West Bend Mutual Insurance v. Arbor Homes LLC
703 F.3d 1092
7th Cir.2013Background
- Arbor contracted with Willmez Plumbing for plumbing work on a new Indiana home; Willmez provided insurance meeting contract requirements naming Arbor as additional insured.
- Willmez subcontracted to Oscar Alarcon; Alarcon installed underslab plumbing and failed to connect to the main sewer, causing raw sewage to flood the crawl space.
- Homebuyers Lorches complained; Arbor discovered the defect and, after inspection, engaged ACT Environmental to assess and oversee cleanup.
- Arbor or Willmez conducted a costly remediation totaling over $65,000; Arbor sought to settle Lorches’ claims and damages with the Lorches and Willmez.
- West Bend Insurance, Arbor’s insurer, denied coverage; Arbor later filed suit in federal court seeking declaration of coverage and defense duties.
- District court granted summary judgment to West Bend on fungi/bacteria exclusion, voluntary payments provision, and related defenses; Arbor appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Voluntary payments provision enforceability | Arbor argues the provision should not bar coverage because West Bend did not consent to settlements. | West Bend asserts the provision requires consent before any payment or settlement and bars Arbor’s settlements without consent. | Voluntary payments provision enforced; settlements without consent barred. |
| Notice/futility and additional insured status | Arbor contends late notice and denial of additional insured status prevented insurer participation in settlement. | West Bend argues consent controls; prejudice or futility are irrelevant under the contract terms. | Consent, not notice futility, controls; no coverage due to lack of insurer consent. |
| Fungi and bacteria exclusion | Arbor challenges the exclusion as rendering coverage illusory. | West Bend relies on the exclusion to bar coverage for mold/fungi-related damages. | Fungi/bacteria exclusion applicable; excludes the claimed damages. |
| Voluntary payments vs. protective purposes of consent | Arbor argues the insurer’s earlier denial of status as additional insured undermines the need for consent. | West Bend maintains consent is independent of insured status. | Consent requirement stands; protective purpose of consent upheld. |
| Completed-operations exclusion applicability | Arbor contends the work was never fully completed as promised, so exclusion should not apply. | West Bend argues the completed-operations exclusion applies to post-construction damages. | Completed-operations exclusion supports denial of coverage. |
Key Cases Cited
- Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267 (Ind. 2009) (voluntary payment provisions must be given plain meaning and can bar coverage)
- Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997 (Ind. 2009) (late notice raises rebuttable prejudice; others defenses do not negate notice impact)
- Travelers Ins. Co. v. Maplehurst Farms, Inc., 953 N.E.2d 1153 (Ind. Ct. App. 2011) (late notice and insurer defenses; consent governs voluntary payment provisions)
- Amerisure Ins. Co. v. National Sur. Corp., 695 F.3d 632 (7th Cir. 2012) (moral hazard and consent-based defense in insurance coverage)
- Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748 (7th Cir. 2010) (role of consent and associated defenses in coverage disputes)