Indiana Farmers v. North Vernon Drop Forge

Decision Date15 December 2009
Docket NumberNo. 40A05-0904-CV-220.,40A05-0904-CV-220.
Citation917 N.E.2d 1258
PartiesINDIANA FARMERS MUTUAL INSURANCE COMPANY, Appellant-Plaintiff, v. NORTH VERNON DROP FORGE, INC., Roger Crane, Douglas Dibble, Edward Reid, and Glen White, Appellees-Defendants.
CourtIndiana Appellate Court

Mark R. Smith, Smith Fisher Maas & Howard, P.C., Indianapolis, IN, Attorney for Appellant.

R. Davy Eaglesfield, Courtney B. Justice, Justice Law Office, Logansport, IN, Attorneys for Appellees.


VAIDIK, Judge.

Case Summary

The defendant insureds agreed to provide a third party with "clean fill" dirt from their steel forge. The fill dirt turned out to be contaminated. The third party sued the insureds for depositing contaminated waste on his property. The complaint alleged intentional and unintentional torts, breach of contract theories, and strict liability causes of action. The defendants' commercial general liability insurer filed this action seeking declaration that it had no duty to defend the insureds in the underlying suit. In the course of summary judgment proceedings, the insured forge owner testified via affidavit that he did not know the fill dirt was contaminated. The trial court entered summary judgment in favor of the insureds. We hold that (1) the forge owner's affidavit testimony may be considered along with the underlying complaint when assessing the insurer's duty to defend, (2) the factual allegations sufficiently disclose an unintended "occurrence" requiring the insurer to defend in the underlying suit, (3) coverage is not foreclosed by the policy's intentional acts exclusion, (4) the insurer was not prejudiced by untimely notice of occurrence, and (5) the trial court erroneously ordered indemnification before the conclusion of the underlying litigation. We affirm in part and reverse in part.

Facts and Procedural History

North Vernon Drop Forge ("NVDF") was a steel fabricator that manufactured parts for automobiles, trains, and agricultural equipment. The forge was located in North Vernon, Indiana. Edward Reid was the owner, Roger Crane was an officer, and Glen White and Douglas Dibble were employees at various points in time. NVDF maintained a commercial general liability ("CGL") insurance policy with Indiana Farmers Mutual Insurance Company ("IFMI"). The insurance policy required IFMI to defend and indemnify NVDF in lawsuits alleging bodily injury or property damage arising from "occurrences" within the coverage period. The policy provided in pertinent part:


1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. . . .

* * * * * *

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence". . . .

* * * * * *

2. Exclusions

This insurance does not apply to:

a. Expected Or Intended Injury

"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. . . .

* * * * * *


2. Duties In The Event of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim.

. . .

* * * * * *


13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Appellant's App. p. 646-47, 655, 657.

NVDF's steel forging operations produced a conglomeration of mill scale, debris baghouse dust, and refractory brick and stone. These materials would typically accumulate on the factory property while it was in business. But when the forge closed in July 2004, NVDF had to clean up its premises and dispose of its waste.

David Reed meanwhile owned an auction barn in Scipio, Indiana. David wanted to improve his business's parking lot to better serve customers. In 2004 David sought clean fill dirt for the parking lot renovations. He placed a handwritten sign in front of his property that read, "Clean Fill Wanted."

Glen noticed David's sign and saw an opportunity for NVDF to dispose of its waste materials. Either Glen or Roger contacted David and told him the NVDF had clean fill available. Glen met David at the NVDF property and again represented to him that NVDF could provide clean dirt fill. Glen told David that the fill posed no environmental problems and would make a good top coat for the parking lot. At some point Glen also received approval from Edward to give David the fill. The fill dirt was a gift for which David would not have to provide consideration.

NVDF began depositing the fill onto David's property in October 2004. The following November, however, the Indiana Department of Environmental Management (IDEM) received a complaint that NVDF was dumping contaminated waste onto the lot. The following timeline summarizes what happened next:

November 2004: IDEM inspects the NVDF premises and orders NVDF to determine whether its fill dirt materials are hazardous.

