In the
United States Court of Appeals
For the Seventh Circuit
No. 09-2519
W EST B END M UTUAL INSURANCE C OMPANY,
Plaintiff-Appellant,
v.
U NITED S TATES F IDELITY AND G UARANTY C OMPANY, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:07-cv-00457-RLM-CAN—Robert L. Miller, Jr., Judge.
A RGUED D ECEMBER 9, 2009—D ECIDED M ARCH 25, 2010
Before F LAUM, W ILLIAMS, and S YKES, Circuit Judges.
F LAUM, Circuit Judge. Plaintiff-appellant West Bend
Mutual Insurance Company (“West Bend”) appeals
from the grant of summary judgment in favor of
appellees, who consist of a group of insurance companies
that includes the United States Fidelity and Guaranty
Company (“Fidelity”) and Federated Mutual Insurance
Company (“Federated”). West Bend initially sued the
defendants for breach of contract because Federated
2 No. 09-2519
declined to defend a mutual insured in a class
action alleging that insured’s gas station contaminated
groundwater in a residential neighborhood. The case
revolves around whether the pollution exclusion con-
tained in Federated’s policy effectively limited coverage
for gasoline spills under Indiana law. The district court
found that a clause in Federated’s policy excluded cover-
age for this type of claim and granted summary judg-
ment in favor of Federated, Fidelity, and other insurers.
West Bend now appeals this judgment as it applies to
Federated.
For the following reasons, we affirm.
I. Background
MDK is a corporation that owned a gas station
in Goshen, Indiana, which stored its retail gasoline in
underground tanks. In September 1996, MDK notified
the Indiana Department of Environmental Management
(“IDEM”) of a leak from these tanks. Over the following
years, MDK procured a variety of monitoring and engi-
neering services designed to control and repair the leak.
In 1998, MDK sold the gas station to Southland Corpora-
tion.
During the period when it owned the gas station, MDK
held insurance coverage from a series of companies:
Fidelity from 1980 to 1990, Indiana Insurance from 1990
to 1995, West Bend from December 1995 to 2001, and
Federated from 2001 to 2003. In September 2002, the
Bowens family and other individuals who lived near
No. 09-2519 3
the gas station commenced a class action lawsuit (“the
Bowens action”) against a group of defendants that in-
cluded MDK. Plaintiffs alleged that gasoline had leaked
into groundwater and migrated beneath the nearby
Jackson Street neighborhood, causing personal injury
and property damage to people whose homes were
inundated with toxic fumes.
In September 2002, MDK requested that West Bend
provide it with a defense; West Bend complied, subject
to a reservation of rights to dispute coverage. MDK
made a similar request to Federated, which declined
coverage on the grounds that its policy featured a pollu-
tion exclusion as well as other coverage limitations.
Eventually, West Bend paid $4 million to settle the class
action.
The case before us centers on whether the Federated
insurance policy covered claims put forth in the Bowens
action. Federated provided a commercial general liability
policy (“CGL”) to MDK from October 1, 2001 to October 1,
2003, which insured the company from liability to others
for property damage and bodily injury occurring within
the policy period. The policy stated:
1. Insuring Agreement
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily
injury” or “property damage” to which this insurance
applies. We will have the right and duty to defend
the insured against any “suit” seeking those damages.
...
4 No. 09-2519
b. This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property damage” is
caused by an “occurrence” that takes place in the
“coverage territory”;
(2) The “bodily injury” or “property damage”
occurs during the policy period; and
(3) [The Known Loss Exclusion] Prior to the policy
period, no insured . . . knew that the “bodily
injury” or “property damage” had occurred, in
whole or in part. . . .
c. [Continuous Injury Endorsement] “Bodily injury” or
“property damage” which occurs [sic] during the
policy period and was not, prior to the policy period,
known to have occurred by any insured . . . includes
any continuation, change or resumption of that “bodily
injury” or “property damage” after the end of the
policy period.
The policy then stipulated that bodily injuries or
property damage occur at the earliest time the insured
learns about them. A coverage limitation endorsement
further provided that the policy “does not apply to, and
the Company shall have no duty to defend, any claim
seeking ‘bodily injury’ or ‘property damage’ that
occurred before the policy period, regardless of whether
that ‘bodily injury’ or ‘property damage’ is also
deemed to have occurred during the policy-period of
this policy.”
