In State Automobile Mutual Ins. Co. v. Flexdar, the Indiana Supreme Court has just held that the so-called “absolute” pollution exclusion contained in general liability insurance policies from 1986 forward is ambiguous and unenforceable. The Court basically found that the exclusion does not define “pollutant” with sufficient specificity, and that, read literally, the exclusion would apply to any substance introduced into the environment. (The Flexdar case itself dealt with TCE.)
The Court wrote: “Applying basic contract principles, our decisions have consistently held that the insurer can (and should) specify what falls within its pollution exclusion. In fact, State Auto has over the years promulgated an Indiana ‘business operations’ endorsement…and an Indiana endorsement defining ‘pollutant’…Where an insurer’s failure to be more specific renders its policy ambiguous, we construe the policy in favor of coverage. Our cases avoid both the sometimes untenable results produced by the literal approach and the constant judicial substance-by-substance analysis necessitated by the situational approach. In Indiana, whether the TCE contamination in this case would ‘ordinarily be characterized as pollution’ [as argued by the insurance company] is, in our view, beside the point. The question is whether the language in State Auto’s policy is sufficiently unambiguous to identify TCE as a pollutant. We are compelled to conclude that it is not.”
New Jersey hasn’t gone quite this far (yet), although in Nav-Its v. Selective, our Supremes ruled that the APE did not apply to toxic fumes from a floor sealant, and that the APE only applied to “traditional environmental pollution,” whatever that means.