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Univ. of South Carolina School of Law

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Friday, November 26, 2010

Confusion Causin' Pollution: Court Of Appeals Of Indiana Finds Rule 407 Applies In Insurance Coverage Dispute Cases

Like its federal counterpart, Indiana Rule of Evidence 407 provides that

When after an event, measures are taken which, if taken previously, would have made the event less likely to occur, evidence of the subsequent measures is not admissible to prove negligence or culpable conduct in connection with the event. This rule does not require the exclusion of evidence of subsequent measures when offered for another purpose, such as proving ownership, control, or feasibility of precautionary measures, if controverted, or impeachment.

Rule 407 is typically associated with personal injury and other negligence cases, but does it also apply in insurance coverage dispute cases? According to the recent opinion of the Court of Appeals of Indiana in State Auto. Mut. Ins. Co. v. Flexdar, Inc., 2010 WL 4723188 (Ind.App. 2010), the answer is "yes."

In Flexdar,

Flexdar, Inc., manufactured rubber stamps and printing plates at its factory in Indianapolis. Flexdar's machinery employed the chemical solvent trichloroethylene (TCE), which leaked from the factory premises and contaminated subsoil and groundwater. The Indiana Department of Environmental Management ordered Flexdar to investigate the contamination and informed Flexdar that it could be liable for the costs of cleanup. Flexdar requested defense and indemnification from its commercial general liability insurer, State Automobile Mutual Insurance Company, and State Auto filed [an] action seeking declaration that it owed no coverage.

The basis for the State Auto's action was an exclusion in Flexdar's policy, which indicated that, inter alia,

This insurance does not apply to:

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Both parties moved for summary judgment, and, in support of its motion, Flexdar

tendered to the trial court, among other things, a new policy endorsement form that State Auto drafted in 2004. The new form specifically identified TCE and other substances as examples of "pollutants" for purposes of State Auto's pollution exclusion. Flexdar introduced the new endorsement form to show that its own policy was ambiguous and that State Auto recognized the need to clarify it by naming TCE as a pollutant. The trial court struck the evidence as irrelevant.

Nonetheless, the trial court still entered summary judgment in favor of Flexdar, prompting State Auto's appeal. And while the Court of Appeals of Indiana affirmed the trial court's entry of summary judgment in favor of Flexdar, it agreed with the trial court that the new policy endorsement was inadmissible.

Specifically, the court found that this evidence was inadmissible under Rule 407. The court acknowledged that "Rule 407 is typically associated with personal injury and other negligence cases." According to the court, though, "Rule 407 is worded broadly,...and courts have applied it in many other contexts including intentional tort and contract claims." Moreover, the court noted that in cases such as Pastor v. State Farm Mut. Auto. Ins. Co., 487 F.3d 1042, 1045 (7th Cir.2007), "authorities have read Rule 407 to exclude evidence of subsequent policy revisions in insurance coverage disputes."

The court then

agree[d] with Pastor and conclude[d] that Rule 407 may bar evidence of subsequent policy revisions offered to resolve ambiguity in an executed insurance contract.

Here, Flexdar and State Auto executed several CGL policies subject to a pollution exclusion. The parties now disagree as to whether the term "pollutant" in the exclusion is ambiguous or contemplates a leakage of TCE. State Auto apparently revised its standard policy forms in 2004 to specify TCE as a pollutant. In line with the foregoing, we conclude that any modifications that State Auto made to its policy forms in 2004 constitute subsequent remedial clarifications which are not admissible to interpret Flexdar's insurance contract and prove State Auto's liability.

-CM

http://lawprofessors.typepad.com/evidenceprof/2010/11/407-state-auto-mut-ins-co-v-flexdar-inc-ne2d-2010-wl-4723188indapp2010.html

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