GOVERNMENTAL INTERINSURANCE EXCHANGE

V.

CITY OF ANGOLA, INDIANA

No. 1:97-CV-176

United States District Court for the Northern District of Indiana

Jan. 27, 1998

ORDER

This matter is before the court on cross motions for summary judgment. The Plaintiff, Governmental Interinsurance Exchange ("GIE") filed its motion for summary judgment on October 15, 1997, and the Defendant, City of Angola, Indiana ("the City") filed its motion on October 17,. Briefing was completed on November 18, 1997, with the exception of a filing of supplemental authority by the City on December 15, 1997. For the following reasons, GIE’s motion for summary judgment is DENIED and the City’s motion for summary judgment is GRANTED.

STATEMENT OF FACTS [FN1]

GIE is an Illinois reciprocal insurer with its principal place of business in Bloomington, Illinois. Joint Statement of Undisputed Material Facts, p. 1. The City of Angola is organized under the laws of the State of Indiana and is located in Steuben County. Id. GIE issued annual Local Government Comprehensive General Liability Policies to the City from June 4, 1986 through January 1, 1997. Id. Policy No. 1LG09094 was issued to the City for the policy period from January 1, 1996 to January 1, 1997. Id., Exh. A ("the Policy"). On November 22, 1995, the City filed a notice with the Indiana Department of Environmental Management ("IDEM") stating that it intended to close a 300-gallon underground storage tank ("UST"). Id., Exh. B, Underground Storage Tank System Closure Request Form. In a letter dated November 28, 199, IDEM approved initiation of the closure and instructed the City as to the applicable state and federal regulations, testing protocols, and the additional documentation that would be required. Id., Exch. C, letter from Victoria Kelly to Jennifer Bruner. The tank was located at the City’s garage on 300 West Mill Street ("the Site"), which was owned by the City and was used for fueling city vehicles and lawn care equipment. Id., Exh. D Results of Underground Tank Closure and Closure Site Assessment Report ("Results Report") dated June 1, 1996. GIE did not receive copies of these letters or the Report until August 25, 1997.

During the course of removing the 300-gallon UST, the City’s contractor discovered an additional 1,500-gallon UST previously unknown to the contractor or to City officials. Exh. D Results Report, p. 1; Exh. E, June 10, 1997 Corrective Action Plan Progress Report ("CAP Report"). GI did not receive copies of the Report or CAP Report until August 25, 1997. Both underground storage tanks at the Site were removed at the direction of the City by Knapp Environmental Construction Services, Inc. ("Knapp"). The tanks were removed on May 2, 1006. Knapp was retained by the City and forwarded its invoice for payment directly to the City. Id., Exh. F, May 6, 1996 Invoice from Knapp to the City.

During and after removal of the USTs, visual inspection of the internal and external tank shells indicated significant corrosion; holes were observed in the kerosene tank. Knapp also reported that "a flanged port on the bottom of the tank may have been loose." After removal, groundwater was observed at the base of the excavation. Exh. D, Results Report, p. 2. "[P]etroleum odors and/or visual staining was observed in the soils surrounding the tank. As soils appeared to be impacted with petroleum, a release report was made to the IDEM and the site was assigned Incident #9605501." Id.; see also Exh. E, CAP Report, p. 1 GIE did not receive a copy of the CAP report until August 25, 1997.

Following the underground storage tank removal, the City initiated an investigation of the Site and then undertook remedial efforts. Id., Exh G, Invoices from Knapp to the City dated June 24, 1996, July 12, 1996, August 19, 1996, September 23, 1996 and October 1, 1996. According to these invoices, the State was assessed to determine the extent of environmental contamination, "free product" and water were recovered, and drums and "contaminated soils" were removed. Id. In addition to the removal of contaminated soils, the remedial efforts included the installation and monitoring of nine groundwater monitoring wells (Exh. E, CAP Report, p. 2) and the installation of a free-phase product recovery system on July 15, 1996 to "prevent further migration of free-phase product and impacted groundwater." Id. GIE did not receive a copy of the CAP Report until August 25, 1997.