The Federated policy featured a Pollution Exclusion
Endorsement, which excluded coverage for the following:
No. 09-2519 5
f. Pollution [The Pollution Exclusion]
(1) “Bodily injury” or “property damage” arising out
of the actual, alleged or threatened discharge, dis-
persal, seepage, migration, release or escape of “pol-
lutants”:
...
(f) At or from any tank, piping, pumps or dis-
pensers at premises, sites or locations in addition
to those described in subparagraphs (a), (b), (d) or
(e), which are or were at any time owned, leased,
installed, removed, tested, repaired or filled by or
on behalf of any insured, wherever located (except
at residences primarily used for dwelling pur-
poses) which contain, transport or dispense or
are designed to contain, transport or dispense:
(I) motor fuels;
(ii) kerosene;
(iii) lubricants or other operating fluids which
are needed to perform the normal electrical,
hydraulic or mechanical functions necessary
for the operation of any “auto,” “mobile equip-
ment,” watercraft or aircraft; or
(iv) waste lubricants or other operating fluids
which are or were needed to perform the
normal, electrical, hydraulic or mechanical
functions necessary for the operation of any
“auto,” “mobile equipment”, watercraft or
aircraft;
6 No. 09-2519
including, but not limited to, their constituent
parts and other irritants or contaminants found
therein.
...
Motor fuels means petroleum or a petroleum-based
substance that is typically used in the operation of a
motor or engine, including but not limited to
gasoline, aviation fuel, number one or number two
diesel fuel, or any grade of gasohol. ["Motor Fuels”
Definition]
In a separate part of the policy that defines quoted terms,
Federated stated that “pollutants” mean “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, recondi-
tioned or reclaimed.” Notably, this definition did not
specifically include gasoline.
The Federated policy also included an Indiana Changes
Endorsement, which stated that the Federated Pollution
Exclusion “applies whether or not such irritant or con-
taminant has any function in your business, operations,
premises, site or location.” In addition to the CGL policy,
MDK held “Umbrella” excess liability and “prod-
ucts-completed operations hazard” coverage from Feder-
ated. The former tracked the scope of the CGL, while the
latter supplemented it.
The district court ruled from the bench in favor of
defendants-appellees because “the pollution exclusion in
the . . . policy bars a defense in coverage.” It did not
No. 09-2519 7
reach the issue of whether the Known Loss Exclusion
also preempted West Bend’s claim, but it did conclude
that the products-completed operations hazard coverage
was not an alternative source of an obligation to defend
the Bowens action.
II. Discussion
We review a district court’s grant of summary judgment
de novo. First Nat’l Bank v. Cincinnati Ins. Co., 485 F.3d 971,
976 (7th Cir. 2007). A grant of summary judgment is
appropriate if “there is no genuine issue as to any
material fact and . . . the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(c).
Indiana law governs this case and our task is to
interpret the Federated policy accordingly. To do so, “[w]e
construe the insurance policy as a whole and con-
sider all of the provisions of the contract and not just the
individual words, phrases, or paragraphs.” Briles v. Wausau
Ins. Cos., 858 N.E.2d 208, 213 (Ind. Ct. App. 2006). Gener-
ally, we give words their ordinary meaning, Holtzclaw v.
Bankers Mut. Ins. Co., 448 N.E.2d 55, 59 (Ind. Ct. App. 1983),
though where ambiguity exists, we read insurance
policies strictly against the insurer. Fid. & Deposit Co. of
Md. v. Pettis Dry Goods Co., 190 N.E. 63, 65 (Ind. 1934).
Under Indiana law, the insurer’s duty to defend is
broader than his contractual obligation to provide cover-
age, but this duty is not boundless. “[W]here an insurer’s
independent investigation of the facts underlying a
complaint against its insured reveals a claim patently
8 No. 09-2519
outside of the risks covered by a policy, the insurer may
properly refuse to defend.” Liberty Mut. Ins. Co. v. Metzler,
586 N.E.2d 891, 901 (Ind. Ct. App. 1992). That is, when an
exclusion precludes coverage, the insurer does not have
a duty to defend. Trisler v. Ind. Ins. Co., 575 N.E.2d 1021,
1023 (Ind. Ct. App. 1991).
Of foremost importance in this case is the holding of the
Indiana Supreme Court in American States Insurance Co. v.
