Case Title: State Auto. Mut. Ins. Co. v. Flexdar, Inc.

Citation: 

Docket Number: 49S02-1104-PL-199

State: indiana

Court: Indiana Supreme Court

Date: 2012-03-22T00:00:00Z

Document:
ATTORNEYS FOR APPELLANT  
 
 
ATTORNEYS FOR APPELLEES 
Barry C. Cope 
 
 
 
 
 
Richard S. VanRheenen 
Karl L. Mulvaney 
 
 
 
 
 
VanRheenen & Associates, P.C. 
Kandi Kilkelly Hidde 
 
 
 
 
Indianaapolis, Indiana 
Bingham Greenebaum Doll LLP 
Indianapolis, Indiana 
 
 
 
 
George M. Plews 
 
 
 
 
 
 
 
Jeffrey D. Featherstun 
Jeffrey C. Gerish  
 
 
 
 
Sean Michael Hirschten 
Plunkett & Cooney, P.C.  
 
 
 
Plews Shadley Racher & Braun LLP 
Bloomfied Hills, Michigan 
 
 
 
Indianapolis, Indiana 
 
ATTORNEYS FOR AMICUS CURIAE 
 
 
ATTORNEYS FOR AMICUS CURIAE 
COMPLEX INSURANCE CLAIMS 
 
 
ELI LILLY & COMPANY, VECTREN 
LITIGATION ASSOCIATION 
 
 
 
CORPORATION, CITIZENS ENERGY GROUP, 
Michael A. Dorelli 
 
 
 
 
INDIANA MANUFACTURERS ASSOCIATION, 
Patrick J. Olmstead, Jr. 
 
 
 
 
AND INDIANA PETROLEUM MARKETERS AND 
Hoover Hull LLP  
 
 
 
 
CONVENIENCE STORES ASSOCIATION, INC. 
Indianapolis, Indiana 
 
 
 
 
Frank J. Deveau 
 
 
 
 
 
 
 
Thomas A. Barnard 
ATTORNEY FOR AMICUS CURIAE 
 
 
David L. Guevara 
INSURANCE INSTITUTE OF INDIANA 
 
 
Taft Stettinius & Hollister LLP 
Jonathon Zarich  
 
 
 
 
Indianapolis, Indiana 
Indianapolis, Indiana 
______________________________________________________________________________ 
 
In the 
Indiana Supreme Court  
_________________________________ 
 
No. 49S02-1104-PL-199 
 
STATE AUTOMOBILE MUTUAL 
INSURANCE COMPANY, 
 
 
 
 
 
 
 
 
Appellant (Plaintiff below), 
 
v. 
 
FLEXDAR, INC. AND RTS REALTY, 
 
 
 
 
 
 
 
 
Appellees (Defendants below). 
_________________________________ 
 
Appeal from the Marion Superior Court No. F12 
No. 49F12-0705-PL-018927 
The Honorable Michael D. Keele, Judge 
_________________________________ 
 
FILED
CLERK
of the supreme court,
court of appeals and
tax court
Mar 22 2012, 9:09 am
 
2 
On Petition To Transfer from the Indiana Court of Appeals, No. 49A02-1002-PL-111 
_________________________________ 
 
March 22, 2012 
 
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:   
 
                                                 
1 The policies list the named insured as “Flexdar, Inc.” and “RTS Realty”; RTS is also named as a 
defendant in this action.  See Appellant’s App. at 15, 847.  We refer to the defendants collectively as 
“Flexdar.”  
 
3 
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). 
 
4 
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.  
 
5 
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   
                                                 
2 State Auto argues that its “business operations” endorsement addresses the concerns this Court 
expressed in Kiger by adding the language that the pollution exclusion applies “whether or not the irritant 
or contaminant has any function in your business, operations, premises, site or location.”  Br. of Appellant 
at 45.  We agree with the Court of Appeals that this provision “takes effect only when the contaminant at 
issue has first been identified as a pollutant and the pollution exclusion has been determined to apply.”  
Flexdar, 937 N.E.2d at 1212.  As discussed below the exclusion itself is ambiguous and unenforceable, 
and therefore “the endorsement form does not come into play and is thus unavailing.”  Id.  
 
