supplemental to Execution 235 . Signed by Judge Philip P Simon on 6/3/2019. (shk)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
CARMINE GREENE, et al.,
Plaintiffs,
v.
KENNETH R. WILL, et al.,
Defendants,
and
WESTFIELD INSURANCE COMPANY,
Garnishee Defendant.

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No. 3:09CV510-PPS

OPINION AND ORDER
As can be seen from the above cause number, this case has some whiskers on it.
The case itself was filed more than ten years ago, has been back and forth to the Seventh
Circuit, been fiercely fought on some occasions and not at all on others. The underlying
facts that led to the dispute go all the way back to the year 2000. That was the year
when VIM Recycling, LLC started operating a waste recycling facility in Elkhart,
Indiana. [DE 307 at ¶1.] It ran the business on property owned by KC Industries, LLC.
[DE 307 at ¶¶1, 2.] Kenneth R. Will was the president and owner of both VIM and KC.
[DE 307 at ¶3.] As in previous opinions, I will refer to these three defendants
collectively as the VIM Defendants. VIM ran the facility until July 15, 2011, and it
proved to be a bad neighbor. VIM was a nuisance both in the legal and colloquial sense,
and its behavior led to a huge judgment being issued against it.

The judgment against the VIM Defendants came about when a group of nearby
homeowners decided that they had had enough of VIM’s polluting behavior and
brought this class action to recover damages for environmental violations, nuisance and
negligence based on the impact of the waste facility on their homes and property. The
case ended in a default judgment against VIM Recycling and K.C. Industries for
$50,568,750.00, plus an award of $273,339.85 in attorney’s fees against all three VIM
Defendants.
Unfortunately, the VIM Defendants are judgment-proof, or so it seems. So the
Class turned to the VIM Defendants’ liability insurer, Westfield Insurance Company, in
these proceedings supplemental, hoping to collect on their monumental judgment as
covered under any or all of four annual commercial general liability insurance policies
effective from January 1, 2004 through January 1, 2008. The matter is again before me
on another motion for summary judgment, this time from Westfield, seeking a
determination as a matter of law that no coverage lies. Although at one time they were
mortal enemies, the Class and the VIM Defendants are now aligned. In opposing
summary judgment, the Class has obtained an affidavit from its former nemesis, Mr.
Will. They have joined forces because both have an interest in having Westfield bear the
cost of the VIM Defendants’ tortious conduct.
Undisputed Facts
The parties have complied with my instructions on the presentation of allegedly
undisputed facts. [DE 300 at 1.] The result is a document of 72 pages, enumerating 272
2

facts asserted by Westfield and containing the Class’s response to each. As I
incorporate undisputed facts, I will cite to the paragraph number in the Class’s
response, where cites to supporting evidence of record are set out. There are three
lawsuits that are important to the issue before the court. First, there is this case which I
will refer to as either the “Federal Action” or simply “this case.” Second, there was a
state case which I will refer to as the “State Action.” And third, there was another
federal lawsuit in this district, a declaratory judgment action before Judge Van
Bokkelen, on whether Westfield had a duty to defend and indemnify the VIM
Defendants in the State Action. For clarity’s sake, I will refer to that case as the “Judge
Van Bokkelen” case.
The Policies’ CGL Coverage Form contained “Duties In The Event of
Occurrence, Offense, Claim or Suit.” [DE 307 at ¶262.] These include that the insured
“must see to it that we are notified as soon as practicable of an ‘occurrence’ or an
offense which may result in a claim.” [Id.] The notice should include, to the extent
possible, the “[h]ow, when and where” of the occurrence or offense, the names and
addresses of injured persons and witnesses, and the nature and location of any injury or
damage. [Id.] Prompt written notice to Westfield of any claim or suit “as soon as
practicable” is expressly required. [Id.]
This case was filed against the VIM Defendants on October 27, 2009. [DE 307 at
¶180.] Will did not direct the VIM Defendants’ insurance agent, 1st Source, to notify any
insurance carriers regarding this case when it was filed. [DE 307 at ¶181.] Instead, the
3

VIM Defendants retained Plews Shadley Racher & Braun LLP (“Plews Shadley”) to
represent them. [DE 307 at ¶182.] Plews Shadley filed a motion to dismiss based on
various abstention grounds, and on April 21, 2010, I dismissed the Federal Action for
lack of subject matter jurisdiction over the Neighbor Plaintiffs’ claims brought under
RCRA. [DE 307 at ¶184.] I declined to exercise supplemental jurisdiction over the
remaining state law claims. [DE 38 at 18.] The Neighbor Plaintiffs appealed the
dismissal of the Federal Action to the Seventh Circuit Court of Appeals. [DE 307 at
¶185.]
While this case was pending in the Seventh Circuit, on May 24, 2010 the
Neighbor Plaintiffs initiated a second, nearly identical lawsuit in Elkhart County
Superior Court, captioned “Jerry Adkins, et al., Plaintiffs, v. Kenneth R. Will, et al.,
Defendants, Cause No. 20D01-1005-CT-00038, Elkhart Superior Court No. 1.” [DE 307 at
¶186.] Once again, the VIM Defendants did not direct 1st Source to notify any insurance
carriers regarding the State Action at the time it was filed. [DE 307 at ¶187.] The VIM
Defendants initially retained Robert Sanders of Sanders Pianowski LLP to represent
them in the State Action. [DE 307 at ¶188.] In or about October 2010, Will learned that
Mr. Sanders had a conflict of interest that would prevent him from representing the
VIM Defendants in the State Action, and therefore, in consultation with Amy Romig of
Plews Shadley, Will instructed its insurance broker, 1st Source, to notify certain
insurance carriers for the VIM Defendants regarding the existence of the State Action
and seek coverage for the State Action. [DE 307 at ¶189.]
4