Kiger, 662 N.E.2d 945 (Ind. 1996): “[i]f a garage policy is
intended to exclude coverage for damage caused by the
leakage of gasoline, the language of the contract must be
explicit.” Id. at 949. The court reached this conclusion
upon examining a claim factually similar to the one
now before us. In Kiger, a gas station owner (Kiger)
was looking to receive reimbursement from its insurer
(American States) for costs associated with cleaning up a
gasoline spill from an underground storage tank. The
policy in question contained a pollution exclusion that
removed coverage for ” ‘[b]odily injury,’ ‘property dam-
age’ or loss, cost or expense arising out of the actual,
alleged or threatened discharge, dispersal, seepage,
migration, release or escape of ‘pollutants.’ ” Id. at 948.
The definition of “pollutants” in the American States
policy was identical to that in the policy of Federated:
“any solid, liquid, gaseous or thermal irritant or contami-
nant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste. Waste includes materials to be
recycled, reconditioned or reclaimed.” Id. Unlike the
Federated policy, however, American States made no
mention of motor fuels or gasoline elsewhere in its con-
tract.
No. 09-2519 9
The Kiger court examined the policy in light of its
preference for narrowly interpreting exclusions to insur-
ance coverage. See Pettis Dry Goods Co., 190 N.E. at 65. It
expressed surprise at the possibility that “an insurance
company would sell a ‘garage policy’ to a gas station
when that policy specifically excluded [gasoline,] the
major source of potential liability” for the insured. Kiger,
662 N.E.2d at 948. Nonetheless, the court remained
bound by the rule that “if the policy clearly excludes
such coverage, that contract will be enforced,” id., and
focused on whether American States adequately identi-
fied gasoline as an uncovered pollutant.
The court first reasoned that a facial reading of the
definition of “pollutants” would eliminate coverage for
many routine gas station incidents. For example, Kiger
would not be covered against a personal injury suit by a
customer who slipped on an oil slick because oil was
ostensibly a chemical within the scope of the exclusion.
The Indiana Supreme Court next observed that gasoline
is not necessarily a pollutant from the perspective of a
gas station owner who dedicates his days to selling
the substance. That is, the gasoline in question burned
just fine and lacked foreign “contaminants.” Only when
it accidentally seeped out of the gas station did it
become a contaminant itself, leading to an ambiguity
about whether the pollution exclusion could apply to
a substance that was not acting as a pollutant for the
bulk of the insurance term. The court determined that
the policy did not resolve this ambiguity and proceeded
to interpret it against the defendant drafter and in favor
of coverage. The Kiger opinion summarized this position
10 No. 09-2519
with the previously cited rule requiring explicit exclusion
of gasoline from garage policies.
The validity of the district court’s decision comes
down to whether the Federated policy satisfies the
Kiger requirement for explicit contracts. Predictably, West
Bend and Federated differ in their interpretation of this
requirement. Appellants argue that “liability policies
sold to gasoline retailers, if they were to exclude lia-
bility for gasoline contamination, should explicitly define
‘pollutant’ to include gasoline.” Appellees instead assert
that the Kiger standard is satisfied whenever the totality
of the policy explicitly excludes gasoline, relying on the
words of the decision itself, the rule that contracts must
be construed as a whole, and Indiana’s decision to place
a duty on insureds “to read and to know the contents of
their insurance policies.” Safe Auto Ins. Co. v. Enter. Leasing
Co. of Indianapolis, Inc., 889 N.E.2d 392, 397 (Ind. Ct. App.
2008).
Appellants’ argument does not stand up to scrutiny.
A fair reading of Kiger cannot lead to the conclusion that
the explicit exclusion must be located in one particular
part of the policy. Such an outcome would be anomalous
in light of broad norms of contract interpretation and
illogical when considering the motivation of the
Kiger court. While the definition of “pollutants” in the
Federated policy is identical to the one Indiana courts
evaluated in Kiger, the Federated Pollution Exclusion itself
clearly includes motor fuels, which the “Motor Fuels”
Definition then explicitly applies to gasoline (“Motor
fuels means petroleum or a petroleum-based substance
No. 09-2519 11
that is typically used in the operation of a motor or
engine, including but not limited to gasoline . . . .”).
