The Indiana Court of Appeals determined the landlord was entitled to coverage as an additional insured under the tenant's policy. Selective Ins. Co. v. Erie Ins. Exch., 2014 Ind. App. LEXIS 365 (Ind. Ct. App. July 30, 2014).
Rangeline, LLC owned a warehouse. Rangeline negotiated a lease with Hammons Storage to store insulation manufactured by Knauf Insulation. Pursuant to requirements in the lease, Hammons secured liability coverage with Erie Insurance naming Rangeline as an additional insured.
After Hammons moved insulation into the warehouse for storage, the pipes of the sprinkler system burst, causing damage to the insulation. The cause of the loss was determined to be water from the system freezing, which led to the cast iron fittings cracking, causing the failure of the sprinkler heads.
Erie paid $1,000,000 to Knauf. Erie then filed a subrogation suit against Rangeline seeking to recover the $1,000,000. Erie also filed for declaratory relief, requesting a determination of whether its policy afforded coverage to Rangeline for the claim Erie asserted in the subrogation action. The trial court found Erie did not owe Rangeline a defense or indemnity in the subrogation action.
The appellate court reversed. It first rejected Erie's argument that the additional insured endorsement in its policy provided only limited coverage for certain types of claims. Rangeline was an additional insured "with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you (i.e., Hammons) . . . ." The failure of the sprinkler system occurred within the warehouse leased to the Hammons. Also, the placement of the insulation within the warehouse was the business of Hammons. Thus, there was a significant connection between the accident and the leased premises.
Further, the care, custody, or control exclusion did not bar coverage. The policy excluded coverage for "property damage" to "personal property in the care, custody or control of the insured. . . ." The exclusion did not apply to circumstances in which the building owner had no physical control over the destroyed property. Although Rangeline had a duty to maintain certain aspects of the premises, including the sprinkler system, this duty did not include a duty of care with respect to the property stored on the premises which was governed by the contract for storage between Hammons and Knauf. Further, Rangeline did not exercise influence over the insulation located in the warehouse leased by Hammons.