Samples from the monitoring wells originally indicated that the groundwater was contaminated with benzene, toluene, methylbenzene and xylene ("BTEX"). Exh. E, Cap Report, p. 3. On June 21 and July 31, 1996, the City submitted a 20 Day Abatement Report and an Initial Site Characterization Report to IDEM. Id., Exhs. H and I. By letter dated December 6, 1996, IDEM informed the City that additional site characterization information was still needed and that the City’s failure to comply with IDEM’s demand for this information could result in civil penalties not to exceed $25,000 per day in addition to the recovery of all costs incurred by the state related to the Site. Id., Exh. J, IDEM’s December 6, 1996 letter. GIE did not receive copies of these documents until August 25, 1997. By letter dated July 17, 1997, IDEM acknowledged that the City’s site characterization was complete. The agency requested that the City develop and submit a final Corrective Action Plan within 45 days. Id., Exh. K, July 17, 1997 letter from Roy Harbert to William Boyer. GIE did not receive a copy of this letter until August 25, 1997. The City’s monitoring and remedial efforts are ongoing. Id., Exh. E, CAP Report.

By letter dated May 3, 1996, Jennifer Bruner the City Engineer, and Scott Lehman, the City Fire Marshall, informed Don Roe, of Croxton & Roe Insurance Company, that two underground storage tanks had been removed fro Angola Street Department located at 300 West Mill Street. Id., Exh L. May 3, 1996 correspondence to Roe from Bruner and Lehman. According to this letter, at the time of the removal at the Site, "staining of the soil and free product" were observed and "[o]dors were also evident." Id. By notice dated May 28, 1996, Don Roe informed GIE’‘s claims office of the removal of the two underground storage tanks due to "possible ground [sic] contaminated." Id., Exh. M, May 28, 1996 Accord Notice. GIE informed the City that its loss was not covered under the Policy due to the operation of the Policy’s Pollution Exclusion Endorsement by letter dated June 25, 1996. Id., Exh. N, June 25, 1996 correspondence to May Bill Selman from Robbin Peeken. On June 28, 1996, the City informed Roe that while, in fact, free product was not evident during the initial excavation (thus, correcting a statement in the May 3, 1996 letter), free product was discovered in a monitoring well on May 31, 1996. This was reported to IDEM and the Site was changed to a "high priority" site. Id., Exh. O, June 8m 1996 letter from Bruner to Roe. GIE DID NOT RECEIVE A COPY OF THE June 28 letter until August 25, 1997.

On January 7, 1997, the City reasserted its claim for insurance coverage by submitting a letter from counsel to Peeken, the Claims Examiner for GIE who originally denied coverage for the claim. Id., Exh P, January 9, 1997 letter from Jeffrey Claflin to Peeken. By letter dated February 11, 1997, and in response to the City’s January 7 letter, GIE denied coverage a second time–again based on the pollution exclusion. Id., Exh. Q, February 11, 1997 letter from Mary Mowery to Claflin. On March 13, 1997, the City replied to GIE’s February 11 denial letter and again demanded coverage for the claim. Id., Exh. R, March 13, 1997 letter from Claflin to Mowery. On May 15, 1997, GIE again informed the City that its loss was not covered under the Policy. Id., Exh. S, May 15, 1997 correspondence to Claflin from Mowery. In that letter GIE alleged that no "suit" had been filed in connection with this loss and the property at issue was owned by the City. Thus, this letter additionally based a denial of coverage on the language of the Policy’s insuring agreement, the Policy’s "owned property" exclusion, and the Policy’s "voluntary payments" provision. This coverage dispute resulted in this declaratory judgment action and the present cross-motions for summary judgment.

