The Indiana Supreme Court issued its opinion in State Automobile Mutual Insurance Co. v. Flexdar, Inc. on March 22, 2012. In a 3 to 2 decision, with Justice Rucker writing for the majority, the Supreme Court issued its greatly anticipated opinion upholding Indiana jurisprudence on the ambiguity of the “absolute pollution exclusion” in general commercial liability insurance policies. Since 1996, with the Court’s ruling in American States Insurance Co. v. Kiger, 662 N.E.2d 945, these clauses have been held to be vague and ambiguous because of the over-breadth of the term “pollutants,” and have been read out of CGL policies. Consequently, insurance coverage has been available to Indiana insureds to help defray the cost of defending lawsuits brought as a result of environmental contamination as well as the cost of cleaning up environmental contamination.
Flexdar is important in two respects. First, it puts to rest speculation that the Court would overturn Kiger and its progeny to adopt the view expressed by a majority of state and federal courts that the absolute pollution exclusion is not ambiguous and is enforceable. Justice Rucker noted that Indiana has and will continue to go “in a different direction” affirming that the onus is the insurance company to write a policy that is clear and unambiguous. Fatal to the insurer in Flexdar was the fact that the pollution exclusion at issue was identical to the exclusion in Kiger. Second, for years counsel for insurers have argued that Kiger should be limited to its facts – “that is, as applying only to a gas station’s claim for a gasoline leak under a garage policy.” The Court expressly rejected insurer’s reading of Kiger and held: “[t]he opinion itself did not suggest that it was narrowly limited to its facts.”
Justice Sullivan and soon-to-be retired Chief Justice Shepard dissented. The two were apparently concerned that following sixteen years of their own precedent will result in increased premiums for “Hoosier business who have little risk of being sued for polluting.” However, their concern has little significance. As the majority noted, most all insurers now issue commercial general liability policies with an “Indiana Changes – Pollution Exclusion” endorsement which seeks to resolve any question of ambiguity. Moreover, there was no evidence in Flexdar that the insurance industry would reduce premiums for Indiana businesses if the old, ambiguous pollution exclusion was found to be presentable. Nor was there evidence to suggest that businesses outside Indiana enjoy reduced premiums due to the enforceability of ambiguous pollution exclusions.