Indiana Appeals Court Finds Ambiguity in Umbrella Policy, Results in $2 Million in Coverage

Gary Hammerstone et al. v. Indiana Insurance Co., (06A04-1211-PL-595 Court of Appeals of Indiana)
In 2009, plaintiff Gary Hammerstone injured his right hand and arm while trying to clear a clog in a Trac-Vac lawn and leaf vacuum he purchased in 2004. Mr. Hammerstone brought a lawsuit against the vacuum’s manufacturer, Palmor Products Inc. (Palmor), and Palmor’s distributors Northampton Farm Bureau Cooperative Association, and Canns-Bilco Distribution Inc. claiming that they negligently designed, manufactured, marketed, and distributed the vacuum.

Palmor provided notice of the underlying claim to its insurers, Consolidated Insurance Company (consolidated) who covered Palmor under a CGL policy, and to Indiana Insurance Company (Indiana Insurance) who covered Palmor under an umbrella policy. Consolidated accepted the defense, but Indiana Insurance reserved its right to disclaim coverage under the umbrella policy based upon the products completed operations hazard contained in the umbrella policy. Consolidated and Indiana Insurance commenced a declaratory judgment action, and subsequently moved for summary judgment against Palmor, Northampton and Canns-Bilco Distribution, which was granted by the trial court.

In reviewing the ensuing appeal, Judge Kirsch of the Court of Appeals of Indiana held that “the umbrella policy was ambiguous due to the fact that the declarations page stated that there was product liability coverage, and the policy denied coverage through a structural ambiguity in the language of the policy.” The court noted that while the declarations page of the policy states that the aggregate limit for “products completed operations” was $2 million, the policy contains a “products-completed operations exclusion,” endorsement that states that the insurance does not apply to bodily injury or property damage included within the products-completed operations hazard. The court found that these two provisions made the umbrella policy “inherently ambiguous.” In its opinion, the court held “We believe that this language stating that there is an exclusion for products-completed operations hazard actually further demonstrates the inherent ambiguity in the umbrella policy … finding an ambiguity in the umbrella policy, we must construe the umbrella policy strictly against the insurer.” The court reversed the trial court’s decision, and found that Palmor was entitled to coverage for the products-completed operations claims.

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