Case Briefs

Indiana traditionally has been viewed as highly adverse to insurers. Indeed, applying Indiana law, the intermediate appellate court in this case had determined that the absolute pollution exclusion was unenforceable and that the voluntary remediation program constituted a “suit.” Standard Fusee, 917 N.E.2d at 185-86. These issues now will be resolved under Maryland law, which, compared with Indiana law, is more even-handed with respect to coverage issues. Although the Indiana Supreme Court declined to rule on the application of the absolute pollution exclusion under Indiana law in this case, a petition for transfer has been submitted to the court on this issue in State Automobile Mutual Insurance Co. v. Flexdar, Inc., No. 49A02-1002-PL-00111, 2010 WL 4723188 (Ind. Ct. App. Nov. 22, 2010), appeal pending.

Laura Foggan, a partner, and Peter Jenkins, an associate, at Wiley Rein LLP contributed the first Case Brief. Foggan and Gregory Langlois, an associate at the firm, contributed the second Case Brief. Foggan is a member of this newsletter's Board of Editors.

CA Supreme Court Finds Exception to Foster-Gardner Rule

The Supreme Court of California, applying California law, held in Ameron International Corp. v. Insurance Co. of the State of Pennsylvania, No. S153852 (Cal. Nov. 18, 2010), that an administrative adjudicative proceeding before the former U.S. Department of Interior Board of Contract Appeals is a “suit” for purposes of coverage under a commercial general liability policy. The Supreme Court held that the rule espoused in Foster-Gardner, Inc. v. National Union Fire Insurance Co. , 959 P.2d 265 (Cal. 1998), did not apply on the facts in this case. The Supreme Court made clear, however, that Foster-Gardner will “continue to apply to actions involving pollution remediation orders, or any matters that involve threats to take legal action only, rather than to 'suits.'” Between 1975 and 1980, the policyholder manufactured concrete siphons for use in the Central Arizona Project aqueduct system. The Department of the Interior discovered defects in the siphons in 1990, and in 1995 its contracting officer issued a decision seeking approximately $40 million in damages from the policyholder. The policyholder appealed the contracting officer's decision to the Department of Interior Board of Contract Appeals (“IBCA”). After 22 days of proceedings, the policyholder settled with the government for $10 million. When the insurers denied coverage for defense costs and indemnification, the policyholder filed suit.

The Supreme Court distinguished Foster-Gardner, which defines “suit” within a general liability insurance policy to include only a court proceeding initiated by the filing of a complaint. The Supreme Court noted that the IBCA's procedures required the contractor to file a complaint and the government to file an answer, which together “serve the purpose ascribed to the court complaint as described in Foster-Gardner.” Since the IBCA required a complaint to meet the same requirements of and serve the same purposes of complaints in a court of law, it “would exalt form over substance to find such a complaint before the IBCA insufficient simply because the IBCA is not a court of law.”

Importantly, while it found this adjudicatory administrative proceeding did qualify as a “suit,” the California high court did not overrule or discredit the Foster-Gardner case. The Supreme Court made clear that Foster-Gardner will “continue to apply to actions involving pollution remediation orders, or any matters that involve threats to take legal action only, rather than to 'suits.'” Associate Justice Joyce L. Kennard concurred in the judgment in a separate opinion critiquing Foster-Gardner, in which she originally dissented.

Indiana High Court  Addresses Choice of Law in Environmental Coverage Dispute

The Indiana Supreme Court has held that where an insurance contract covers multiple risks in multiple states, a “uniform-contract-interpretation” approach should be followed such that the law of a single state is applied to interpretation of the contract, as opposed to a “site-specific” approach under which the laws of the states where each risk is located apply. National Union Fire Insurance Company of Pittsburg, Pa., et al. v. Standard Fusee Corporation, No. 49S04-1006-CV-318 (Ind. Dec. 29, 2010). In the case before it, the Indiana high court then found that under the uniform contract interpretation approach, Maryland law governed whether various liability policies provided coverage for alleged or potential contamination at the policyholder's former California facility and at its Indiana facility. The court did not consider other issues addressed by the Court of Appeals, including the enforceability of the absolute pollution exclusion and whether participation in a voluntary environmental remediation program constitutes a “suit.”