On October 1, 2010, Lisa Cromwell, a Westfield Claims Specialist, received a
“General Liability Notice of Occurrence/Claim” from 1st Source, notifying Westfield
that the VIM Defendants had been sued in the State Action and that the VIM Defendants
sought coverage for the State Action under the Policies. [DE 307 at ¶190.] Upon
learning of the State Action, Ms. Cromwell contacted Bruce Clark, Esq. of Bruce P. Clark
& Associates to serve as Westfield’s assigned defense counsel for the VIM Defendants in
connection with the State Action, pending an investigation of coverage. [DE 307 at
¶192.] I am emphasizing that notice was given of the State Action because conspicuous
by its absence was any notice of the Federal Action which at that point was still pending
appeal.
On or about October 14, 2010, Stephen St. Clair, a Westfield Litigation Specialist,
learned of the State Action and was asked to handle the coverage investigation for
Westfield. [DE 307 at ¶193.] St. Clair contacted Mark Smith, Esq. of Smith Fisher Maas &
Howard, P.C. to serve as Westfield’s outside coverage counsel in connection with the
investigation into coverage for the State Action. [DE 307 at ¶194.] On October 14, 2010,
Smith informed St. Clair that the Neighbor Plaintiffs had previously sued the VIM
Defendants in the Federal Action but that the suit had been dismissed for lack of subject
matter jurisdiction and was on appeal to the Seventh Circuit Court of Appeals. [DE 307
at ¶195.] This information from attorney Smith on October 14, 2010 was the first time
anyone at Westfield became aware of the existence of the Federal Action. [DE 307 at
¶198.]
5

Westfield took immediate action related to the State Action. It did an
investigation related to coverage and thereafter, as Westfield’s coverage counsel, Smith
sent a letter to Will on behalf of the VIM Defendants on February 4, 2011: (i) notifying
Will that Westfield had completed its coverage investigation; (ii) informing him that
Westfield had concluded that it had no duty under the Policies to defend or indemnify
the VIM Defendants in the State Action; and (iii) reserving all of its rights under the
Policies. [DE 307 at ¶211.]
Westfield then sought a declaratory judgment against the VIM Defendants and
the neighbor class. The case, Cause No. 3:11CV159 filed in this court on April 18, 2011,
was assigned to Judge Joseph Van Bokkelen. In its complaint, Westfield noted the
pendency of the State Action as well as the pending appeal of the Federal Action, but
the relief sought was a declaration that Westfield had no duty to defend or indemnify
the VIM Defendants in the State Action. Defaults were entered against the three VIM
Defendants on July 18, 2011 and the declaratory judgment Westfield wanted against the
VIM Defendants was granted by default on September 1, 2011. [3:11CV159, DE 18, 19,
20, 27, 28, 29.] As for the neighbors, they entered into a Stipulation with Westfield, so
ordered by Judge Van Bokkelen, that Westfield had no duty to defend or indemnify the
VIM Defendants against the State Action. [Id. at DE 30, 31.] The Stipulation was based
on Westfield’s allegation that the VIM Defendants did not timely provide Westfield
“with notice of the [State] Lawsuit or the extensive history of the environmental issues
outlined therein.” [DE 30 at 8; DE 31 at 8.]
6

Meantime, on appeal, the VIM Defendants were represented by Ms. Romig of
the Plews Shadley law firm. On May 3, 2011, the Seventh Circuit reversed and
remanded this case, and it was reinstated to my docket. See Adkins v. VIM Recycling, 644
F.3d 483 (7th Cir. 2011). Mysteriously, at no time, from the filing of the Federal Action
through its appeal and reinstatement by the Seventh Circuit or thereafter, did Will or 1st
Source ever seek or request coverage from Westfield for the Federal Action. [DE 307 at
¶236.]
The Default Judgment
After the remand, the Class amended the complaint to add defendant Soil
Solutions Company, which had purchased the assets of VIM in July 2011 and was
alleged to be the successor in interest with respect to the facility’s continuing
operations. [DE 66 at ¶13.] Counsel for the VIM Defendants was permitted to
withdraw in December 2011. [DE 105.] Defendant Will advised the court in February
2012 that he intended to represent himself, but a default was entered against him in
January 2013 for his failure to plead or otherwise defend against the amended
complaint. [DE 113, 162.] Default was entered against VIM Recycling and KC
Industries in March 2012, after their counsel had withdrawn and they failed to obtain
new representation to defend them against the amended complaint. [DE 120, 125, 126.]
The Class was certified in April 2013. [DE 176.] After Soil Solutions of Elkhart
LLC was added as a defendant in a second amended complaint [DE 152], the Class
settled their claims against the Soil Solutions defendants, and their proposed settlement
7

