Most insurance policies are built around a simple rule: the insured party pays premiums to the insurance company, and if something bad happens then the insurance company pays for the losses of the insured party. This system spreads risk out among large groups of people and tries to prevent the insured from being wiped out by a single catastrophic event. Take car insurance, for example. Tens of thousands of policyholders pay relatively small amounts to be covered by an insurance policy. Of those, only a relative few will actually get in accidents. For those who do, an insurance policy helps prevent them from losing a huge portion of their assets from that one bad event.
Several types of businesses engage in activities or make products that have the potential to cause harm, especially if they are defective. Everything from construction to pharmaceuticals carries the risk of hurting consumers in the ordinary course of business. To guard against potential liability, businesses take out insurance policies to indemnify them for any damages caused by them or their products.
But what if it’s unclear whether the damage caused is covered under the insurance policy? Could the insurance policy still protect the at-fault party? The answer is that it depends on the exact language of the insurance policy. In a recent Seventh Circuit decision, Illinois National Insurance Company, an insurance company, was not required to indemnify Berry Plastics, a global plastics manufacturer based in Evansville, Indiana, for a $7.2 million judgment against Berry after it provided a defective product to one of its customers, Packgen.
The terms of the insurance policy in question covered Berry against “property damage” caused by Berry. When Berry provided defective materials to Packgen, Packgen lost several of its own customers and all of the income from those accounts. Packgen sued Berry for its lost profits, and the jury found that Berry owed Packgen $7.2 million. Berry turned to Illinois National to cover this amount, but it refused to do so. Under the terms of the policy, “lost profits” did not constitute “property damage.” Berry tried to sue Illinois National, but the District Court for the Southern District of Indiana ruled for Illinois National. The Seventh Circuit later affirmed this ruling, sticking Berry Plastics with the entire bill.
This case highlights the need for both businesses and individuals to understand exactly what is and is not covered by their insurance policies. The attorneys at Camden & Meridew are experienced in dealing with corporate insurance policies and work to advise our clients on these matters. For more information, or to speak with an attorney, call (317) 770-0000.