SUMMARY JUDGMENT STANDARD

Summary judgment is proper "if the pleadings, depositions, answer to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genu7ine issue a to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). However, Rule 56(c) is not a requirement that the moving party negate his opponent’s claim. Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254, 1256 (7^th Cir. 1990). Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery, against a party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The standard for granting summary judgment mirrors the directed verdict standard under Rule 50(a), which requires the court to grant a directed verdict where there can be but one reasonable conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A scintilla of evidence in support of the non-moving party’s position is not sufficient to successfully oppose summary judgment; "there must be evidence on which the jury could reasonably find for the plaintiff." Id. 477 U.S. at 252, 106 S.Ct. at 2512; In Re matter of Wildman, 859 F.2d 553, 557 (7^th Cir.1988); Klein v. Ryan, 847 F.2d 368, 374 (7^th Cir.1998); Valentine v. Joliet Township High Sch. Dist. No. 204, 802 F.2d 981, 986 (7^th Cir. 1986). No genuine issue for trial exists "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party." Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 322 (7^th Cir.1992) (quoting Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp. 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

Initially, Rule 56 requires the moving party to inform the court of the basis for the motion, and to identify those portions of the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.t. at 2553. The non-moving party may oppose the motion with any of the evidentiary materials listed in Rule 56(c), but reliance on the pleadings alone is not sufficient to withstand summary judgment. Gok v. Bobbitt, 862 F.2d 646, 649 (7^th Cir.1988); Guenin v. Sendra Corp., 700 F.Supp. 973, 974 (N.D.Ind.1988); Posey v. Skyline Corp., 702 F.l2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). In ruling on a summary judgment motion the court accepts as true the non-moving party’s evidence, draws all legitimate inferences in favor of the non-moving party, and does not weight the evidence or the credibility of witnesses. Anderson, 477 U.S. at 249-251, 106 S.Ct. at 2511.

DISCUSSION

Indiana has certain well-established rules regarding the interpretation of insurance contracts. [FN2] "Under Indiana law, the interpretation of an insurance policy presents a question of law to be decided by the court." Cincinnati Ins. Co. v. Flanders Electric Motor Service, Inc., 40 F.3d 146, 151 (7^th Cir. 1994) (citing Tate v. Secura Ins., 587 N.E.2d 554, 668 (Ind.1992)). "The insured has the initial burden of proving coverage under an insurance policy...[and] if an insurer relies on an exclusion within a policy to deny coverage, the insurer must establish that the exclusion applies." Id. (citing Southbend Escan Corp. v. Federal Ins. Co., 647 F.Supp. 962, 966 (N.D.Ind.1986)). Clear and unambiguous language in an insurance policy must be given its plain and ordinary meaning. Id. (citing Fidelity & Guar. Ins. Underwriters v. Everett I. Brown Co., 25 F.3d 484-486 (7^th Cir.1994)). "An unambiguous provision in an insurance policy must be enforced, even if it results in a limitation of the insurer’s liability." Id. (citing Interstate Auction, Inc. v. Central Nat’l Ins. Group, Inc., 448 N.E.2d 1094, 1098 (Ind.App.1983)). "However, where the language of an insurance policy is ambiguous, in that it is susceptible to more than one reasonable interpretation, the court must construe the language in favor of the insured." Id. (citing Alexander v. Erie Ins. Exchange, 982 F.2d 1153, 1157 (7^th Cir. 1993)). At the same time, "a court cannot create an ambiguity where none exists; ‘if no ambiguity exists the policy will not be interpreted to provide greater coverage than the parties bargained for ....’" Id. (quoting Alexander, 982 F.2d at 1157). Also, "the mere existence of a controversy as to the meaning of an insurance contract does not establish an ambiguity." Seymour Manufacturing Co., Inc. v. Commercial Union Ins. Co., 648 N.E.2d 1214, 1218 (Ind.App.1995) (citing Harden v. Monroe Guaranty Ins. Co., 626 N.E.2d 814, 817 (Ind.App.1993), trans. denied)).

The grounds for GIE’s motion for summary judgment are summed up in the second and third paragraphs of the company’s memorandum in support of its motion. Those paragraphs state, in relevant part, as follows:

In this case, the environmental contamination complained of is clearly the result of pollutants, and therefore, the Pollution Exclusion Endorsement is applicable.

