BERRY PLASTICS CORPORATION v. ILLINOIS NATIONAL INSURANCE COMPANY
ORDER granting Illinois National's 40 Motion for Summary Judgment on Counts I-III and denying Berry's 54 Motion for Summary Judgment on Counts I and II. Signed by Judge Richard L. Young on 3/22/2017. (TMD)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
BERRY PLASTICS CORPORATION,
ILLINOIS NATIONAL INSURANCE
ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT
This case arises out of a lawsuit between Plaintiff, Berry Plastics Corporation, and
its former customer, Packgen, which resulted in a $7.2 million jury verdict against Berry.
Packgen v. Berry Plastics Corp., et al., Cause No. 2:12-cv-80-JAW (D. Maine). At the
time of the events alleged in the Packgen lawsuit, Berry had $1 million in commercial
general liability (or “CGL”) insurance coverage with Federal Insurance Company and an
additional $25 million in commercial umbrella liability insurance coverage that was
issued by the Defendant herein, Illinois National Insurance Company. Federal agreed to
defend and indemnify Berry in the Packgen lawsuit; Illinois National did not.
In Count I of Berry’s Complaint for Declaratory Relief and Damages, Berry seeks
a declaration that Illinois National had a duty to defend and indemnify it against the
Packgen lawsuit, including the judgment and appeal. Berry brings two additional claims
against Illinois National: breach of contract (Count II) and bad faith (Count III).
Illinois National moves for summary judgment on Counts I-III of Berry’s
Complaint or, in the alternative, moves for summary judgment on Count II and III.
Berry, in turn, cross-moves for summary judgment on Counts I-II. The court, having
read and reviewed the parties’ written submissions, the designated evidence, and the
applicable law, now GRANTS Illinois National’s Motion for Summary Judgment and
DENIES Berry Plastics’ Cross-Motion for Summary Judgment.
Packgen manufactures and sells intermediate bulk containers (“IBCs”) that are
used, among other applications, by petroleum refineries to transport and store catalyst, a
chemical agent used to refine crude oil. (Filing No. 1-2, Packgen Complaint ¶ 4).
Packgen manufactured the subject IBCs out of a woven polypropylene fabric that is
chemically bonded to a layer of foil laminate. (Id. ¶ 6). The design was custom-made for
CRI, one of Packgen’s customers and a producer of fresh catalyst. (Filing No. 41-1, Trial
Transcript of John Lapoint 1 (“Lapointe Tr.”) at 34). Berry manufactured and sold the foil
laminate to Packgen. (Id. at 17).
From October 2007 to March 2008, CRI purchased 7,567 IBCs for nearly $1.5
million, and it placed an order for 1,359 IBCs to be delivered in April 2008. See Packgen
v. Berry Plastics Corp., 847 F.3d 80, 84 (1st Cir. 2017). Packgen also marketed its
The court grants Illinois National’s request to take judicial notice of the trial transcript from the
Packgen trial. See In re FedEx Ground Package Sys., Inc. v. Employment Practices, Lit., No.
3:05-MD-527 RM (MDL-1700), 2010 WL 1253891, at *4 (N.D. Ind. March 29, 2010) (“Court
documents from another case may be used to show that the document was filed, that the party
took [a] certain position, and that certain judicial findings, allegations or admissions were
made.”) (citing General Elec. Capital v. Lease Resolution, 128 F.3d 1074, 1081 (7th Cir. 1997)).
newly-designed IBC to other refineries in North America, focusing on thirty-seven
refineries where CRI supplied catalyst containers. (Lapointe Tr. at 83).
The Packgen lawsuit arises out of an incident that occurred at CRI on April 4,
2008. (Id. at 43, 59). While CRI was lifting an IBC to reposition the container, the foil
laminate separated from the woven fabric such that the liner of the IBC was exposed. (Id.
at 59, 65). The liner is meant to work as an oxygen barrier to the catalyst to prevent the
catalyst from self-heating. (Id. at 65). After the incident, CRI cancelled its pending order
for 1,359 IBCs with Packgen and has not purchased any IBCs since that time. (Id. at 8182). In addition, the thirty-seven refineries did not order IBCs as Packgen had
anticipated. (Id. at 105).
On December 9, 2011, Packgen brought suit against Berry for breach of contract,
breach of express warranty, breach of implied warranty of fitness for a particular purpose,
breach of implied warranty of merchantability, and negligence, in the Superior Court for
Androscoggin County, Maine. (Filing No. 1-2, Packgen Complaint at 84-91). The
Packgen lawsuit was subsequently removed to the United States District Court for the
District of Maine, under Cause No. 2:12-cv-80-JAW.