The plain language of the contract thus explains that
Federated will not cover property damage or personal
injuries related to gasoline. This conclusion is buttressed
by the fact that the Indiana Changes Endorsement
applies the Pollution Exclusion “whether or not such
irritant or contaminant has any function in [MDK’s]
business, operations, premises, site or location.” Together,
these provisions eradicate the ambiguities on which Kiger
rested. A gas station owner presumed by Indiana law to
have read the insurance policy would know to a certainty
that Federated would not be responsible for damage
arising out of gasoline leaks taking place during the
covered period.
West Bend cites to Freidline v. Shelby Ins. Co., 774 N.E.2d
37 (Ind. 2002), but that case lends little support to appel-
lants’ preferred reading of the applicable exclusion stan-
dard. In the relevant portion of Freidline, the Indiana
Supreme Court summarily affirmed a lower court’s
conclusion that a definition of “pollutants” identical to
the one in the Federated policy and Kiger could not
exclude coverage for “fumes emanating from carpet
glue.” Id. at 40. The text of Freidline, however, sug-
gests that the Supreme Court did not focus solely on
the individual definition clause in arriving at its conclu-
sion. In fact, the brevity of the discussion indicates most
strongly that nothing in the Shelby Insurance contract
as a whole provided grounds for denying coverage,
making it unnecessary for the court to discuss each of the
irrelevant provisions in any detail. Similarly, in Travelers
12 No. 09-2519
Indemnity Co. v. Summit Corp., 715 N.E.2d 926, 935 (Ind. Ct.
App. 1999), the court concluded that the scope of the
policy pollution exclusion was ambiguous after ex-
amining both the exclusion itself, which identified
methods of release but said nothing about specific sub-
stances, and the definition of pollutants, which was
again identical to that in Kiger.
Finally, the recent decision of the Indiana Court of
Appeals in National Union Fire Insurance v. Standard Fusee
Corp., 917 N.E.2d 170 (Ind. Ct. App. 2009), is equally
unavailing for West Bend. There, the court inquired
whether a pollution exclusion substantially similar to
the one in Kiger, with an identical definition of “pollut-
ant” and no mention of gasoline, tanks, or motor fuels,
applied to potential leaks of a chemical involved in the
manufacture of flares. It determined that, like in Kiger, a
facial reading of the sweeping clause would prevent the
policy from covering much of anything. The court thus
found the exclusion to be ambiguous. Upon applying
the presumption that insurance contracts must be read
to establish coverage, it held that “perchlorate was a
necessary ingredient in SFC’s business, the manufacture
of signal flares. Denying coverage on the basis that per-
chlorate is a pollutant would render the coverage for
environmental liabilities illusory.” Id. at 185. The National
Union court’s reasoning focuses on the definition of
“pollutant” because National Union did not appear to
suggest that any other clause in its contract could
excuse coverage, not because the gasoline exclusion can
only work if placed in some specific spot.
No. 09-2519 13
We thus conclude that the Pollution Exclusion in the
Federated policy was sufficiently explicit to exclude
gasoline contamination from coverage. Since the Pollu-
tion Exclusion successfully frees appellees from the
obligation to defend the Bowens action based on the
main CGL policy, we do not reach the question of whether
the Continuous Injury Endorsement or Known Loss
Exclusion provide parallel paths to the same conclu-
sion. We must still consider, however, whether the
district court erred in holding that neither the excess
liability coverage nor the products-completed operations
hazard coverage contained in the supplemental Federated
Umbrella policy provide grounds for the relief that
West Bend seeks.
With respect to the Excess Liability coverage, the plain
language of the contract answers the question. The
relevant part of Federated’s Commercial Umbrella Lia-
bility Policy reads:
A. EXCESS LIABILITY COVERAGES
Except as excluded under the underlying insurance,
we will pay on behalf of the insured those sums that
the insured becomes legally obligated to pay as dam-
ages that are covered by underlying insurance:
a) because of bodily injury, personal injury, prop-
erty damage or advertising injury as defined
within the applicable underlying insurance; and
b) which are in excess of the applicable underlying
insurance limit.
...
14 No. 09-2519
With respect to A. EXCESS LIABILITY COVERAGES
all exclusions contained within the applicable under-
lying insurance apply.
The Federated policy thus makes Excess Liability coverage
coextensive with the primary CGL coverage. Since the
CGL policy effectively excludes liability from gasoline
leaks, the Excess Liability policy does the same.