In addition, other policy provisions likewise preclude coverage for the City’s claim. For example, according to the policy’s insuring agreement, the policy only provides a defense to "suits" and only provides coverage for sums the City becomes "legally obligated to pay as damages." Because no "suit has been filed in connection with this claim and the City has not been called upon to pay "damages," this provision further precludes coverage for the City’s claim. Finally, the policy also explicitly states that the City shall not "voluntarily" makes any payment or assume obligations without GIE’s consent. Here, the City chose to investigate and remediate its own property without notice to GIE, and as a result, there is no coverage for this claim to the extent the City incurred liability without notice to or the consent of GIE.

Memorandum in Support of Governmental Interinsurance Exchange’s Motion for Summary Judgment ("Plaintiff’s Memorandum), pp. 1-2.

A. The Pollution Exclusion Endorsement.

The pollution exclusion endorsement in the policy reads, in its entirety, as follows:

This policy does not apply to:

(1) Bodily Injury, Property Damage, Personal Injury (including, without implied limitation Personal Injury arising out of violations of Civil or Constitutional Rights or Assault or Battery), loss, injury or damage arising out of any negligent or intentional act, error or omission, or other similar or dissimilar loss, injury or damage, arising out of the actual, alleged, potential or threatened emission, discharge, dispersal, release, escape or existence of pollutants, or any costs, expenses, payments or other obligations arising out of such actual, alleged or threatened emission, discharge, dispersal, release, escape or existence of pollutants.

(2) Any loss, cost, expense payment or other obligation arising out of any direction or request by or for any government, or branch or agency thereof, that the insured or any other person or entitlement, or branch or agency thereof, that the insured or any other person or entity tests for; monitors; stops, controls, or reduces the emission, discharge, escape, release, dispersal or existence of; cleans up; removes; contains; treats, detoxifies; or neutralizes pollutants.

(3) Claims arising out of the insureds’ failure to detect, regulate, control, or prevent acts, operations, or omissions which have caused or may be alleged to have caused the emission, discharge, dispersal, release, escape or existence of pollutants, or other claims arising out of the insureds’ failure to take action or to take appropriate action to detect, regulate, prevent, reduce, or control damage or injury to persons or property resulting from such discharge, dispersal, release or escape of pollutants.

(4) Claims arising out of the provision of water, gas or any other product or substance which is or is alleged to be contaminated or potentially contaminated with pollutants.

Pollutants means (a) any solid, liquid, gaseous or thermal irritants, toxicants, toxicoids, mutagens, teratogens or contaminants, including, without implied limitation, smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste material, waste material includes, without implied limitation, materials which are intended to be or have been recycled, reconditioned or reclaimed, (b) any other chemical compound or element (Including, without implied limitation, any radioactive chemical or element or any subatomic particle) which does or may potentially cause or result in any form of loss, injury or damage to persons or property or which is or may potentially be a threat or hazard to or cause loss, injury or damage to the public or individual health or safety, (c) any sound or noise, (d) any light or other electromagnetic forces, and (e) any odor or smell.

Joint Statement of Facts, Exh. A, Policy (emphasis in original). The parties agree that this endorsement is a type commonly referred to as an "absolute" pollution exclusion. GIE, in arguing that the language of the exclusion. GIE, in arguing that the language of the exclusion is clear and ambiguous, and therefore precludes the City’s claim, relies predominantly on the cases of Muncie Sanitary Dist. v. The Harleysville Ins. Cos., et al., Cause No. IP-94-1401-C-D/G (S.D.Ind.1996) and Employers Mutual Cas. Co. v. DFX Enterprises, et al. Cause No. 20D03-9505-CP-046 (Elkhart Superior Ct.1997). In Muncie, GIE, as a third-party defendant, moved for summary judgment. GIE argued that pollution exclusions in insurance policies it issued to the Muncie Sanitary District precluded coverage for claims arising out of the contamination of a landfill. One of the pollution exclusion clauses at issue was identical to the one at issue in the present case. In his unpublished opinion, Judge Dillin, after setting forth the exclusionary language, and without any discussion of any applicable case law, concluded that "examination of the case law, concluded that "examination of the language in these pollution exclusion clauses leads us to conclude that such language is thorough and unambiguous....Consequently, we must accord the policy language its ordinary meaning. In so doing we find that the seven policies issued by GIE do not encompass the damages in issue in the present case." Defendant’s Memorandum, Exh. A, Sip Op., p. 7.