Berry timely notified Federal and Illinois National of the Packgen lawsuit. (Filing
No. 55-8, Declaration of Allyson Claybourn (“Claybourn Decl.”) ¶ 5). Federal agreed to
defend and indemnify Berry. (Id. ¶ 6). Illinois National assigned a claims administrator
who monitored and received regular updates on the Packgen lawsuit. (Id. ¶ 7). In June
2013, Illinois National retained coverage counsel to provide legal advice, and in October
2013, sent a reservation of rights letter to Berry. (Filing No. 42-3, Responses of Illinois
National to Berry’s First Set of Interrogatories at 22-23).
In September 2014, Illinois National’s claims administrator contacted Berry to
advise that the investigation to date indicated covered exposure was within the limits of
the Federal Policy and thus, the Illinois National Policy was not implicated. (Id. at 23).
In November 2014, Illinois National sent a supplemental reservation of rights to Berry.
On December 10, 2014, Illinois National’s coverage counsel sent a letter to Berry
explaining its position that “lost anticipated profits due to anticipated orders that never
materialized” are not property damages within the meaning of the Policy. (Filing No. 5510, Letter dated December 10, 2014). On December 12, 2014, Illinois National attended
a mediation of the Packgen lawsuit with Federal. (Filing No. 55-9, Claim Notes).
Although Federal offered its $1 million policy limits, Illinois National explained its
coverage position to the mediator. (Id.). The mediation unsuccessfully concluded. (Id.).
The case went to trial in November 2015. As is relevant to the present motion,
Packgen’s President, John Lapointe, testified that Packgen’s out-of-pocket losses due to
Berry’s defective product totaled $643,039.30. (Lapointe Tr. at 92). Packgen’s damages
expert, Mark Filler, testified that Packgen’s lost profits from cancelled orders from CRI
would have netted Packgen future profits of $130,629.93. Had CRI continued to do
business with Packgen, Filler opined, its sales over the succeeding ten-year period would
have earned Packgen future profit of $4,606,405.00. (Filing No. 41-2, Trial Transcript of
Mark Filler (“Filler Tr.”) at 26). With regard to the thirty-seven oil refineries which
expressed interest in purchasing IBCs from Packgen but changed their minds after the
incident, Filler testified that Packgen would have earned future profits of $1,957,202.00
over a ten year period. (Id. at 48). In Filler’s opinion, anticipated lost profits damages
totaled $6,563,607.00. (Id. at 42, 48). In addition, the jury was instructed on legal cause;
in particular, whether Packgen’s damages were “either a ‘direct result’ or a ‘reasonably
foreseeable consequence’ of the act or failure to act.” (Filing No. 55-4, Jury Instructions
at 10). The jury was also instructed on the following:
If you should find for Packgen in accordance with these instructions, then
you must determine the amount of damages to which Packgen is entitled as
a result of injuries proximately caused by Berry . . . . The elements of
damages at issue in this case may include: Actual damages; Incidental
damages; and Consequential damages.
(Id. at 13-14).
The jury returned a verdict in favor of Packgen and against Berry on November
12, 2015, in the amount of $7,206,646.30 ($643,039.30 + $6,563,607.00). (Filing No.
55-5, Special Verdict Form). The district court entered judgment in favor of Packgen and
against Berry the following day.
On November 23, 2015, Berry notified Illinois National of the verdict and
requested coverage for the verdict and subsequent judgment. (Claybourn Decl. ¶ 8;
Filing No. 55-11, Nov. 23, 2015 Letter). Illinois National maintained that its Policy did
not cover Berry’s exposure beyond the limits of the Federal Policy. (Claybourn Decl. ¶
Berry appealed the judgment to the First Circuit Court of Appeals, contending that
the district court erred by: (1) denying its motion to exclude Filler’s testimony, (2)
allowing Packgen employees to testify concerning potential customers’ intent to purchase
Packgen’s IBCs, and (3) denying Berry’s motion for judgment as a matter of law, a new
trial, or to alter or amend the judgment. Packgen Corp., 847 F.3d at 83. On February 1,
2017, the First Circuit Court of Appeals affirmed the judgment of the district court. Id. at
Berry’s Insurance Coverage
At the time of the events alleged by Packgen, Berry had two commercial general
liability policies to protect it against any liability it may face stemming from its products:
the Federal commercial general liability policy covering the first $1 million in liability,
and the Illinois National commercial umbrella liability policy covering the next $25
million. (Claybourn Decl. ¶ 4; Filing No. 42-2, Federal Policy at BP000087; Filing No.
42-4, Illinois National Policy at IN0017914). Both policies are occurrence-based and
include “products-completed operations” coverage. (Federal Policy at BP000118; Illinois
National Policy at IN0017924).
