Court Rejects Policyholder’s Products-Completed Operations Hazard Arguments In Attempt To Obtain Coverage For Environmental Claims

This environmental coverage action arises from soil and groundwater contamination at Visteon’s Indiana plant that migrated to the properties of neighboring landowners. Specifically, Visteon manufactured automotive climate control system parts at the facility continuously until 2007 and operated 13 degreasers, which primarily used Trichloroethylene (TCE) as a degreasing solvent.  Multiple historical releases of TCE from the 1960s to 2000 and beyond resulted in a TCE groundwater plume that emanated from the site and volatile organic compounds, including TCE, were detected in the soil. Visteon was insured by National Union Fire Insurance Company of Pittsburgh, PA and United States Fidelity & Guaranty Co and sought defense and indemnity under the umbrella policies.  Both insurers denied coverage under the pollution exclusion provisions contained within the respective policies.

As the alleged contamination fell squarely within the policies’ pollution exclusion, plaintiff policyholder argued that damages incurred as a result of the contamination at the site fit within the policies’ Products-Completed Operations Hazard (PCOH), which was listed as an exception to the pollution exclusion.  Specifically, Visteon argued that the bodily injury and property damage claims by neighboring landowners arose from  offsite impacts of TCE released from Visteon’s facility as a result of Visteon’s “work.” According to the policyholder, its “work” was “completed” each time a contract for automotive parts with Ford or some other third party was satisfied. Conversely, the insurer argued that, to the extent TCE releases continued to occur after Visteon began operations at the Site in 2000, those operations were not “complete” until at least 2007, after the policies’ effective dates, when the policyholder ceased actively manufacturing automotive parts at the facility. Thus, the insurer argued that the PCOH coverage did not apply under the circumstances.

In ruling for the insurer, the court noted that this issue was raised in Ohio Casualty v. Reed, 2006 U.S. Dist. Lexis 56625 (S.D.Ind. 2006) where like Visteon, the policyholder asserted that the pollution from a drycleaner resulted from “completed operations.” However, the Reed court expressly rejected such a position.  Likewise here, the court concluded that “to credit Visteon’s interpretation of Reed, a policyholder could evade the ruling simply by characterizing the chemical emissions arising from its dry cleaning business as involving many individual projects that started and stopped with the commencement and completion of each customer’s load of laundry. Such an interpretation would have the unintended effect of erasing the line between premises-operations and products-completed operations coverage, as almost any pollution claim involving offsite contamination could be characterized as a completed operations claim.”

Rather, the court held that when read together, the only reasonable interpretation of the PCOH provision is that this type of coverage does not extend to environmental contamination claims alleged by Visteon.  Instead, the provisions’ references to “another contractor or subcontractor” and “job site” reflect that this provision is intended to cover offsite contractor work.  Consequently, as Visteon was neither a contractor nor subcontractor, and the offsite TCE contamination did not arise from offsite work, the policyholder’s operations did not fall within the PCOH exception to the pollution exclusion. Thus, the insurers had no duty to indemnify the policyholder for the damages it has sustained as a result of the contamination.