In Employers Mutual, tenants of a mobile home park sued the park’s owner alleging that they had been exposed to "harmful bacteriological and virological agents and harmful and/or disease causing matter..." Id., Exh B, Slip Op., p. 1. The wording of the pollution exclusion at issue in that case (at least that portion of it actually quoted by the trial court) was very similar to the language being discussed in the present case. The trailer park’s owner’s insurance carrier moved for summary judgment on the basis that the pollution exclusion precluded coverage. The defendants, including the park’s owner’s insurance carrier moved for summary judgment on the basis that the pollution exclusion precluded coverage. The defendants, including the park’s owner, argued that since the pollution exclusion precluded coverage. The defendants, including the park’s owner, argued that since the pollution exclusion did not define "pollutant" to include "bacteriological" or "virological" agents it was therefore not applicable and did not preclude coverage. The Elkhart Superior Court held that notwithstanding that fact, the pollution exclusion did include in its definition of pollutant the words "contaminant" and "waste." The court further found that the water supply in the trailer park had been polluted by the introduction of raw sewage. Concluding the raw sewage constitutes a contaminant and waste (the trial court engaged in a lengthy discussion of dictionary definitions of the various terms at issue), and since the definition of pollutant in the policy included those two terms, the court held that "the pollution exclusion clause in ... [the] policy [is] unambiguous within the facts of this case." Id., p. 9.

The City counters GIE’s position by distinguishing Muncie and Employers Mutual, and then arguing that the Indiana Supreme Court has expressly ruled that the very "absolute" pollution exclusion language at issue in the present case is ambiguous. The City first point out that Judge Dillin did not even mention the cases of American States Ins. Co. v. Kiger, 662 N.E.3d 945 (Ind.1996) and Seymour Mfg. Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 981 (Ind.1996)(discussed below) when he was issued his opinion in Muncie, even though both cases had been decided several months earlier. As the City points out, Judge Dillin may never have been presented with the Kiger holding because GIE’s motion for summary judgment in that case was directed at other insurance companies who were third-party plaintiffs in the case, and who, "apparently refused–for obviously self-serving reasons–to argue that the exclusion is ambiguous." City of Angola’s Brief in Opposition to Governmental Interinsurance Exchange’s Motion for Summary Judgment ("Defendant’s Response"), p. 3., n.6. Whatever the explanation for the absence of any discussion or even mention of Kiger in Judge Dillin’s decision, claims the City does not negate the fact that "Kiger is the law in this state." Id. As to the Employers Mutual case, the City argues that is not persuasive, since the court found the pollution exclusion unambiguous in that case because it concluded that sewage was clearly a "contaminant" or "waste" and both of those terms were included in the policy’s definition of "pollutant." Accordingly, argues the City, neither Muncie nor Employers Mutual are persuasive with regard to the present case.

In support of its contention that "absolute" pollution exclusions are ambiguous as a matter of law in Indiana, the City cites the cases of Kiger and Seymour. In Kiger, the insured owned a gasoline service station, which was the source of an underground gasoline leak. The insurance policy at issue contained a pollution exclusion clause and defined "pollutants" as:

any solid, liquid gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals

[continued . . .]

WILLIAM C. LEE, Chief Judge

[FN1] The facts of this case as set forth herein were taken, virtually verbatim, from the Joint Statement of Undisputed Material Facts ("Joint Statement of Facts") submitted by the parties on August 27, 1997.

[FN2] In their briefs, both GIE and the City apply Indiana law to the issues in this case, so there is obviously no choice of law dispute. In any case, this is a diversity action and neither party has raised a choice of law challenge. Accordingly, the governing law is that of the forum state. Transamerica Ins. Co. v. South, 975 F.2d 321, 327 (7^th Cir.1992).