was approved and a consent decree issued in June 2014. [DE 207.] Under the consent
decree, Soil Solutions agreed to wind down the operations of the wood-waste
processing facility, to place a restrictive covenant on the property prohibiting solid
waste management operations on the site, and not to sell or lease the site to any entity
engaged in a list of prohibited types of operations. [DE 207 at 5-7.] Finally, the claims
against the VIM Defendants were disposed of by the default judgment imposing joint
and several liability on VIM Recycling and K.C. Industries in the total amount of
$50,568,750.00, and awarding the Class litigation costs of $273,339.85 against all three
VIM Defendants, jointly and severally. [DE 228.]
Procedural History of Proceedings Supplemental
The Class initiated these proceedings supplemental against Westfield within a
few months after the entry of the default judgment. [DE 235.] Westfield met the matter
with a motion for summary judgment arguing that the disposition of Judge Van
Bokkelen’s case had res judicata impact here barring the Class’s claims for coverage of
the judgment in this case. [DE 256, 259.] I denied the motion because Westfield’s
complaint and Judge Van Bokkelen’s Agreed Judgment expressly addressed only a
defense and indemnification for the State Action. [DE 270 at 8, 12.]
Next came a motion by the Class for partial summary judgment, in which they
argued that Westfield had breached its duty to defend the VIM Defendants in this case,
and as a result was equitably estopped from asserting policy defenses against the
Class’s claim for indemnification. [DE 273, 274.] That motion was also denied, largely
8

because the record did not then disclose sufficient information about when and how
Westfield received notice of this litigation against its insured to determine when (if at
all) a duty to defend was triggered. [DE 288 at 10.] I also noted my reluctance to
resolve the proceeding “on less than a full exploration of all the facts and legal
arguments relative to Westfield’s liability under the policies.” [Id. at 13.] The third
“omnibus” summary judgment now before me [DE 301], filed after the close of
discovery in these proceedings, represents that full factual record and broad scope of
argument.
Discussion
Summary judgment is proper “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A party opposing summary judgment may not rely on
allegations or denials in her own pleading, but rather must “marshal and present the
court with the evidence she contends will prove her case.” Goodman v. Nat’l Sec. Agency,
Inc., 621 F.3d 651, 654 (7th Cir. 2010). Summary judgment “is the put up or shut up
moment in a lawsuit, when a party must show what evidence it has that would
convince a trier of fact to accept its version of the events.” Springer v. Durflinger, 518
F.3d 479, 484 (7th Cir. 2008).
Westfield’s motion raises six separate arguments in support of its contention
that there is no coverage under the Westfield policies for the default judgment and
award of attorney’s fees against the VIM Defendants. In summary, here are the six
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arguments: (1) there is no coverage because the VIM Defendants breached the policies’
requirements to provide Westfield notice of the Federal Action; (2) there is no coverage
because the conduct at issue was not accidental; (3) there is no coverage because the
damage arose from professional errors and omissions; (4) there is no coverage because
the policy excludes damages for expected or intended injury; (5) there is no coverage
because this was a “known claim” at the time the policies were purchased; and (6) there
is no coverage because there is a pollution exclusion in the policies of insurance.
Some of the arguments have no merit and need not be discussed. But because I
find that Westfield is correct on arguments (1), (4) and (5) noted above, summary
judgment will be granted in favor of Westfield and against the Class.
Insured’s Compliance with Notice Requirement
In an earlier opinion, I noted that:
The Class has not adduced evidence of how and when Westfield first
learned of this federal action, and whether and when its insureds, the
VIM defendants, ever tendered this action to Westfield for a defense.
And the Class’s argument fails to address the legal significance, or
insignificance, of those facts (whatever they are).
[DE 288 at 10.] The summary judgment record before me now fills in those gaps of
evidence and argument. Westfield’s first argument is that the complete failure of its
insureds to notify Westfield of this Federal Action breached the notice provision of the
liability policies, caused prejudice to Westfield, and relieved the insurer of any coverage
obligation. [DE 302 at 4.] Plaintiffs respond that:
Westfield’s policies do not contain a requirement that its insured tender
the defense of any lawsuit to it, nor is any such tender requirement
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imposed by Indiana law. Instead, cases hold that a policy’s notice
requirement is met and an insurer’s duty to defend is triggered when the
insurer receives-–from any source–-the “foundational” information
designated in the policy’s notice provision.
[DE 304 at 2.]
First, I’ll recap the relevant facts. When first sued in this Federal Action in
October 2009, the VIM Defendants hired their own counsel, who remained in the case
until after its trip to the Court of Appeals and back. [DE 105.] After the remand of the
action to this court in May 2011, the VIM Defendants took no action to notify Westfield
of the pendency of the case. Even after their retained counsel withdrew in December
2011 [DE 105], the Clerk entered defaults in March 2012 [DE 126] and January 2013 [DE
162], and default judgment was sought in March 2015 [DE 214], for reasons that are
entirely unclear, the VIM Defendants did not turn to Westfield for a defense. When
Westfield finally learned of the Federal Action on October 14, 2010, it was not from the
VIM Defendants, but from an attorney whom Westfield had contacted to serve as
outside coverage counsel in connection with the investigation into coverage for the State
Action. [DE 307 at ¶195.]
Now to the governing law. “In Indiana, the notice requirement of an insurance
policy is ‘material, and of the essence of the contract.’” Wolf Lake Terminals, Inc. v.
Mutual Marine Ins. Co., 433 F.Supp.2d 933, 950 (N.D.Ind. 2005), quoting Miller v. Dilts,
463 N.E.2d 257, 265 (Ind. 1984). “Without notice, the insurance company has no liability
to the insured.” Id., citing PSI Energy, Inc. v. The Home Insurance Company, 801 N.E.2d