The Federal Policy provides that it will “pay damages that [Berry] becomes legally
obligated to pay by reason of liability: imposed by law; or assumed in an insured
contract; for . . . property damage caused by an occurrence.” (Federal Policy at
BP000091). The Illinois National Policy provides that it will “pay on behalf of [Berry]
those sums in excess of the Retained Limit [the $1 million in the Federal Policy] that
[Berry] becomes legally obligated to pay as damages by reason of liability imposed by
law because of . . . Property Damage . . . to which this insurance applies . . . .” (Illinois
National Policy at IN0017915). In both policies, “property damage” is defined as:
physical injury to tangible property, including all resulting loss of
use of that property. All such loss of use will be deemed to occur at
the time of the physical injury that caused it; or
loss of use of tangible property that is not physically injured. All
such loss of use will be deemed to occur at the time of the
Occurrence that caused it.
(Federal Policy at BP000119; Illinois National Policy at IN0017937).
In addition, the Federal Policy states that Federal has “the right and duty to defend
[Berry Plastics] against a suit, even if such suit is false, fraudulent or groundless.”
(Federal Policy at BP000092). The Illinois National Policy states:
We will have the right and duty to defend any Suit against [Berry] that seeks
damages for . . . Property Damage . . . covered by this policy, even if the
Suit is groundless, false or fraudulent, when the applicable limits listed in
the Schedule of Retained Limits have been exhausted by payment of Loss to
which this policy applies.
(Illinois National Policy at IN0017984). The Policy further provides that Illinois
National has “the right, but not the duty, to participate in the defense of any Suit and the
investigation of any claim to which this policy may apply.” (Id. at IN0017917).
Summary Judgment Standard
Summary judgment should be entered 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). “The fact that both sides have filed motions for summary
judgment does not alter the applicable standard; the court must consider each motion
independently and will deny both motions if there is a genuine issue of material fact.”
Aero Corp. v. Am. Int’l Specialty Lines Ins. Co., 676 F. Supp. 2d 738, 741 (S.D. Ind.
Under Indiana law, 2 an insurance policy is subject to the same rules of
interpretation and construction as other contracts. Cotton v. Auto-Owners Ins. Co., 937
N.E.2d 414, 416 (Ind. Ct. App. 2010). “Policy terms are interpreted from the perspective
of an ordinary policyholder of average intelligence.” Allgood v. Meridian Sec. Ins. Co.,
836 N.E.2d 243, 246-47 (Ind. 2005) (internal quotation marks and citation omitted). If
reasonably intelligent persons may honestly differ as to the meaning of the policy
language, the policy is ambiguous. Id. Ambiguous terms are construed strictly against
the insurer. Id. When the terms of a policy are clear and unambiguous, however, the
court applies their plain and ordinary meaning. Cotton, 937 N.E.2d at 416. The
interpretation of an insurance policy is a question of law; therefore, disposition on
summary judgment is particularly appropriate. Bradshaw v. Chandler, 916 N.E.2d 163,
166 (Ind. 2009).
The court will first address Berry’s claim for a declaratory judgment that the
Illinois National umbrella policy provides coverage for the judgment entered against
Berry in the underlying Packgen lawsuit (Count I). The parties did not address whether
Illinois National had duty to defend in Count I; instead, the issue is framed as a claim for
breach of contract in Count II.
Declaratory Judgment on Coverage (Count I)
As noted above, Illinois National agreed to pay “those sums in excess of the
The parties agree that this action is governed by Indiana law.
Retained Limit that [Berry] becomes legally obligated to pay as damages by reason of
liability imposed by law because of . . . Property Damage . . . to which this insurance
applies. . . .” (Illinois National Policy at IN0017915). Illinois National does not dispute
that the defective and destroyed IBCs which incorporated Berry’s product represent
“Property Damage” under the Policy. According to Illinois National, those damages
comprise less than the $1 million Retained Limit set forth in the Federal Policy. It argues
that the balance of the damages awarded by the Packgen jury which exceed the Retained
Limit—lost profits damages—are not “damages because of . . . Property Damage”
within the meaning of the Policy. Therefore, it has no duty to indemnify Berry for the
Packgen judgment. In response, Berry raises three arguments: (1) Illinois National is
estopped from re-litigating the damages determination by the Packgen jury; (2) even if
Illinois National were entitled to re-litigate the issue, courts have interpreted the phrase
“because of” to include all of the damages alleged by Packgen; and (3) at a minimum, the
Policy language is ambiguous, and must be construed in favor of coverage.
Issue preclusion, or collateral estoppel, “bars subsequent re-litigation of a fact or
issue where that fact or issue was necessarily adjudicated in a prior cause of action and
the same fact or issue is presented in a subsequent suit.” Small v. Centocor, Inc., 731
N.E.2d 22, 23 (Ind. Ct. App. 2000) (citing Slutsky v. Crews, 713 N.E.2d 288, 291 (Ind.
