Visteon Corporation v. National Union Fire Insurance , 777 F.3d 415 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-2725
VISTEON CORPORATION, et al.,
Plaintiffs-Appellants,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
PA,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:11-cv-00200-RLY-TAB—Richard L. Young, Chief Judge.
____________________
ARGUED JANUARY 7, 2015 — DECIDED JANUARY 23, 2015
____________________
Before WOOD, Chief Judge, and POSNER and EASTERBROOK,
Circuit Judges.
POSNER, Circuit Judge. Visteon, a large manufacturer of
automotive parts, with manufacturing facilities scattered
around the world but its headquarters in Michigan, brought
this diversity suit for breach of contract against the National
Union insurance company. Visteon had bought a liability
2 No. 14-2725
insurance policy from National Union providing worldwide
liability coverage between 2000 and 2002. The policy con-
tains an exclusion for liability resulting from pollution
caused by Visteon, but the exclusion is expressly made in-
applicable to liability arising from a “Completed Operations
Hazard.” National Union has refused to indemnify or de-
fend Visteon from suits arising from pollution caused by one
of Visteon’s plants.
Although we call this Visteon’s suit, there actually are
two plaintiffs, the parent company and the subsidiary that
held title to the plant that created the liability. But for sim-
plicity we’ll pretend there’s only one plaintiff and call it Vis-
teon, and we’ll suppress other irrelevant complications as
well.
The plant in question was in Connersville, Indiana. In
2001, and thus during the insurance coverage period, the
powerful toxic solvent TCE that was used to clean machin-
ery in the plant was discovered to have leaked into the soil
and groundwater. Neighboring landowners sued Visteon for
damages caused by the leakage. Visteon expended millions
of dollars to settle the suits and additional millions to clean
up the pollution that the leakage had caused. When National
Union refused either to defend Visteon or to reimburse it for
any of the costs it had incurred, Visteon filed this suit in an
Indiana state court; National Union removed the case to fed-
eral district court.
A dispute soon arose between the parties over whether
Indiana or Michigan law governed the substantive issues in
the case. Visteon wanted Indiana law to apply because Indi-
ana does not enforce standard pollution-exclusion clauses,
and the insurance policy included as we noted such a clause;
No. 14-2725 3
Indiana requires that for such a clause to be enforceable the
policy must “specify what falls within its pollution exclu-
sion.” State Automobile Mutual Ins. Co. v. Flexdar, Inc., 964
N.E.2d 845, 851 (Ind. 2012). TCE is one of the pollutants that
must be specified, and it was not specified in the policy that
National Union had sold to Visteon. Michigan law, however,
does enforce the more general kind of pollution-exclusion
clause found in the policy, City of Grosse Pointe Park v. Michi-
gan Municipal Liability & Property Pool, 702 N.W.2d 106, 114
(Mich. 2005), and so Michigan was National Union’s pre-
ferred choice for the governing law. The district court ruled
that Michigan law governed.
A second question addressed by the district court was
whether, under Michigan law, Visteon’s liability from the
TCE leak was within the scope of the Completed Operations
Hazard clause of the insurance policy, an exception as we
mentioned to the pollution-exclusion clause. The district
court ruled that Visteon was not entitled to coverage under
that clause and so dismissed Visteon’s entire suit. Having
thus struck out in the district court, Visteon has appealed to
us.
The parties agree as they must that the district judge was,
and we are, required to apply the choice of law rules of the
state in which the suit was brought, thus Indiana. Klaxon Co.
v. Stentor Electric Mfg. Co., 313 U.S. 487, 496–97 (1941). The
object in picking the state whose law is to govern is to identi-
fy the state that has the closest relation to the transaction, ac-
tivity, or event that gave rise to the litigation. In the case of
the suits against Visteon—suits alleging nuisance, negli-
gence, and related torts arising from the leakage of TCE—the
closest relation was to Indiana. The plant, along with the
4 No. 14-2725
persons and properties affected by the leakage, were entirely
within Indiana and Indiana had a compelling interest in a
legal or regulatory solution whereby the plant would still be
able to operate profitably, yet without harming its neigh-
bors.
But the present litigation, though unthinkable without
the tort suits, is of a different character. It arises from the in-
surance contract between Visteon and National Union, and
the contract is not limited to Visteon’s Connersville plant—it
covers all of Visteon’s plants, the world over. The Indiana
Supreme Court has decided that in the case of an alleged
breach of a contract insuring against liability for environ-
mental contamination that could occur at different sites, In-
diana will follow what is called the “uniform-contract-
interpretation approach,” which “applies the law of a single
state to the whole contract even though [the contract] covers
multiple risks in multiple states,” and the single state that is
chosen will usually be “the state having more insured sites
than any other.” National Union Fire Ins. Co. of Pittsburgh, PA
v. Standard Fusee Corp., 940 N.E.2d 810, 813, 815–16 (Ind.
2010) (emphasis added).
