State Auto. Mut. Ins. Co. v. Flexdar, Inc.

• Decision Date: 22 March 2012
• Docket Number: No. 49S02–1104–PL–199.,49S02–1104–PL–199.
• Parties: STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, Appellant (Plaintiff below), v. FLEXDAR, INC. AND RTS REALTY, Appellees (Defendants below).
• Court: Indiana Supreme Court

964 N.E.2d 845

STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, Appellant (Plaintiff below),

v.FLEXDAR, INC. AND RTS REALTY, Appellees (Defendants below).

No. 49S02–1104–PL–199.

Supreme Court of Indiana.

March 22, 2012.

Barry C. Cope, Karl L. Mulvaney, Kandi Kilkelly Hidde, Bingham Greenebaum Doll LLP, Indianapolis, IN, Jeffrey C. Gerish, Plunkett & Cooney, P.C., Bloomfield Hills, Michigan, ATTORNEYS FOR APPELLANT.

Michael A. Dorelli, Patrick J. Olmstead, Jr., Hoover Hull LLP, Indianapolis, IN, Attorneys for Amicus Curiae Complex Insurance Claims Litigation Association.

Jonathon Zarich, Indianapolis, IN, Attorney for Amicus Curiae Insurance Institute of Indiana.Richard S. VanRheenen, VanRheenen & Associates, P.C., Indianapolis, IN, George M. Plews, Jeffrey D. Featherstun, Sean Michael Hirschten, Plews Shadley Racher & Braun LLP, Indianapolis, IN, Attorneys for Appellees.Frank J. Deveau, Thomas A. Barnard, David L. Guevara, Taft Stettinius & Hollister LLP, Indianapolis, IN, Attorneys for Amicus Curiae Eli Lilly & Company, Vectren Corporation, Citizens Energy Group, Indiana Manufacturers Association, and Indiana Petroleum Marketers and Convenience Stores Association, Inc.

On Petition To Transfer from the Indiana Court of Appeals, No. 49A02–1002–PL–111

RUCKER, Justice.

In this case we examine whether the language of a pollution exclusion in a commercial general liability policy is ambiguous. We hold that it is.

Facts and Procedural History

Flexdar, Inc. (“Flexdar”) manufactured rubber stamps and printing plates at its Indianapolis facility (the “Site”) from late 1994 or early 1995 through 2003. Flexdar's manufacturing process used a chemical solvent called trichloroethylene (“TCE”). In late 2003 and early 2004, Flexdar discovered that TCE was present in the soil and groundwater both on and off the Site. The Indiana Department of Environmental Management (“IDEM”) informed Flexdar that Flexdar would be liable for the costs of cleanup. Flexdar maintained commercial general liability and umbrella insurance policies with State Automobile Mutual Insurance Company (“State Auto”) for the period October 1, 1997 through June 2, 2002, and requested defense and indemnification from State Auto.¹ State Auto agreed to defend Flexdar against IDEM's claims under a reservation of State Auto's right to deny coverage and to file a declaratory judgment action to determine State Auto's obligations under the policies. State Auto then filed this declaratory judgment action, contending that coverage for the TCE contamination at issue was excluded pursuant to the pollution exclusion present in the policies. Both Flexdar and State Auto moved for summary judgment on the issue of coverage.

In support of its summary judgment motion, State Auto designated the insurance policies, highlighting the following “absolute pollution exclusion” language:

2. Exclusions.

This insurance does not apply to:

....

f. Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;

....

(2) Any loss, cost or expense arising out of any:

(a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants; or

(b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Appellant's App. at 976–77. In further support of its argument, State Auto identified the Indiana “business operations” endorsement to the policies, which provides in pertinent part, “This Pollution Exclusion applies whether or not such irritant or contaminant has any function in your business, operations, premises, site or location.” Appellant's App. at 989.

In support of its cross-motion for summary judgment, Flexdar argued the language of State Auto's pollution exclusion was ambiguous and therefore should be construed against State Auto and in favor of coverage. The trial court agreed and entered summary judgment in favor of Flexdar. The Court of Appeals affirmed, State Auto. Mut. Ins. Co. v. Flexdar, Inc., 937 N.E.2d 1203 (Ind.Ct.App.2010), holding that the pollution exclusion is ambiguous and therefore must be construed in favor of coverage, and that the Indiana pollution exclusion endorsement language did not cure the ambiguity. We granted transfer. See Ind. Appellate Rule 58(A).