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705, 715-16 (Ind.Ct.App. 2004). Although for breach of a liability policy’s cooperation
clause, the insurer must show actual prejudice to avoid liability, the burdens are
different for a breach of the notice provision. Miller, 463 N.E.2d at 265. The insured’s
duty to notify is a “condition precedent[] to the insurance company’s liability to its
insured.” Id. at 260-61. Prejudice is “presumed by an unreasonable delay in notifying
the company about the accident or about the filing of the lawsuit.” Id. at 265. If
prejudice is presumed based on a belated notice from the insured, the presumption is all
the more appropriate where the insureds never provide notice to the insurer, as is the
case here. See Republic-Franklin Ins. Co. v. Silcox, 92 F.3d 602, 605 (7th Cir. 1996)(where
insured herself never notified insurance company of the accident, “there can be no
question whether [she] breached the duty to notify”).
In Republic-Franklin Ins. Co., the Seventh Circuit recapped and affirmed the
approach of Miller, observing that for the insured to overcome the presumption that
arises from failure to timely notify the insurer, it “must offer evidence showing that the
insurer suffered no prejudice.” Id. at 604. “Without any such evidence, courts will
presume prejudice as a matter of law,” and the insurer is not required to provide
coverage because the insured has failed to satisfy a condition precedent to coverage. Id.
See also Miller, 463 N.E.2d. at 261. In 2009 and 2010, the Indiana Supreme Court
expressly affirmed the holding of Miller as to a rebuttable presumption of prejudice
arising from the insured’s late notice. Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997,
1005 (Ind. 2009); Sheehan Construction Co., Inc. v. Continental Casualty Co., 938 N.E.2d
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685, 689 (Ind. 2010). Thirty years after Miller, this court affirmed that these principles
continued in force under Indiana law. Bowman, Heintz, Boscia & Vician, P.C. v. Valiant
Ins. Co., 35 F.Supp.3d 1015, 1024-25 (N.D.Ind. Aug. 1, 2014).
Realizing what it’s up against, the Class attempts a lame argument that
“Westfield’s policies do not contain a requirement that its insured tender the defense of
any lawsuit to it, nor is any such tender requirement imposed by Indiana law.” [DE 304
at 2.] But the argument is scuttled by the Class’s failure to dispute that the policies
expressly imposed duties of notice to Westfield in the event of an occurrence, offense,
claim or suit, and that fulfillment of the duty was a “condition[] to coverage.” [DE 307
at ¶262.]
Because the Class can’t argue that the VIM Defendants provided timely notice,
the Class next argues that the information Westfield received on October 14, 2010, when
the Federal Action was on appeal, was sufficient notice to trigger a duty to defend as of
that point in time. [DE 304 at 2.] That principle would eviscerate the concept of prompt
notice, and the Class cites no authority that supports it. In any event, Westfield cites
cases in support of its response that this sort of second-hand information does not
satisfy the VIM Defendants’ obligation to provide notice of the action to its insurers.
For example, in Republic-Franklin Ins. Co., the Seventh Circuit twice notes that where the
insured herself never notified her insurer, there could be no question that the insured
breached the duty to notify, even though the insurance company eventually learned of
the claim from the tort victim. 92 F.3d at 605.
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Oddly, on the issue of notice via third-party, both sides cite Frankenmuth Mutual
Ins. Co. v. Williams by Stevens, 645 N.E.2d 605 (Ind. 1995). As I have previously held [DE
288 at 9], the facts of Frankenmuth are distinguishable from this case, in which there are
no circumstances equivalent to Frankenmuth’s prior knowledge and investigation of
the tort and issuance of a reservation of rights letter preceding its awareness of the civil
action in which it received discovery requests. More significantly, Frankenmuth is not
on point legally. The legal analysis in Frankenmuth is about collateral estoppel binding
the insurer to facts determined by the insured’s consent to judgment, occurring after the
insurer elects not to defend. Id. at 608. The analysis does not address the coverage
impact of the insured’s failure to comply with notice requirements, or even whether the
insurer had breached a duty to defend. Id. at 607. Frankemuth has no implications for
the issue before me now in this case.
I readily find that as the underlying insureds, the VIM Defendants breached
their duty to provide Westfield prompt notice of the Federal Action. Under Indiana
law, this creates a rebuttable presumption of prejudice to the insurance company. In
addition, Westfield argues that it was in fact prejudiced by the lack of notice from the
VIM Defendants. Westfield points out, by way of contrast, that after the VIM
Defendants formally tendered a claim for coverage against the State Action, Westfield
took various steps that it was unable to take here in the Federal Action. These included
“assigning counsel to defend under reservation of rights pending an investigation,
declining coverage upon the conclusion of that investigation, and seeking a declaratory
14

