April 24, 2012
Previously published on April 23, 2012
In State Automobile Mutual Insurance Co. v. Flexdar, Inc and RTS Realty (Mar. 22, 2012, No. 49S02-1104-PL-199), the Indiana Supreme Court reaffirmed that, in Indiana, the absolute pollution exclusion (APE) only applies to contaminants specified within the "pollutant" definition. In Flexdar, the insured, a manufacturer of rubber stamps and printing plates, sought coverage for soil and groundwater contamination arising from disposal of the chemical solvent TCE. The insurer denied coverage on the basis of the APE in its general liability policies. The insured contested the disclaimer, arguing that the APE was ambiguous when applied to TCE contamination. Decision
The Indiana high court sided with the insured. In so ruling, the Flexdar court relied principally on its ruling in American States Insurance Co. v. Kiger, 662 N.E.2d 945 (1996) where, in the Court’s words, “We found language virtually identical to the [Flexdar] language to be ambiguous.” In Kiger, the Indiana Supreme Court rejected an insurer’s reliance on an APE to disclaim coverage for gasoline leaking from an underground storage tank, reasoning that “the term ‘pollutant’ does not obviously include gasoline and, accordingly, is ambiguous.” Applying Kiger, the Flexdar court ruled that “the insurer can (and should) specify what falls within its pollution exclusion.” Continuing, the court stated, “By more careful drafting, [the insurer] has the ability to resolve questions of ambiguity.” The court added: “And in fact it has done so.” Significantly, the record here confirmed that the disclaiming insurer had in fact drafted an Indiana pollution exclusion endorsement. The endorsement - which was not part of the relevant policies - “more specifically defined the term ‘pollutant’” and would have barred coverage for the TCE contamination at issue had it been included. Practical Lesson
Flexdar reaffirms that, under Indiana law, to successfully disclaim coverage based on an APE, an insurer must demonstrate that the defined term “pollutant,” in the words of Kiger, “obviously includes” the contaminant for which the insurer is seeking to disclaim coverage. If it does not and there is a specific contaminant an insurer wishes to exclude, the insurer may want to craft an endorsement to the APE so that the pollutant definition includes the contaminant at issue. Otherwise, Flexdar teaches that an Indiana court would likely find such a disclaimer unavailing on the ground that the APE is ambiguous as to whether the term “pollutant” includes the unidentified contaminant.
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