That approach would bind us even if we didn’t think it
sensible. But we think it eminently sensible. Visteon manu-
factures and sells its automotive parts all over the world;
and any of its plants, or for that matter any of its products,
can give rise to liabilities against which it wants to insure. It
wants the law governing its insurance rights against Nation-
al Union (which remember had insured Visteon against lia-
bility arising anywhere in the world) to be determined by
the law of the state or province or nation or other jurisdic-
tion in which it incurs liability, and so in this case it wants
No. 14-2725 5
Indiana law to govern its rights under the policy. The impli-
cation (which cannot be intended), given the uniform-
contract-interpretation approach, is that Indiana law would
govern all subsequent pollution damages caused by Visteon,
wherever they occurred. Anyway it would be immensely
difficult, and maybe impossible as a practical matter, for Na-
tional Union to calculate a single premium for risks made so
diverse by the worldwide scope of Visteon’s operations.
Suppose some country in which Visteon has a plant refuses,
like Indiana, to enforce the kind of pollution-exclusion
clause found in National Union’s policy. That would expand
Visteon’s rights against its insurer. And so National Union
would insist on charging a higher premium to Visteon to
cover pollution caused by Visteon in that country than it
would in states like Michigan that do enforce such clauses.
Instead of charging a single premium to Visteon, National
Union might end up charging hundreds of different premi-
ums—all to the same insured.
Visteon misses this point, arguing that National Union
knew, or at least had reason to foresee based on its substan-
tial litigation experience with related claims, the additional
risk posed by the Connersville Facility arising from its his-
toric use of exceptionally large volumes of TCE.” The impli-
cation is that National Union should have charged a higher
premium for covering liabilities caused by operation of the
Connersville plant in the insurance policy it issued to Viste-
on, because the insurer’s risk in insuring that plant was
greater than its average risk of insuring Visteon’s plants. The
result would be multiple different premiums to the same in-
sured for the same insurance.
6 No. 14-2725
Since there are compelling reasons for National Union’s
charging a uniform premium to an insured despite the great
variety of risks that it is insuring, and similarly compelling
reasons for a single jurisdiction’s law to govern disputes
over terms in National Union’s insurance contract, and the
only choice of jurisdictions offered to the district court was
between Indiana and Michigan, the court was right to
choose Michigan. Fourteen of Visteon’s manufacturing
plants were located there (and no greater number in any
other jurisdiction in which Visteon does business), and only
three of its plants were in Indiana. Michigan is also the juris-
diction in which Visteon’s headquarters is located and in
which the personnel who administer its insurance contracts
and negotiated the contract with National Union are sta-
tioned.
Simplest of all solutions would be for National Union to
negotiate with its insureds for the designation of the jurisdic-
tion whose laws would govern any litigation arising out of
its insurance contracts. But the parties tell us that insurance
companies are reluctant to negotiate such clauses. They ap-
parently want the flexibility to pick the most favorable law
after the risk has materialized, and in addition some states
refuse to enforce choice of law clauses in insurance contracts
on the ground (though hardly applicable to a large enter-
prise such as Visteon) that it is against public policy to allow
insureds to waive protections intended for them. (Both these
points are explained at length in Eugene Anderson et al., In-
surance Coverage Litigation § 6.03[A] (2d ed. 2013).) In any
event the only choice in this case was between Michigan and
Indiana and the district court’s choice of Michigan was clear-
ly the superior choice, given Indiana choice of law principles
No. 14-2725 7
as articulated in the Standard Fusee case (and other cases, un-
necessary to cite, as well).
The traditional rules of choice of law were simple, but,
whether rightly or wrongly, have given way to multifactor
tests—a bane of modern jurisprudence. (For apt criticism,
see Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S.
Ct. 1377, 1391–92 (2014).) Even in the Standard Fusee case, the
court, having designated Maryland as the lead candidate
under Indiana’s choice of law rules to supply the governing
law, felt compelled to trudge through other factors, mainly
the state where the risk insured against had materialized
and the state where the insurance contract had been made.
In the present case the risk materialized in Indiana, but that
could not have been foreseen. Furthermore, the Indiana vic-
tims of the TCE leak were compensated by Visteon, and it is
unclear what benefit the state would have derived from re-
imbursement of Visteon’s costs by National Union.
A complication is that Louis Heeb, one of the landowners
who sued Visteon over the pollution, entered into a settle-
ment agreement with Visteon whereby Heeb’s compensation
under the settlement increases if Visteon obtains damages
from National Union. Visteon argues that Indiana has an in-
terest in seeing its citizen receive additional compensation,
and Heeb is a citizen of Indiana. But if Heeb’s speculative
interest were deemed an interest of Indiana, then Visteon
could select the state whose law would govern any dispute
with its insurer simply by making a speculative contract
with a citizen of its preferred state—promising to pay that
citizen some amount of money in the event that Visteon in-
curred a liability in that state. Such an approach would make
8 No. 14-2725
it impossible to determine which jurisdiction’s law applies
before the risk materializes.
As for where the contract was made, which is the only
other factor (drawn from the governing multifactor ap-
proach to choice of law) that is relevant in this case, no state
can be designated as “the” state in which the insurance con-
tract was made. The negotiations, ultimate signing of the in-
surance contract, and receipt of premiums by National Un-
ion occurred in Michigan, Illinois, and New York, but not in
Indiana. This factor in the multifactor test falls out.
