Plain Language Of Insurance Policy's Pollution Exclusion Precludes Coverage For Gasoline Release
WEST BEND MUTUAL INSURANCE CO. v. UNITED STATES FIDELITY AND GUARANTEE CO. (March 25, 2010)
MDK owned a gasoline station in Goshen, Indiana. In 1996, it discovered that one of its underground gasoline storage tanks was leaking. Several years later, a group of nearby residents allegedly affected by the release sued MDK for personal injury and property damage. MDK requested coverage from its insurers, including West Bend Mutual Insurance Company ("West Bend") and Federated Mutual Insurance Company "(Federated"). West Bend agreed and eventually settled the case for $4 million. Federated declined based on its policy's pollution exclusion and other limitations. West Bend sued Federated. The district court granted summary judgment to Federated, concluding that the policy’s Pollution Exclusion provided a defense to coverage and that the Products-Completed Operations Hazard coverage did not obligate Federated to provide coverage. The court did not address whether the Known Loss Exclusion affected coverage. West Bend appeals.
In their opinion, Judges Flaum, Williams, and Sykes (dissenting) affirmed. The Court identified its task as to construe the policy as a whole, giving words their ordinary meaning, and construing any ambiguities against the insurer. The principal focus of the Court's approach was the Indiana Supreme Court's decision in American States. That case also dealt with a release from a gasoline storage tank. The policy in question contained a Pollution Exclusion that excluded coverage for certain losses arising out of the release of "pollutants." The definition of "pollutants" was identical to that in the Federated policy and did not mention motor fuels or gasoline. The Indiana Supreme Court found that the policy did not unambiguously identify gasoline as a pollutant. It resolved the ambiguity against the insurer and found coverage to exist. Although the definition of "pollutant" was identical in the policies, the Court noted that the Federated policy's Pollution Exclusion did include "motor fuels," which included gasoline. Thus, the Court concluded that the Federated Pollution Exclusion unambiguously and explicitly excluded gasoline contamination from the policy's coverage. The Court proceeded to consider both the excess liability coverage and the Products-Completed Operations Hazard coverage as possible sources for coverage. It concluded that; a) the excess coverage was coextensive with the primary coverage, and thus also excluded gasoline contamination, and b) the Products-Completed Operations Hazard coverage did not cover the loss. That coverage only applies to abandoned product and knowingly completed market transactions, neither of which is present here.
Judge Sykes dissented. She concurred with the majority's treatment of the policy’s Pollution Exclusion but disagreed with its treatment of the Products-Completed Operations Hazard coverage. Specifically, she disagreed that the case relied upon by the majority created a general rule of insurance law that the coverage only applies to abandoned product or knowingly completed market transactions. Without that general rule, Judge Sykes would conclude that the plain policy language covers the loss.
