POLLUTION EXCLUSION DEEMED AMBIGUOUS SO COVERAGE APPLIES

Commercial General Liability	Pollution Exclusion
Ambiguity

State Auto Insurance Co. (State Auto) supplied a Commercial General Liability policy to Flexdar during the period of roughly 1995- through 2003. Flexdar Inc. (Flexdar) manufactured rubber stamps and printing plates. Part of the process required the use of trichloroethylene (TCE). The Indiana Department of Environmental Management (IDEM) sued Flexdar when significant levels of TCE was discovered in the soil and groundwater near the plant. IDEM sought damages for the cost to clean-up the contaminated areas.

Flexdar had commercial general liability coverage with State Automobile Mutual Ins. Company (State Auto) during the period 1995-2003 so Flexdor filed the IDEM claim with it. State Auto denied that they held an obligation to cover the loss. It sent Flexdar a reservation of rights letter and immediately filed a declaratory action asking a court to rule that no coverage obligation or legal defense was owed. Flexdar filed a counter declaratory action. The trial court found in favor of Flexdar and State Auto appealed.

Indiana’s Supreme Court reviewed the parties’ original arguments. Flexdar argued that State Auto’s CGL pollution exclusion was ambiguous. State Auto argued that coverage was excluded and that they should be able to rely on both the CGL’s absolute pollution exclusion and on their Indiana “business operations” endorsement wording. The former included the key reference of excluding coverage for pollutants which, according to the policy, meant “…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.” The latter form stated, in part, “This pollution exclusion applies whether or not such irritant or contaminant has any function in your business, operations, premises, site or location.”

The high court noted that, to be considered unambiguous, the exclusion must provide a more definitive definition of pollutants. The court made reference to language that State Auto used in its policies beginning in 2005 (after the period involved in this loss). The newer wording made specific reference to substances included those listed in the Comprehensive Environmental Response, Compensation, and Liability Act Priority List Hazardous Substances, Agency for Toxic Substances and Disease Registry ToxFAQs ™ and/or U.S. Environmental Protection Agency EMCI Chemical References Compete Index.

In the end, the high court decided that, consistent with its prior, relevant decisions, the language found in State Auto’s CGL policy was ambiguous. The lower court’s ruling in favor of Flexdar and against State Auto was affirmed.

State Automobile Mutual Insurance Company, Appellant v. Flexdar, Inc. and RTS Realty, Appellees. INSPCT No. 49s02-1104-PL-199 filed March 22, 2012. Affirmed.