State Auto. Ins. Co. v. DMY Realty Co.

977 N.E.2d 411

STATE AUTOMOBILE INSURANCE COMPANY, Meridian Security Insurance Company, and Indiana Farmers Mutual Insurance Company, Appellants–Defendants,

v.DMY REALTY COMPANY, LLP and Commerce Realty, LLC, Appellees–Plaintiffs.

No. 49A05–1109–PL–486.

Court of Appeals of Indiana.

Oct. 23, 2012.

Barry C. Cope, Karl L. Mulvaney, Kandi Kilkelly Hidde, Bingham Greenebaum Doll LLP, Indianapolis, IN, Attorneys for Appellants.

David L. Hatchett, Eric J. Essley, Hatchett & Hauck LLP, Indianapolis, IN, Attorneys for Appellees.

OPINION

BROWN, Judge.

State Automobile Insurance Company and Meridian Security Insurance Company (collectively, “State Auto”) appeal the trial court's order denying State Auto's motion for summary judgment and granting summary judgment in favor of DMY Realty Company, LLP and Commerce Realty, LLC (collectively, “DMY”). ¹ State Auto raises three issues which we revise and restate as:

I. Whether the language of certain pollution exclusions and endorsements contained in insurance policies issued by State Auto to DMY is ambiguous;

II. Whether there exists a genuine issue of material fact precluding the grant of summary judgment in favor of DMY; and

III. Whether the court erred in determining that State Auto should indemnify DMY for all of its past and future costs associated with DMY's claim.

We affirm and remand.

FACTS

The facts as designated by the parties follow. The Chapelwood Shopping Center, owned by DMY during the relevant time period, consists of three separate buildings: the “Strip Mall” building, the “Noble Roman's” building, and the “Law Office” building (the three buildings collectively, the “Site”), and the buildings share a common parking lot. The Strip Mall consists of several retail spaces with addresses ranging from 7203 to 7231 W. 10th Street. Two former dry cleaners have operated in space within the Strip Mall including Chapel Hill Cleaners, located at 7225 W. 10th Street, which operated from 1971 through 2001 and Norge Town Laundry and Dry Cleaning, located at 7223 W. 10th Street, which operated from 1971 through 1989.

Between May 1998 and May 27, 2004, State Auto issued a total of nineteen insurance policies to DMY pertaining to either the Strip Mall, the Noble Roman's, or the Law Office, each of which providing that State Auto would pay sums that DMY becomes legally obligated to pay as damages because of “property damage” to which the insurance applies if the damage occurred during the policy period. Each of the policies contained pollution exclusion language stating the following:

[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.

Appellants' Brief at 12 (citing Appellants' Appendix at 466, 483, 499, 516, 540–541, 563–564, 587–588, 607–608, 641–642, 660–661, 670, 676–678, 692, 704–705, 714, 719–721, 735, 747–748, 757, 762–764, 778, 792–793, 804, 808–809, 823, 835–836, 847, 851–852, 866, 876, 892, 909, 930–931, 939, 955–956, 965). ² Also, eighteen of the nineteen policies (except “the Second Noble Roman's Policy”) contained an endorsement adding additional explanation for the pollution exclusion as follows: “The Pollution Exclusion applies whether or not the irritant or contaminant has any function in your business, operations, premises, site or location.” Id. at 13 (citing Appellants' Appendix at 463, 480, 496, 513, 535, 559, 583, 619, 672, 696, 716, 739, 759, 782, 789, 827, 832, 869, 873, 889, 906, 927, 951).³

On May 6, 1991, a Phase I Environmental Site Assessment (“ESA”) was completed by Arbor Environmental Services at the request of DMY in order to identify potential environmental concerns at the Site. The ESA noted that DMY indicated that the Strip Mall was constructed in the early 1970s and that Chapel Hill Cleaners was located at 7225 W. 10th Street. The ESA also noted that the presence of the Chapel Hill Cleaners did not constitute an environmental hazard but stated that “it is incumbent on the owners of the facility that they continue to follow applicable regulations concerning the handling of their” perchloroethylene, or PCE, which is a non-acutely hazardous waste under the U.S. Environmental Protection Agency's (“EPA's”) Resource Conservation and Recovery Act (“RCRA”) and is “a commonly used solvent in dry cleaning.” Appellants' Appendix at 184–185.

