Interprets Completed Operations Clause Narrowly And Finds Exclusion Applicable Under Michigan Rather Than Indiana Law After Choice Of Law Analysis

The Seventh Circuit, applying Michigan law, found no exception to a pollution exclusion and refused to hold insurer liable for millions in clean up and litigation costs for pollution from an Indiana manufacturing plant. The insured, Visteon Corp. (“Visteon”), a large manufacturer of automotive parts, brought suit for breach of contract against National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). The two issues before the Seventh Circuit were (1) whether it was proper to apply Michigan law, and (2) whether the Completed Operations Hazard clause applied as an exception the policy’s pollution exclusion.

National Union provided worldwide liability coverage for Visteon between 2000 and 2002. In 2001, TCE that was used to clean machinery at a Visteon Indiana plant was discovered to have leaked into the soil and groundwater. Visteon spent millions of dollars to settle lawsuits that resulted because of the leakage and additional millions to clean up the pollution from the leakage. National Union refused to defend Visteon in the underlying cases and to reimburse them for any of the costs it had incurred for the cleanup.

The parties disputed whether Michigan or Indiana law applied to the substantive issues. Visteon argued for Indiana law to apply because Indiana does not enforce standard pollution exclusion clauses. According to the court, Indiana requires the policy to specifically list which pollutants fall within the exclusion in order for such exclusions to be enforceable, which was not done in the National Union policy. Michigan law, however, does enforce the more general kind of pollution exclusion clause that was found in the National Union policy. The district court ruled that Michigan law governed. The Seventh Circuit upheld the district court’s decision to apply Michigan law stating that the coverage litigation arises from the insurance contract between the parties which covers all of the insured’s plants, not just the Indiana plant where the pollution occurred. The court further relied on the fact that the insured is headquartered in Michigan and has 14 plants there, compared to 3 in Indiana.

Next the court addressed whether, under Michigan law, Visteon’s liability from the TCE leak was within the scope of the Complete Operations Hazard clause of the insurance policy, an exception to the pollution exclusion. The National Union policy excludes coverage for liability resulting from pollution caused by “the actual or threatened discharge, dispersal, seepage, migration, release or escape of pollutants anywhere in the world,” but the exclusion expressly does not apply to 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.” Therefore, the question before the court was whether the TCE leak was a result of completed “work.”  Visteon argued that its “work” was completed each time a contract to supply products made at the plant was performed and, therefore, the pollution was a result of completed work. The court disagreed and held that the pollution at issue was not the result of completed “work.” According to the court, Visteon’s interpretation was not correct because it erased the line between completed and ongoing operations and essentially eliminated the entire pollution exclusion clause as related to any pollution claims potentially made against it. The court found that “[m]ost courts have interpreted ‘completed operations hazard’ narrowly – more narrowly indeed than required to decide this case in favor of the insurance company.” Visteon Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh, PA, No. 14-2725 (7th Cir. January 23, 2015).