Ct. App. 1999)). To invoke the doctrine, the party seeking estoppel must establish that:
(1) there has been a final judgment on the merits in a prior action; (2) the issues are
identical; and (3) the party to be estopped was a party or in privity with a party in the
prior action. Id. 28 (citing Adams v. Marion County Office of Family and Children, 659
N.E.2d 202, 205 (Ind. Ct. App. 1995)).
The Indiana cases on point apply estoppel to bar the primary liability insurance
carrier, which wrongfully denied its defense obligation, from later asserting contractual
coverage defenses. See State Farm Fire & Cas. Co. v. T.B. ex rel. Bruce, 762 N.E.2d
1227, 1231 (Ind. 2002); Fed. Ins. Co. v. Stroh Brewery Co., 35 F. Supp. 2d 650 (N.D.
Ind. 1998); Gallant Ins. Co. v. Wilkerson, 720 N.E.2d 1223 (Ind. Ct. App. 1999). The
insurer may avoid collateral estoppel by defending the insured under a reservation of
rights in the underlying action, or by filing a declaratory judgment action for a judicial
determination of its rights under the policy. State Farm, 762 N.E.2d at 1231 (citing
Liberty Mut. Ins. Co. v. Metzler, 586 N.E.2d 897, 900 (Ind. Ct. App. 1992)).
Here, Illinois National is not the primary insurance carrier; it is the excess (or
umbrella) carrier. For the reasons explained infra., in that capacity, Illinois National did
not have a duty to defend under the terms of the Policy. Therefore, the court concludes
that it is not estopped from asserting its defense of no coverage. See Stroh Brewery, 35 F.
Supp. 2d at 659 (“The doctrine of estoppel arises only where duty to defend exists and
has been breached by the insurer.” (citation omitted)). See also Panfil v. Nautilus Ins.
Co., 799 F.3d 716, 719 (7th Cir. 2015) (applying Illinois law) (“This estoppel doctrine
applies only where an insurer has breached its duty to defend.”); TIG Ins. Co. v. Tyco
Int’l Ltd., 919 F. Supp. 2d 439, 458-59 (M.D. Pa. 2013) (applying Pennsylvania law)
(“Because TIG, an excess insurer, has no contractual duty to defend Grinnell, its insured,
it is under no obligation to issue a reservation of rights letter to Grinnell and ‘will not be
estopped from later asserting coverage defenses’ for failing to do so.” (quoting
Montgomery Ward & Co., Inc. v. Home Ins. Co., 753 N.E.2d 999, 1006 (Ill. Ct. App.
2001))); Douglas R. Richmond, New Appleman on Insurance Law Library Edition §
24.04 (2011) (“Because an excess insurer has no duty to defend its insured, it cannot later
be estopped from raising coverage defenses, or be said to have waived those defenses, if
it fails to reserve its rights when notified of a claim or suit potentially implicating its
Furthermore, an insurer is bound only to the matters necessarily determined in the
underlying action. State Farm, 762 N.E.2d at 1231 (citing Frankenmuth Mut. Ins. Co. v.
Williams by Stevens, 645 N.E.2d 605, 608 (Ind. 1995)); see also Nelson v. Am. Home
Assur. Co., 824 F. Supp. 2d 909, 915 (D. Minn. 2011) (“[T]he duty to indemnify is
determined by the factual findings of a jury.”) (citations omitted) (quotation marks
omitted), aff’d, 702 F.3d 1038 (8th Cir. 2012). In reconstructing the jury’s decision, the
court may look to the jury instructions, the jury verdict, and the trial transcript. See, e.g.,
18 Wright & Miller, Fed. Prac. and Proc. § 4420 (stating that the court may reconstruct a
jury decision “by considering such indicia as the amount of the award and the
reasonableness of various interpretations of the evidence, on the explicit assumption that
the jury understood and adhered to the court’s instructions on the law”); TIG Ins. Co. v.
Premier Parks, Inc., No. Civ. A01C04126 JRS, 2004 WL 728858 (S.C. Del. March 10,
2004) (in apportioning jury verdict between covered and non-covered damages, the court
discerned the jury’s intentions from the jury verdict and the trial transcript).
In reaching its verdict in favor of Packgen, the jury considered the actual,
incidental, and consequential damages it suffered as a result of Berry’s defective product.
