Insurance Coverage Litigation
Vol. 33 No. 3
____________________________________________________________________________________________
Published in Coverage Vol. 33 No. 3. Copyright © 2024, American Bar Association. All rights reserved. This information or
any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic
database or retrieval system without the express written consent of the American Bar Association.
ARTICLES
A Third Option: A Battle over the Pollution Exclusion That
You Didn’t Know Existed
By Andrew Van Osselaer, Michael Scanlon, and Erin McGuire
It is generally accepted in the insurance field that there are two jurisdictional camps for
interpreting the scope of pollution exclusions. The first camp interprets pollution exclusions only
to exclude what is often described as “traditional environmental pollution”—e.g., contamination
of the air, water, or land.
1
The second camp interprets pollution exclusions broadly to exclude
potentially any injury arising out of the release of pollutants, contaminants, or irritants—not just
those arising from traditionally understood pollution events.
Jurisdictions following the first approach base their reasoning on exclusions’ clear and
unambiguous language, in exclusions’ inherent ambiguity, or in the reasonable expectations of
the insured.
2
Advocates of the second approach, on the other hand, tend to base their
interpretation solely on the exclusion’s supposedly clear and unambiguous meaning—at least
where it does not expressly limit itself to environmental harm (as some do). Advocates of this
approach often tout it as being less variable in its application (and therefore supposedly more
predicable), but it often leads to unusual results contrary to policyholder expectations. In one
case, for example, coverage of damage to furs from the aroma of curry from a nearby restaurant
was excluded because the aroma was considered a contaminant.
3
As another example, the
Seventh Circuit explained that under such a broad interpretation, a pollution exclusion may
exclude a slip-and-fall caused by spilled Drano because the accident was supposedly caused by
the release of a pollutant.
4
Indiana’s Third Option
Unbeknownst to many, however, Indiana law provides a third option. The Indiana Supreme
Court has rejected both of the above camps, instead finding the pollution exclusion to be per se
ambiguous as to what it excludes when it refers merely to “pollutants,” “contaminants,” and
“irritants” (and similarly less-than-descriptive terms).
5
As a result, in Indiana, insurers must
specifically identify the substances that are excluded if their pollution exclusion is to have any
effect at all.
6
That is to say, prototypical qualified, absolute, and total pollution exclusions are
simply inoperative as written.
While critics of Indiana’s rule have complained of it rendering pollution exclusions unworkable
due to the level of specificity required, courts interpreting the Indiana rule have not taken the
Indiana rule so far. While something more specific than “pollutant” is required, it need not be so
specific as to require the identification of singular chemicals.
7
A sufficiently specific
classification or even incorporation by reference (for example, of “Hazardous Substances” under