February 7, 2005: IDEM sends a violation letter to Roger requesting a hazardous waste determination for the fill deposited on the David Reed property.

March 2005: Edward hires Douglas to work for NVDF.

December 21, 2005: IDEM again inspects the NVDF real estate.

January 12, 2006: IDEM sends a letter to Douglas requesting a hazardous waste determination for the fill deposited on the David Reed property.

August 9, 2006: IDEM issues a Notice of Violation to NVDF for unlawfully depositing contaminated waste on the David Reed property. IDEM warns NVDF that it could be penalized up to $25,000 per day for each of its regulatory violations. Edward Reid learns that NVDF's dirt fill is regulated waste requiring disposal at a landfill.

Early 2007: Douglas hires Midwest Environmental Services, Inc. ("Midwest") to determine if NVDF's fill material is hazardous.

May 10, 2007: Midwest determines that the fill is non-hazardous.

August 7, 2007: IDEM and NVDF execute an agreed order requiring NVDF to stop releasing and depositing contaminated waste. The order does not impose fines or require NVDF to take further action with respect to the David Reed property.

August 27, 2007: IDEM issues a Notice of Violation to David Reed requiring him to excavate the waste on his property.

September 2007: David notifies Edward that he received a Notice of Violation from IDEM.

November 19, 2007: David files a complaint against NVDF, Edward, Glen, Douglas, and Roger.

January 30, 2008: NVDF notifies IFMI of the complaint and requests defense and indemnification.

May 2008: David files his first amended complaint.

David's amended complaint alleged that Edward and Glen "knew the industrial waste from [NVDF's] Industrial Drive Factory was not suitable as fill material," that the NVDF factory "was the site of piles contaminated industrial waste that Edward Reid wanted to dump," and that the NVDF employees "falsely told [David] that the Industrial Drive Factory had clean fill available." Appellant's App. p. 264, 269. David alleged the insured's dumping led to the continued release of hazardous substances onto his property. The complaint set forth several causes of action including: (1) violation of Indiana Code section 13-30-9-1, et seq., for contributing to the release of hazardous substances, (2) violation of Indiana Code section 13-30-3-13 for dumping contaminated industrial waste, (3) fraud and fraudulent conspiracy, (4) nuisance, (5) trespass, (6) unjust enrichment, (7) negligence and negligence per se, (8) breach of warranty, (9) breach of warranty/breach of contract, and (10) reckless endangerment. The negligence count alleged as follows:

101. The Reid Entities and White were under a duty to dispose of industrial waste in a reasonable, prudent, and lawful manner to prevent environmental contamination.

102. The Reid Entities and White breached this duty by dumping contaminated industrial waste in violation of Indiana Law and IDEM standards for environmental protection.

103. The Reid Entities, White, and Dibble were under a duty to correct the hazards posed by the improper dumping of industrial wastes in the public parking lot of the David Reed Property.

104. The Reid Entities White, and Dibble breached this duty by failing to correct the hazards posed by the improper dumping.

105. The Reid Entities, White, and Dibble are liable for damages from their negligence.

Id. at 279. David's complaint sought damages for, among other things, (1) past and future costs of investigating the waste and cleaning up his property, (2) the costs to IDEM in supervising the investigation and clean-up, (3) penalties assessed by IDEM, (4) lost market value to the auction barn property, and (5) lost wages.

IFMI denied coverage to NVDF in a letter dated May 2, 2008. IFMI also initiated this action seeking declaration that it had no duty to defend or indemnify NVDF. Both sides moved for summary judgment.

Edward submitted an affidavit in support of the insured defendants' summary judgment motion. Edward testified that he was unaware the fill materials from NVDF were contaminated. He agreed to provide David with the fill because he "believed there was nothing wrong with it," and he "had no idea at the time it occurred, that allowing NVDF's fill dirt being placed upon David Reed's property would violate the law." Id. at 496, 497. Edward explained that NVDF had on prior occasions disposed of its waste at a landfill, and that the waste was classified by the landfill as non-hazardous. "Since our waste had been tested and classified as non-hazardous previous to David Reed's visit, I believed that it was not regulated dirt." Id. at 498. He further testified that "[n]o one at NVDF ever...

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