(Jury Instructions at 13-14). The jury concluded that Packgen’s actual and lost profits
damages were “legally caused” by the failure of Berry’s laminate product, and awarded
$7,206,646.30 in lump sum damages. (Id.). The legal question presented here—whether
the anticipated lost profits damages as awarded in the Packgen action are “damages
because of . . . ‘Property Damage’” within the meaning of the Illinois National Policy—
was not decided by the Packgen jury. Afolabi v. A. Mortg. & Inv. Corp., 849 N.E.2d
1170, 1175 (Ind. Ct. App. 2006) (“[C]ollateral estoppel does not extend to matters that
were not expressly adjudicated and can be inferred only by argument.”). As established
in the following subsection of this Entry, not all consequential damages are covered
property damages within the meaning of the Illinois National Policy. Accordingly, the
court finds Illinois National is not barred from asserting its coverage defense.
Coverage for Anticipated Lost Profits Damages
The parties agree that the jury’s damages figure includes $6,563,607.00 in
anticipated lost profits. (See, e.g., Filler Tr. at 26 (testifying that had CRI continued to do
business with Packgen over the next ten years, its sales over the succeeding ten years
would have earned Packgen a net profit of $4,606,405.00); see also id. at 48 (testifying
that had Packgen entered into contracts with the 37 oil refineries, its sales would have
earned Packgen $1,957,202.00 over a ten year period)). The anticipated lost profits
figure represents damages from sales that never occurred, but were expected to occur in
the future. (See e.g., id. at 3 (“Q: What are lost profits? A: Lost profits is the difference
between sales that you expected to make and the cost that you avoided by not having
made those sales.”); id. at 29 (“Q: Did you also factor in lost profits for Packgen for any
other categories? A: Yes. I calculated lost profits for sales not made to the 37
refineries.”). (See also Lapointe Tr. at 95 (“Q: And you’ve already testified that you
were told by CRI that those sales of [IBCs] would continue into the future and even
increase; in fact, more than double? A: That’s right.”).
As noted previously, the Policy provides that Illinois National will “pay on behalf
of [Berry] those sums in excess of the Retained Limit [the $1 million in the Federal
Policy] that [Berry] becomes legally obligated to pay as damages by reason of liability
imposed by law because of . . . Property Damage . . . to which this insurance applies . . .
.” (Illinois National Policy at IN0017915). Property damage includes “physical damage
to tangible property, including all resulting loss of use of that property” and “loss of use
of tangible property that is not physically injured.” (Id. at IN 0017937). Intangible losses
and purely economic losses do not constitute “property damage” as defined by the Policy.
Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823, 829 (7th Cir. 1992); Am. Home Assur.
Co. v. Libbey-Owens-Ford Co., 786 F.2d 22, 25 (1st Cir. 1986); Universal Underwriters
Ins. Co. v. LKQ Smart Parts, Inc., 963 N.E.2d 930, 943-44 (Ill. Ct. App. 2011). The
question presented is whether they are nevertheless covered as damages “because of . . .
Property Damage.” Neither the court nor the parties have found an Indiana case on
point. Therefore, the court must predict how the Indiana Supreme Court would decide
this issue. See Stevens v. Interactive Fin. Advisors, Inc., 830 F.3d 735, 741 (7th Cir.
The court first turns to Travelers, supra. There, the insured, Penda, received an
order from its customer, U.S. Sample, to produce white lithograde styrene sheets. 974
F.2d at 825. U.S. Sample intended to finish the sheets and then use them as display pages
in sample books it had contracted to provide its customer, Joanna Western Mills. Id.
Joanna Western notified U.S. Sample that the pages of the sample books had yellowed.
Id. After U.S. Sample agreed to provide replacement books, it sued Penda for breach of
contract and breach of warranty. Id. at 826. As relief, U.S. Sample sought $200,000 for
loss of foreseeable profit from U.S. Sample’s contract with Joanna Western; $1,000,000
for loss of foreseeable profit on identified future business with Joanna Western; and
$1,000,000 for damage to its reputation. Id. Penda’s insurer, Travelers Insurance
Companies, undertook the defense of the suit under a reservation of rights, and later filed
an action seeking, in relevant part, whether it had a duty to defend. Id. The district court
ruled in favor of Travelers. Id. at 827.
The Seventh Circuit reversed. It had “little difficulty in concluding that U.S.
Sample’s broad allegations of future profit and reputational damage are purely economic
losses and beyond the coverage of the policy.” Id. at 829. But it held that U.S. Sample’s
claim for “lost profits” was partially one for the recovery of its costs in repairing the
damaged and rejected sample books. Id. Those damages, the court clarified, could
potentially come within the bounds of the policy, thus triggering Travelers’ duty to
Cases from other jurisdictions are consistent with Travelers. For example, in Nat’l
Union Fire Ins. Co. v. Ready Pac Foods, Inc., 782 F.Supp.2d 1047 (S.D. Cal. 2011), the
insured, Ready Pac, provided contaminated lettuce to Taco Bell. Id. at 1049. The lettuce
was incorporated into Taco Bell’s food, which was destroyed upon learning of the health
risk. Id. Taco Bell sued Ready Pac to recover, in part, the costs of the destroyed food as
well as lost profits from the decline of patronage once customers learned of the E. coli
outbreak. Id. at 1050. Ready Pac’s insurer, National Union, and its excess insurers, filed
an action in the Central District of California seeking a declaration of the extent of the
obligation that Ready Pac’s insurers may become legally obligated to pay to Taco Bell.
