Berry Plastics Corp. v. Illinois National Insurance Co.
244 F. Supp. 3d 839
S.D. Ind.2017Background
- Berry Plastics supplied foil laminate used in Packgen’s custom intermediate bulk containers (IBCs); a liner separation incident at a customer (CRI) in 2008 led to canceled orders and lost future sales.
- Packgen sued Berry for contract, warranty, and negligence claims; a jury awarded $7,206,646.30 (≈ $643,039 actual damages + $6,563,607 anticipated lost profits). The First Circuit affirmed.
- At the time of the loss, Berry had a $1 million primary CGL policy (Federal) and a $25 million umbrella/excess policy (Illinois National). Both policies are occurrence-based and include products-completed operations coverage.
- Federal defended and indemnified Berry up to its $1 million limits; Illinois National monitored, retained coverage counsel, issued reservations of rights, attended mediation, but refused to pay or defend beyond Federal’s limits.
- Berry sued Illinois National seeking declaratory relief/indemnity, breach of contract, and bad faith. Illinois National moved for summary judgment; the court granted it on all counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Illinois National must indemnify judgment excess (lost profits) as damages "because of ... Property Damage" | Lost profits awarded by jury flow from Berry’s product defect and thus fall within "because of" property damage coverage | Lost profits are purely economic/intangible and not "property damage" as defined; only physical injury or loss of use of tangible property triggers coverage | Held: No indemnity for anticipated lost profits; such damages are not covered as "because of" property damage |
| Whether Illinois National is estopped from denying coverage by the Packgen verdict | Jury verdict established damages causally tied to Berry’s product; Illinois National should be bound | Estoppel applies only where insurer had a duty to defend and/or underlying proceedings necessarily decided the specific coverage issue | Held: Not estopped. Excess insurer had no duty to defend; jury did not necessarily decide coverage question for lost profits |
| Whether Illinois National had a duty to defend or repudiated the contract (breach) | Illinois National’s refusal to participate in settlement/defend after notice amounted to anticipatory breach | Policy conditions an excess duty to defend on exhaustion/payment of underlying retained limit; Federal defended and no exhaustion/payment occurred | Held: No duty to defend and no repudiation. Duty to defend not triggered until underlying limits are exhausted by payment |
| Whether Illinois National acted in bad faith | Failure to participate and refusal to settle forced Berry to trial and judgment; bad faith tort exists where insurer denies liability without rational basis | Illinois National investigated, retained counsel, issued RORs, and reasonably disputed coverage (intent and basis shown); dispute was legitimate | Held: No bad faith. Insurer had a reasonable, honestly disputed coverage position and no evidence of dishonest motive |
Key Cases Cited
- Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823 (7th Cir.) (distinguishes covered repair/replacement costs from purely economic lost profits)
- Nat'l Union Fire Ins. Co. v. Ready Pac Foods, Inc., 782 F. Supp. 2d 1047 (C.D. Cal. 2011) (lost profits from diminished patronage are not damages to tangible property and are not covered)
- Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993) (recognizes tort of bad faith for insurer’s dishonest denial of coverage)
- State Farm Fire & Cas. Co. v. T.B. ex rel. Bruce, 762 N.E.2d 1227 (Ind. 2002) (estoppel applies when an insurer wrongfully denies defense; reservation of rights avoids estoppel)
- Allianz Ins. Co. v. Guidant Corp., 884 N.E.2d 405 (Ind. Ct. App. 2008) (insured bears burden to prove exhaustion of underlying limits to trigger excess coverage)