“Caused in Whole or in Part” Additional-Insured Coverage Turns on Proximate Causation (Not Pleading Labels or the Named Insured’s Continuing Liability)

1. Introduction

In Atlanta Gas Light Company v. Navigators Insurance Company (7th Cir. Jan. 22, 2026), Atlanta Gas Light Company and Southern Company Gas (collectively “AGL”) sought defense and indemnity as an additional insured under an excess (“Umbrella”) policy issued by Navigators Insurance Company (“Navigators”) to AGL’s contractor, United States Infrastructure Corporation (“USIC”).

The dispute arose from a 2018 explosion in Homerville, Georgia. USIC allegedly failed to mark an AGL gas line, a boring contractor struck the line, and three women were severely injured. A presuit mediation in 2019 resolved claims against USIC, exhausting USIC’s primary policy. The injured parties then sued AGL in Georgia state court (the “Underlying Suits”), emphasizing AGL’s alleged failures (including failure to de-pressurize lines). AGL tendered the Underlying Suits to Navigators as USIC’s excess insurer; Navigators denied on the theory that the Underlying Suits were “based solely” on AGL’s own conduct and did not allege wrongdoing by USIC.

Key issues included: (i) whether Navigators owed any duty to participate in the presuit mediation before exhaustion of the primary policy; (ii) whether AGL qualified as an “additional insured” under language covering liability “caused, in whole or in part” by USIC’s acts or omissions; and (iii) whether Navigators’ denial and claim handling supported Indiana tort claims for bad faith and breach of fiduciary duty.

2. Summary of the Opinion

  • Pre-exhaustion mediation: The court affirmed dismissal of claims premised on Navigators’ failure to attend the presuit mediation because the Umbrella Policy imposed no duty to defend or participate until the primary policy’s limits were exhausted.
  • Additional insured status and contract breach: The court affirmed that AGL was an additional insured. The “caused, in whole or in part” requirement was satisfied because USIC’s failure to mark the line was, at minimum, a proximate contributing cause of the explosion—even if the Underlying Suits’ complaints did not name USIC and even though USIC had been released by settlement.
  • Bad faith and fiduciary duty: The court affirmed summary judgment for Navigators. AGL did not produce evidence of the state of mind required for Indiana bad faith (“dishonest purpose…ill will”), and AGL’s fiduciary-duty theory was premised on the same alleged bad faith.

3. Analysis

A. Precedents Cited

1) Predicting and applying Indiana insurance law

  • Mesco Mfg., LLC v. Motorists Mut. Ins. Co. and AXIS Ins. Co. v. Am. Specialty Ins. & Risk Servs.: The Seventh Circuit reiterated its role in diversity-like posture—applying state law as it predicts the Indiana Supreme Court would “today.” This frames the opinion’s method: adherence to Indiana Supreme Court pronouncements (especially on excess coverage attachment) and careful use of intermediate appellate authority.

2) Contract interpretation and the duty to defend

  • Circle Block Partners, LLC v. Fireman's Fund Ins. Co. and Ebert v. Ill. Cas. Co.: The court treated policy interpretation as a legal question governed by ordinary contract principles; unambiguous text receives its plain meaning and is enforced even when it limits coverage.
  • Sheehan Constr. Co. v. Cont'l Cas. Co.: Cited through Ebert for enforcing policy terms as written.
  • Fed. Ins. Co. v. Stroh Brewing Co.: The duty to defend extends to suits alleging facts that “might” fall within coverage, emphasizing breadth of the defense obligation.
  • Transamerica Ins. Servs. v. Kopko: The duty-to-defend inquiry focuses on the “nature of the underlying complaint,” but the opinion also addresses what “nature” means in practice.
  • Smith v. Progressive Se. Ins. Co. and Am. States Ins. Co. v. Aetna Life & Cas. Co.: Critically, the court embraced the formulation that the insurer evaluates the complaint “coupled with the facts known to the insurer after reasonable investigation.” This mattered because the Underlying Suits did not name USIC, yet Navigators knew USIC failed to mark the line.
  • Hayes Lemmerz Int'l, Inc. v. Ace Am. Ins. Co.: Used to acknowledge Indiana’s doctrinal ambiguity about whether insurers are confined to the pleadings, while endorsing the “modern trend” that permits/obliges consideration of known/ascertainable facts.
  • Seymour Mfg. Co., Inc. v. Com. Union Ins. Co.: The opinion reaffirmed the duty to defend is broader than the duty to indemnify.
  • Trisler v. Ind. Ins. Co., Cincinnati Ins. Co. v. Mallon, and Transamerica Ins. Servs. v. Kopko: No defense is required where pleadings/investigation show the claim is obviously outside coverage.

3) Excess coverage attachment and pre-exhaustion duties

  • Allstate Insurance Co. v. Dana Corp. (quoting Ryder Truck Lines, Inc. v. Carolina Cas. Ins. Co.): The controlling Indiana Supreme Court rule: liability under an excess clause arises only after primary limits are exhausted. This foreclosed AGL’s attempt to impose a pre-exhaustion duty on Navigators to attend or fund the mediation.
  • PHICO Insurance Co. v. Aetna Casualty & Surety Co. of America: AGL relied on language suggesting an excess carrier has a “duty of care” when it knows primary limits will be exhausted. The court distinguished PHICO as a dispute between excess and primary insurers about defense strategy and waiver, not a source of direct duties owed by the excess insurer to the insured before exhaustion.

