“Caused in Whole or in Part” Additional-Insured Coverage Turns on Proximate Cause (Not Pleading Choices or Named-Insured Liability); Excess Duties Arise Only After Primary Exhaustion

I. Introduction

Case: Atlanta Gas Light Company v. Navigators Insurance Company (7th Cir. Jan. 22, 2026).
Parties: Atlanta Gas Light Company and Southern Company Gas (collectively “AGL”) vs. Navigators Insurance Company (“Navigators”).
Factual backdrop: AGL contracted with United States Infrastructure Corporation (“USIC”) to locate and mark AGL’s gas lines in Georgia. USIC allegedly failed to mark a line in Homerville, Georgia; a boring company struck it; an explosion injured three women.

The injured parties mediated presuit with USIC and AGL in 2019. They settled with USIC, exhausting USIC’s Zurich primary policy, but did not settle with AGL. The injured parties later sued AGL in Georgia state court (the “Underlying Suits”), emphasizing AGL’s own conduct (including alleged failure to de-pressurize lines). AGL tendered defense and indemnity to Navigators, USIC’s excess/umbrella insurer, arguing AGL was an “additional insured” under the excess policy through USIC’s contractual insurance obligations. Navigators denied, asserting the Underlying Suits were “based solely and exclusively upon AGL’s own conduct,” and did not allege wrongdoing by USIC.

The appeal presented three recurring coverage issues under Indiana law (which governed by agreement): (1) when an excess insurer’s duties arise (especially around presuit mediation); (2) what it means for additional-insured coverage to require injury “caused, in whole or in part” by the named insured; and (3) what evidentiary showing is required for bad faith and fiduciary-duty theories when an insurer denies a tender.

II. Summary of the Opinion

The Seventh Circuit (Judge Lee) affirmed across the board.

  • No duty pre-exhaustion: Navigators had no duty to participate in or attend the 2019 presuit mediation because, under the umbrella policy’s plain language, Navigators had only a “right, but not the duty” to participate until the primary policy was exhausted. Indiana law likewise recognizes that excess liability “arises only after” primary exhaustion.
  • AGL is an “additional insured” post-exhaustion: The umbrella policy incorporated the primary policy’s additional-insured definition, which covered AGL “only with respect to liability” for bodily injury “caused, in whole or in part” by USIC’s acts or omissions. The court held “cause” in this context means proximate cause; USIC’s failure to mark the line was at least a partial proximate cause of the explosion; therefore AGL qualified as an additional insured despite (a) the Underlying Suits focusing on AGL’s conduct and (b) USIC having been released by settlement.
  • No bad faith or fiduciary breach shown: Even assuming Navigators was wrong on coverage, AGL failed to produce evidence of the “dishonest purpose…furtive design, or ill will” Indiana requires. Coordination with USIC’s counsel in drafting denial letters did not, on this record, amount to actionable bad faith. Without bad faith evidence (and with AGL’s fiduciary theory premised entirely on it), fiduciary-duty claims also failed.

III. Analysis

A. Precedents Cited

1. Choice-of-law and the Seventh Circuit’s “predictive” role

  • Mesco Mfg., LLC v. Motorists Mut. Ins. Co. and AXIS Ins. Co. v. Am. Specialty Ins. & Risk Servs.: The panel framed its task as applying Indiana law as it predicts the Indiana Supreme Court would “today,” an important reminder that this decision is an Erie-style synthesis of Indiana authorities rather than an Indiana Supreme Court holding.

2. Indiana contract interpretation of insurance policies

  • Circle Block Partners, LLC v. Fireman's Fund Ins. Co. and Ebert v. Ill. Cas. Co.: These cases supplied the baseline: interpreting an insurance policy is a legal question guided by ordinary contract principles; unambiguous terms receive their plain meaning and are enforced “even if those terms limit an insurer’s liability.”
  • Sheehan Constr. Co. v. Cont'l Cas. Co.: Cited through Ebert to reinforce enforceability of limiting terms when clearly written.