3 In apparent response to the holdings in Kiger and Seymour, the Indiana legislature passed a bill in 1997 
more specifically defining the term “pollutant” in insurance policies.  The definition included as a 
“pollutant” “any substance . . . subject to regulation” under certain state and federal environmental 
statutes.  Governor Frank O’Bannon vetoed the bill, stating that the language “should be a private 
contractual matter between an insurer and its insured . . . .  The insurance industry can address the 
 
6 
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] and summarily affirm[ed] 
the Court of Appeals on this point.”  Id.  We also rejected the insurer’s attempt to distinguish 
Kiger and Seymour on the basis that they involved traditional environmental cleanup for 
businesses regularly handling toxic substances.  See id. at 42 (“[W]e refute these contentions by 
summarily affirming the Court of Appeals on the pollution exclusion coverage issue . . . .”).  In 
an effort to distinguish Freidline, State Auto points to our mention there of the pollution 
exclusion as an “evolving” area of the law.  However, by this characterization we merely 
acknowledged the legitimacy – not the correctness – of the plaintiff’s argument against coverage 
in the context of the defendant’s bad faith claim.  Freidline is not distinguishable on this basis.    
 
In a 2005 case, we did not address pollution exclusions directly but recognized our 
previous declaration that under Indiana law, the definition of “pollutants” in such exclusions is 
ambiguous.  We observed that our courts have “consistently construed the pollution exclusion 
against insurance companies.”  Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 975 
(Ind. 2005).4   
 
                                                                                                                                                             
problem by drafting a clear and unambiguous contractual pollution exclusion.”  Flexdar, 937 N.E.2d at 
1210 (alteration in original) (citations omitted).  We mention this solely to provide more background on 
the pollution exclusion in Indiana. 
4 The Court of Appeals has repeatedly and consistently applied this Court’s precedent to find similar 
pollution exclusion language ambiguous.  See, e.g., Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. 
Standard Fusee Corp., 917 N.E.2d 170, 185 (Ind. Ct. App. 2009) (“[W]e find that the pollution exclusion 
is ambiguous and unenforceable under Kiger and the line of cases following Kiger . . . .”), rev’d on other 
grounds by 940 N.E.2d 810, 812 n.1 (Ind. 2010); Travelers Indem. Co. v. Summit Corp. of Am., 715 
N.E.2d 926, 935 (Ind. Ct. App. 1999) (“We follow the lead of our supreme court and conclude that the 
pollution exclusion in the policies here is ambiguous and is construed against [the insurer] to not exclude 
coverage for the environmental claims made against [the insured].”).  
 
7 
Here, State Auto drafted a policy excluding coverage for losses resulting from 
“pollutants.”  State Auto defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or 
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”  
Appellant’s App. at 977.  As we recognized in Kiger, “this clause cannot be read literally as it 
would negate virtually all coverage.”  Kiger, 662 N.E.2d at 948.  In other words, practically 
every substance would qualify as a “pollutant” under this definition, rendering the exclusion 
meaningless.  Accord MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1216 (Cal. 2003) 
(recognizing that “the definitional phrase ‘any irritant or contaminant’ is too broad to 
meaningfully define ‘pollutant’”).  To avoid such a result, State Auto urges us to adopt what it 
describes as a “common sense approach” and apply the pollution exclusion in situations where, 
as here, the release would “ordinarily be characterized as pollution.”  See Appellant’s Pet. to 
Trans. at 11 (citing Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037 
(7th Cir. 1992) (applying Illinois and Missouri law)).  This is appropriate, State Auto argues, 
because the purpose of the pollution exclusion is to exclude coverage for costs associated with 
government-ordered cleanup of pollution and not to exclude claims that do not involve 
“environmental contamination.”  See Appellant’s Pet. to Trans. at 11.  State Auto also points out 
that Indiana’s interpretation of pollution exclusions differs from the interpretations of most other 
states.   
 