Appellant next argues that even if the pollution exclu-
sion in the CGL applied to gasoline, the Additional Lia-
bility Coverages in Federated’s Umbrella policy provide
an alternative ground for relief. The relevant provision
insures damages from an “occurrence” during the policy
period that arises from the “products-completed opera-
tions hazard,” which in turn includes
[A]ll “bodily injury” and “property damage” occurring
away from premises you own or rent and arising out of
“your product” or “your work” except:
a. products that are still in your physical posses-
sion; or
b. work that has not yet been completed or aban-
doned.
The Umbrella policy defines “your product” to mean
a. any goods or products, other than real property,
manufactured, sold, handled, distributed or dis-
posed by:
(1) you;
(2) others trading under your name; or
No. 09-2519 15
(3) a person or organization whose business
or assets you have acquired; and
b. Containers (other than vehicles), materials,
parts or equipment furnished in connection with
such goods or products.
Federated excludes injury or property damage caused by
pollutants from Additional Liability Coverage, but defines
“pollutants” differently than in the primary CGL policy.
The Umbrella definition of “pollutants” describes the
premises from which they may escape but then explains
that “[p]ollutants means any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke, vapor,
soot, fumes, acids, alkalis, chemicals and waste.” While
this definition is identical to the one in Kiger (both make no
mention of gasoline or liquids comprising the primary
product of the insured), it cannot lead to Federated’s
liability for the Bowens action here. The definition of
“pollutants” here modifies only the products-completed
operations hazard coverage, which, unlike a general com-
mercial policy, does not insure damage from accidental
release as a matter of law.
On the one occasion the Indiana Supreme Court has
dealt with this subject, it interpreted a products-
completed operations hazard clause to describe “claims
arising from the placement of defective goods into the
stream of commerce by the insured.” B & R Farm Serv., Inc.
v. Farm Bureau Mut. Ins. Co., 483 N.E.2d 1076, 1077 (Ind.
1985). Appellees argue that this case controls the inter-
pretation of the Federated Umbrella Policy and requires
us to find that, as a matter of Indiana law, the products
16 No. 09-2519
hazard clause therein cannot reach accidental spills.
That position is too strong. Unlike the present case, B & R
Farm Services interpreted an exclusion to an insurance
contract, not a grant of coverage. Since the purchaser of
insurance generally cannot negotiate the precise wording
of the policy, courts view these two types of provisions
through distinct presumptive lenses. All things being
equal and with deference to the text of the contract, we
favor broad readings of coverage grants and narrow
constructions of coverage exclusions. In this light, the
Indiana Supreme Court’s pronouncement of the meaning
of products-hazard clauses appears less absolute than
the appellees ask us to believe. B & R Farm Services cer-
tainly controls the scope of exclusions denying insur-
ance to injuries arising out “completed products,” but the
case serves only as persuasive authority for the proper
interpretation under Indiana law of clauses purporting
to grant strictly that coverage necessary to insure
injuries from those same “completed products.”
The impact of B&R Farm Services on this case is further
attenuated by the fact that the Farm Bureau Mutual policy
underpinning that dispute was worded somewhat differ-
ently than the Federated Umbrella policy. The former,
unlike the latter, contained an active verb, excluding
coverage for products that have been “relinquished” to
others. 1 The Indiana Supreme Court focused on this
1
The clause stated, in relevant part, that the policy excluded
“bodily injury and property damage arising out of the named
(continued...)
No. 09-2519 17
language to reach its holding (“We deem the act of relin-
quishment to be one which necessarily involves voli-
tion, not something which occurs accidentally or involun-
tarily,” id.).
Despite these differences in posture, B & R Farm
Services proves informative on the proper meaning of
the Federated products-hazard clause. When the Indiana
Supreme Court “deemed” the act of relinquishment to
require volition, it relied on general distinctions between
theories of liability, not on dictionaries. We apply this
approach here to determine that, despite weak wording,2
1
(...continued)
insured’s products or reliance upon a representation or war-
ranty made at any time with respect thereto, but only if the
bodily injury or property damage occurs away from the pre-
mises owned by or rented to the named insured and after
physical possession of such products has been relinquished
to others.”
2
The definition of “Products-completed operations hazard”
within the Umbrella policy does not define “abandoned” but
explains that
“Your work” will be deemed completed at the earliest of
the following times:
a. when all of the work called for in your contract has
been completed;
b. when all of the work to be done at the site has been
completed if your contract calls for work at more than
one site; or
(continued...)
