Seyfarth Synopsis: The Northern District of Indiana rejected the insurer’s assertion that its pollution exclusion clauses unambiguously included all contaminants.

Indiana, unlike other jurisdictions, is pro-insured when it comes to providing coverage for damages arising from pollution events. This is so even where the insurance policy attempts to exclude coverage.

Old Republic Ins. Co. v. Gary-Chicago Int’l Airport Auth., No. 15-cv-00281 (N.D. Ind., July 25, 2016), is the latest in a line of cases to hold that, in Indiana, if an insurer wants to exclude coverage for pollution, the policy must state with specificity the contaminants and pollutants for which coverage is excluded.

In Old Republic, the Northern District of Indiana denied Old Republic Insurance Company’s (Old Republic) motion for summary judgment, finding that Old Republic must pay defense costs arising from contamination at the Gary-Chicago International Airport (Airport) because of ambiguities in the insurance policies issued by Old Republic.

This case involved an environmental pollution insurance coverage dispute between Old Republic and the Gary-Chicago International Airport Authority (Airport Authority). Old Republic filed a complaint for declaratory relief and reimbursement of defense costs against the Airport Authority after the Indiana Department of Environmental Management (IDEM) initiated an action against the Airport Authority in connection with pollution at the Airport. Old Republic asked the Court to declare that, based on the “absolute pollution exclusion” clauses in the applicable insurance policies Old Republic issued to the Airport Authority, it did not have a duty to defend or indemnify the Airport Authority with respect to this IDEM action.

All insurance policies at issue contained the following exclusion:

This policy does not cover claims directly or indirectly occasioned by, happening through or in consequence of: . . . (b) pollution and contamination of any kind whatsoever….

This is known as an “absolute pollution exclusion.” There parties to this action agreed that there was an oily sheen and that environmental testing had detected concentrations of benzo(a)pyrene, arsenic, and PCBs at the Airport site. Even so, the parties disagreed over whether the “absolute pollution exclusion” remained ambiguous, as ambiguities must be resolved in favor of the insured.

The Seventh Circuit previously held, following the approach recognized by the Indiana Supreme Court, that an absolute pollution exclusion will be enforced where an insurer specifically indicates what falls within the exclusion. Visteon Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 777 F.3d 415 (7th Cir. 2015). Following that approach, the Court concluded that Old Republic’s policies were ambiguous: “Old Republic’s pollution exclusion does not explicitly indicate what constitutes ‘pollution’ or ‘contamination’ so that an ordinary policyholder of average intelligence would know to a certainty that Old Republic would not be responsible for damages arising out of the oily sheen, benzo(a)pyrene, arsenic, and PCBs discovered at the Airport.”

Indiana insureds should be mindful that even broadly worded pollution exclusions may not be enforced if the policy fails to specify exactly what pollutants or contaminants fall within the policy’s exclusions.