Before the district court, Taco Bell argued that but for the E. coli outbreak that
caused bodily injury and property damage, it would not have suffered lost revenue and
profits from a decline in patronage. Id. at 1054. The district court rejected this
contention because it did not amount to an expense incurred “to remedy either the
damage done to tangible property at Taco Bell restaurants or the personal injuries
suffered by Taco Bell’s customers.” Id. at 1055. The court explained:
Taco Bell’s claim for lost profits is not a measure of the damage to meals
served at Taco Bell restaurants nor the cost of the destroyed contaminated
food items. Taco Bell’s alleged lost profits as a result of customers deciding
not to eat at Taco Bell restaurants nationwide is not a measure of the value
of the meals and food that were destroyed at Taco Bell restaurants directly
affected by the outbreak.
Id. At bottom, “the occurrence itself must directly cause the bodily injury, the injury to
tangible property, or the loss of use of the property for coverage to apply.” Id. at 1057.
“As such, damages for loss of goodwill and loss of anticipated profits are not covered
under a liability policy even where such loss of goodwill and loss of profits are alleged to
have resulted from covered ‘property damage.’” Id.
In Essex Ins. Co. v. Chemical Formula, LLP, No. 1:CV-05-0364, 2006 WL
5720284 (M.D. Penn. April 7, 2006), the insured, Formula Technology, manufactured a
floor care product called Cold Fusion, which was sold by Janitorial Supply to customers.
Id. at *1. Upon application, customers complained the product damaged its floors,
requiring the floors to be stripped and restored. Id. Janitorial Supply sued Formula
Technology to recover the cost of Cold Fusion, the cost of repairing the floors, and
consequential damages in the form of lost profits and loss of goodwill, which the insured
argued were damages “because of” the physical injury to the floor. Id. at *3.
The district court rejected the contention, observing that the purported lost profits
did not remedy physically injured property or relate to a loss of use of tangible property.
Id. at *5. Rather, the lost profits “arise out of intangible damages that occurred after the
physical damage occurred.” Id. See also St. Paul Fire & Marine Ins. Co., 51 Fed. Appx.
602, 605 (8th Cir. 2002) (agreeing that the “‘damages because of property damage
clause’ . . . does not obligate the insurers to cover sums beyond the $169,095.86 cost
incurred in repairing and replacing the 48 riding towels to which Amisol synthetic oil
caused actual physical harm” and thus, “lost production, sales, profits, and market share
that flowed from the damaged machines . . . are economic losses and business risks not
insured under Amisol’s CGL policies.”).
These cases lead the court to conclude that damages for lost profits are not covered
as “damages because of . . . Property Damage” unless they are a measure of the actual
physical injury to tangible property or for the loss of use of that property. The cases cited
by Berry do not persuade the court otherwise. See Mid-Continent Cas. Co. v. Circle S
Feed Store, LLC, 754 F.3d 1175, 1186 (10th Cir. 2014) (applying New Mexico law)
(same CGL language covers the loss of value of property which “stemmed directly from
a physical injury to [the] property”); Wausau Underwriters Ins. Co. v. United Plastics
Grp., Inc., 512 F.3d 953 (7th Cir. 2008) (applying Illinois law) (noting that although the
jury’s lost profits award was not the issue on appeal, the award “was for lost profits
resulting from customers’ anger” at the insured for selling them defective water heaters
which damaged their homes); Nat’l Union Fire Ins. Co. v. Puget Plastics Corp., 532 F.3d
398, 403 (5th Cir. 2008) (applying Texas law) (same CGL language covers consequential
damages, including lost profits, that resulted from damage to water heaters); Ferrell v.
West Bend Mut. Ins. Co., 393 F.3d 786, 795 (8th Cir. 2005) (applying Wisconsin law)
(same CGL language covers tomato growers for the “property damage” to their tomato
plants arising from defective plastic film). These cases persuade the court that Berry’s
indemnity claim for anticipated lost profits does not arise out of “physical damage to
tangible property, including all resulting loss of use of that property” or “loss of use of
tangible property that is not physically injured.” (Illinois National Policy at IN 0017937).
Accordingly, the court predicts that were this issue before the Indiana Supreme Court, it
would find Illinois National has no duty to indemnify Berry for the Packgen judgment
pursuant to the Policy.