The policyholder in this case, a manufacturer of emergency signaling flares, was incorporated in Delaware and headquartered in Maryland. It previously owned or operated facilities in Maryland, Indiana, Pennsylvania, New Jersey, Ohio, and California, and, at the time of the court's decision, was conducting operations in Maryland, Indiana, and Pennsylvania. In 2002, a chemical used in the production of the policyholder's flares was discovered in groundwater samples at and around its former California facility. Lawsuits against the policyholder in California state court followed, but they were dismissed after it was determined that the policyholder had never discharged the chemical at that site. In 2004, the policyholder tested its Indiana facility and, when the test suggested potential contamination, it participated in a voluntary remediation program with a state environmental management agency. The policyholder sought coverage for the California and Indiana proceedings under primary, excess, and umbrella liability policies that the policyholder purchased through two brokers, one located in Maryland and the other in Massachusetts. Coverage litigation ensued, and the trial court granted partial summary judgment in favor of the policyholder, holding that Indiana law governed the interpretation of the policies and that the insurers owed a duty to defend. On interlocutory appeal, the appellate court reversed the trial court's determination that Indiana law governed the entire dispute. The appellate court instead held that a “site-specific” approach should apply under which Indiana law would govern issues respecting the Indiana site and California law as to issues respecting the California site. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Standard Fusee Corp. , 917 N.E.2d 170 (Ind. Ct. App. 2009). The policyholder, as well as the insurers, then sought, and were granted, transfer to the Indiana Supreme Court.

The court held that the “uniform-contract-interpretation” approach and not the “site-specific” approach adopted by the appellate court should apply, as the court concluded that the uniform approach is more consistent with Indiana's choice-of-law jurisprudence. The court noted that Indiana courts consistently have applied the uniform approach, citing in support recent appellate court decisions including American Employers Ins. Co. v. Coachmen Industries, Inc. , 838 N.E.2d 1172 (Ind. Ct. App. 2005); Hartford Accident & Indemnity Co. v. Dana Corp. , 690 N.E.2d 285 (Ind. Ct. App. 1997); Employers Insurance of Wausau v. Recticel Foam Corp. , 716 N.E.2d 1015 (Ind. Ct. App. 1999); Travelers Indemnity Co. v. Summit Corp. of America , 715 N.E.2d 926 (Ind. Ct. App. 1999). The court also noted its decision in W.H. Barber Co. v. Hughes , 63 N.E.2d 417 (Ind. 1945), which rejected the rigid lex loci contractus rule in which the law of the state where the contract was made always governed in favor of a “center of gravity” rule in which the law of the state with the most intimate contact with the transaction governed. This approach is encompassed in the “most significant relationship” test of the Restatement (Second) of Conflict of Laws respecting contracts, the court explained, and the Coachmen, Dana, Recticel Foam, and Summit decisions each were guided by the contacts that the Restatement specifically lists. The court explained that its choice-of-law rule in contracts cases under W.H. Barber contemplates contacts with multiple states (such as the California and Indiana sites involved in this case) but nonetheless requires application of the law of only a single state with the most intimate contacts. The court further noted that its rejection of d'pe'age ' analyzing different issues in the same case under different states' law ' comports with the uniform approach.

Applying the Restatement factors, the court held that Maryland law should apply. The court noted that Maryland and Indiana each contained one of the policyholder's insured sites. However, the Maryland site also served as the policyholder's headquarters, suggesting that it serves as the principal location of the risk, the court explained. As to the domicile and place of incorporation of the parties, the court noted that this factor favored application of Maryland law, as the policyholder was headquartered in Maryland and none of the insurers were incorporated or headquartered either in Maryland or Indiana. As to the place of negotiation and contracting, the court explained that these factors favored application of Maryland law, as all of the policyholder's communications with its brokers originated from its Maryland headquarters; the policyholder's insurance procurement, review, and decision-making took place in Maryland; and the policies were retained in, and premiums paid from, Maryland. As to the place of performance, the court rejected the trial court's determination that this factor exclusively favored application of Indiana law, given that the policyholder acknowledged that insurance recoveries would be used not only to pay for remediation of the Indiana site, but also to pay expenses incurred in defending itself in the California lawsuits. Because the overall number and quality of contacts favored Maryland over Indiana, the court held that Maryland law should apply to the entire dispute.

Indiana traditionally has been viewed as highly adverse to insurers. Indeed, applying Indiana law, the intermediate appellate court in this case had determined that the absolute pollution exclusion was unenforceable and that the voluntary remediation program constituted a “suit.” Standard Fusee, 917 N.E.2d at 185-86. These issues now will be resolved under Maryland law, which, compared with Indiana law, is more even-handed with respect to coverage issues. Although the Indiana Supreme Court declined to rule on the application of the absolute pollution exclusion under Indiana law in this case, a petition for transfer has been submitted to the court on this issue in State Automobile Mutual Insurance Co. v. Flexdar, Inc., No. 49A02-1002-PL-00111, 2010 WL 4723188 (Ind. Ct. App. Nov. 22, 2010), appeal pending.

Laura Foggan, a partner, and Peter Jenkins, an associate, at Wiley Rein LLP contributed the first Case Brief. Foggan and Gregory Langlois, an associate at the firm, contributed the second Case Brief. Foggan is a member of this newsletter's Board of Editors.