judgment that Westfield did not owe defense or indemnity.” [DE 302 at 9.] Given that
the VIM Defendants acted to seek a defense and coverage for the State Action but not
the Federal Action, Westfield contends that it “was left to conclude, correctly, that the
VIM Defendants were not seeking coverage for [this] lawsuit.” [Id.]
In addition, the Indiana Court of Appeals has found that an insured that failed
to give timely notice to its insurer further compounded the prejudice by voluntarily
undertaking the defense of the action against it, which violated the “insurer’s right to
promptly investigate a claim or to control the defense of a lawsuit with which it might
be subjected to liability[.]” Paint Shuttle, Inc. v. Continental Casualty Co., 733 N.E.2d 513,
520-21 (Ind.Ct.App. 2000). The same is true here. The second-hand notice of a Federal
Action that had been pending for a year, had gone through preliminary injunction
proceedings, a motion to dismiss, and a reversal on appeal was clearly not in time to
permit Westfield to promptly take all the steps in defense of the action that it would
have wanted to take. The fact that Westfield now defends itself against a default
judgment of more than $50 million demonstrates the potential for prejudice compared
to the actions it took with the State Action to defend under reservation of rights and
then successfully seek a declaratory judgment of no coverage.
The Class makes no attempt to offer evidence, or anything more than an
unsupported conclusion, that Westfield suffered no prejudice from the failure of its
insureds to provide notice as required under the policies. [DE 304 at 10.] The position
is plainly insufficient in light of both Indiana law and the facts of the case. As the
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Indiana Court of Appeals has held, when an insured made “a strategic decision to
attempt to obtain a dismissal of the lawsuit on its own accord without eliciting [the
insurer] for assistance,” and only turned to the insurer for a defense after the effort
failed, the insured had breached the notice provision of policy and failed to allow the
insurer “to exercise its right to investigate or defend the claim.” Paint Shuttle, Inc., 733
N.E.2d at 521. Furthermore, when Westfield finally learned of the Federal Action, the
news was not from its insureds, and what Westfield learned suggested that the VIM
Defendants sought no defense or coverage from Westfield, given that they had hired
counsel on their own and never contacted Westfield about the Federal Action.
As a matter of law, for the failure of its insureds to give Westfield timely notice
of the Federal Action, I conclude that Westfield owed no duties of defense or
indemnification of the VIM Defendants in this case. Neither can Westfield be held
liable in these proceedings supplemental for the whopping default judgment entered
against the VIM Defendants.
Even though these conclusions are dispositive of the case, I have gone on to
consider Westfield’s arguments as to particular defenses under the liability policies that
preclude coverage for the judgment in this case. The determination that Westfield did
not receive notice sufficient to trigger its duty to defend also defeats any contention
that, by breaching the duty to defend, Westfield is equitably estopped from asserting
policy defenses, an argument I rejected when I denied the Class’s motion for partial
summary judgment last April. [DE 288 at 7-11.] In any event, the Class makes only a
16

weak and unpersuasive argument on the issue, citing no Indiana law in support. [DE
304 at 11-13.]
Some of the same undisputed facts are relevant to the two additional exclusions
that support summary judgment for Westfield. The exception for expected or intended
injury focuses on an insured engaging in certain conduct even when he knows that
harm is almost certain to result. The known claim exclusion applies to property
damage that began prior to the policy period if the insured was aware of it. In this case,
each of these defenses requires consideration of what the VIM Defendants knew, and
when, about the harms the Class complained of in this action.
Expected-Intended Injury Exclusions
There is another reason why Westfield must prevail on the coverage question.
Both the CGL Coverage Form and Umbrella Coverage Form expressly disclaim
coverage for property damage “expected or intended from the standpoint of the
insured.” [DE 307 at ¶259, 267.] Under Indiana law, this language is considered an
“exception” rather than an “exclusion,” and the insured bears the burden of proving
that the property damage was neither expected nor intended. PSI Energy, Inc. v. Home
Ins. Co., 801 N.E.2d 705, 727 (Ind.Ct.App. 2004). The “expected” prong is the one at
issue here, and it applies when the insured “acted even though he was consciously
aware that harm was practically certain to occur from his actions.” Sans v. Monticello
Ins. Co., 676 N.E.2d 1099, 1102 (Ind.Ct.App. 1997), quoted in PSI Energy, 801 N.E.2d at

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728. This “practically certain” standard is higher than merely “should have
anticipated” or a reckless disregard for safety. Id.
The undisputed facts support the policy exception for intended injury, by
demonstrating VIM’s continued operations despite awareness of resulting property
damage complaints, without any mitigating response. The VIM Defendants agreed to a
Fugitive Dust Control Plan in July 2000, which was intended to “control fugitive
particulate matter emissions from the outdoor grinding and screening of ‘recently live’
wood.” [DE 302-3 at 255.] Agreed Orders entered into by IDEM and Will on behalf of
the VIM Defendants evidence the insureds’ awareness of their fugitive dust violations
and handling of solid waste in a manner that created a threat to human health or the
environment, and a pollution hazard. [DE 302-4 at 20 (July 14, 2001), 59 (April 12, 2004);
DE 302-6 at 13 (Dec. 14, 2006), 20 (Jan. 4. 2007).] These orders demonstrate that the VIM
Defendants were consciously aware that those types of environmental harm had
occurred and were practically certain to continue to occur from their operations of the
facility during the time period of their CGL policies with Westfield.
The Class does not dispute that after multiple inspections in August 2003, the
VIM Defendants received an enforcement letter from IDEM dated October 8, 2003,
documenting observed violations of the facility’s Fugitive Dust Control Plan, VIM’s
operating permit and Indiana environmental rules. [DE 307 at ¶34.] During an IDEM
site inspection in January 2004, VIM’s Vice President was told that “numerous residents
had complained regarding fugitive dust in recent months.” [DE 307 at ¶47.] Also
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undisputed is that on January 22, 2004, an IDEM agent spoke with defendant Will to
discuss the fugitive dust problem and the VIM Defendant’s plans for an indoor
grinding operation and dust collection system. [Id. at ¶52.]
After site inspections in April 2004, Will told the IDEM agent that he had met
with neighbors to discuss fugitive dust concerns. [Id. at ¶70.] On July 29, 2004, IDEM
emailed photos of the dust cloud generated at the Elkhart facility to VIM’s Vice
President. [Id. at ¶81.] Will’s affidavit relied on by the Class admits that, prior to 2007,
Will was told by representatives of IDEM “that persons had complained to IDEM that
they were bothered by dust, smoke, noise, or odors that were allegedly coming from the
Site.” [DE 308-1 at ¶6(e).] On this record, the undisputed facts support the conclusion
that the VIM Defendants were consciously aware that the kind of environmental harms
alleged in the Class’s complaint, and on which the default judgment is based, were
practically certain to result from their operation of the Elkhart facility over the period of
coverage under the CGL policies.
Speaking of the complaint, the Class cannot now disclaim its own factual
allegations, which were deemed admitted by the VIM Defendants’ default. Those
allegations establish that the VIM Defendants continued the Elkhart facility’s operations
despite their awareness of the injuries those operations were inflicting on their
neighbors’ use and enjoyment of their properties. For instance, the Class alleged in its
second amended complaint that:

