The Indiana Supreme Court has held, for the third time, that the “absolute pollution exclusion” is ambiguous, affirming summary judgment in favor of coverage.
In State Auto. Mut. Ins. Co. v. Flexdar, Inc., the insured discovered a chemical called TCE (trichloroethylene) in the soil and groundwater both on and off the site of its manufacturing plant. The Indiana Department of Environmental Management informed Flexdar that Flexdar would be liable for the costs of cleanup. Flexdar then sought defense and indemnification from State Auto under its CGL policy. State Auto defended under a reservation of rights and filed a DJ action to determine its obligations, contending that the TCE cleanup fell under the “absolute pollution excluison.” The trial court granted summary judgment in favor of Flexdar on the grounds that the exclusion was ambiguous, and the Court of Appeals affirmed.
Here’s the exclusion language in issue:
This insurance does not apply to:
. . . .
(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:
(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;
. . . .
(2) Any loss, cost or expense arising out of any:
(a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants; or
(b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.
Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
The Supreme Court noted that it had twice previously found the same or similar language to be ambiguous, first in 1996 and then again in 2002. The Court pointed out that “this clause cannot be read literally as it would negate virtually all coverage…In other words, practically every substance would qualify as a ‘pollutant’ under this definition, rendering the exclusion meaningless.” The Court noted that while some courts have developed “literal” and “situational” approaches to analyzing whether a substance was a “pollutant,” Indiana instead focuses on the contract language itself. The question was therefore “whether the language in State Auto’s policy is sufficiently unambiguous to identify TCE as a pollutant.” The Court concluded it was not.
So, what will be the outcome? At a minimum, Indiana pollution exclusions are probably going to get a lot longer.