18 No. 09-2519
the Federated products-hazard clause covered only
knowingly completed market transactions and abandoned
product. See also Ohio Cas. Ins. Co. v. Reed, 2006 U.S. Dist.
LEXIS 56625, at *22 n.3 (S.D. Ind. Aug. 11, 2006) (“Indiana
courts likely would find that accidental chemical con-
tamination does not fit within the scope of products
hazard coverage.”). There is no doubt that the Bowens
action was predicated on accidental leak of gasoline
from MDK’s storage tanks and West Bend never con-
tended that the gas station abandoned its product. There-
fore, the Federated Umbrella policy does not provide an
independent source of recovery for the appellants.
III. Conclusion
For the foregoing reasons, we A FFIRM the district court’s
grant of summary judgment in favor of Federated.
2
(...continued)
c. when that part of the work done at a job site has been
put to its intended use by any person or organization
other than another contractor or subcontractor working
on the same project.
Work that may need service, maintenance, correction,
repair or replacement, but which is otherwise complete, will
be treated as completed.
No. 09-2519 19
S YKES, Circuit Judge, dissenting. I agree with my col-
leagues that the pollution exclusion in Federated’s 2001-
2003 CGL policy bars coverage under that policy. I do not
agree, however, that the Indiana Supreme Court’s deci-
sion in B & R Farm Services, Inc. v. Farm Bureau Mutual
Insurance Co., 483 N.E.2d 1076 (Ind. 1985), precludes
coverage under Federated’s 2001-2002 umbrella policy.
That policy provides additional insurance for losses
covered under “[t]he ‘products-completed operations
hazard’ anywhere in the world.” The policy defines the
“products-completed operations hazard” as follows:
“Products-completed operations hazard” includes all
“bodily injury” and “property damage” occurring
away from premises you own or rent and arising out
of “your product” or “your work” except:
a. products that are still in your physical possession; or
b. work that has not yet been completed or abandoned.
The loss at issue here arose out of a 1996 gasoline leak at
the insured’s gas station. Gasoline escaped from MDK’s
underground storage tank and migrated into a nearby
residential neighborhood, contaminating the ground-
water and causing property damage and bodily injury
to the homeowners and their families. The homeowners
sued MDK in September 2002 (the Bowens class action);
West Bend accepted the tender of defense and eventually
settled the case for $4 million. West Bend then sued
Federated and several other MDK insurers seeking to
recoup some or all of its defense and settlement costs
via theories of subrogation, contribution, and estoppel.
The district court entered summary judgment for the
20 No. 09-2519
defendant insurers. Only West Bend and Federated
remain in the case on appeal.
The parties agree (and I do, too) that the loss underlying
the Bowens action does not come within the “completed
operations” aspect of the products-completed operations
hazard in the umbrella policy; the limitations on coverage
for “your work” are therefore not implicated here. If
this coverage applies at all, it can only be by virtue of the
“products hazard” language. Based on that language,
I think the loss underlying the Bowens action falls com-
fortably within the policy’s coverage.
The umbrella policy defines “your product” as follows:
“Your product” means:
a. any goods or products, other than real property,
manufactured, sold, handled, distributed or disposed
by:
(1) you;
(2) others trading under your name; or
(3) a person or organization whose business or
assets you have acquired; and
b. Containers (other than vehicles), materials, parts
or equipment furnished in connection with such
goods or products.
By this specific definition of “your product,” read together
with the pertinent part of the general definition of the
products-completed operations hazard, the umbrella
policy shifts the following risk from MDK to Federated:
the risk of loss from (1) “bodily injury” or “property
No. 09-2519 21
damage”; (2) occurring “away from [the insured’s] pre-
mises”; and (3) “arising out of ‘your product,’ ” defined as
“any goods or products . . . sold, handled, distributed or
disposed by” the insured, provided that the product was
not in the insured’s possession at the time of the loss. These
criteria for coverage under the “products hazard” are
satisfied here. The loss at issue stemmed from “bodily
injury” and “property damage” occurring away from
MDK’s gas station and arising out of MDK’s “prod-
uct”—that is, its gasoline—which was not in MDK’s
possession at the time of the loss. On the face of it, the
claim should be covered.