3. Duty to defend: complaint, investigation, and the “modern trend”

  • Fed. Ins. Co. v. Stroh Brewing Co.: Provided the general Indiana proposition that insurers must defend suits alleging facts that “might” fall within coverage.
  • Transamerica Ins. Servs. v. Kopko: Anchored the idea that duty-to-defend analysis examines the “nature of the underlying complaint,” and also supported the “obviously not covered” limitation (no duty if the claim is plainly outside coverage).
  • Smith v. Progressive Se. Ins. Co. and Am. States Ins. Co. v. Aetna Life & Cas. Co.: These authorities drove a crucial point for this case: Indiana duty-to-defend analysis includes “the allegations in the complaint coupled with the facts known to the insurer after reasonable investigation.” That principle undercut Navigators’ argument that USIC’s absence from the pleadings ended the inquiry.
  • Hayes Lemmerz Int'l, Inc. v. Ace Am. Ins. Co.: The court used this Seventh Circuit discussion to acknowledge Indiana’s “not a model of clarity” phrasing (“solely by the nature of the complaint”), while endorsing the complaint-plus-known-facts approach as consistent with Indiana appellate decisions and the “modern trend.”
  • Seymour Mfg. Co., Inc. v. Com. Union Ins. Co.: Reinforced the familiar Indiana rule that the duty to defend is broader than the duty to indemnify.
  • Trisler v. Ind. Ins. Co. and Cincinnati Ins. Co. v. Mallon: Supplied the limiting principle: no defense is required if pleadings/investigation show the claim is outside coverage or excluded.

4. Excess coverage and exhaustion: duties arise only after primary limits are used up

  • Allstate Insurance Co. v. Dana Corp. (quoting Ryder Truck Lines, Inc. v. Carolina Cas. Ins. Co.): This was the centerpiece rejecting AGL’s attempt to impose pre-exhaustion obligations on the excess carrier. The Seventh Circuit treated Dana Corp. as “unequivocal”: excess liability arises “only after” primary limits are exhausted.
  • PHICO Insurance Co. v. Aetna Casualty & Surety Co. of America: AGL relied on this for a “duty of care” once the excess carrier knows exhaustion is likely. The court distinguished it as a dispute between excess and primary insurers about negligent defense strategy and waiver/acquiescence—not as recognizing a pre-exhaustion duty owed by an excess insurer to the insured.

5. Additional insured causation and proximate cause

  • Scottsdale Ins. Co. v. Harsco Corp.: The panel used this Indiana Court of Appeals authority for a targeted definition: “cause[]” in this policy context means proximate cause.
  • Funston v. Sch. Town of Munster: Supported the key doctrinal move that there can be multiple proximate causes—matching policy language requiring only “in whole or in part” causation.

6. Settlement effects: release is not adjudication of causation

  • Apex Mortgage Co. v. Great Northern Insurance Co.: The court relied on this Seventh Circuit explanation that settlement is not a judicial ruling and does not “vindicate” a liability theory; payment obligations arise from agreement, not adjudicated liability. This neutralized Navigators’ argument that releasing USIC meant USIC could not have “caused” the injuries for additional-insured purposes.
  • Employees Mutual Casualty Co. v. Shivam Trading, Inc.: Along with Scottsdale, cited to illustrate what Navigators’ authorities actually involved: judicial determinations eliminating coverage for the named insured—something absent here.

7. Bad faith: Indiana’s demanding mental-state requirement

  • Erie Ins. Co. v. Hickman: Provided both the list of examples of bad faith conduct and the crucial limitation that a good-faith coverage dispute does not become tortious simply because the insurer is ultimately wrong.
  • Freidline v. Shelby Ins. Co.: Supplied the “clear and convincing” burden for bad faith denial: the insured must show the insurer knew it had no legitimate basis.
  • Monroe Guar. Ins. Co. v. Magwerks Corp. and Colley v. Ind. Farmers Mut. Ins. Grp.: The panel used these to define the required “state of mind” (dishonest purpose, moral obliquity, furtive design, or ill will) and to reinforce that Indiana has declined to broadly expand bad faith to general “manner of handling the claim.”
  • Vernon Fire & Cas. Ins. Co. v. Sharp: Cited through Freidline as part of the foundation for the implied good-faith duty in insurance contracts.
  • Ind. Ins. Co. v. Plummer Power Mower & Tool Rental, Inc.: Used through Freidline for the knowledge/no-legitimate-basis standard.

