Thanks, Colin, for the shout-out on Flexdar. The vast bulk of the credit for this goes to George Plews and Jeff Featherstun, both for the outcome of this case and the cases that preceded it. George was the lead attorney for the policyholders in Am. States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1997) and Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind. 1996), and Jeff appeared in Seymour (though in talking to him, I'm pretty sure he also had a hand in Kiger).
Flexdar is yet another case asking whether the absolute pollution exclusion is ambiguous. The Indiana Supreme Court, for the fourth time, answered yes. As I mentioned in a previous post, the absolute pollution exclusion is one of the most heavily-litigated clauses in modern insurance policies. It normally states that the policy excludes losses caused by "pollutants," and defines pollutants as:
Any solid, liquid, gaseous or thermal irritant or contaminant, including vapor,
soot, fumes, acids, alkilis, chemicals and waste.
In Kiger, which is the ur-pollution exclusion case in Indiana, the Indiana Supreme Court said that this exclusion could not be used to preclude coverage for a gas station whose tanks leaked, necessitating an extensive environmental remediation. The insurance company pointed to the policy's pollution exclusion and reasoned that gasoline contamination was pollution, as therein defined, and therefore no coverage existed. The Supreme Court, in an opinion by Justice De Bruler, said not so fast. "We begin by noting one oddity of American States' [the insurer] position. That an insurance company would sell a "garage policy" to a gas station when that policy specifically excluded the major source of potential liability is, to say the least, strange." The Court when on to hold that, since gasoline is not always a pollutant, and indeed is the main product that a gas station sells, the pollution exclusion was ambiguous. It was therefore read against the insurer, who drafted it, and was unenforceable. The cleanup was covered under the policy.
In Flexdar, State Auto tried to distinguish this case from Kiger seized on the fact that Kiger involved gasoline contamination caused by a gas station, whereas the contamination in Flexdar was caused by something that was only a minor part of the policyholder's business. Flexdar was a company that manufactured rubber stamps and printing plants was believed by the Indiana Department of Environmental Management to have been responsible for contaminating the groundwater around its plant with TCE. TCE is a chlorinated solvent, and Flexdar used that solvent to clean some of its equipment (though it is still not clear that Flexdar was, in fact, the source of the contamination). But TCE was not a major part of Flexdar's business.
The Supreme Court, in an opinion by Justice Rucker, wasn't buying it. The Court held that the absolute pollution exclusion is ambiguous because "practically every substance would qualify as a 'pollutant' under this definition, rendering the exclusion meaningless." Slip Op. at 7. The Court went on to reject State Auto's suggestion that Indiana follow other states, such as California, that recognize the pollution exclusion as ambiguous, but nonetheless enforce it when "traditional" environmental pollution is involved. Justice Rucker wrote that that approach is "problematic because the concept of what is a 'traditional' environmental contaminant may vary over time and has no inherent defining characteristics." Slip Op. at 8.
As it stands, essentially three approaches to the pollution exclusion now exist. There's the California "traditional environmental pollution" approach, the "literalist" approach followed in, among other states, Alabama, and the Indiana approach, which says that the absolute pollution exclusion is a dead letter. If you want to exclude pollutants, name them. Otherwise, the courts will not go back and try to fix the problems that the insurers' own poor drafting created.
I could go on and on about the absolute pollution exclusion, but I'll leave it at this for now, except to say that the infamous (in my opinion, anyway) "curry powder" case I blogged about a month ago also got a mention in Justice Rucker's opinion as an example of the "literalist" approach to the pollution exclusion.
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