Written by Justin Gifford, General Counsel, PolicyFind
Out of the blue on January 16, 2014, Representative Martin Carbaugh (R – Ft. Wayne) introduced a bill sponsored by the Indiana Insurance Institute that attempts to do what a decade and a half of insurance company litigation couldn’t accomplish in Indiana courts: give the word ‘pollutant’ an unambiguous definition in Commercial General Liability (CGL) policies. In other words, allow insurers to unilaterally disclaim one of the biggest risks many businesses seek insurance for.
Every other year (including 2014) in Indiana is a short session, meaning that the House and Senate have a short window to get legislation through, which also means that bills like HB 1241 can rocket through the Statehouse without much discussion. In this case, serious discussion is what’s needed, particularly considering the impressive financial impact this bill would have on Indiana’s residents and businesses.
Currently, a business’s CGL policy will pay for an insured’s environmental cleanups ordered by the state or federal government as well as an attorney to represent the insured against the State or affected third parties. Despite the insurance companies’ objections, the courts, including the Indiana Supreme Court on more than one occasion, “…have addressed the [pollution] exclusion in several contexts and have routinely found it ambiguous and unenforceable.” The Indiana Supreme Court’s most recent decision in State Automobile Mutual Insurance v. Flexdar derided the insurance companies’ attempt to exempt coverage for the riskiest part of a business when the contract between the business and the insurance company is to insure against risk. It is puzzling, then, that Representative Carbaugh’s bill treats the consistent rulings of Indiana’s courts as uninformed.
The current fiscal analysis on the Indiana Legislature’s website indicates that this bill would have no fiscal impact, which is almost certainly a function of the attempt to pass this bill as quickly as possible and without sufficient public debate. While an absolute number in terms of fiscal impact has not been developed, if this bill passes, it will, make no doubt about it, drive hundreds, if not thousands of businesses under as their owners try to refinance, retire, or sell. Since banks and buyers will require due diligence, including environmental testing, businesses from dry cleaners to auto shops to mom-and-pop gas stations will find themselves holding the bag wholesale when the Indiana Department of Environmental Management (IDEM) orders them to investigate and clean up the pollution. Real estate with contamination and no insurance to back a cleanup will not be able to be used as a secured asset and property owners will walk away from impacted properties rather than cleaning them up.
The IDEM isn’t the bad guy, though – even if they’re not saying it out loud, they should be as concerned about this bill as I am. Not only will it cut out the funding for cleanup of some of the state’s most contaminated sites and drive small business owners under, it will put a halt to future Brownfields activities as the sites’ former owners and operators are unable to utilize their insurance funds to repurpose the properties and bring them back into the marketplace.
Whatever your feelings are about environmental regulation, taking abandoned industrial properties, cleaning them up and either getting them back on the tax roles as productive industrial sites or deeding them to city and county governments for public use is beneficial to people and communities all across the state; Representative Carbaugh’s bill would put the kibosh on these activities, leaving sites across the state abandoned eyesores for the foreseeable future. Municipalities and counties rely on the contribution of insurers to redevelop blighted properties and attract new investment; the passage of this bill would significantly decrease their ability to bring new businesses to the area.
Governor Pence has stated that it is his goal to increase the environmental health of Indiana because it is through those efforts that the state will be able to attract high-tech, high-income employers to the state. In stark opposition to the Governor’s goal is Representative Carbaugh’s bill, which would weaken the state’s image as a healthy environment and decrease its ability to attract new business investment.
While it is certain to benefit some insurance companies’ massive bottom lines as they find themselves off the hook for a risk they would have insured but for Representative Carbaugh’s legislation, the benefit to the people of Indiana ends there. It will damage the environment, it will damage business, it will hurt the State’s ability to fund public works, and it will ignore nearly two decades of consistent rulings by Indiana’s courts.
Please contact your state representatives and senators to tell them that this bill is bad for Indiana all the way around.
You can search for your Congressperson and Senator here.
You can contact them by email, by telephone, or letter; you can also call the Statehouse switchboard at (317) 232-9600 for your Congressperson or (317) 232-9400 for your Senator.
If you’re a member, you can also call the Indiana Chamber of Commerce at (317) 264-3110.
For a more in-detail look at the courts’ reasoning, give these a read:
Flexdar Court Sides with the Insureds: Reinforces Kiger; Broadens “Ambiguous” Interpretation of Absolute Pollution Exclusion Language
Indiana Supreme Court Stays the Course on Pollution Exclusion: General Liability Policies Continue to Provide Coverage in Indiana