Standard of Review

When reviewing a summary judgment ruling, we use the same standard as the trial court. That is, “summary judgment is appropriate only where the evidence shows there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. All facts and reasonable inferences drawn from those facts are construed in favor of the non-moving party.” Ashby v. Bar Plan Mut. Ins. Co., 949 N.E.2d 307, 310 (Ind.2011) (internal quotation marks and citation omitted). Interpretation of an insurance policy presents a question of law that is particularly suitable for summary judgment. See Cinergy Corp. v. Associated Elec. & Gas Ins. Servs., Ltd., 865 N.E.2d 571, 574 (Ind.2007); Bosecker v. Westfield Ins. Co., 724 N.E.2d 241, 243 (Ind.2000). “It is well settled that where there is ambiguity, insurance policies are to be construed strictly against the insurer and the policy language is viewed from the standpoint of the insured.” Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1056 (Ind.2001) (internal quotation marks omitted) (quoting Bosecker, 724 N.E.2d at 244). This is especially true where the language in question purports to exclude coverage. USA Life One Ins. Co. of Ind. v. Nuckolls, 682 N.E.2d 534, 538 (Ind.1997). Insurers are free to limit the coverage of their policies, but such limitations must be clearly expressed to be enforceable. W. Bend Mut. v. Keaton, 755 N.E.2d 652, 654 (Ind.Ct.App.2001), trans. denied. “Where provisions limiting coverage are not clearly and plainly expressed, the policy will be construed most favorably to the insured, to further the policy's basic purpose of indemnity.” Meridian Mut. Ins. Co. v. Auto–Owners Ins. Co., 698 N.E.2d 770, 773 (Ind.1998). Where ambiguity exists not because of extrinsic facts but by reason of the language used, the ambiguous terms will be construed in favor of the insured for purposes of summary judgment. See Cinergy, 865 N.E.2d at 574.

Discussion

The language of the pollution exclusion at issue in this case is no stranger to this Court. In fact, we have interpreted this or similar language on no fewer than three occasions, reaching the same result each time. We first confronted this language in American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind.1996). That case concerned coverage for environmental contamination caused by leakage of gasoline from a gas station's underground storage tanks. We found language virtually identical to the language here to be ambiguous. Specifically, we held that because “the term ‘pollutant’ does not obviously include gasoline and, accordingly, is ambiguous, we ... must construe the language against the insurer who drafted it.” Id. at 949. We reached this conclusion notwithstanding the fact that “pollutant[ ]” was defined in the Kiger policy as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Id. at 948. “Clearly,” we concluded, “this clause cannot be read literally as it would negate virtually all coverage.” Id. State Auto characterizes Kiger as limited to its facts—that is, as applying only to a gas station's claim for a gasoline leak under a garage policy. See Appellant's Pet. to Trans. at 5 (inferring that Kiger's conclusion that the term “pollutant” is ambiguous is “inextricably linked to this Court's concern that a garage policy covering a gas station's operations would exclude a major source of its potential liability without explicitly stating so”).² We disagree with State Auto's reading of Kiger. The opinion itself did not suggest that it was narrowly limited to its facts. Indeed, less than two months after our decision in Kiger, we found an insurer had a duty to defend a solid waste disposer against an action by the United States Environmental Protection Agency. Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind.1996). One of the policies at issue in Seymour excluded coverage for losses “arising out of pollution or contamination (1) caused by oil, or (2) caused by the discharge or escape of any other pollutants or contaminants.” Seymour Mfg. Co. v. Commercial Union Ins. Co., 648 N.E.2d 1214, 1218 (Ind.Ct.App.1995). Recognizing that Kiger found the word “pollutant” to be ambiguous, we again construed this language against the insurer and found a duty to defend. Seymour, 665 N.E.2d at 892. ³

In 2002, we were again presented with a pollution exclusion like the one at issue here. See Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind.2002). In Freidline, owners of a commercial building claimed coverage after toxic carpet glue fumes released during the installation of new carpet injured employees who worked in the building. Id. at 39. Because carpet glue fumes were not specifically included in the policy's definition of pollutants, the Court of Appeals found the exclusion ambiguous and construed it against the insurer so as not to exclude the claimed coverage. Id. at 40. We unanimously “agree[d...