Navigators owes $13.8 million in additional insured coverage even though the contractor settled out, Seventh Circuit ruled January 22.
The case stems from a 2018 gas explosion in Homerville, Georgia, that severely injured three women at a café. United States Infrastructure Corporation (USIC), a contractor hired by Atlanta Gas Light Company (AGL) to locate and mark underground gas lines, failed to mark one of the lines. A boring company struck the unmarked line, releasing natural gas into a neighboring sewer line that eventually ignited.
When the injured women threatened to sue, all parties attended mediation in November 2019. USIC quickly settled with the victims for the full $2 million limit of its primary liability policy issued by Zurich Insurance Company. That settlement released USIC and its insurers from all liability, including any vicarious liability that might extend to AGL. However, the injured parties specifically preserved their right to sue AGL for its own conduct, including allegations that the gas company failed to de-pressurize the lines.
When mediation failed to resolve the claims against AGL, the injured parties sued the gas company in Georgia state court in December 2019. With USIC's primary policy exhausted, AGL turned to USIC's excess carrier, Navigators, seeking defense and indemnification under the umbrella policy.
Navigators denied coverage, arguing that AGL didn't qualify as an additional insured because the lawsuits focused solely on AGL's conduct and didn't mention USIC. According to Navigators, the policy only covered AGL for liability "caused in whole or in part" by USIC's actions, and the complaints against AGL didn't allege any wrongdoing by the contractor.
AGL sued Navigators in 2020, claiming breach of contract, breach of fiduciary duty, and bad faith.
The coverage dispute turned on language in USIC's primary policy, which the umbrella policy incorporated. The primary policy stated that additional insureds are covered "only with respect to liability for bodily injury, property damage or personal and advertising injury caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf."
The district court sided with AGL on the breach of contract claim, finding that the gas company did qualify as an additional insured. After the parties settled, the court entered a final judgment of $13.8 million in AGL's favor, with both sides preserving their right to appeal.
On appeal, Navigators argued first that because USIC had been released from liability in the settlement, USIC's conduct couldn't be considered the cause of the injuries for coverage purposes. Second, it pointed out that the underlying complaints never mentioned USIC, proving that USIC's actions weren't the proximate cause of the harm.
The Seventh Circuit rejected both arguments. Writing for the court, Circuit Judge Lee noted that under Indiana law, which governed the insurance contract, settlement doesn't create a judicial ruling about liability. "Parties can settle for any number of reasons and the obligation to pay comes from the settlement itself, not from one party's liability," the court explained.
As for the absence of allegations against USIC in the complaints, the court emphasized that Indiana law requires insurers to look beyond the complaint itself. When assessing the duty to defend, insurers must consider both the allegations and the facts known after reasonable investigation.
Nobody disputed that USIC's failure to mark the gas line was at least a partial cause of the explosion. The court pointed out that Indiana law recognizes multiple proximate causes for a single event, and the policy itself only required that the injury be caused "in whole or in part" by USIC.
The court noted that Navigators had even admitted in its own summary judgment motion that "USIC failed to locate and mark all of AGL's gas lines within the boring company's intended excavation path."
The court also rejected what it saw as an implicit argument from Navigators that AGL could only be an additional insured if USIC still faced potential liability in the underlying lawsuits. "The policy is devoid of such language," the court wrote, "and we will not supply omitted terms while professing to construe the contract."
AGL fared less well on its cross-appeal. The court upheld the dismissal of claims based on Navigators' failure to attend the pre-suit mediation, finding that the excess policy clearly stated the insurer had no duty to participate until the primary policy was exhausted.
The court also affirmed summary judgment on AGL's bad faith claim. Under Indiana law, proving bad faith requires clear and convincing evidence that an insurer knew it had no legitimate basis for denying coverage and acted with dishonest purpose or ill will. The court found that Navigators' internal notes showed it genuinely believed AGL wasn't covered, even though that belief turned out to be wrong.
The decision offers important takeaways for insurance professionals. It reinforces that "in whole or in part" means exactly what it says. Partial causation by the named insured is sufficient to trigger additional insured coverage, even when the underlying complaint focuses entirely on the additional insured's own conduct.
The ruling also clarifies that settlement releases don't eliminate additional insured coverage. Even if the named insured settles and obtains a full release, additional insureds can still seek coverage if the named insured's conduct partially caused the underlying injury.
For excess carriers, the decision confirms that once the primary policy exhausts, the duty to defend and indemnify kicks in based on the same causation principles that apply at the primary level.
The Seventh Circuit's decision will serve as binding precedent in Illinois, Indiana, and Wisconsin, and will likely influence how courts in other jurisdictions analyze similar additional insured coverage questions.
