Indiana Evidence Rule 407 may bar evidence of subsequent insurance policy revisions offered to resolve ambiguity in an executed insurance contract, the Indiana Court of Appeals held today.
In a suit involving whether State Automobile Mutual Insurance Co. had a duty to defend and indemnify Flexdar Inc. following discovery of contamination on Flexdar’s property, Flexdar argued it should have been allowed to introduce a new policy endorsement form that State Auto drafted in 2004 – two years after Flexdar’s policy coverage ended – that specifically identified trichloroethylene and other substances as examples of “pollutants” under the insurer’s pollution exclusion. The policy Flexdar held didn’t specifically name any pollutants; TCE was found to have leaked from Flexdar’s premises and contaminated subsoil and groundwater. The trial court didn’t allow the 2004 policy into evidence.
The appellate court noted that Evidence Rule 407 is typically associated with personal injury and other negligence cases, but that it’s worded broadly and courts have applied it in other contexts, including intentional tort and contract claims. The 7th Circuit Court of Appeals has read the federal counterpart to Evidence Rule 407, which is substantially similar to the Indiana rule, to exclude evidence of subsequent policy revisions in insurance coverage.
Citing Pastor v. State Farm. Mut. Auto. Ins. Co., 487, F.3d 1042, 1045 (7th Cir. 2007), the judges ruled in State Automobile Mutual Insurance Co. v. Flexdar, Inc. and RTS Realty, No. 49A02-1002-PL-111, that Evidence Rule 407 can bar evidence of subsequent policy revisions offered to resolve ambiguity in an insurance contract. As such, any modifications State Auto made to its policy forms in 2004 constitute subsequent remedial clarifications that aren’t admissible to interpret Flexdar’s insurance contract and prove the insurer’s liability, wrote Judge Nancy Vaidik. The trial court didn’t err by striking it from the designated evidence.
The trial court also didn’t err in finding State Auto’s pollution exclusion ambiguous and unenforceable. It relied on American States Insurance Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996), Seymour Manufacturing Co. Inc. v. Commercial Union Insurance Co., 665 N.E.2d 891 (Ind. 1996), Travelers Indemnity Co. v. Summit Corp. of America, N.E.2d 926 (Ind. Ct. App. 1999), and Freidline v. Shelby Insurance Co., 774 N.E. 2d 37 (Ind. 2002), finding the former three cases extend Kiger beyond its facts and affirm generally the ambiguity of the absolute pollution exclusion.
“We conclude, pursuant to the last fourteen years of precedent, that State Auto’s absolute pollution exclusion is ambiguous, must be construed in favor of the insured, and therefore will not operate to preclude coverage in connection with Flexdar’s TCE leakage,” she wrote. “Under Kiger and its progeny … an insurance policy must be specific if it wishes to except from coverage claims relating a particular alleged contaminant. It is within the province only of our Supreme Court to decide otherwise.”