Courts and commentators identify essentially two main views when it comes to 
interpreting these exclusions, namely:  a “literal” approach and a “situational” approach.  See 
Apana v. Tig Ins. Co., 574 F.3d 679, 682-83 (9th Cir. 2009).  See also generally 9 Steven Plitt, et 
al., Couch on Insurance 3d § 127:6 (2008); Louis A. Chiafullo & David C. Kane, Application of 
the Absolute Pollution Exclusion to “Nontraditional” Pollution, 22 Envtl. Claims J. 287 (2010).  
Jurisdictions employing a “literal” view of the absolute pollution exclusion generally hold the 
exclusion to be unambiguous in all circumstances.  Where a substance is acting in any manner as 
an “irritant or contaminant,” damage caused thereby is excluded from coverage.  As we noted in 
Kiger, the difficulty with this view is that it eliminates practically all coverage yielding, in our 
opinion, untenable results.  See, e.g., Maxine Furs, Inc. v. Auto-Owners Ins. Co., 426 Fed. 
App’x. 687, 688 (11th Cir. 2011) (per curiam) (applying Alabama law and holding that the 
aroma of curry escaping from an Indian restaurant and damaging merchandise in an adjacent fur 
 
8 
salon was a “contaminant” under the pollution exclusion and the damage was therefore not 
covered); Noble Energy, Inc. v. Bituminous Cas. Co., 529 F.3d 642, 646-47 (5th Cir. 2008) 
(applying Texas law and finding no coverage for injuries from a truck explosion fed by 
combustible vapors released during unloading of the truck’s oilfield waste cargo because the 
cargo and vapors constituted a “solid, liquid, gaseous or thermal irritant or contaminant including 
. . . fumes . . . and waste”).   
 
Jurisdictions applying a more “situational” approach look to factual context and typically 
uphold the exclusion only in cases of “traditional” environmental contamination.  See, e.g., 
MacKinnon, 73 P.3d at 1218 (holding exclusion does not apply to landlord’s negligent 
application of pesticide resulting in tenant’s death).  While this framework may be more 
palatable than the literal view, it can still be problematic because the concept of what is a 
“traditional” environmental contaminant may vary over time and has no inherent defining 
characteristics.5  This leaves courts in the awkward and inefficient position of making case-by-
case determinations as to the application of the pollution exclusion.   
 
Indiana has gone in a different direction.  Applying basic contract principles, our 
decisions have consistently held that the insurer can (and should) specify what falls within its 
pollution exclusion.  In fact, State Auto has over the years promulgated an Indiana “business 
operations” endorsement, see supra p. 3, and an Indiana endorsement defining “pollutant,” see 
infra p. 9.  Where an insurer’s failure to be more specific renders its policy ambiguous, we 
construe the policy in favor of coverage.  Our cases avoid both the sometimes untenable results 
produced by the literal approach and the constant judicial substance-by-substance analysis 
necessitated by the situational approach.  In Indiana, whether the TCE contamination in this case 
would “ordinarily be characterized as pollution,” Appellant’s Pet. to Trans. at 11 (emphasis 
                                                 
5 TCE is an example of just such a substance.  Over the years it has been used in applications including 
the manufacture of food products and in the medical field as an anesthetic.  See U.S. Environmental 
Protection Agency, Status Assessment of Toxic Chemicals: Trichlorethylene 9 (1979).  Today TCE is 
listed on both the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 
Priority List of Hazardous Substances and the Agency for Toxic Substances and Disease Registry 
ToxFAQs™.  It is also notable that environmental cleanup statutes such as CERCLA are retroactive.  
That is to say, CERCLA imposes penalties for actions – such as the disposal of certain substances – that 
were perfectly legal at the time they occurred.  See, e.g., Robin Kundis Craig et al., Toxic and 
Environmental Torts: Cases & Materials 471 (2011). 
 
9 
added), is, in our view, beside the point.  The question is whether the language in State Auto’s 
policy is sufficiently unambiguous to identify TCE as a pollutant.  We are compelled to conclude 
that it is not.   
 
