BatesCarey partners Agelo Reppas and Colleen Sorensen secured a unanimous victory in the Indiana Court of Appeals on behalf of Starr Indemnity & Liability Insurance Co. and other insurers. The court reversed the trial court’s denial of summary judgment in a coverage dispute over whether a watercraft limitation barred coverage for an insured’s CERCLA liability arising from pollution at a Louisiana shipyard. The court directed the trial court to enter judgment in the insurers’ favor, holding that no coverage existed under the bumbershoot policies at issue.

The underlying dispute centered on American Commercial Barge Line LLC (ACBL), a maritime transportation company whose barges were sent to the shipyard for cleaning. When the shipyard improperly stored waste from the cleaning process, the resulting contamination prompted EPA enforcement. The EPA held ACBL strictly liable as an "arranger" under CERCLA based on its provision of barges to the facility. ACBL then sued its insurers in Indiana state court, seeking a coverage declaration under policies with combined limits of $108 million. Although the policies contained pollution exclusions, ACBL argued those exclusions were unenforceable under Indiana law and that federal maritime law was inapplicable because it sought only general liability coverage.

The insurers filed a cross-motion for summary judgment, arguing that a watercraft limitation provision barring coverage for "liability arising out of the ownership, use, or maintenance of a watercraft" precluded coverage regardless of which law governed. The trial court denied the cross-motion, reasoning that under a long line of Indiana Court of Appeals decisions, "arising out of" is synonymous with "efficient and predominating cause" and that the shipyard's improper waste storage, not ACBL's provision of watercraft, was the efficient and predominating cause of the pollution.

Starr retained BatesCarey to pursue an interlocutory appeal on behalf of all insurers. The Indiana Court of Appeals accepted review and unanimously reversed the decision. Although the court declined to reach the maritime law issue, finding that Indiana law controlled, it agreed with BatesCarey's argument that "arising out of" does not mean "efficient and predominating cause." The court distinguished the line of cases on which the trial court relied, observing that those decisions addressed policies covering or barring "property damage arising out of" specified perils, a materially narrower formulation than the "liability arising out of the ownership, use, or maintenance of a watercraft" language at issue. Applying the plain meaning of "liability arising out of" as “legal accountability derived from,” the court held that ACBL's strict CERCLA liability derived from its ownership of watercraft containing hazardous substances delivered to the shipyard and that the watercraft limitation therefore barred coverage.

The decision provides important guidance on the scope of watercraft limitation provisions in bumbershoot policies and the proper interpretation of “arising out of” language under Indiana law.

Click here for the opinion.