In an unusual decision employing contorted contractual construction, an Indiana appellate court on August 28, 2012 explained that an insured that intentionally left 100,000 tons of sand on property it once leased, has caused a “personal injury” to the land and that this “personal injury” is covered by the insured’s general liability insurance. The concurring opinion found coverage was owed because the standard “occurrence” definition in the policy creates an ambiguity as to whether the policy requires the cause of the injuries to be “accidental.” or whether the policy requires that the injuries themselves to be “accidental.” While this decision may encourage policyholder counsel to use the “personal injury” coverage grant as a path to finding coverage for environmental property damage, the reasoning of the decision is likely to hold little precedential value outside the facts of the particular case and little sway for courts outside of Indiana.

In the matter, FLM, LLC v. DaimlerChrysler Corp. v. The Cincinnati Insurance Company, the insured,International Recycling Inc. (“IRI”) leased land from FLM, LLC (“FLM”) to use for storing and mixing gravel and sand. In particular, IRI had contracted with Daimler Chrysler Corporation (“Chrysler”) to remove sand from a Chrysler foundry, and IRI planned to then mix it with other materials on the land it leased from FLM, to then be sold by IRI as structural backfill for roadways.

In the fall of 2002, Chrysler stopped paying IRI for the removal of sand from Chrysler’s foundry. With the loss of this business income, IRI was no longer able to pay the rent on the land it was leasing from FLM. IRI stopped paying rent and simply abandoned 100,000 tons of foundry sand on FLM’s premises. Two years later, the Indiana Department of Environmental Management (IDEM) issued a Notice of Violation (against FLM, IRI and Chrysler), finding that the sand had begun to migrate, cause erosion and must be removed. The City of Indianapolis also issued a municipal code violation to FLM, finding a violation of the sediment control ordinance. FLM and Chrysler looked to IRI to pay for the costs of fixing the problem and obtaining all necessary permits.

To make matters worse for IRI, the sand that it had abandoned had blown onto the neighboring property owned by CSX Transportation, Inc. (“CSX”), allegedly clogging drainage pipes and interfering with train and signal operations. Eventually, FLM sued IRI’s insurer, The Cincinnati Insurance Company (“Cincinnati”), seeking a ruling that Cincinnati owed insurance coverage for the claims against IRI brought by FLM, CSX, Chrysler and IDEM. The trial court granted Cincinnati summary judgment, ruling that it owed no insurance for the claims brought against IRI by FLM and by IDEM. FLM and Chrysler appealed the ruling.

On appeal, FLM argued that the abandonment of the sand on its property caused a “personal injury.” “Personal injury” was defined by the Cincinnati policy to include the following offenses: “The wrongful eviction from, wrongful entry into, or invasion or the right of private occupancy of a room, dwelling, or premises that a person occupies by or on behalf of its owner, landlord, or lessor.” FLM argued that the sand left on its premises was a “wrongful entry” because IRI was no longer paying rent for the premises on which its sand was sitting. FLM also argued that the abandoned sand violated its “right to private occupancy,” which allegedly included the right to have property free of tons of unwanted sand. The appellate court, without explanation, found that the “personal injury” definition was ambiguous due to “a variety of meanings available for the terms in the policy.” Therefore, the court ruled in favor of coverage and found that the abandonment of 100,000 tons of sand could be a “wrongful entry” or a violation of the “right to private occupancy.”

Cincinnati then argued that, even if the abandoned sand was a “wrongful entry” or “violation of the right to private occupancy,” such offenses only constitute an enumerated “personal injury” if they were committed “by or on behalf of its owner, landlord or lessor,” which was not the case here. The court noted that the word “committed” did not appear in the definition. Instead, the appellate court found the definition to be ambiguous, and held that “it is clear that ‘by or on behalf of’ modifies ‘that a person occupies.” The court did not address what it could possibly mean to have a person “occupy” a premises “on behalf of its owner or landlord,” but the court simply concluded that this is how the phraseshould be interpreted, and that there is no requirement that the wrongful entry must have taken place “on behalf of the owner or landlord.” By stripping the definition of this requirement, the “wrongful entry” that IRI committed by intentionally leaving 100,000 tons of sand on FLM’s property constituted a “personal injury” covered under the policy.

The concurring opinion found coverage not under the “personal injury” definition, but instead focused on the coverage for “property damage caused by an occurrence.” The “occurrence” definition in the Cincinnati policy contained the standard requirement that it must be “an accident” that would cause the “property damage.” Even though the policy expressly stated that it is the “occurrence” that must be accidental, the concurring opinion found that it was ambiguous as to whether the “accident” might also refer to the “property damage,” i.e., the results of the occurrence. It is unclear from the opinion exactly what IRI believed would happen to the 100,000 tons of sand that it abandoned or why it would come as a surprise when the sand started blowing onto other land over years and was ordered to be removed. Nevertheless, the concurring opinion assumed that IRI did not mean the consequences of having abandoned the sand and that, because IRI intended the action, but not the consequences, then the property damage at issue may have been caused by a covered “occurrence.”

The appellate ruling described above stretches the bounds of policy interpretation. For example, consider that the “personal injury” definition covers “wrongful eviction.” It makes sense that a “wrongful eviction” from a premises can only be committed “by or on behalf of its owner or landlord.” The italicized parties are the only people who could evict someone. In the same manner, the italicized phrase should apply to each of the other offenses enumerated in the “personal injury” definition. However, the ruling above now indicates that a “wrongful eviction” refers to an eviction only from premises that “a person occupies on behalf of its owner”—whatever that could mean. This simply does not make common sense, and certainly should not serve as a model for other courts interpreting the “personal injury” definition. It remains to be seen the extent to which the FLM decision is accepted or rejected by other courts, particularly with respect to the creation of environmental insurance coverage under the “personal injury” coverage, even when the “personal injury” was not committed by the owner or landlord of the premises at issue.

For more information on this decision, or other matters impacting environmental coverage issues, please contact Adam H. Fleischer at (312) 762-3130 or bfleischer@batesbarey.com.