State Auto maintains that “any reasonable policyholder would expect the release of 
chemical solvents into soil and groundwater [to constitute] pollution.”  Appellant’s Pet. to Trans. 
at 12.  It is true that we interpret policy terms “from the perspective of an ordinary policyholder 
of average intelligence.”  Bradshaw v. Chandler, 916 N.E.2d 163, 166 (Ind. 2009) (citation 
omitted).  But Indiana precedent has consistently refused to apply a pollution exclusion like the 
one at issue in this case on grounds of ambiguity.  It would thus appear that an ordinary 
policyholder of reasonable intelligence would interpret the language in State Auto’s policy much 
differently than is advanced here.  This is especially so because the language at issue in this case 
excludes coverage.  Thus we must resolve any doubts against the insurer.  See id. (citing Kiger, 
662 N.E.2d at 947).  After all, “[t]he insurance companies write the policies; we buy their forms 
or we do not buy insurance.”  Id. (citation omitted).  By more careful drafting State Auto has the 
ability to resolve any question of ambiguity.  And in fact it has done so.  In 2005 State Auto 
revised its policies to add an “Indiana Changes – Pollution Exclusion” endorsement.  The 
language more specifically defined the term “pollutants”:  
 
“Pollutants” mean[s] any solid, liquid, gaseous, bacterial, fungal, 
electromagnetic, thermal or other substance that can be toxic or 
hazardous, cause irritation to animals or persons and/or cause 
contamination to property and the environment including smoke, 
vapor, soot, fumes, acids, alkalis, chemicals, and waste.  Specific 
examples identified as pollutants include, but are not limited to, 
diesel, kerosene, and other fuel oils . . . carbon monoxide, and 
other exhaust gases . . . mineral spirits, and other solvents . . . 
tetrachloroethylene, perchloroethylene (PERC), trichloroethylene 
(TCE), methylene chloroform, and other dry cleaning chemicals . . 
. chlorofluorocarbons, chlorinated hydrocarbons, adhesives, 
pesticides, insecticides . . . and all substances specifically listed, 
identified, or described by one or more of the following references: 
Comprehensive Environmental Response, Compensation, and 
Liability Act (CERCLA) Priority List Hazardous Substances 
(1997 and all subsequent editions), Agency for Toxic Substances 
And Disease Registry ToxFAQs™, and/or U.S. Environmental 
 
10 
Protection Agency EMCI Chemical References Complete 
Index. 
 
Appellant’s App. at 1323 (emphasis in original).6   
 
Conclusion 
 
Indiana decisions have been consistent in recognizing the requirement that language of a 
pollution exclusion be explicit.  “To unsettle the law . . . would show scant respect for the 
principle of stare decisis.”  CSX Transp., Inc. v. McBride, ___ U.S. ___, 131 S. Ct. 2630, 2639-
40 n.4 (2011).  We see no reason to abandon settled precedent.  
 
 
The judgment of the trial court is affirmed. 
 
Dickson, J., concurs. 
David, J., concurs in result. 
Sullivan, J., dissents with separate opinion in which Shepard, C.J., joins. 
                                                 
6 Becoming effective as of 2005, the “Indiana Changes – Pollution Exclusion” endorsement, was not a 
part of CGL insurance policies at issue in this case. 
 
Sullivan, Justice, dissenting. 
 
The Court holds that American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind. 
1996), demands that the pollution exclusion found in most general liability insurance policies be 
ignored.  I respectfully dissent. 
 
A few days ago, Judges Richard A. Posner, Diane P. Wood, and David F. Hamilton, 
joined in a decision enforcing a pollution exclusion in a case for all relevant purposes the same 
as this.  Scottsdale Indem. Co. v. Vill. of Crestwood, Nos. 11-2385, 11-2556, 11-2583, 2012 U.S. 
App. LEXIS 5069 (7th Cir. Mar. 12, 2012).  Their decision is worthy of review here, both for its 
clarity and applicability.   
 
At issue in the Crestwood case was whether “the pollution exclusion . . . found in most 
general liability insurance policies” – essentially the same exclusion in essentially the same form 
policy at issue here – was triggered by tort complaints alleging contamination of a well by a sub-
stance called “perc” (perchloroethylene, also known as tetrachloroethylene).  Id. at *1-2, 3.   
 
Crestwood uses the hypothetical situation of a tanker truck crashing and spilling perc, 
upon which another vehicle skids and crashes.  Although perc is a pollutant, the Court says, “it 
would be absurd to argue . . . that a claim arising from such an accident would be within the pol-
lution exclusion, since in no reasonable sense of the word ‘pollution’ was the driver a victim of 
pollution.”  Id. at *6. 
 
