Visteon Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh
| Decision Date | 23 January 2015 |
| Docket Number | No. 14–2725.,14–2725. |
| Citation | 777 F.3d 415 |
| Parties | VISTEON CORPORATION, et al., Plaintiffs–Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Todd G. Relue, Attorney, Plews, Shadley, Racher & Braun LLP, Indianapolis, IN, for Plaintiffs-Appellants.
Carrie G. Doehrmann, Attorney, Frost Brown Todd LLC, Indianapolis, IN, Timothy F. Jacobs, Attorney, Mark W. Zimmerman, Attorney, Clausen Miller, Chicago, IL, for Defendant-Appellee.
Before WOOD, Chief Judge, and POSNER and EASTERBROOK, Circuit Judges.
Visteon, a large manufacturer of automotive parts, with manufacturing facilities scattered around the world but its headquarters in Michigan, brought this diversity suit for breach of contract against the National Union insurance company. Visteon had bought a liability insurance policy from National Union providing worldwide liability coverage between 2000 and 2002. The policy contains an exclusion for liability resulting from pollution caused by Visteon, but the exclusion is expressly made inapplicable to liability arising from a “Completed Operations Hazard.” National Union has refused to indemnify or defend Visteon from suits arising from pollution caused by one of Visteon's plants.
Although we call this Visteon's suit, there actually are two plaintiffs, the parent company and the subsidiary that held title to the plant that created the liability. But for simplicity we'll pretend there's only one and call it Visteon, and we'll suppress other irrelevant complications as well.
The plant in question was in Connersville, Indiana. In 2001, and thus during the insurance coverage period, the powerful toxic solvent TCE that was used to clean machinery in the plant was discovered to have leaked into the soil and groundwater. Neighboring landowners sued Visteon for damages caused by the leakage. Visteon expended millions of dollars to settle the suits and additional millions to clean up the pollution that the leakage had caused. When National Union refused either to defend Visteon or to reimburse it for any of the costs it had incurred, Visteon filed this suit in an Indiana state court; National Union removed the case to federal district court.
A dispute soon arose between the parties over whether Indiana or Michigan law governed the substantive issues in the case. Visteon wanted Indiana law to apply because Indiana does not enforce standard pollution-exclusion clauses, and the insurance policy included as we noted such a clause; Indiana requires that for such a clause to be enforceable the policy must “specify what falls within its pollution exclusion.” State Automobile Mutual Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 851 (Ind.2012). TCE is one of the pollutants that must be specified, and it was not specified in the policy that National Union had sold to Visteon. Michigan law, however, does enforce the more general kind of pollution-exclusion clause found in the policy, City of Grosse Pointe Park v. Michigan Municipal Liability & Property Pool, 473 Mich. 188, 702 N.W.2d 106, 114 (2005), and so Michigan was National Union's preferred choice for the governing law. The district court ruled that Michigan law governed.
A second question addressed by the district court was whether, under Michigan law, Visteon's liability from the TCE leak was within the scope of the Completed Operations Hazard clause of the insurance policy, an exception as we mentioned to the pollution-exclusion clause. The district court ruled that Visteon was not entitled to coverage under that clause and so dismissed Visteon's entire suit. Having thus struck out in the district court, Visteon has appealed to us.
The parties agree as they must that the district judge was, and we are, required to apply the choice of law rules of the state in which the suit was brought, thus Indiana. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The object in picking the state whose law is to govern is to identify the state that has the closest relation to the transaction, activity, or event that gave rise to the litigation. In the case of the suits against Visteon—suits alleging nuisance, negligence, and related torts arising from the leakage of TCE—the closest relation was to Indiana. The plant, along with the persons and properties affected by the leakage, were entirely within Indiana and Indiana had a compelling interest in a legal or regulatory solution whereby the plant would still be able to operate profitably, yet without harming its neighbors.
But the present litigation, though unthinkable without the tort suits, is of a different character. It arises from the insurance contract between Visteon and National Union, and the contract is not limited to Visteon's Connersville plant—it covers all of Visteon's plants, the world over. The Indiana Supreme Court has decided that in the case of an alleged breach of a contract insuring against liability for environmental contamination that could occur at different sites, Indiana will follow what is called the “uniform-contract-interpretation approach,” which “applies the law of a single state to the whole contract even though [the contract] covers multiple risks in multiple states,” and the single state that is chosen will usually be “the state having more insured sites than any other.” National Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 940 N.E.2d 810, 813, 815–16 (Ind.2010) (emphasis added).
That approach would bind us even if we didn't think it sensible. But we think it eminently sensible. Visteon manufactures and sells its automotive parts all over the world; and any of its plants, or for that matter any of its products, can give rise to liabilities against which it wants to insure. It wants the law governing its insurance rights against National Union (which remember had insured Visteon against liability arising anywhere in the world) to be determined by the law of the state or province or nation or other jurisdiction in which it incurs liability, and so in this case it wants Indiana law to govern its rights under the policy. The implication (which cannot be intended), given the uniform—contract-interpretation approach, is that Indiana law would govern all subsequent pollution damages caused by Visteon, wherever they occurred. Anyway it would be immensely difficult, and maybe impossible as a practical matter, for National Union to calculate a single premium for risks made so diverse by the worldwide scope of Visteon's operations. Suppose some country in which Visteon has a plant refuses, like Indiana, to enforce the kind of pollution-exclusion clause found in National Union's policy. That would expand Visteon's rights against its insurer. And so National Union would insist on charging a higher premium to Visteon to cover pollution caused by Visteon in that country than it would in states like Michigan that do enforce such clauses. Instead of charging a single premium to Visteon, National Union might end up charging hundreds of different premiums—all to the same insured.
Visteon misses this point, arguing that National Union knew, or at least had reason to foresee based on its substantial litigation experience with related claims, the additional risk posed by the Connersville Facility arising from its historic use of exceptionally large volumes of TCE. The implication is that National Union should have charged a higher premium for covering liabilities caused by operation of the Connersville plant in the insurance policy it issued to Visteon, because the insurer's risk in insuring that plant was greater than its average risk of insuring Visteon's plants. The result would be multiple different premiums to the same insured for the same insurance.
Since there are compelling reasons for National Union's charging a uniform premium to an insured despite the great variety of risks that it is insuring, and similarly compelling reasons for a single jurisdiction's law to govern disputes over terms in National Union's...
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