For insurers in Indiana, their efforts to enforce the pollution exclusion have resembled Charlie Brown tying to kick a football. But despite the futility their persistence has been Linus-like. After all, someday the Great Pumpkin just might arrive.

Ironically, despite how dismal it has been for insurers trying to enforce the pollution exclusion in Indiana, it could be the exact opposite. All insurers have to do is draft the pollution exclusion using the simple instructions that the Indiana Supreme Court has provided. In general, in Indiana, for the pollution exclusion to apply, the hazardous material argued to be a “pollutant” must be specifically mentioned in the pollution exclusion. It’s really that simple. Forget all that general talk about whether the pollution exclusion is limited to traditional environmental pollution or applies more broadly. In Indiana, the pollution exclusion applies to whatever the insurer says. But while the rule is that simple, its application has proven to be anything but.

An Indiana federal court in Atlantic Casualty Ins. Co. v. Garcia, No. 15-66 (N.D. Ind. Jan. 5, 2017) recently had occasion to address the state’s easy to say, not so easy to do, pollution exclusion rule. While the court found in favor of the insurer, it did so by punting the pollution exclusion. If it hadn’t, the insurer would have once again missed the football. Even though the court avoided the pollution exclusion, the decision still sheds light on the issue for those dealing with it in the Hoosier state.

At issue in Garcia was coverage for environmental contamination of property that had been used for many years as the site of a dry cleaning operation. The contaminating substances at issue were Stoddard Solvents, PCE and heating oil. The Garcias, the owners of the property, were facing claims for clean-up costs brought by the Indiana Department of Environmental Management. The Garcias sought coverage from their general liability insurer, Atlantic Casualty. The insurer denied coverage based on the pollution exclusion.

As noted, in Indiana, for the pollution exclusion to apply, the hazardous material argued to be a “pollutant” must be specifically mentioned in the pollution exclusion. Therefore, it is necessary to take a close look at the exclusion’s definition of “pollutants,” which is: “[A] solid, liquid, gaseous, or thermal irritant or contaminant or all material for which a Material Safety Data Sheet is required pursuant to federal, state, or local laws, where ever discharged, dispersed, seeping, migrating or released, including but not limited to petroleum, oil, heating oil, gasoline, fuel oil, carbon monoxide, industrial waste, acid, alkalis, chemicals, waste, treated sewage; and associated smoke, vapor, soot and fumes from said substance. Waste includes material to be recycled, reconditioned, or reclaimed.” (emphasis added).

The court in Garcia noted that heating oil was specifically listed in the definition of “pollutants.” Further, Stoddard solvents and PCE are required to have Material Safety Data Sheets under federal law. So, as far as the insurer saw it, it was in compliance with Indiana’s requirement – all of the substances, for which coverage was sought, were specifically listed in the pollution exclusion.

Hold on. Not so fast said the Garcias. Even if the insurer’s pollution exclusion has some specificity, because heating oil is specifically listed in the definition of “pollutants,” the language is still ambiguous because “it refers to pollutants by citing federal law rather than identifying specific pollutants within the policy itself.”

That was the issue before the court – does an insurer satisfy Indiana’s pollution exclusion requirement, that to-be-excluded substances must be specifically listed as “pollutants,” by referring to a list of pollutants under federal law?

The court was ready to say no – that simply referring to substances listed under federal law is not sufficiently specific -- agreeing with a 2015 decision from the Southern District of Indiana addressing the same issue. But the court passed on the issue and held that no coverage was owed for another reason:

“The Court is inclined to agree with its colleague in the Southern District of Indiana, but the question is a close one, and the Court is also mindful of Indiana Supreme Court Justice Sullivan’s warning that finding nearly all pollution exclusions unenforceable will cause ‘premium increases as insurers seek to charge for the increased risks [of extremely unpredictable pollution liability]’ and will present Indiana businesses with ‘a Hobson's choice: paying higher premiums for coverage they don’t need, thereby dissipating their financial resources, or going without coverage, thereby exposing themselves to risk of loss from ordinary tort liability.’

Under the principle of judicial restraint, federal courts ‘should not reach out to resolve complex and controversial questions when a decision may be based on a narrower ground.’ And as explained in Section IV.B, below, the Court finds that Atlantic’s policy does not provide coverage to the Garcias because of the policy’s claims-in-process exclusion. So the Court need not rule on whether the policy’s pollution exclusion bars coverage in order to resolve this case, and the Court declines to do so.”