On December 30, 2010, the Indiana Supreme Court issued its opinion in Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., Case No. 49S04-1006-CV, ___ N.E.2d ___ (Ind. 2010), and held that Indiana courts are to interpret insurance policies under the law of a single state, regardless of whether the insured has multiple sites in multiple states. In reaching its decision, the Supreme Court reversed the Court of Appeals’ application of a “site-specific” approach in which that court interpreted coverage claims for environmental contamination at an Indiana site under Indiana law and claims for environmental contamination at a California site under California law. Instead, the Supreme Court found that Indiana contract law required insurance policies to be interpreted under the “uniform-contract” approach in which the law of the state with the “most intimate contacts” to the contract governed the interpretation of the entire policy.
Under Indiana law, courts are to consider five factors when determining which state’s law should be applied to a contract: (1) the place of contracting, (2) the place of negotiation; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the residence, place of incorporation, and place of business of the parties. When applied to insurance policies, the primary, and often determinative, factor is the location of the subject matter of the contract. The Court recognized that “[a]n insurance policy is governed by the law of the principal location of the insured risk during the term of the policy.” Typically, the principal location of the insured risk is the state in which the insured has greatest number of facilities. Other quantitative data that may determine the principal location of the insured risk include the state with the greatest number of revenues, facility square footage, employees, or payroll.
Unlike prior cases, the insured, Standard Fusee Corporation (“SFC”), had one site each in several states including Indiana, Maryland, and California. SFC, a manufacturer of emergency signal flares, sought application of Indiana law to its policies to provide coverage for environmental claims that had been asserted against it in California and Indiana because Indiana’s courts have consistently rejected the absolute pollution exclusion as ambiguous and unenforceable to deny coverage for such claims since the Indiana Supreme Court’s ruling in 1996 in American States Ins. Co. v. Kiger, 662 N.E.2d 945. The insurers sought application of Maryland law to the dispute because Maryland has found that the absolute pollution exclusion barred coverage for these same claims.
Although the Indiana and Maryland sites were comparable in size, the Maryland site also served as SFC’s headquarters, which favored application of Maryland law. However, this fact was insufficient to conclude that Maryland was the principal location of the insured risk so the Court analyzed all of the factors to determine the state with the “most intimate contacts” to the policies. While many of factors did not point to either state, the Court noted that SFC had communicated with the insurers and brokers from, paid premiums from, and maintained its insurance policies in Maryland. Although no factor was determinative, the Court held that “the overall number and quality of contacts” favored Maryland as the state law that would apply to the policies.
Notably, the Court declined to address the insurers’ challenge to Kiger and several subsequent Indiana cases that have rejected the absolute pollution exclusion as invalid. Insurers argued that the absolute pollution exclusion in their policies should be found unambiguous and enforceable under Indiana law like other states had determined. However, the Court’s refusal to address this challenge means Indiana’s favorable law providing coverage for environmental cleanups under general liability insurance policies remains fully intact.
For more information about pursuing insurance coverage for environmental claims under Indiana law, contact Tom O’Gara or any member of Taft’s environmental practice group.