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Atlantic Casualty Insurance Co. v. Garcia

United States Court of Appeals, Seventh Circuit

December 22, 2017

Atlantic Casualty Insurance Company, Plaintiff-Appellee,
v.
Juan Garcia and Maria Garcia, Defendants-Appellants.

          Argued October 23, 2017

         Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:15-cv-00066-JEM - John E. Martin, Magistrate Judge.

          Before Bauer and Hamilton, Circuit Judges, and D arrow, [*] District Judge.

          Bauer, Circuit Judge.

         Defendants-appellants, Juan and Maria Garcia ("the Garcias"), filed a claim with plaintiff-appellee, Atlantic Casualty Insurance Company ("Atlantic"), for insurance coverage. Atlantic responded by seeking declaratory judgment. The Garcias replied with counterclaims for breach of the policies and bad faith for denial of their claim. The district court granted summary judgment in favor of Atlantic. The Garcias now seek reversal.

         I. BACKGROUND

         The Garcias purchased commercial property at 2316 Ripley Street, Lake Station, Indiana ("the Property"), on August 9, 2004. During the Garcias' ownership, the Property was used to operate an automobile repair shop and a day spa. Prior to their ownership, the Property was used as a dry cleaning facility from approximately 1946 until 2000. The site contained six underground storage tanks used by the dry cleaning company. Four of these tanks were used for petroleum-based Stoddard solvent, one was used for gasoline, and the last for heating oil.

         In 1999, the dry cleaning company reported a newly discovered leak from the Stoddard solvent tanks to the Indiana Department of Environmental Management ("IDEM"). In 2000, a site investigation was conducted, an Initial Site Characterization Report was prepared, and five groundwater monitoring wells were installed. On February 9, 2001, IDEM requested additional investigation to fully delineate the nature and extent of the petroleum pollution, as well as testing for volatile organic compounds. Due to a lack of information provided from the February 2001 request, IDEM requested additional testing on April 8, 2004.

         The Garcias claim they had no knowledge of the preexisting environmental contamination before insuring with Atlantic. In September 2014, a letter from Environmental Inc., dated July 10, 2014, brought the contamination to the Garcias' attention. In the spring of 2015, the Garcias hired Environmental Inc. to investigate the Property. This investigation showed that the chemicals from the Stoddard solvent tanks, Perchloroethylene solvent, and heating oil still affected the Property.

         Atlantic insured the Property with two policies that ran consecutively, starting on June 25, 2009, and ending on June 25, 2011. Both were substantially similar Commercial General Liability Coverage ("CGL") policies. Both contained relevant exclusion provisions that modified the CGL policies through a "Claims in Process" exclusion and a "Total Pollution Exclusion."

         The "Insuring Agreement" language under the "Bodily Injury and Property Damage Liability" coverage states:

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. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.

         The relevant language from the "Claims in Process" exclusion states:

1. any loss or claim for damages arising out of or related to "bodily injury" or "property damage", whether known ...

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