My colleagues read the B & R Farm Services case to
preclude coverage under the products-completed opera-
tions hazard. As they have acknowledged, however,
there are a couple of reasons to distinguish that case.
First, B & R Farm Services concerned an exclusion in a CGL
policy, not (as here) a coverage-granting provision. This
distinction is important in insurance law. Generally
speaking, coverage-granting language in an insurance
policy is construed from the standpoint of an average
policyholder and read broadly in favor of coverage; any
doubts or ambiguities about coverage are resolved
against the insurer. Exclusions, on the other hand, are
generally read more narrowly; ambiguities in an exclu-
sion are construed strictly against the insurer. Indiana
follows these interpretive rules. See, e.g., Bradshaw v.
Chandler, 916 N.E.2d 163, 166 (Ind. 2009).
Second, and more importantly, the exclusion in B & R
Farm Services contained limiting language not present
22 No. 09-2519
in the coverage-granting provision at issue here. The
products-hazard provision in B & R Farm Services
excluded bodily injury or property damage arising out of
the insured’s products but “only if the bodily injury or
property damage occurs away from the [insured’s] pre-
mises . . . and after physical possession of such products has
been relinquished to others.” 483 N.E.2d at 1077 (emphasis
added). As my colleagues have explained, the decision
in B & R Farm Services hinged specifically on the policy’s
use of the language I have italicized, which narrowed the
scope of the products-hazard exclusion. The Indiana
Supreme Court read this language to require a volitional
“act of relinquishment” and held that the products-
hazard exclusion applied only to “claims arising from
the placement of defective goods into the stream of com-
merce.” Id. The loss at issue in B & R Farm Services
arose out of a fertilizer leak at the insured’s manu-
facturing plant that contaminated a nearby creek. Because
this loss did not arise out of the insured’s placement of
defective goods into the stream of commerce, the court
held that the exclusion did not apply. Id. In other words,
the state high court read the exclusion narrowly and
held the claim was covered.
Unlike my colleagues, I think these differences combine
to make B & R Farm Services inapplicable here. B & R Farm
Services involved the interpretation of limiting language
in a products-hazard exclusion; we are not required to
interpret coverage-granting language in exactly the same
way, especially where, as here, the products-hazard
provision does not contain the same or similar limiting
language. More significantly, I do not read B & R Farm
No. 09-2519 23
Services as a definitive statement of Indiana insurance
law about the proper interpretation of products-hazard
coverage in CGL policies as a general matter. The court’s
opinion was very brief and its holding was underreasoned.
The court focused solely on the provision’s requirement
of product “relinquishment” and concluded without
further analysis that the exclusion only applied to claims
arising from the insured’s placement of defective
products into the stream of commerce. Because this
conclusion came with so little explanation, I hesitate to
extrapolate from B & R Farm Services a general rule of
Indiana insurance law that a products-hazard provision
in a CGL policy covers “only knowingly completed
market transactions and abandoned product,” as my
colleagues have concluded. 1 Maj. op. at 18.
1
In arriving at this interpretation, my colleagues have en-
grafted the limitations applicable to the “completed operations”
hazard onto the “products” hazard. I think this is a mistake.
A CGL policy is, as its name implies, a general-liability policy
that insurers sell to a wide variety of commercial insureds. The
products-completed operations hazard in a standard-form CGL
policy provides coverage against two kinds of hazards: the
“products” hazard and the “completed operations” hazard.
Although they are lumped together in the standard form, they
are in fact distinct types of coverage. (It would be easier to see
the distinction if the punctuation were more precise: “prod-
ucts/completed operations hazard” is clearer.) See generally 20
ERIC MILLS HO LM ES , HO LM ES ’ APPLEM A N O N INSU RA NCE
§ 129.1 (2d ed. 2002) (discussing the products-completed
operations hazard). These policies are written on the standard
(continued...)
24 No. 09-2519
1
(...continued)
form but are sometimes—perhaps often—adapted to particular
customers’ needs and circumstances. In general, however, the
“products hazard” part of the “products-completed operations
hazard” covers manufacturers, distributors, and sellers of
products; the “your product” definition in the policy modifies
the “products hazard” coverage. The “completed operations”
hazard typically covers construction contractors and the like,
who routinely conduct their “operations” away from their
primary premises; the “your work” limitations in the policy
modify the “completed operations” hazard.