We’re left with Michigan. Its law, as the district court
found, determines whether National Union is liable to Viste-
on for the liabilities that Visteon incurred as a result of the
contamination resulting from the leak of TCE from its Indi-
ana plant.
The insurance policy excludes coverage for damages
caused by “the actual or threatened discharge, dispersal,
seepage, migration, release or escape of pollutants anywhere
in the world”—which obviously encompasses the TCE leak.
With Michigan enforcing pollution-exclusion clauses, Viste-
on is left to argue that what happened in Connersville is
within an exception (part of the Completed Operations Haz-
ard clause that we mentioned) to the pollution-exclusion
clause for 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.” So the question
is whether the TCE leaked by the Connersville plant was a
result of completed “work.” Visteon argues that its “work”
was “completed” each time a contract to supply products
made at the plant was performed. In response National Un-
ion points out that operations continued at the plant until
No. 14-2725 9
2007, long after the insurance policy expired, when Visteon
ceased manufacturing at the plant.
Visteon’s interpretation can’t be right, because it erases
the line between completed and ongoing operations. True,
the definition of “complete” in the Completed Operations
Hazard clause is murky: “when all of the work called for in
your contract has been completed”; “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 “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”—whichever is
earliest. The first definition could as a semantic matter em-
brace pollution occurring after the completion of each con-
tract to sell parts manufactured at the Connersville plant.
The problem is that such an interpretation apparently would
erase the pollution exclusion for all the pollution caused by
the plant. For Visteon doesn’t acknowledge that the pollu-
tion expenses resulting from the TCE leak have to be appor-
tioned between products that the Connersville plant made
under contract and products that it made hoping to sell but
not yet having a contract to sell. It thinks the Completed Op-
erations Hazard clause entitles it to reimbursement for the
entire costs it incurred as a result of the pollution claims
made against it. It thus interprets that clause as swallowing
the entire pollution-exclusion clause—the exception becom-
ing the rule. But is it plausible that National Union would
have issued an insurance policy that vitiated the pollution-
exclusion clause of an insurance policy that covers liabilities
incurred by Visteon anywhere in the world?
10 No. 14-2725
Visteon’s argument from the Completed Operations
Hazard clause is wrong for another reason. Visteon doesn’t
explain why it should make a difference to coverage wheth-
er a fuel injection component (say) is sold pursuant to a con-
tract, or is shipped to some distribution facility owned by
Visteon where it is then offered for sale. The difference has
nothing to do with pollution, so why should it affect the
scope of an insurance policy that has a pollution-exclusion
provision? The contract-completion exception is more plau-
sibly read as referring to the end of a relationship with a
buyer. Visteon doesn’t address this possibility.
Most courts have interpreted “completed operations
hazard” narrowly—more narrowly indeed than required to
decide this case in favor of the insurance company. For ex-
ample, in Liberty Mutual Ins. Co. v. Triangle Industries, Inc.,
957 F.2d 1153, 1158 (4th Cir. 1992) (New Jersey law), the
court read that “the term ‘completed operations hazard’ re-
fers to [a] … form of protection offered for the benefit of
those policyholders who provide a service in addition to or
instead of a particular product. (‘Commentators are in com-
plete agreement that this exclusion refers to accidents caused
by defective workmanship which arise after completion of
work by the insured on construction or service contracts.’)”
(citations omitted). See also West Bend Mutual Ins. Co. v.
United States Fidelity & Guaranty Co., 598 F.3d 918, 924–26
(7th Cir. 2010) (Indiana law); Hydro Systems, Inc. v. Continen-
tal Ins. Co., 929 F.2d 472, 474–77 (9th Cir. 1991) (California
law); Gregory v. Tennessee Gas Pipeline Co., 948 F.2d 203, 207–
08 (5th Cir. 1991) (Louisiana law); CPS Chemical Co. v. Conti-
nental Ins. Co., 489 A.2d 1265, 1270 (N.J. Law Div. 1984), re-
versed on other grounds, 495 A.2d 886 (N.J. App. Div. 1985);
Buckeye Union Ins. Co. v. Liberty Solvents & Chemicals Co., 477
No. 14-2725 11
N.E.2d 1227, 1236–37 (Ohio App. 1984), abrogated on other
grounds by Hybud Equipment Corp. v. Sphere Drake Ins. Co.,
597 N.E.2d 1096 (Ohio 1992); Jeffrey W. Stempel, Stempel on
Insurance Contracts § 14.07[A][2] (3d ed. 2013 supplement).
All these cases hold that pollution arising from ongoing op-
erations (including manufacturing, as in several of the cases
cited above) isn’t covered by the Completed Operations
Hazard clause, even though these are cases in which the in-
sureds were completing their performance of particular sales
contracts with customers.
We note finally that the pollution-exclusion clause is un-
ambiguous, and therefore National Union had no duty to
defend Visteon against the suits brought against it by neigh-
boring landowners who experienced losses because of the
leak of TCE from Visteon’s Connersville plant.
Visteon has failed to make a case. The judgment in favor
of National Union is therefore
AFFIRMED.