8. Fiduciary duty in the insurer-insured relationship

  • Jaffri v. JPMorgan Chase Bank, N.A. and Farmers Elevator Co. of Oakville v. Hamilton: Supplied the elements of fiduciary duty (relationship, breach, harm).
  • Posterity Scholar House, LP v. FCCI Ins. Co.: Cited for the proposition that when an insurer has a duty to defend against third-party claims, it owes a fiduciary duty—while also implying that absent a triggered duty, fiduciary duties do not attach in the relevant way.
  • McAdams v. Dorothy Edwards Realtors, Inc. and Wilson v. Haimbaugh: Provided the general tort principle that without a duty there can be no breach—used to support dismissal of pre-exhaustion fiduciary-duty theories.
  • Erie Ins. Co. v. Hickman: Also used to distinguish first-party claims (adversarial; no fiduciary duty) from third-party defense situations.

9. Procedural standards shaping what could be decided

  • Smykla v. Molinaroli and Kuebler v. Vectren Corp.: Set the de novo standard on dismissal and the universe of materials considered at Rule 12(b)(6).
  • Orr v. Shicker, Bell Atl. Corp. v. Twombly, Ashcroft v. Iqbal, and Swanson v. Citibank, N.A.: Supplied the plausibility standard (a complaint must present a coherent, plausible story).
  • Kluge v. Brownsburg Cmty. Sch. Corp., McDaniel v. Syed, Christensen v. Weiss, and Whiting v. Wexford Health Sources, Inc.: Provided the summary judgment standards (no material dispute; genuine dispute standard).

10. Contract “gap-filling” rejected

  • Knapp v. Est. of Wright (quoting Johnson v. Sprague): Anchored the court’s refusal to insert a requirement that USIC remain exposed to liability in the Underlying Suits for AGL to qualify as an additional insured—because the policy did not say so.

B. Legal Reasoning

1. Excess insurer obligations at presuit mediation

The umbrella policy created a two-stage structure. Before exhaustion, Navigators had only the “right, but not the duty” to participate in investigation/settlement/defense. After exhaustion “by the payment of judgments or settlements to which this insurance applies,” Navigators’ “right and duty” to investigate and defend arose.

The court treated this structure as unambiguous and enforced it as written under Indiana contract principles (Ebert). AGL’s attempt to override the contract with a general “notice of likely exhaustion” duty failed for two reasons: (1) PHICO did not create such a duty running from an excess insurer to an insured; and (2) Indiana Supreme Court authority (Allstate Insurance Co. v. Dana Corp.) states excess liability arises only after primary exhaustion. Thus, there was no legally cognizable contractual, fiduciary, or bad-faith obligation to attend the mediation.

2. Additional-insured status under “caused, in whole or in part” language

The court’s additional-insured analysis proceeded in three steps:

  1. Identify the operative definition: The umbrella policy covered “the insured,” which incorporated the primary policy’s definition of insureds, including additional insureds required by written contract.
  2. Give “cause” its legal meaning: Under Scottsdale Ins. Co. v. Harsco Corp., “cause” means proximate cause in this context.
  3. Apply “in whole or in part” to the undisputed facts: USIC’s failure to mark the line was acknowledged (even by Navigators in its “Statement of Material Facts Not in Dispute”) as part of the causal chain leading to the explosion. Because there may be multiple proximate causes (Funston), the fact that the Underlying Suits emphasized AGL’s conduct did not erase USIC’s partial causal role.

Two insurer defenses were explicitly rejected:

  • USIC’s settlement release ≠ no causation: Releasing USIC from liability did not adjudicate that USIC did not proximately cause the injuries. The court’s reliance on Apex Mortgage Co. v. Great Northern Insurance Co. underscores a practical rule: settlement allocations and releases do not substitute for judicial findings on causation.
  • Pleadings alone are not the end of the inquiry: Even though USIC was not named in the Georgia complaints, Indiana duty-to-defend law (as framed in Smith v. Progressive Se. Ins. Co.) requires considering complaint allegations plus known facts after reasonable investigation. Those known facts included USIC’s failure to mark the line as a partial cause.

Finally, the court rejected an implied term that the named insured must remain a defendant or retain legal exposure for the additional insured to be covered. Under Knapp v. Est. of Wright, courts will not supply omitted terms.