19

On countless occasions Plaintiffs and other Class members attended
public hearings and meetings, signed petitions, and submitted oral and
written complaints to their local, state and federal regulatory agencies,
political representatives, the media, and Defendants, about health,
safety, fire, noise, odors, aesthetic, rodent/vector, and pollution
problems from Defendants’ outside dumping, handling and processing
of waste materials at the Site. Nevertheless, Defendants callously
continue their harmful activities and turn a deaf ear and blind eye to the
neighbors’ complaints of offensive smoke, dust and odors caused by the
Defendants’ operations.
[DE 152 at ¶4.] Also alleged and admitted is that IDEM inspected the Elkhart facility in
August 2005 in response to neighbors’ complaints, and IDEM determined that the
outdoor storage of waste was a threat to human health or the environment, and created
a fire hazard, vector attraction, air or water pollution or other contamination. [Id. at
¶19.] Despite IDEM’s findings and directive to cease storing any additional “C grade”
material at the site, defendant Will ignored the directive and by January 2006 had
dumped nearly 50% more waste on the pile. [Id.]
This voluminous record of undisputed facts is sufficient to establish that the
VIM Defendants knew of the neighbors complaints that damage was occurring. For the
plaintiff Class to now argue that the VIM Defendants didn’t know their polluting
conduct was affecting anyone when the Class complained for years and caused VIM to
incur dozens of environmental violations is unpersuasive. [DE 312 at 16.] The exception
for injury expected from the VIM Defendants’ standpoint precludes coverage for the
judgment in the underlying case, because given the history of the Elkhart facility’s

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operation, the VIM Defendants were consciously aware that harm was practically
certain to occur but continued operations in the same way.
Known Claim Exclusion
There is a final basis for summary judgment in favor of Westfield. Coverage is
unavailable for a “known claim.” What this means is that an insured can’t cause a loss
then go get the insurance for it. To allow this would turn the insurance business on its
head. What rational insurance company would cover a claim after it already occurred?
To protect against this, insurance companies include a “known claim” exclusion in
insurance polices to make sure that they are not covering a risk that has already
materialized.
The policies in this case are no different: coverage under the CGL policies
applies to property damage only if it “occurs during the policy period” and “[p]rior to
the policy period, no insured...knew that the...’property damage’ had occurred, in
whole or in part.” [DE 307 at ¶257.] In other words, where the insured had that prior
knowledge, any “continuation, change or resumption” of the property damage during
the policy period is “deemed to have been known prior to the policy period.” [Id.] The
same language appears in the policies’ Umbrella Coverage Form. [Id. at ¶266.] The
policies define the insured’s knowledge to include the earliest time at which the
insured, or any employee authorized to give or receive notice of an occurrence or claim,
becomes aware by any means that property damage has occurred or has begun to occur.
[DE 257-1 at 27.] “Property damage” is defined to include not only “[p]hysical injury to
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tangible property,” but also “[l]oss of use of tangible property that is not physically
injured.” [DE 257-1 at 41.] This type of exclusion expresses the common law “fortuity”
or “known loss” principle, “that one may not obtain coverage for a loss that has already
taken place.” Indiana Ins. Co. v. Kopetsky, 14 N.E.3d 850, 852 (Ind.Ct.App. 2014).
The series of four liability policies with Westfield began in January 2004. The
question, therefore, is whether the undisputed evidence shows VIM’s awareness of
property damage from its operations prior to 2004? It most certainly does. The
evidence of this knowledge starts in July of 2000, when the VIM Defendants agreed to
the Fugitive Dust Control Plan. [DE 302-3 at 255.] On September 29, 2000, IDEM made a
field inspection of the Elkhart facility prompted by complaints of fugitive dust from
outdoor grinding operations visible in the air crossing a county road adjacent to the
facility. [DE 302-3 at 265.] Based on the inspection, IDEM concluded that the VIM
defendants were grinding scrap lumber outside in violation of the Fugitive Dust
Control Plan and not watering sufficiently to prevent visible emissions of fugitive dust.
[Id.] These findings were communicated to defendant Will by telephone on September
29, 2000 and by certified mail dated November 13, 2000. [Id. at 265, 271.] An Agreed
Order signed by Will on July 14, 2001 reiterated these findings. [DE 302-4 at 21.]
An IDEM field inspection was prompted in April 2003 when a neighbor
complained of fine dust believed to emanate from the Elkhart facility that was
accumulated on the neighbor’s pond and on his cars. [DE 302-4 at 39.] No evidence of
fugitive dust was visible at the time of the surveillance inspection. [Id.] Based on
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another neighbor’s complaint of dust settling on his car, IDEM field inspections were
conducted on August 22 and 28 in 2003. [DE 302-4 at 41.] The inspection report reflects
that on August 22 “large puffs of dust were seen being generated periodically just
north of the main building...but was not seen crossing property boundaries.” [Id.]
Apparently from a different source at the VIM facility that day, a significant dust plume
“was observed crossing the south property boundary onto the neighboring property.”
[Id. at 47.] In the context of compliance with the Fugitive Dust Control Plan, the IDEM
inspector noted in his report that “[t]he potential for fugitive dust exists everywhere on
VIM’s property.” [Id.] Violations of the Plan observed during the August site visits
were noted in IDEM’s October 8, 2003 letter to defendant Will, sent by certified mail,
and in the Agreed Order signed by Will on April 12, 2004. [Id. at 50, 59.]
There’s more. A neighbor’s complaint of fugitive dust in October 2003 prompted
an IDEM field inspection on November 5, 2003. [Id. at 65.] During the surveillance,
visible dust was observed being generated, but not seen crossing VIM’s property
boundaries. [Id.] IDEM’s report reflects that the complainant had spoken with VIM
representatives who told him they were working to solve the dust problems. [Id.]
Other neighbors of the Elkhart facility contacted IDEM on November 7 and December
10, 2003. [Id. at 67, 69.] IDEM responded that dust violations had already been
documented and “that IDEM is aware of the fugitive dust problem.” [Id. at 69.] The
Class does not dispute that during an April 21, 2004 phone call with IDEM concerning
improvements to the facility’s dust collection system, defendant Will “said that he has
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met with neighbors on occasion to discuss fugitive dust concerns.” [DE 302-6 at 29; DE
307 at ¶70.]
The Class relies on Will’s June 25, 2018 affidavit, which includes his attestation
that “[a]t no time prior to January 1, 2007 was [he] aware that ‘bodily injury’ or
‘property damage’ within the meaning of the Westfield Policies...had occurred in whole
or in part as a result of the operations or other conduct of VIM or K.C. or conditions at
the Site.” [DE 308-1 at ¶5.] The repeated use of quotations marks around “property
damage” within Will’s affidavit signifies that he uses the expression as a term of art
limited to the policy definition. But it is Will’s (or VIM’s) awareness of a condition that
ultimately supports a claim for property damage that matters, not their knowledge or
belief that the condition actually constitutes “property damage” as defined in the
policies. Given that the question is VIM’s knowledge prior to obtaining the insurance,
the policies’ definition cannot reasonably be the applicable standard for determining
VIM’s awareness of property damage.
There is another problem with Will’s affidavit. Its use of legal terms and
conclusions runs afoul of Fed.R.Civ.P. 56(c)(4)’s requirement that an affidavit used to
oppose a motion “set out facts that would be admissible in evidence.” Legal arguments
and legal conclusions in summary judgment affidavits are not recitations of fact and can
be disregarded. Paniaguas v. Aldon Companies, Inc., 2006 WL 2568210, at *5 (N.D.Ind.
Sept. 5, 2006) (and cases cited therein).

