Written By David O’Neill, Director of Investigations, EnviroForensics & PolicyFind
The Indiana Supreme Court has issued its long-anticipated decision in State Automobile Mutual Insurance Company v. Flexdar, Inc. and in so doing has re-affirmed its ruling in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996) that the absolute “pollution exclusion” typically appearing in commercial general liability (“CGL”) policies issued in policy periods beginning in 1986 and later is ambiguous and unenforceable as to most, if not all, types of environmental liabilities.
Declining to take State Auto’s suggestion that it bring Indiana’s law more in line with those of other states, the Court rejected what it called “literal” as well as “situational” interpretations of the absolute pollution exclusion, opting instead to stay the course and reaffirm its prior rulings regarding the ambiguity of the exclusion.
In considering whether the release of trichloroethylene to soil and groundwater in Indiana was a pollution event that might cause the court to apply the pollution exclusion, the Court revisited its decision in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996), and again held that the definition of “pollutant” in the State Auto policies was ambiguous, rendering the pollution exclusion unenforceable. The State Auto policies had defined “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.” The Court observed that if this definition were read literally, “practically every substance would qualify as a ‘pollutant’ . . . , rendering the exclusion meaningless.” Because the definition of “pollutant” in the State Auto policies did not specifically identify TCE as a “pollutant,” the Court held that the “pollution exclusion” was ambiguous and unenforceable, and did not preclude coverage for Flexdar’s environmental liabilities to IDEM.
The Supreme Court spelled out its holding in this case clearly. It stated: “In this case we examine whether the language of a pollution exclusion in a commercial general liability policy is ambiguous. We hold that it is.” The rule in the Flexdar opinion was most clearly stated in the Court’s assertion that “Where an insurer’s failure to be more specific renders its policy ambiguous, we construe the policy in favor of coverage.”
Pointing to a change in policy language made in 2005 that more clearly defined pollutants by reference to substances identified in specific Federal laws and certain Federal publications, the Court stated that State Auto had finally begun to utilize the language that it could have used in earlier policies to eliminate ambiguity and render the pollution exclusion effective. Absent this more specific identification of “pollutant” however, it could find no reason to break with precedent and exclude coverage in this matter.
The Indiana Supreme Court’s Flexdar opinion provides a “bright line” rule for courts to follow and a reasonable expectation to Indiana policyholders that their historical CGL coverage will be available to cover environmental clean up costs caused by releases of pollutants at least in years prior to the inclusion of more specific pollution exclusionary language.