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Thursday, March 25, 2010

Ind. Decisions - One today from 7th Circuit, re the pollution exclusion

In West Bend Mutual Ins. v. U.S. Fidelity (ND Ind., Judge Miller), a 27-page, 2-1 opinion, Judge Flaum writes:

Plaintiff-appellant West Bend Mutual Insurance Company (“West Bend”) appeals from the grant of summary judgment in favor of appellees, who consist of a group of insurance companies that includes the United States Fidelity and Guaranty Company (“Fidelity”) and Federated Mutual Insurance Company (“Federated”). West Bend initially sued the defendants for breach of contract because Federated declined to defend a mutual insured in a class action alleging that insured’s gas station contaminated groundwater in a residential neighborhood. The case revolves around whether the pollution exclusion contained in Federated’s policy effectively limited coverage for gasoline spills under Indiana law. The district court found that a clause in Federated’s policy excluded coverage for this type of claim and granted summary judgment in favor of Federated, Fidelity, and other insurers. West Bend now appeals this judgment as it applies to Federated. * * *

For the following reasons, we affirm. * * *

Indiana law governs this case and our task is to interpret the Federated policy accordingly. * * *

Under Indiana law, the insurer’s duty to defend is broader than his contractual obligation to provide coverage, but this duty is not boundless. * * *

Of foremost importance in this case is the holding of the Indiana Supreme Court in American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996): “[i]f a garage policy is intended to exclude coverage for damage caused by the leakage of gasoline, the language of the contract must be explicit.” * * *

We thus conclude that the Pollution Exclusion in the Federated policy was sufficiently explicit to exclude gasoline contamination from coverage. Since the Pollution Exclusion successfully frees appellees from the obligation to defend the Bowens action based on the main CGL policy, we do not reach the question of whether the Continuous Injury Endorsement or Known Loss Exclusion provide parallel paths to the same conclusion. We must still consider, however, whether the district court erred in holding that neither the excess liability coverage nor the products-completed operations hazard coverage contained in the supplemental Federated Umbrella policy provide grounds for the relief that West Bend seeks. * * *

There is no doubt that the Bowens action was predicated on accidental leak of gasoline from MDK’s storage tanks and West Bend never contended that the gas station abandoned its product. Therefore, the Federated Umbrella policy does not provide an independent source of recovery for the appellants. * * *

[At p. 19 of 27] SYKES, Circuit Judge, dissenting. I agree with my colleagues that the pollution exclusion in Federated’s 2001- 2003 CGL policy bars coverage under that policy. I do not agree, however, that the Indiana Supreme Court’s decision in B & R Farm Services, Inc. v. Farm Bureau Mutual Insurance Co., 483 N.E.2d 1076 (Ind. 1985), precludes coverage under Federated’s 2001-2002 umbrella policy. * * *

As I read the record in this case, there is conflicting evidence on the question whether MDK knew the loss at issue in the Bowens action had occurred, was occurring, or was substantially certain to occur before the umbrella policy’s effective date. I would remand for resolution of that question. Accordingly, for all the foregoing reasons, I respectfully dissent.

Posted by Marcia Oddi on March 25, 2010 12:49 PM
Posted to Ind. (7th Cir.) Decisions