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This analysis is further supported by the Indiana Court of Appeals’ decision in
5200 Keystone Limited Realty, LLC v. Netherlands Insurance Comp., 29 N.E.3d 156
(Ind.Ct.App. 2015). In that case, CGL coverage for environmental remediation was
barred by Indiana’s common law “known loss” doctrine because the insured was aware
of contamination on the property before purchasing the real estate and obtaining the
CGL policy. Id. at 163. In opposition to the insurer’s motion for summary judgment,
the insured relied on an affidavit attesting that the insured did not believe, and had no
reason to believe, that it would ever be held responsible for the contamination. Id. at
163. The court found that such an affidavit was “insufficient to create a genuine issue
of material fact regarding application of the known loss doctrine” when it conflicted
with undisputed evidence demonstrating the insured’s awareness of the contamination.
Id. at 163, 164. See also Crawfordsville Square, LLC v. Monroe Guaranty Insurance Company,
906 N.E.2d 934, 939 (Ind.Ct.App. 2009) (applying a long-standing rule against the use of
an affidavit to defeat summary judgment where it conflicts with sworn deposition
testimony of the affiant without a plausible explanation for the discrepancy).
On the undisputed facts, I conclude as a matter of law that defendant Will, and
therefore the VIM Defendants, had become aware, prior to January 2004, that property
damage resulting from fugitive dust had occurred or begun to occur. This is an
additional alternative basis on which Westfield is entitled to summary judgment in the
Class’s proceedings supplemental. In making this determination, I do not rely on a
number of sources the Class contends are not properly considered, including allegations
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of the second amended complaint deemed admitted by the VIM Defendants’ default,
post-2004 IDEM activity not relevant to the VIM Defendants’ pre-2004 knowledge, the
report of Westfield’s expert witness John Mundell, or class members’ interrogatory
answers (the substance of which the Class now disputes – DE 307 at ¶¶56, 57).
Pollution Exclusion
There is also a pollution exclusion in the policy that is worth discussing,
although I am not relying on it in my disposition of the case. The CGL policies contain a
pollution exclusion applicable to property damage “which would not have occurred in
whole or part but for the actual, alleged or threatened discharge, dispersal, seepage,
migration, release or escape of ‘pollutants’ at any time.” [DE 307 at ¶¶260, 261.]
“Pollutants” are defined as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste,”
and “[w]aste includes materials to be recycled, reconditioned or reclaimed.” [Id.] The
policies also contain a notice of “Indiana Changes – Pollution Exclusion” that includes
this language: “This Pollution Exclusion applies even if such irritant or contaminant
has any function in your business, operations, premises, site or location.” [Id.]
Westfield acknowledges that “Indiana courts construe pollution exclusions
narrowly,” but still contends that the record here – including the Class’s own
allegations and environmental expert – support the application of the pollution
exclusions. In 2012, the Indiana Supreme Court addressed a liability policy with the
same definition of “pollutants” as is present in the Westfield policies, and noted that it
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had “interpreted this or similar language on no fewer than three occasions, reaching the
same result each time.” State Auto Mut. Ins. Co. v. Flexdar Inc., 964 N.E.2d 845, 847, 848
(Ind. 2012). Each time the Indiana Supreme Court found the language to be ambiguous
and construed it against the insurer. Id. Beginning in American States Insurance Co. v.
Kiger, 662 N.E.2d 945 (Ind. 1996), the court said that the definition of pollutants
“[c]learly...cannot be read literally as it would negate virtually all coverage.” Id. at 948.
The court held that the failure of the definition to expressly include the particular
substance at issue in the case required that the clause be construed in favor of the
insured. Id. at 949. Noting that in more recent years the insurance company had used a
revised pollution exclusion, the Supreme Court in Flexdar observed that the more
detailed “Indiana Changes” endorsement in later policies “resolve[d] any question of
ambiguity.” Id. at 852.
Despite the weight of this unfavorable precedent, Westfield relies on West Bend
Mut. Ins. Co. v. U.S. Fidelity and Guar. Co., 598 F.3d 918 (7th Cir. 2010), in which the
Seventh Circuit, applying Indiana law, affirmed summary judgment in favor of an
insurer, finding that the pollution exclusion applied against claims that the insured’s
