Old Republic Ins. Co. v. Gary/Chicago Int'l Airport Auth.

OLD REPUBLIC INSURANCE COMPANY, Plaintiff, v. GARY/CHICAGO INTERNATIONAL AIRPORT AUTHORITY, Defendant.

CASE NO. 2:15-CV-281-JD

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA HAMMOND DIVISION

July 25, 2016

OPINION AND ORDER

This is an insurance coverage dispute between Plaintiff Old Republic Insurance Company ("Old Republic") and Defendant Gary/Chicago International Airport Authority ("Airport Authority"). Old Republic filed a complaint for declaratory relief and reimbursement of defense costs against the Airport Authority after the Indiana Department of Environmental Management ("IDEM") initiated an action against the Airport Authority in connection with pollution at the Gary/Chicago International Airport ("Airport") [DE 3]. Old Republic asks the Court to declare that, based on the pollution exclusion in the sixteen applicable insurance policies issued to the Airport Authority, it did not (and does not) have a duty to defend or indemnify the Airport Authority with respect to the IDEM action. Id. Thus, Old Republic believes that it should be reimbursed for what it paid to date on behalf of the Airport Authority to remedy the matter. Id. While the complaint alternatively seeks to limit the time frame of any coverage, this issue is not raised in Old Republic's Motion for Summary Judgment [DE 20]; rather, only the pollution exclusion is at issue in the motion, which is fully briefed [DE 21; DE 24; DE 25; DE 26] and ripe for ruling. For the reasons set forth below, the Court DENIES Old Republic's Motion for Summary Judgment.

I. Facts

Based on the pleadings, there is no dispute that pollution and contamination conditions exist at the Airport [DE 3 at 3; DE 15 at 4]. As a result of those conditions, on September 8, 2014, IDEM sent a letter to the Airport Authority (who owns and operates the Airport) requiring the Airport Authority to investigate and submit a plan to contain or remediate the problem ("the IDEM action") [DE 15 at 4-5, 7]. Specifically, IDEM identified the presence of an oily sheen in one area and detected concentrations of benzo(a)pyrene, arsenic, and PCBs in another area [DE 15 at 4-5]. Since then, IDEM has required the Airport Authority to investigate the presence of fifty-two different pollutants/contaminants [DE 25-1, DE 25-2].

On September 9, 2014, the Airport Authority tendered a claim to its insurer, Old Republic, concerning the IDEM action [DE 25-3]. Old Republic agreed to defend the Airport Authority and hired counsel to assist with respect to the IDEM action, but it did so under a full reservation of rights [DE 21-19].

Old Republic issued a total of sixteen insurance policies to the Airport Authority, each providing coverage for a year and collectively covering the period from April 25, 1997 through April 25, 1998 and April 25, 2000 through May 25, 2015 [DE 3 at 9; DE 21-3 through DE 21-18; DE 24 at 3]. The policies at issue contained the following pertinent language:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" . . .

***

[or] "personal injury" or "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages . . .

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All Coverages included in this policy are subject to the following exclusions.

A. Noise and pollution and other perils.

1. This policy does not cover claims directly or indirectly occasioned by, happening through or in consequence of:-

. . .

(b) pollution and contamination of any kind whatsoever¹

. . .

unless caused by or resulting in a crash fire explosion or collision or a recorded in-flight emergency causing abnormal aircraft operation.

2. With respect to any provision in the policy concerning our duty to investigate or defend claims, such provision shall not apply and we shall not be required to defend:

(a) claims excluded by Paragraph 1; or

(b) a claim or claims covered by the policy when combined with any claims excluded by Paragraph 1 (referred to below as "Combined Claims").

[DE 21-3 through DE 21-18 (emphasis added)]. While the policies define certain terms, the policies do not define the terms "pollution" or "contamination." Id.

