American Insurance v. Crown Packaging International, 813 F. Supp. 2d 1027

Background

The American Insurance Company issued a CGL policy to Crown Packaging International covering property damage arising from an occurrence.
Ecolab, Crown’s largest customer, deducted chargebacks for defective Crown containers (date-code adhesion and graphics adhesion) from Crown’s invoices; Crown did not authorize these but accepted them over a long history of practice.
Chargebacks totaling about $454,122.68 (roughly $346,954 for graphics and $91,035 for date-code issues) were outstanding as of mid-2004; Crown’s claims personnel recorded authorizations on advisory forms, though no direct consent conversation occurred.
Before and during the litigation, Crown notified American and supplied investigation and chargeback documentation; American refused coverage, prompting a declaratory judgment action with cross-motions for summary judgment.
The court analyzes whether (a) voluntary payments preclude coverage, (b) there was property damage caused by an occurrence, and (c) various policy exclusions (damages to your product, damaged/impaired property, and recall) affect coverage; several issues require fact-finding.
Indiana law governs, with Sheehan Constr. Co. abrogating Amerisure’s strict “unintentional workmanship” rule for accidents, guiding whether faulty workmanship can be an occurrence.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Voluntary payments preclude coverage	Crown effectively consented by not demanding payment and accepting chargebacks.	No affirmative payment or assumption occurred by Crown; practice did not amount to voluntary payment.	Summary judgment denied; presumption of prejudice rebutted; fact questions remain on prejudice and whether voluntary payment occurred.
Property damage and occurrence	There was property damage to Ecolab’s property caused by Crown’s defective containers, arising from an occurrence.	No property damage or occurrence; damages arise from Crown’s product/work not an occurrence.	There is potential property damage and occurrence; questions of fact exist on extent and whether an occurrence caused it.
Damage to impaired property exclusion	Impaired property exclusion should bar coverage for damaged third-party soap only if restoration is feasible and cost-effective.	Exclusion applies when impaired property can be restored; the cost-benefit of restoration matters.	No summary judgment; issues of fact regarding impairment and cost to restore are unresolved.
Recall of products exclusion	Costs from recalls or similar loss of use are excluded if impairing property.	Evidence does not clearly show recall-type losses; disputed whether impairment occurred.	No summary judgment; factual questions remain on impairment and recall-related losses.

Key Cases Cited

Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997 (Ind. 2009) (establishes Indiana view on prejudice in voluntary-payment context)
New England Extrusion, Inc. v. American Alliance Ins. Co., 874 F. Supp. 467 (D. Mass. 1995) (insurer must prove prejudice for voluntary-payment provision (Massachusetts law))
Coil Anodizers, Inc. v. Wolverine Ins. Co., 120 Mich. App. 118, 327 N.W.2d 416 (Mich. App. 1982) (set-off/acquiescence to third-party payment may trigger voluntary-payment denial)
Amerisure Ins. Co. v. Wurster Const. Co., Inc., 818 N.E.2d 998 (Ind. Ct. App. 2004) (prior rule treating poor workmanship as non-accident (abrogated by Sheehan))
Sheehan Const. Co. v. Continental Cas. Co., 935 N.E.2d 160 (Ind. 2010) (abrogated Amerisure; faulty workmanship can be an 'occurrence' if unintentional)
Liberty Mut. Ins. Co. v. OSI Indus., Inc., 831 N.E.2d 192 (Ind. App. 2005) (preserves consideration of prejudice in notice-related issues)
City of Angola v. Governmental Interins. Exch. v. City of Angola, Ind., 8 F. Supp. 2d 1120 (N.D. Ind. 1998) (insurer prejudice considerations when evaluating notice-related defenses)
Lucker Mfg. v. Home Ins. Co., 23 F.3d 808 (3d Cir. 1994) (loss of use can be recovery under property damage; economic use included)
Pittway Corp. v. American Motorists Ins. Co., 56 Ill. App. 3d 338, 370 N.E.2d 1271 (Ill. App. 1977) (majority view that diminished value/used can be 'loss of use')
Hamlin Inc. v. Hartford Accident & Indemn. Co., 86 F.3d 93 (7th Cir. 1996) (impaired-property exclusion applied; cost considerations discussed)
Sokol & Co. v. Atlantic Mut. Ins. Co., 430 F.3d 417 (7th Cir. 2005) (impaired-property exclusion; whether replacement costs affect coverage)