Thirty years ago, on March 27, 1996, the Indiana Supreme Court published the landmark decision American States Ins. Co. v. Kiger, which shaped Indiana insurance coverage law. 662 N.E.2d 945 (Ind. 1996). The court held that both forms of the pollution exclusion—the original “sudden and accidental” version and the more recent “absolute form” were as ambiguous. This meant that insurance companies were liable for cleanup costs unless the insurers explicitly identified the pollutant at issue. This decision revolutionized pollution cleanup operations throughout Indiana and ensured that policyholders were entitled to the coverage they purchased from their insurers for expensive cleanup operations.

            Plews Shadley Racher & Braun’s George Plews, Peter Racher, and Jeff Claflin represented the policyholder, Kiger, in the case. In 1990, the City of Danville found petroleum in portions of the City’s sanitary sewer and determined that the source was a leak in an underground storage tank at the Kiger’s gas station. Id. at 946. Between 1991 and 1992, the Indiana Department of Environmental Management (“IDEM”) spent over $400,000 cleaning up the contamination to the gasoline and subsequently sought reimbursement costs from the Kigers. Id.

            Kiger requested that his insurer, American States Insurance Company (“American States”), defend and indemnify him for the costs. Id. at 947. American States denied coverage and asserted 26 separate defenses to avoid paying. Id. American States first claimed that the pre-1985 form of the pollution exclusion, which barred coverage for damages from pollutants unless the release of pollutants was “sudden and accidental.” American States argued the gasoline release was not temporally “sudden,” since it took place over a number of years.” Id. Kiger responded that “sudden” did not have an exclusively temporal element, and the phrase “sudden and accidental” could be interpreted to mean “unexpected and unintended.” Id.

          The Court rejected the American States argument, finding that the term “sudden and accidental” was ambiguous, since it admitted of at least two plausible interpretations. Importantly, the Court noted “there exist[ed] a lack of clarity” amongst the insurance industry on what this exclusion meant. Some within the industry had construed it to simply state a ban of coverage for deliberate polluters. Id. at 948. Because it was ambiguous, the Court favored coverage and found that this exclusion did not exclude Kiger’s gasoline leak. Id.

The Court went on to construe the so-called “absolute pollution exclusion, which appears in policies sold after 1984. This exclusion purports to exclude coverage for damages from the release of any “Pollutants.” “Pollutants” was defined in the policies very broadly, including “any solid, liquid, gaseous or thermal irritants or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” Id.

             The Indiana Supreme Court first found that the American States’ position was an “oddity.” Id.  Why would insurers sell “a ‘garage policy’ to gas stations when that policy specifically excluded the major source of potential liability…?” Id. But the Court found that the essential problem with this form of the exclusion was the overbroad definition of “Pollutants.” This definition was so broad that it would negate virtually all coverage for any claims involving a substance other than base neutral water. Id. at 949. For example, if the policy’s language is applied literally, the claim of a customer slipping on a grease spill would be excluded. Id. Because the exclusion was so overbroad, it was ambiguous.  The Court held that the “language of the contract must be explicit,” and because this form of the exclusion was not, the exclusion must be “strictly construed against the insurer in favor of coverage.” Id.  

            Since 1996, the Indiana Supreme Court has consistently applied this decision in many contexts, each time holding that exclusions relying on a broad definition of “pollutants” are unenforceable. See State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845 (Ind. 2012) (applying Kiger to TCE pollution); Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind. 1996) (applying Kiger to solid waste); Freidline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind. 2002) (applying Kiger to toxic carpet glue fumes).  Kiger has been cited 198 times by various state and federal courts throughout the country, and Indiana has solidified itself as a leader in pro-policyholder insurance coverage because of this case.

Kiger has provided crucial support for environmental cleanups, which can cost tens of millions of dollars. Business owners can utilize the insurance protection they purchased to ensure that they stay in business despite often substantial and unexpected environmental expenses. It has supported cleanups where the businesses that generated the contamination are no longer in existence. Perhaps most importantly, the coverage Kiger supports helps to guarantee that the environment is adequately remediated and protected from releases and spills. The Supreme Court protected all of these important interests in this 1996 decision. “Kiger has been a vital part of Indiana’s efforts to clean up pollution in our state,” said George Plews, one of PSRB’s lawyers on the case. “It has gathered billions of dollars for that work.” “Plews Shadley Racher & Braun is proud to have represented Indiana policyholders in Kiger and countless other cases,” said Peter Racher, another member of the PSRB team. Jeff Claflin, a third PSRB lawyer on the case, adds, “To this day, the firm continues to fight for policyholders to ensure they receive the coverage they deserve under the policies they purchased.”

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