On September 27, 2007, another Phase I ESA report was completed by Bureau Veritas for Peacock Companies, which was interested in purchasing the Site. The Bureau Veritas ESA similarly noted the existence of two former dry cleaners in the Strip Mall. The ESA also noted that “[t]he Chapel Hill Cleaners facility was listed in the regulatory databases as a RCRA small quantity generator” and specifically “generated spent halogenated solvent waste.” Id. at 142. It also noted that “[t]he Norge Town facility was not listed in the regulatory databases and no other information was obtained regarding this former on-site operation.” Id.

Bureau Veritas also completed a Limited Subsurface Investigation (“LSI”) report dated September 28, 2007, which stated that PCE and TCE were detected in both the soil and groundwater at the Site. PCE was detected above industrial default closure levels in soil and TCE was detected above residential default closure levels in soil. The LSI recommended that additional subsurface investigation was warranted and specifically recommended that “ ‘closure’ be obtained through an IDEM program,” via either entering the Voluntary Remediation Program (“VRP”) or the Indiana State Cleanup program. Id. at 200.

On December 17, 2007, based on the LSI's recommendation for additional subsurface investigation, Bureau Veritas completed a Further Site Investigation Report (“FSI”) for the site in which twelve soil borings were taken and six monitoring wells were installed. The FSI noted its results regarding the Chapel Hill Cleaners as follows:

The results of site wide soil and groundwater analytical testing ... indicated concentrations of VOCs above applicable IDEM RISC closure levels. Although several soil samples contained detectable concentrations of PCE and its degradation products, results of soil analytical testing for [certain soil borings] did not reveal concentrations above IDEM RISC Residential or Industrial Closure Levels.... Based on available data, soil exhibiting concentrations of chlorinated solvents exceeding IDEM closure objectives appears to be relatively defined and limited to the area of the parking lot immediately north of the 7225 tenant space and under the building. However, it should be noted that impacts to soil from the former dry cleaning operations underneath the building have not been defined.

* * * * *

Based on available data, it is Bureau Veritas' opinion the source of the PCE is most likely located underneath the building and appears to be migrating to the north, possibly along a sewer line ... and to the east, following groundwater.

Id. at 318–319. Additional subsurface investigation was recommended with respect to the former dry cleaning operations and specifically reiterated its recommendation that “ ‘closure’ be obtained through an IDEM program.” Id. at 319.

On August 19, 2008, IDEM sent a letter to DMY requesting that DMY perform a Site Investigation to obtain information about the nature and extent of the environmental contamination at the Site. On November 6, 2008, IDEM sent a letter to Chris Abel of Alt & Witzig Engineering, as DMY's contact person, indicating that it had reviewed a VRP application and that the proposed cleanup was eligible for participation in the VRP. On December 23, 2008, DMY's counsel sent a letter to State Auto indicating that IDEM had accepted DMY's VRP application and that Alt & Witzig had been hired as the consultant to proceed with the investigation and remediation at the Site.

Alt & Witzig prepared a Phase II On–Site Investigation and Remediation Work Plan Report (the “Phase II Report”), dated January 2009, for DMY. Section 1.1.1 F of the Phase II Report, titled “Summary of Results of Phase II Investigations,” indicated that “there are chlorinated solvent impacts in the soil and groundwater above the IDEM RISC RDCLs and IDCLs,” that soil samples “indicated that concentrations of PCE, TCE and VC were above IDEM RISC RDCLs and IDCLs on the south central portion of the Site and extend underneath the building in the areas of the former dry cleaners,” that “on-Site groundwater analysis indicated that concentrations of ... PCE, TCE, and VC above IDEM RISC RDCLs and IDCLs throughout the central portion of the Site with the highest concentrations directly north and underneath the former dry cleaners in tenant units # 7225 and # 7223B,” and that off-site “grab water samples” “were below reporting limits....” Id. at 1006–1007. Also, some gasoline constituents were noted in the groundwater at the southwest corner of the Site.

CASE HISTORY

On February 10, 2009, DMY filed its complaint for declaratory judgment and damages against...