3. Bad faith and fiduciary duty: why incorrect coverage positions were not enough

AGL’s bad-faith theory faced Indiana’s high bar: proof (by clear and convincing evidence) that Navigators denied coverage knowing it lacked a legitimate basis (Freidline; Hickman), coupled with evidence of the kind of culpable mental state described in Monroe Guar. Ins. Co. v. Magwerks Corp..

The court held the record showed, at most, a genuine (even if ultimately incorrect) coverage view—insufficient under Hickman and Monroe. It also rejected AGL’s attempt to convert the “Separation of Insureds” clause into a claims-handling requirement (separate claim numbers/adjusters), finding no textual support.

As to the denial letter drafted with input from USIC’s counsel, the panel treated the emails as consistent with insurers seeking support for a coverage position, not as evidence of “furtive design” or “ill will.” Without bad faith evidence—and where AGL’s fiduciary-duty claim was “premise[d]…entirely” on bad faith—summary judgment followed.

C. Impact

1. Additional-insured coverage will not be defeated by strategic pleading or prior settlements

The decision strengthens additional insureds’ ability to secure a defense under “caused, in whole or in part” wording when the named insured’s conduct is a partial proximate cause, even if: (a) the underlying plaintiff pleads only the additional insured’s negligence, and (b) the named insured has settled and obtained a release.

Practically, insurers evaluating tenders in Indiana-governed disputes should expect courts to look past pleading choices and ask whether known facts support partial proximate causation by the named insured.

2. Excess insurers: bright-line exhaustion remains central

For policyholders and additional insureds, the case is a cautionary marker: absent specific contractual language, Indiana law will not impose a duty on excess insurers to defend or participate in presuit mediation before primary exhaustion. The court treated Allstate Insurance Co. v. Dana Corp. as controlling on the timing of excess liability.

3. Bad faith claims remain difficult absent “state of mind” evidence

The opinion reaffirms that Indiana does not allow bad-faith tort liability to be built simply from (i) denial of coverage later found wrong, (ii) limited communication, or (iii) coordinated drafting of denial correspondence—without evidence meeting Monroe’s mental-state standard and Freidline’s “knowledge of no legitimate basis” requirement.

IV. Complex Concepts Simplified

  • Primary vs. excess/umbrella insurance: The primary policy pays first and usually carries the initial duty to defend. An excess/umbrella policy typically pays only after the primary policy’s limits are used up (“exhausted”).
  • Exhaustion: The primary policy is exhausted when its limits are fully consumed by covered settlements or judgments. Here, Navigators’ duties were tied to exhaustion by “payment of judgments or settlements.”
  • Additional insured: A non-named party added to the policy (often because a contract requires it). Coverage is often limited to injuries connected to the named insured’s work.
  • “Caused, in whole or in part”: This phrase does not require the named insured to be the only cause. It is satisfied if the named insured’s acts were a partial proximate cause of the injury.
  • Proximate cause: A legally sufficient causal connection—not necessarily the only cause. Multiple actors can each be a proximate cause of one injury.
  • Duty to defend vs. duty to indemnify: The duty to defend is broader and can be triggered by potential coverage. Indemnity depends on the ultimate covered liability.
  • Separation of insureds: A clause stating coverage applies separately to each insured; it does not automatically dictate internal claim administration (like separate claim numbers) unless the policy says so.
  • Insurance bad faith (Indiana): More than being wrong; it generally requires proof the insurer knew it had no legitimate basis and acted with a culpable mental state (dishonesty/ill will).

V. Conclusion

Atlanta Gas Light Company v. Navigators Insurance Company delivers two clear Indiana-law takeaways for additional-insured disputes in construction/utility settings. First, “caused, in whole or in part” additional-insured language turns on proximate cause proven by known facts—not on whether the underlying complaint names the contractor or whether the contractor has settled and been released. Second, absent policy language to the contrary, an excess insurer’s defense-related duties do not arise until primary limits are exhausted; pre-exhaustion participation (including presuit mediation) may be a right, but not a duty. Finally, the opinion underscores the rigor of Indiana’s bad-faith standard: an incorrect denial, without evidence of the required culpable state of mind and knowledge, does not become a tort.