(Article from Insurance Law Alert, February 2015)
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The Seventh Circuit ruled that an insurer had no duty to defend or indemnify pollution claims, finding that they did not fall within a Completed Operations Hazard exception to a pollution exclusion.
Visteon Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2015 WL 294384 (7
th Cir. Jan. 23, 2015).
Visteon, an automobile parts manufacturer, was sued for allegedly contaminating soil and groundwater. National Union, Visteon’s liability insurer, denied coverage based on a pollution exclusion. In ensuing litigation, an Indiana federal district court ruled that Michigan law governed the dispute, that the pollution exclusion barred coverage for all claims and that a Completed Operations Hazard clause, which operated as an exception to the pollution exclusion, did not apply. The Seventh Circuit affirmed.
Addressing choice of law, the court concluded that Michigan (rather than Indiana) law governed the coverage dispute. Visteon advocated application of Indiana law because the alleged pollution occurred at an Indiana plant site. The court disagreed, explaining that the litigation arose from a dispute over the insurance contract rather than the underlying pollution-related activities, and noting that the policy covered risks at sites throughout the world. The court followed Indiana’s “uniform-contract-interpretation approach” under which the law of a single state is applied to the entire insurance contract even though “it covers multiple risks in multiple states.”
See National Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 940 N.E. 810 (Ind. 2010) (discussed in
February 2011 Alert). Under this approach, the single state that is chosen is typically “the state having more insured sites than any other.” Here, fourteen of Visteon’s plants were located in Michigan—more than in any other state—and the personnel in charge of administering insurance contracts (including the policy at issue) were stationed there, as was the policyholder’s headquarters. Therefore, notwithstanding that the property damage occurred in Indiana, the Seventh Circuit upheld application of Michigan law.
The Completed Operations Hazard exception restored coverage for pollution-related damages "occurring away from premises you own or rent and arising out of … Your Work except … work that has not yet been completed or abandoned." Visteon argued that this clause applied because the cause of the contamination—the seeping of toxic solvents—was the resulted of "completed" work. More specifically, Visteon contended that its "work" was "completed" each time a contract to supply automobile parts was performed. The Seventh Circuit disagreed. Siding with National Union, the court reasoned that work was not complete because operations continued at the plant for several years after the seepage and long after the National Union policy expired. In rejecting Visteon’s argument, the court noted that it’s adaptation would "erase[ ] the line between completed and ongoing operations" and "swallow[ ] the entire pollution-exclusion clause—the exception becoming the rule."
As the Seventh Circuit noted, courts have applied the completed operations hazard exception to the pollution exclusion narrowly; only to damage or injury caused by occurrences which arise after the completion of work by the policyholder.