An Indiana Court of Appeals reversed the ruling of a trial court, finding that the watercraft exclusion did apply to a barge transport company. The case is Starr Indem. & Liab. Ins. Co. v. Am. Commer. Barge Line, LLC, 2026 Ind. App. LEXIS 139 (Ct. App. 2026).
Background
From 1965 to 1993, a company named SBA operated a barge cleaning facility at a shipyard in Jennings, Louisiana. During this period, barges owned by National Marine were regularly delivered to the shipyard for cleaning.
Many years later, the Environmental Protection Agency (EPA) identified the shipyard as a Superfund site due to severe environmental contamination. In 2015, the EPA designated ACBL, a successor to National Marine, as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
The EPA named ACBL as a PRP because ACBL's predecessor arranged for barges containing hazardous substances to be delivered to the site. As a result, ACBL was strictly liable for the cleanup costs, regardless of whether it actually caused the spill.
In 2016, ACBL and other PRPs entered into an agreement with the EPA. In 2020, ACBL filed a declaratory action against Starr Insurers seeking coverage under four excess liability insurance policies.
Trial Court
ACBL sought coverage under Insuring Agreement C of the excess policies, which provided umbrella general liability coverage for personal injury and property damage. Starr Insurers filed a cross-motion for summary judgment, asserting that the watercraft limitation provision found under Insuring Agreement C barred coverage for ACBL's claims.
The watercraft limitation provision excluded coverage for any property damage "liability arising out of the ownership... [or] maintenance... of any watercraft."
The trial court ruled in the insured's favor, finding that ACBL's claims were not excluded by the watercraft limitation provision. The court denied Starr Insurers' cross-motion.
Starr Insurers appealed to the Indiana Court of Appeals.
Appellate Court
The court noted that its decision on whether the watercraft limitation provision barred coverage would come down to the meaning of "liability arising out of." ACBL argued that "arising out of" is the same as "being caused by," and that the damage was caused by the shipyard's improper handling of hazardous waste, and not ACBL's ownership or maintenance of the barges. Therefore, the watercraft exclusion shouldn't apply.
Starr Insurers argued that "liability arising out of" means "a legal responsibility that originates or stems from" an occurrence. Starr argued that "the phrase denotes a broad causal nexus that includes ACBL's CERCLA liability for environmental contamination that stems from its predecessor's ownership and maintenance of the barges, which contained hazardous waste material and were sent to the SBA shipyard for cleaning."
The trial court determined that "ACBL's liability does not arise out of the maintenance of a watercraft, but instead arises from SBA's improper storage, handling, and treatment of hazardous waste. Further, applying Indiana's longstanding "efficient and predominating cause" test, the Court finds that SBA's negligence with the hazardous waste—not the cleaning of ACBL's barges—is the efficient and predominating cause of the contamination at the Shipyard, which caused the damage at issue."
The appellate court disagreed, stating that CERCLA is a strict liability statute, not a negligence statute. The policy must be interpreted in the context of strict liability, not the negligence standard that was used by the trial court.
Under CERCLA, the EPA did not need to prove that ACBL caused the pollution. Liability was present when ACBL's predecessor arranged for barges containing hazardous materials to be delivered to the site. The liability did not arise from ACBL's improper storage and handling of hazardous materials.
The court concluded that liability did arise out of the ownership or maintenance of watercraft, meaning that the policy's watercraft exclusion unambiguously applied.
Editor's Note
The appellate court reversed the ruling of the trial court after applying a different liability standard. The trial court used a negligence standard and found that the liability for the loss came from the shipyard's negligent handling of the hazardous waste.
The appellate court determined that CERCLA is a strict liability statute, finding that the liability for the loss came from ACBL delivering barges containing hazardous materials.
(Photo credit: Michael/ AdobeStock)
This article originally appeared on FC&S Expert Coverage Interpretation and may not be reprinted.
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