Importantly, the “completed or abandoned” limiting language
in this coverage has nothing to do with the “products hazard.”
These limitations relate instead to the “completed operations”
hazard, which as I have noted is typically for construction con-
tractors whose business involves not “products” but “work.”
This distinction is clear from subsection (b) of the products-
completed operations hazard provision, which excludes
coverage for “work that has not yet been completed or aban-
doned.” This same limitation is not included in the “products
hazard” part of the products-completed operations hazard; the
only limitation appearing there is for “products that are still
in your physical possession.” Thus, the “completed or aban-
doned” limitations in the products-completed operations hazard
are relevant only to the scope of the “completed operations”
hazard, which is not at issue here. This conclusion also flows
from the policy’s description of when “your work” will be
deemed “completed” and therefore covered under the “com-
pleted operations” hazard. This language is all about work
performed by contractors; it has no application to the “products
hazard” part of the products-completed operations hazard. By
(continued...)
No. 09-2519 25
Much modern insurance-coverage litigation inter-
preting the products-completed operations hazard in the
standard-form CGL policy occurs in the context of
disputes over the policy’s business-risk exclusions—more
specifically, the so-called “your product” and “your
work” exclusions, which typically exclude coverage for
damage to the insured’s own “work” or “product” arising
out of the products-completed operations hazard. See
generally 20 E RIC M ILLS H OLMES, H OLMES’ A PPLEMAN ON
INSURANCE § 129.1 (2d ed. 2002) (discussing the products-
completed operations hazard); 21 id. § 132.9[C], [D] (dis-
cussing the business-risk exclusions). Coverage claims
over these clauses proliferate, the interplay between the
exclusions and the covered hazard creates difficult inter-
pretive questions, and the caselaw in this area is not
always consistent. This is another reason not to read B & R
Farm Services for more than it’s worth. I would not
extend the case beyond its specific context.2
1
(...continued)
adopting a “completed market transaction and abandoned
product” interpretation of the “products hazard” coverage, my
colleagues have imported limitations that by their terms are
applicable only to a different part of this coverage—the “com-
pleted operations” hazard.
2
In this regard, I note that my colleagues’ interpretation of the
“products hazard” amounts to more than just an application
of B & R Farm Services—it is a fairly significant extension of the
case. The Indiana Supreme Court did not say there must be a
“completed market transaction” or “abandoned product” for
(continued...)
26 No. 09-2519
In short, because B & R Farm Services is distinguishable,
I would not apply its “placement in the stream of com-
merce” gloss here. Based on the products-hazard policy
language at issue in this case, the loss associated with
the Bowens action is a covered loss. Federated has also
raised the known-loss doctrine as a possible alternative
barrier to coverage under the umbrella policy. This
common-law doctrine bars coverage if the insured had
“actual knowledge that a loss has occurred, is occurring,
or is substantially certain to occur on or before the
effective date of the policy.” Gen. Housewares Corp. v. Nat’l
Surety Corp., 741 N.E.2d 408, 414 (Ind. Ct. App. 2000). The
known-loss doctrine is premised on the fortuity prin-
ciple that is inherent in all insurance, id. at 414-15, and
the burden of proving that the loss was known “is on the
2
(...continued)
this clause to apply. Instead, it said the exclusion before the
court in that case—with its product “relinquishment” require-
ment—excluded only claims “arising from the placement of
defective goods into the stream of commerce by the insured.”
B & R Farm Services, 483 N.E.2d at 1077. Nothing in this formula-
tion requires either a “completed market transaction” or
“abandoned product.” I can think of situations in which a
manufacturer, distributor, or seller of a product might be
sued for damages arising out of bodily injury or property
damage from its product where there is neither a “completed
market transaction” nor “abandoned product.” The “products
hazard” coverage on its face would apply but for the addi-
tional limitations imported here from the “completed opera-
tions” hazard.
No. 09-2519 27
party seeking to avoid coverage,” id. at 414. This “is
ordinarily a question of fact.” Id. at 413-14.
As I read the record in this case, there is conflicting
evidence on the question whether MDK knew the loss at
issue in the Bowens action had occurred, was occurring, or
was substantially certain to occur before the umbrella
policy’s effective date. I would remand for resolution of
that question. Accordingly, for all the foregoing reasons,
I respectfully dissent.
3-25-10