4) Proximate cause and “caused, in whole or in part” additional-insured language

  • Scottsdale Ins. Co. v. Harsco Corp.: The court used this Indiana authority to equate “caused” in the additional-insured clause with proximate causation.
  • Funston v. Sch. Town of Munster: Reinforced that events can have multiple proximate causes—supporting coverage where USIC’s conduct was a partial proximate cause even if AGL’s conduct also contributed.

5) Settlement’s legal effect on causation and coverage analysis

  • Apex Mortgage Co. v. Great Northern Insurance Co.: Key to rejecting Navigators’ argument that USIC’s release eliminated causation. Settlement does not constitute a judicial determination of liability or vindicate a theory; it simply reflects an agreement. Thus, releasing USIC did not “uncause” the explosion or erase USIC’s proximate causal role for additional-insured purposes.
  • Employees Mutual Casualty Co. v. Shivam Trading, Inc.: Distinguished as resting on a judicial determination of no coverage for the primary insured—something absent here.

6) Bad faith and fiduciary duty in Indiana insurance law

  • Erie Ins. Co. v. Hickman: The cornerstone Indiana case defining the implied duty of good faith and examples of bad faith conduct; also supplies the mental-state framing later reiterated by Monroe Guar. Ins. Co. v. Magwerks Corp..
  • Freidline v. Shelby Ins. Co., Ind. Ins. Co. v. Plummer Power Mower & Tool Rental, Inc.: For denial-of-coverage bad faith, the insured must show (by clear and convincing evidence) the insurer knew there was no legitimate basis for denial.
  • Monroe Guar. Ins. Co. v. Magwerks Corp. and Colley v. Ind. Farmers Mut. Ins. Grp.: A finding of bad faith requires evidence of “dishonest purpose…ill will.” Also, a good faith dispute can exist even if the insurer ultimately breached contract.
  • Posterity Scholar House, LP v. FCCI Ins. Co.: Recognizes a fiduciary duty may arise where an insurer defends an insured against third-party claims; however, the existence of duty is a prerequisite to liability and does not equate to automatic breach.
  • Jaffri v. JPMorgan Chase Bank, N.A., Farmers Elevator Co. of Oakville v. Hamilton: Set out fiduciary-duty elements (relationship, breach, harm).
  • McAdams v. Dorothy Edwards Realtors, Inc. and Wilson v. Haimbaugh: “Absent a duty, there can be no breach.” Used in the duty-based framing of AGL’s theories.

7) Federal procedural standards shaping the outcome

  • Smykla v. Molinaroli, Orr v. Shicker, Bell Atl. Corp. v. Twombly, Ashcroft v. Iqbal, Swanson v. Citibank, N.A.: The complaint had to plead a plausible story; the pre-exhaustion mediation theories failed because the policy’s text and Indiana excess-attachment law negated any duty.
  • Kluge v. Brownsburg Cmty. Sch. Corp., McDaniel v. Syed, Christensen v. Weiss, Whiting v. Wexford Health Sources, Inc.: On summary judgment, AGL needed evidence from which a reasonable jury could find bad faith/ill will; it did not.

B. Legal Reasoning

1) Excess policy duties do not arise until exhaustion—text and Indiana law align

The Umbrella Policy expressly created two regimes: (i) once the underlying aggregate is exhausted by judgments/settlements, Navigators “ha[s] the right and duty” to investigate/defend; (ii) when not exhausted, Navigators has the “right, but not the duty” to participate. Because AGL sought to impose liability for Navigators’ nonattendance at the 2019 mediation (pre-exhaustion), the court treated the policy as dispositive and reinforced that conclusion with Allstate Insurance Co. v. Dana Corp.’s bright-line rule on excess attachment.

AGL’s attempt to graft a broader, pre-exhaustion “duty of care” onto the excess insurer failed for two reasons: PHICO was contextually different (excess vs. primary insurer dispute), and Indiana Supreme Court authority squarely rejects pre-exhaustion liability under excess clauses.

2) Additional-insured status turns on proximate causation, not how the plaintiff pleads or whether the named insured remains a defendant

The critical interpretive move was treating “caused, in whole or in part” as a proximate-cause test (via Scottsdale Ins. Co. v. Harsco Corp.). Once that standard was adopted, the facts made the coverage trigger straightforward: USIC’s failure to mark the line was at least a partial proximate cause of the explosion.

Navigators’ two principal counterarguments were rejected:

  • Settlement-release argument: USIC’s release did not equate to a finding that USIC did not proximately cause the injuries. Under Apex Mortgage Co. v. Great Northern Insurance Co., a settlement is not a judicial ruling and does not resolve causation or fault; it is an agreement to pay/release.
  • Pleading-silence argument: Even though the Underlying Suits did not name USIC, Indiana’s duty-to-defend analysis allows (and here, the parties agreed it required) considering facts known after reasonable investigation (Smith v. Progressive Se. Ins. Co.). Navigators knew the USIC marking failure contributed. Moreover, multiple proximate causes can coexist (Funston v. Sch. Town of Munster), and the policy expressly contemplates partial causation (“in whole or in part”).