Having rejected Berry’s first two arguments, the court turns to the third – whether
the policy is ambiguous and must be construed in favor of Berry. A contract is
ambiguous “if reasonable persons would differ as to the meaning of its terms.” Beam v.
Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002). “An ambiguity does not exist simply
because a controversy exists between the parties, each favoring an interpretation contrary
to the other.” Hartford Acc. & Indem. Co. v. Dana Corp., 690 N.E.2d 285, 295 (Ind. Ct.
App. 1997). However, “[a] disagreement among courts as to the meaning of a particular
contractual provision is evidence that an ambiguity may exist.” Allgood v. Meridian Sec.
Ins. Co., 836 N.E.2d 243, 238 (Ind. 2005); see also Travelers Indem. Co. v. Summit Corp.
of Am., 715 N.E.2d 926, 936 (Ind. Ct. App. 1999) (“A division between courts as to the
meaning of the language in an insurance contract is evidence of ambiguity.”).
Berry argues the phrase “because of” is ambiguous because some courts have
found coverage for consequential damages arising from property damage, and others
have not. Berry does not provide the names of the cases that are in conflict.
Furthermore, the court finds the language of the Policy to unambiguously provide for
damages arising from the physical damage to tangible property. Lost future profits
arising from sales not yet made are not causally related to physical property damage.
Therefore, the court must find, as a matter of law, that Illinois National had no duty to
indemnify Berry under the facts of this case. Accordingly, Illinois National’s Motion for
Summary Judgment on Count I is GRANTED, and Berry’s Motion for Summary
Judgment on Count I is DENIED.
Breach of Contract (Count II)
Berry argues Illinois National committed an anticipatory breach—or repudiation—
of the insurance contract by failing to defend it during the pendency of the Packgen
lawsuit. Such a repudiation or anticipatory breach can give rise to an action for damages.
Colonial Life & Accident Ins. Co. v. Newman, 288 N.E.2d 195, 196 (Ind. Ct. App. 1972).
For purposes of this case, “if the insurer’s denial of liability goes to the essence of the
agreement and amounts to a frustration of the ends it was expected to subserve, the
contract may be treated as repudiated, good faith and good intentions of the insurer
notwithstanding.” Id. (internal quotation marks and citation omitted). Further, “[w]here
liability has been denied by reason of an honest dispute concerning facts which constitute
a condition precedent to the insurer’s duty to pay benefits pursuant to the terms of a
policy of insurance, repudiation will not be found.” Id. (citing Prudence Life Ins. Co. v.
Morgan, 213 N.E.2d 900, 905 (Ind. Ct. App. 1966)).
The Policy provides that Illinois National has a duty to defend a suit against an
insured that seeks property damages “when the total applicable limits of Scheduled
Underlying Insurance have been exhausted by payment of the Loss to which this policy
applies.” (Illinois National Policy at IN0017984). The applicable “Retained Limit” is $1
million per occurrence. (Id. at IN0017937). And the term “Loss” means “those sums
actually paid as judgment or settlements.” (Id. at IN0017934). Taken together, Illinois
National has no duty to defend Berry unless and until the $1 million Retained Limit is
properly exhausted by payment of judgments or settlements to which the Illinois National
In the present case, Federal defended Berry in the trial court in the Packgen action,
and funded the appeal of the judgment. (See Filing No. 1-2, Complaint ¶ 19). Further,
no portion of the judgment has been paid. Therefore, under the unambiguous terms of
the Policy, Illinois National had no duty to defend Berry in the Packgen lawsuit because
the “Retained Limit” of the Federal Policy has not yet exhausted. See Allianz Ins. Co. v.
Guidant Corp., 884 N.E.2d 405, 420 (Ind. Ct. App. 2008) (“[I]t is the responsibility of
the policyholder to prove this condition precedent to coverage—SIR (self-insured
retention) exhaustion—and unless and until it is able to do so, the duty to defend is not
triggered.”); Trinity Homes LLC v. Ohio Cas. Ins. Co., 2007 WL 1021825, at *12 (S.D.
Ind. 2007) (“[W]here an insured has both primary and excess insurance, an excess insurer
has no duty to defend the insured until all primary policies have been exhausted.”);
Schwinn Cycling & Fitness, Inc. v. Hartford Acc. and Indem. Co., 863 F.Supp. 784, 787
(N.D. Ill. 1994) (holding excess insurer had the right, but not the duty, to defend per the
terms of the policy); 14 Couch on Insurance § 200.38 (“As a general rule, a trueexcess insurer is not obligated to defend its insured until all primary insurance is
exhausted or the primary insurer has tendered its policy limits. An excess carrier may
nevertheless voluntarily participate in the insured’s defense but has no obligation to do
so.”); see also 14 Couch on Insurance § 200.48 (“[T]he true excess insurers’ defense
obligations are contingent upon the excess policy’s terms and conditions.”). It follows,
then, that Illinois National has not committed an anticipatory breach of the insurance
contract, as its contractual obligation under the Policy is not triggered until Federal’s
“Retained Limit” exhausts.
