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Insurance Coverage for Pollution

State Mutual Insurance Company v. Flexdar, Inc. (Ind. March 22, 2012)

- Originally published March 23, 2012

In a 3-2 decision, our Supreme Court held that the pollution exclusion in the Defendant’s commercial general liability policy was ambiguous and therefore provided coverage for the Plaintiff’s costs of cleaning up trichloroethylene that was present in its soil and groundwater.

The Supreme Court noted that two primary views exist regarding pollution exclusions – a “literal” approach and a “situational” approach. Indiana follows neither of these and instead requires an insurer to specify with particularity what falls within its pollution exclusion.

The State Automobile Mutual Insurance majority held that the Defendant’s policy, which defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste,” could not be read literally because it would negate any coverage. The majority therefore concluded that this pollution exclusion was not sufficiently explicit and therefore provided coverage to the Plaintiff. Justice Rucker wrote the opinion, in which Justice Dickson concurred. Justice David concurred in result. Therefore, although the ultimate result in this case had majority support, only two Justices signed off on the opinion’s rationale.

Justice Sullivan dissented with Justice Shepherd. Justice Sullivan wrote that this decision moves Indiana law toward the proposition that all pollution exclusions are unenforceable. Justice Sullivan also cited with approval a recent seventh circuit decision, Scottsdale Indemnity Company v. Village of Crestwood.

A final interesting point about this decision is that the two dissenting judges were Justice Shepard and Justice Sullivan. As we know, Justice Shepard is no longer with the Court and Justice Sullivan has announced his retirement and will leave the court in the fall, to teach law at Indiana University-Indianapolis. Therefore, despite the strong and rational dissent in this case, Indiana law does indeed seem to be trending toward reading pollution exclusions with disfavor and requiring a high degree of specificity not required by other jurisdictions. But because Justice David concurred in result only, the rationale of this decision has little precedential value and should not deter practitioners representing insurance companies to continue to argue that Indiana should adopt either the literal or situational approaches embraced by other courts and should not trend a point where, as Justice Sullivan fears, pollution exclusions will become per se unenforceable in Indiana.

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