The court also refused to rewrite the policy to require that USIC remain exposed to liability in the Underlying Suits. Invoking Knapp v. Est. of Wright (quoting Johnson v. Sprague), the court held it would not “supply omitted terms” by adding a continuing-liability prerequisite absent from the contract.

3) Bad faith requires evidence of culpable state of mind; coordination and an incorrect denial are not enough

AGL challenged Navigators’ claim handling (single claim number/adjuster; alleged noncommunication; coordination with USIC’s counsel to draft denial letters). The court held:

  • The Separation of Insureds clause promised separate application of coverage, not separate administrative handling (no policy text requiring separate adjusters/claim numbers).
  • Indiana bad faith requires clear and convincing evidence that the insurer knew it had no legitimate basis for denial (Freidline v. Shelby Ins. Co.; Ind. Ins. Co. v. Plummer Power Mower & Tool Rental, Inc.) and proof of “dishonest purpose…ill will” (Monroe Guar. Ins. Co. v. Magwerks Corp.; Colley v. Ind. Farmers Mut. Ins. Grp.). A nonfrivolous—though incorrect—coverage position does not become tortious merely because it is wrong (Hickman; Monroe).
  • The record emails showed assistance in drafting a denial and shared views about the pleadings; they did not support an inference of furtive design or ill will. Without more, the conduct described was not actionable bad faith under Indiana law.

4) Fiduciary duty claim failed where it was tethered to the same insufficient bad-faith evidence

While Indiana recognizes fiduciary-like obligations in the third-party defense setting, AGL’s fiduciary-duty theory was “entirely” premised on alleged bad faith after tender. Because the bad-faith theory failed on the evidentiary standard, the fiduciary-duty claim failed as well under the elements stated in Jaffri v. JPMorgan Chase Bank, N.A..

C. Impact

1) Additional-insured disputes: causation-first, pleading-second

The decision strengthens an important practical rule for additional-insured endorsements using “caused, in whole or in part” language: coverage may exist even when the underlying complaint artfully pleads only the additional insured’s negligence and omits the named insured—so long as the insurer knows (or would know after reasonable investigation) that the named insured’s acts were a proximate contributing cause.

2) Settlements do not erase causal predicates for coverage

By applying Apex Mortgage Co. v. Great Northern Insurance Co., the court clarifies that a settlement releasing the named insured does not, by itself, eliminate the causal link needed for an additional-insured grant. This is consequential in multi-party catastrophic-loss scenarios where plaintiffs settle with contractors first (often exhausting primary limits) and then sue owners/operators.

3) Excess insurers: enforceable bright line at exhaustion

The opinion reinforces a strong exhaustion boundary in Indiana: excess carriers’ defense duties arise only after exhaustion (policy text plus Allstate Insurance Co. v. Dana Corp.). Insureds should not expect a court to impose pre-exhaustion participation duties absent explicit contract language.

4) Bad faith: high evidentiary bar maintained

The court’s treatment of drafting assistance and “unified” claim handling signals that, in Indiana, bad faith remains a narrow tort requiring proof of culpable intent/knowledge—not merely aggressive claims positioning or coordination with aligned interests.

4. Complex Concepts Simplified

  • Additional insured: A party added to someone else’s policy (here, AGL added to USIC’s coverage) for certain liabilities defined by the endorsement.
  • “Caused, in whole or in part”: Coverage can apply even if the additional insured is also negligent, as long as the named insured’s conduct was a contributing proximate cause of the injury.
  • Proximate cause: A legally sufficient causal connection—an act/omission that is a substantial factor in bringing about the harm, even if other causes also contributed.
  • Duty to defend vs. duty to indemnify: Defending is paying for lawyers and litigation now; indemnifying is paying a settlement/judgment later. The defense duty is broader and can be triggered by potential coverage.
  • Excess/umbrella insurance and exhaustion: Excess coverage typically “attaches” only after the primary policy’s limits are spent on covered judgments/settlements. Before that point, an excess insurer may have only a right—not a duty—to participate.
  • Bad faith (Indiana): More than a wrong coverage decision; it requires clear and convincing evidence the insurer denied knowing it lacked any legitimate basis, reflecting dishonest purpose or ill will.

5. Conclusion

Atlanta Gas Light Company v. Navigators Insurance Company provides a clear, contract-centered rule for additional-insured coverage under “caused, in whole or in part” wording: the inquiry hinges on proximate causation supported by known/ascertainable facts, not on whether the underlying complaint names the contractor or whether the contractor remains legally exposed after settlement. At the same time, the decision preserves Indiana’s bright line that excess-insurer defense obligations arise only upon exhaustion, and it reiterates Indiana’s demanding standard for bad faith, requiring proof of culpable intent or knowing lack of a legitimate denial basis.