II. Standard of Review

On summary judgment, the burden is on the moving party to demonstrate that there "is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). That means that the Court must construe all facts in the light most favorable to the nonmoving party, making every legitimate inference and resolving every doubt in its favor. Srail v. Village of Lisle, Ill., 588 F.3d 940, 943 (7th Cir. 2009). A "material" fact is one identified by the substantive law as affecting the outcome of the suit. Anderson v Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" exists with respect to any such material fact, and summary judgment is therefore inappropriate, when "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. On the other hand, where a factual record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing Bank of Ariz. v. Cities Servs. Co., 391 U.S. 253, 289 (1968)). Summary judgment is not a tool to decide legitimately contested issues, and it may not be granted unless no reasonable jury could decide in favor of the nonmoving party. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

Sitting in diversity,² the Court will rely on the substantive law of Indiana and attempt to predict how the Indiana Supreme Court would decide the issues presentedhere. See Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir. 2015); Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir. 1999) ("Where the state supreme court has not ruled on an issue, decisions of the state appellate courts control, unless there are persuasive indications that the state supreme court would decide the issue differently.").

III. Discussion

In Indiana, insurance policies are governed by the same rules of construction as other contracts. Bradshaw v. Chandler, 916 N.E.2d 163, 166 (Ind. 2009). The Indiana Supreme Court has indicated how insurance policies are to be interpreted, as follows:

Interpretation of an insurance policy presents a question of law that is particularly suitable for summary judgment. 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. This is especially true where the language in question purports to exclude coverage. Insurers are free to limit the coverage of their policies, but such limitations must be clearly expressed to be enforceable. 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. 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.

State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 848 (Ind. 2012) (internal citations and quotations omitted). Ambiguity exists when a policy is susceptible to two or more reasonable interpretations. Everett Cash Mut. Ins. Co. v. Taylor, 926 N.E.2d 1008, 1012-13 (Ind. 2010) (citing Beam v. Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002)). The fact that the parties disagree over the meaning of the contract does not, in and of itself, establish an ambiguity. Id. (citing Meridian Mut. Ins. Co. v. Cox, 541 N.E.2d 959, 961 (Ind. Ct. App. 1989)). On the other hand, if insurance policy language isclear and unambiguous, it should be given its plain and ordinary meaning. Reuille v. E.E. Brandenberger Constr., Inc., 888 N.E. 2d 770, 771 (Ind. 2008) (quoting Cabanaw v. Cabanaw, 648 N.E.2d 694, 697 (Ind. Ct. App. 1995)). Moreover, the duty to defend is broader than an insurance company's coverage liability or its duty to indemnify. Seymour Mfg. Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 891, 892 (Ind. 1996).

Based on the fact that Old Republic's insurance policies explicitly exclude coverage for "pollution and contamination of any kind whatsoever," Old Republic contends that it does not have a duty to defend or indemnify the Airport Authority in relation to the IDEM action. The Airport Authority disagrees and believes that Old Republic owes coverage because the language of the pollution exclusion is ambiguous, so the exclusion cannot be enforced to negate Old Republic's duties under the insurance policy.

As recently noted in St. Paul Fire & Marine Ins. Co. v. City of Kokomo, No. 1:13-CV-01573-JMS, 2015 WL 3907455 (S.D. Ind. June 25, 2015) (Magnus-Stinson, J.), reconsideration denied sub nom., 2015 WL 7573227 (S.D. Ind. Nov. 25, 2015), Indiana utilizes a unique approach to determine the applicability of a pollution exclusion in an insurance policy dispute. See St. Paul Fire & Marine Ins. Co., 2015 WL 3907455 at *5 (citing Flexdar, Inc., 964 N.E.2d at 851). Unlike Indiana, in analyzing whether a policy excludes coverage for losses resulting from "pollutants,"³ some jurisdictions employ a "literal" view of the absolute pollution exclusion and deem it unambiguous where a substance is acting in any manner as an "irritant or contaminant," while otherjurisdictions employ a more "situational" approach and uphold the absolute pollution exclusion only in cases where the facts reveal "traditional environmental contamination." See Flexdar, Inc., 964 N.E.2d at 850-51 (citing cases). Either of these approaches might support the outcome Old Republic seeks here.

However, Indiana applies basic contract principles and has consistently held that "the insurer can (and should) specify...