HNRK Coverage Corner

This week at the Coverage Corner, we are looking at a recent Seventh Circuit decision that offers guidance on two issues under Indiana law: (1) an excess insurer’s duty to participate in a pre-suit mediation where the underlying policy limits have not yet been exhausted but “would be” exhausted in the event of a settlement; and (2)  whether a party qualified for coverage as an additional insured based on facts outside the underlying complaint.

Background

The insurance coverage dispute in Atlanta Gas Light Company & Southern Company Gas v. Navigators Insurance Company, Case Nos. 24-2888 & 24-2889 (7th Cir. 2026), arose from a gas-line explosion in Georgia.

Atlanta Gas Light Company and Southern Company Gas (“AGL”) contracted with United States Infrastructure Corporation (“USIC”) to locate and mark gas lines that AGL owned throughout Georgia. USIC failed to mark a gas line in Homerville, Georgia, and in 2018, a boring company struck the unmarked line and triggered an explosion that severely injured three people.

A pre-suit mediation followed in 2019. The victims settled with USIC, but not AGL. The victims later sued AGL in Georgia state court focusing on AGL’s failure to de-pressurize the gas lines. AGL eventually settled with the victims.

Under its agreement with AGL, USIC was required to obtain primary and excess liability insurance naming AGL as an additional insured. Zurich issued the primary policy, while Navigators issued the excess policy. AGL asked that Navigators participate in the pre-suit mediation, but Navigators declined to do so. Later, Navigators also denied AGL’s tender of defense and indemnity of the Georgia lawsuit.

AGL sued Navigators alleging breach of contract, breach of fiduciary duty, and bad faith. The district court ruled against AGL for its breach of fiduciary duty and bad faith claims and found that AGL was an “additional insured” under the excess policy. Both sides appealed.

Potential Exhaustion is Not Enough to Trigger Excess Insurer’s Duties

The Seventh Circuit affirmed that Navigators had no duty to participate in the pre-suit mediation because the primary policy had not yet been exhausted. The Court held that Navigators’ policy was only triggered after the limits of the primary policy were exhausted. Before exhaustion, the excess policy provided Navigators with the right, but not the duty, to investigate and participate in the mediation process. It is uncontested that the primary policy was not exhausted at the time of the pre-suit mediation and therefore Navigators’ duties to the insured were not yet triggered.

AGL argued that Indiana law imposes a duty of care on an insurer when it is on notice that the underlying primary policy limits would be exhausted by an anticipated settlement, and due to the severity of the victim’s injuries,  Navigators should have known the primary policy would be exhausted by any settlement at the mediation. The Court rejected this theory as foreclosed by the Indiana Supreme Court’s holding in by Allstate Insurance Co. v. Dana Corp., 759 N.E.2d 1049, 1062 (Ind. 2001), that “the liability of the insurer under an excess insurance clause arises only after the limits of the primary policy are exhausted.” Thus, Navigators did not owe any duties to AGL prior to the pre-suit settlement with USIC.

Underlying Allegations Do Not End the Inquiry of Who Qualifies as an Additional Insured

The Seventh Circuit also affirmed the district court’s ruling that AGL was an additional insured under the excess policy. The excess policy states in relevant part:

[A]ny person or organization whom you are required to add as an additional insured on this policy under a written contract or written agreement. Such person or organization is an additional insured only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf,

In the performance of your ongoing operations or “your work” as included in the “products-completed operations hazard”, which is the subject of the written contract or written agreement.

Navigators contended that under the language of the excess policy, AGL is not an additional insured because the suit against AGL was based on AGL’s own conduct and did not allege any wrongdoing by USIC. The Court rejected this argument.

The Court found that under Indiana law, the word “cause” in the excess policy means proximate cause. Here, AGL qualifies as an additional insured because the liability in the suit against AGL stems from injuries proximately caused “in whole or in part” by USIC’s conduct. Navigators acknowledged as much in its summary judgment motion when it stated that USIC failed to locate and mark all of AGL’s gas lines within the boring company’s excavation path. The Court held that it did not matter that the complaint in the suit against AGL does not mention USIC by name because “when assessing the duty to defend, the insurer must look to the allegations in the complaint coupled with the facts known to the insurer after reasonable investigation.” The Court also held that  the fact that USIC was released from liability in the pre-suit mediation does not change the analysis because a mere release from any claims or liability is not a determination of whether USIC had proximately caused the injuries to the victim