gas station contaminated groundwater in a residential neighborhood. In addition to the
same “pollutants” language as appears in the VIM Defendants’ policies, the policy in
West Bend contained language expressly excluding claims arising from the seepage of
“motor fuels.” Id. at 921. The court held that the policy in West Bend succeeded in
specifically disclaiming coverage for motor fuels: “The plain language of the contract
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thus explains that Federated will not cover property damage or personal injuries related
to gasoline. This conclusion is buttressed by the fact that the Indiana Changes
Endorsement applies the Pollution Exclusion ‘whether or not such irritant or
contaminant has any function in [the insured’s] business, operations, premises, site or
location.’” Id. at 923.
West Bend did not contradict the conclusion of the Indiana Supreme Court in
Kiger and Flexdar that their common definition of pollutants was ambiguous. Instead,
the Seventh Circuit could find in favor of the insurance company because the policy in
that case contained additional language explicitly excluding coverage for discharge of
motor fuels. Id. at 923. Westfield argues that there is no dispute that the damage
suffered by the Class resulted from smoke, fumes, chemicals and waste, all of which are
expressly referenced in the policies’ definition of pollutants. [DE 302 at 33.] While that
is true, it is unclear to me whether the line of Indiana cases addressing this definition of
pollutants requires the conclusion that the exclusion is generally unenforceable because
it is ambiguous, even in the event of damage from one of its specified terms.
A number of cases contain language that might support that conclusion. See
Atlantic Casualty Ins. Co. v. Garcia, 227 F.Supp.3d 990, 995 (N.D.Ind. 2017); Old Republic
Ins. Co. v. Gary/Chicago International Airport Authority, 2016 WL 3971663, *4 (N.D.Ind.
July 26, 2016); Flexdar, 964 N.E.2d at 849 n.2; State Auto. Ins. Co. v. DMY Realty Co., LLP,
977 N.E.2d 411, 422 (Ind.Ct.App. 2012); Travelers Indem. Co. v. Summit Corp. of America,
715 N.E.2d 926, 935 (Ind.Ct.App. 1999). In the context of this case, a determination that
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the definition of pollutants renders the exclusion unenforceable might also be bolstered
by the inherent ambiguity of the terms “waste,” “chemicals,” and “fumes.” In any
event, the scope of the pollution exclusion has been “an evolving area of the law, subject
to differing interpretations.” Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 42 (Ind. 2002).
Given that uncertainty, and because I have otherwise found three separate bases on
which to grant Westfield’s motion for summary judgment, I decline to undertake any
further analysis of the applicability of the pollution exclusion on the facts of this case.
Conclusion
By these Proceedings Supplemental to Execution, the Plaintiff Class as judgment
creditors seek to recover the default judgment [DE 228] and award of attorney’s fees
and costs [DE 227] under Commercial Insurance Coverage Policies No. CMM 3447047
effective 1/1/2004, 1/1/2005, 1/1/2006, and 1/1/2007, issued by Garnishee Defendant
Westfield to the VIM Defendants. On the record of undisputed facts presented on this
third motion for summary judgment, I conclude that Westfield is entitled to judgment
as a matter of law. Westfield has no duty to indemnify its insureds because: (1) the
insureds failed to timely notify Westfield of the legal action; (2) coverage is barred by
the policies’ exclusions for expected injury; and (3) coverage is barred by the known
claims exclusion. Westfield’s motion for summary judgment will be granted, and the
Clerk will be directed to enter judgment in Westfield’s favor. The dispositive analysis
does not require a resolution of either Westfield’s motion to strike the affidavit of

29

Defendant Will or the Class’s motion to exclude the report and testimony of Westfield’s
expert witness. Those motions will be denied without prejudice.
ACCORDINGLY:
Garnishee Defendant Westfield Insurance Company’s motion for summary
judgment [DE 301] is GRANTED.
Plaintiffs’ Motion in Limine to Exclude the Report and Testimony of Westfield
Insurance Company’s Expert Witness, John A. Mundell [DE 305] is DENIED WITHOUT
PREJUDICE.
Garnishee Defendant Westfield Insurance Company’s Motion to Strike the June
25, 2018 Affidavit of Kenneth R. Will [DE 310] is DENIED WITHOUT PREJUDICE.
The Clerk shall enter judgment in favor of Garnishee Defendant Westfield
Insurance Company and against the Plaintiff Class on its Proceedings Supplemental to
Execution [DE 235].
SO ORDERED.
ENTERED: June 3, 2019.
/s/ Philip P. Simon
PHILIP P. SIMON, JUDGE

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