Furthermore, damages are an essential element of any breach of contract claim.
Berkel & Co. Contractors, Inc. v. Palm & Assocs., Inc., 814 N.E.2d 649, 655 (Ind. Ct.
App. 2004); Rogier v. Am. Testing and Eng’g Corp., 734 N.E.2d 606, 614 (Ind. Ct. App.
2000), reh’g denied, trans. denied. To date, Berry has not been damaged. Berry received
a defense from Federal during the entirety of the Packgen action and Berry has paid no
portion of the judgment.
With respect to Illinois National’s duty to indemnify, the Policy provides that it
“will not make any payment under this policy unless and until the total applicable
Retained Limit(s) and any applicable Other Insurance have been exhausted by the
payment of Loss to which this insurance applies.” (Illinois National Policy at
IN0017983). Illinois National did not breach its contract here for two reasons. First, for
the reasons just explained, it did not have a duty to indemnify. Second, even if it did,
Illinois National has no obligation to indemnify Berry until the $1 million Retained Limit
has been paid towards the final judgment. For all of these reasons, Illinois National’s
Motion for Summary Judgment on Count II is GRANTED, and Berry’s Motion for
Summary Judgment on Count II is DENIED.
Bad Faith (Count III)
Implied in all insurance contracts is the duty of an insurer to deal with its insured
in good faith. Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993). In Hickman, the
Indiana Supreme Court recognized, for the first time, a cause of action against an insurer
for the tortious breach of that duty. The Court noted that a cause of action for breach
does not arise every time an insurance claim is denied. Id. at 520. “For example, a good
faith dispute about the amount of a valid claim or about whether the insured has a valid
claim at all will not supply the grounds for a recovery in tort for the breach of the
obligation to exercise good faith.” Id. Instead, an insurer breaches its duty if it “denies
liability knowing that there is no rational, principled basis for doing so.” Id.; see also
Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002) (“To prove bad faith, the
plaintiff must establish, with clear and convincing evidence, that the insurer had
knowledge that there was no legitimate basis for denying liability.”). “Poor judgment or
negligence do not amount to bad faith; the additional element of wrongdoing must also be
present.” Colley v. Indiana Farmers Mut. Ins. Grp., 691 N.E.2d 1259, 1261 (Ind. Ct.
App. 1998). “A finding of bad faith requires evidence of a state of mind reflecting
dishonest purpose, moral obliquity, furtive design, or ill will.” Monroe Guaranty Ins. Co.
v. Magwerks Corp., 829 N.E.2d 968, 977 (Ind. 2005) (quoting Colley, 691 N.E.2d at
Berry contends Illinois National engaged in bad faith by refusing to participate in
any settlement negotiations in the underlying Packgen lawsuit, even after Berry’s primary
insurer, Federal, offered to pay its $1 million policy limits. See United Farm Bureau
Mut. Ins. Co. v. Ira, 577 N.E.2d 588, 596 (Ind. Ct. App. 1991) (“An insurer breaches its
duty to deal with its insured in good faith when it fails to settle claim that could not in
good faith be disputed.”). Thus, Berry argues, it “was forced to endure a jury trial
resulting in a substantial adverse judgment.” (Filing No. 55, Berry’s Response and Brief
in Support of Summary Judgment at 42).
The evidence reflects that Illinois National assigned a claims administrator to
monitor the Packgen lawsuit, conducted an investigation, hired coverage counsel, and
attended the December 2014 mediation. Illinois National’s position was, and continues
to be, that anticipated lost profits damages are not covered property damages under the
Policy, and the court agrees with its assessment. There is no evidence of ill motive here.
Therefore, the court finds, as a matter of law, that Illinois National did not commit the
tort of bad faith in this case. Illinois National’s Motion for Summary Judgment on Count
III is GRANTED, and Berry’s Motion for Summary Judgment on Count III is DENIED.
The court finds no genuine issue of material fact exists on Counts I, II, and III of
Berry’s Complaint and that judgment must be entered in favor of Illinois National.
Accordingly, Illinois National’s Motion for Summary Judgment on Counts I-III of
Berry’s Complaint (Filing No. 40) is GRANTED, and Berry’s Motion for Summary
Judgment on Counts I and II (Filing No. 54) is DENIED.
SO ORDERED this 22nd day of March 2017.
Distributed Electronically to Registered Counsel of Record.
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