The salient issue in State Automobile Insurance Company v. Flexdar, Inc., a case in which the Indiana Supreme Court heard oral argument on May 5, 2011, is the enforceability of pollution exclusion clauses in commercial general liability (“CGL”) insurance policies. The case is significant to Indiana businesses whose operations may give rise to environmental liability because the Court’s decision will affect the scope of coverage available under CGL policies.
Flexdar, Inc. (“Flexdar”) operated a factory that manufactured rubber stamps and printing plates. In the factory’s operations, the chemical solvent trichloroethylene was utilized, which leaked from the factory’s machinery and contaminated the soil and groundwater. Flexdar was ordered by the Indiana Department of Environmental Management to determine the nature and extent of the contamination.
The order issued to Flexdar triggers insurance coverage under standard form CGL policies. Travelers Indem. Co. v. Summit Corp. of Am., 715 N.E.2d 926, 933-34 (Ind. Ct. App. 1999); Hartford Accident & Indemnity Co. v. Dana Corp., 690 N.E.2d 285, 296 (Ind. Ct. App. 1997). For that reason, Flexdar submitted a claim to its general liability insurer, State Automobile Mutual Insurance Company (“State Auto”). State Auto denied coverage to Flexdar, citing an exclusion in the policy, known as the “absolute pollution exclusion,” that eliminates insurance coverage for claims that result from the escape of “pollutants.”
The issue before the Indiana Supreme Court is whether the definition of “pollutants” as used in the “absolute pollution exclusion” is overbroad and ambiguous and therefore unenforceable. Since the Indiana Supreme Court’s 1996 decision in American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996), Indiana courts will not exclude coverage based on pollution exclusion clauses unless the language of the insurance policy explicitly excludes the “pollutant” at issue. If the policy language is vague as to whether the pollutant is included, then the pollution exclusion clause does not apply to eliminate coverage.
State Auto asked the Indiana Supreme Court to disregard Kiger and its progeny on the ambiguity of the language in the pollution exclusion and to enforce the exclusion against Flexdar. Flexdar and Amici Curiae argued that Kiger and its progeny correctly held that the pollution exclusion is overbroad and therefore ambiguous and unenforceable and should not be enforced against Flexdar. Taft represented Amici Curiae.
This is a critical issue to the Indiana businesses that pay substantial sums for CGL policies and rely on the broad protection these policies promise.
For more information on the interpretation, construction, and scope of existing and historical commercial general liability policies, please contact David L. Guevara or any other member of Taft’s Environmental Practice Group.