State Automobile Mutual Insurance Co. v. Flexdar, Inc.
964 N.E.2d 845
| Ind. | 2012Background
- Flexdar, Inc. manufactured with trichloroethylene (TCE) at its Indianapolis site; contamination was found in soil and groundwater on and off site by 2003-2004.
- IDEM notified Flexdar of liability for cleanup, and Flexdar carried commercial general liability and umbrella policies with State Auto for 1997-2002, with State Auto defending under reservation of rights while reserving coverage determinations.
- State Auto filed a declaratory judgment action seeking a coverage denial under the pollution exclusion; Flexdar cross-moved for summary judgment, arguing ambiguity in the exclusion.
- The policies included an absolute pollution exclusion; the Indiana business operations endorsement stated the exclusion applies whether or not the contaminant has any function in the insured’s operations.
- The trial court granted Flexdar summary judgment; the Indiana Court of Appeals affirmed—holding the pollution exclusion ambiguous and not cured by the endorsement.
- The Indiana Supreme Court granted transfer to resolve whether the exclusion language is ambiguous and how it should be interpreted under Indiana law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the pollution exclusion language is ambiguous | Flexdar argues ambiguity; benefits from coverage should be favored. | State Auto contends the exclusion is clear and unambiguous. | Pollution exclusion is ambiguous. |
| Whether the Indiana business operations endorsement cures the ambiguity | Endorsement clarifies scope, supporting coverage. | Endorsement does not control when the exclusion itself is ambiguous. | Endorsement does not cure ambiguity; still favor insured language interpretation. |
| What interpretive framework governs Indiana pollution exclusions | Indiana follows ambiguity-protective construction against insurers. | A more literal/common-sense approach should apply to exclusions. | Indiana adopts ambiguity-based construction against the insurer. |
Key Cases Cited
- American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996) (pollution exclusion ambiguous; construe against insurer)
- Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind. 1996) (duty to defend for pollution-related claims when exclusion ambiguous)
- Freidline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind. 2002) (pollution exclusion treated as ambiguous; interpreted in insured's favor)
- Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968 (Ind. 2005) (pollution exclusion interpreted against insurer; ambiguity noted)
- MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635 (Cal. 2003) (recognition that broad definitional phrases for pollutants can render exclusions meaningless)