In Kiger, Justice DeBruler used the example of a gas station customer’s slip on a gasoline 
or grease spill to make the same point:  that the pollution exclusion could not deny “coverage for 
a large segment of the gas station’s business operations.”  662 N.E.2d at 948-49.  This only 
makes sense because, as Crestwood says, “a literal reading of the pollution exclusion would ex-
clude coverage for acts remote from the ordinary understanding of pollution harms and unrelated 
to the concerns that gave rise to the exclusion.”  2012 U.S. App. LEXIS 5069 at *5 (citations 
omitted). 
 
2 
 
“The business of insurance is covering losses,” the Seventh Circuit judges say in Crest-
wood, “but this is provided the company can estimate within a reasonable range the size of the 
losses that it is likely to be required to reimburse the policyholders for.  Otherwise it can’t set 
premiums that will be high enough to compensate it for the risk of having to reimburse the losses 
it’s insuring, without being so high that no one will buy its policies.”  Id. at *7-8.  “Environmen-
tal damage is often very difficult to detect until it has become extensive, let alone to predict, or 
estimate its likely extent, in advance; and the financial consequences can be horrific but again are 
unpredictable.”  Id. at * 10. 
 
The pollution exclusion, therefore, allows a business to buy insurance to protect it from 
ordinary tort liability (the truck crash or the grease spill) without having to pay an additional 
premium amount necessary to provide coverage to those enterprises with a high risk of polluting 
in the ordinary sense – contaminating wells, for example. 
 
All of this conforms to our jurisprudence – at least until today’s case.  Kiger dealt with 
the treatment of gasoline at a gas station under a garage policy.  To hold gasoline a “pollutant” 
under the policy would have “provided no coverage for a large segment of the gas station’s busi-
ness operations.”  Kiger, 662 N.E.2d at 949.  To the same effect were the toxic fumes from sub-
stances used to install carpet in an office building at issue in Freidline v. Shelby Insurance Co., 
774 N.E.2d 37 (Ind. 2002).  Like sickness caused by paint fumes or fumes leaking from a defec-
tive fluorescent light fixture, the harm in Freidline was “remote from the ordinary understanding 
of pollution harms and unrelated to the concerns that gave rise to the exclusion.”  Crestwood, 
2012 U.S. App. LEXIS 5069 at *5 (citations omitted).   
 
Here, by contrast, trichloroethylene (TCE) was discovered contaminating the soil and 
groundwater both on and off the site of Flexdar’s rubber-stamp and printing-plate manufacturing 
facility in Indianapolis.  This obviously meets “the ordinary understanding of pollution harms” 
and is clearly related “to the concerns that give rise to the exclusion.”  In point of fact, Flexdar’s 
business is based on neither the sale nor the storage of trichloroethylene; enforcing the exclusion 
in no way deprives Flexdar of coverage for its exposure to the ordinary tort risks of its business. 
 
3 
 
Kiger has never before stood for the proposition that all pollution exclusions are unen-
forceable.  Today’s case moves Indiana law in that direction.  The immediate consequence will 
be premium increases as insurers seek to charge for the increased risks that the Court today re-
quires them to cover.  Hoosier businesses who have little risk of being sued for polluting will 
face a Hobson’s choice:  paying higher premiums for coverage they don’t need, thereby dissipat-
ing their financial resources, or going without coverage, thereby exposing themselves to risk of 
loss from ordinary tort liability. 
 
I also observe that in addition to the factual differences between this case and Kiger, the 
policy language differs as well.  The policy in this case (but not in Kiger) contains a “business 
operations endorsement,” expressly providing that the pollution exclusion “applies whether or 
not such irritant or contaminant has any function in your business, operations, premises, site or 
location.”  Appellant’s App. 989.  In another case, the Seventh Circuit found that this endorse-
ment “buttressed” its conclusion that a pollution exclusion was enforceable.  W. Bend Mut. Ins. 
Co. v. U.S. Fid. & Guar. Co., 598 F.3d 918, 923 (7th Cir. 2010) (Indiana law).   
 
I would reverse the trial court’s decision and find in favor of the insurer. 
 
Shepard, C.J., joins.