Indiana Law Review


Environmental Law Developments: Hope and
Ambiguity in Achieving the Optimum Environment

George M. Plews*
Donna C. Marron*'

Introduction

The body of law that governs environmental regulation and litigation in
Indiana expanded and evolved during the survey period. Indiana appellate

decisions lead the nation in supporting insurance coverage for environmental

claims, and a new decision further advances that law. Lawsuits against Indiana
utilities by the federal government alleging violations of the Clean Air Act

("CAA") potentially involve expenditures in the hundreds ofmillions ofdollars.
The intensity of litigation involving such massive financial exposure and the
complexity of the CAA and its regulations have spawned important decisions in
this area. Other significant environmental issues litigated in Indiana's appellate

courts during the survey period include development activities in isolated

wetlands, citizen standing to challenge an agency action on environmental

permits, proof of personal injury arising from exposure to chemicals in the

environment, and significant expansion of a city's right to use its power to seek

damages and abatement of a public nuisance. The legal developments
summarized below have far-reaching effects on the lives and livelihoods of

Indiana citizens.

I. Recent Developments in Indiana Environmental Insurance Law—
Funds for Environmental Cleanups

On January 16, 2004, the Indiana Court of Appeals issued a decision, PSI
Energy, Inc. v. Home Insurance Co., that adds to a body of appellate law that
makes Indiana one of the most favorable states in the nation for policyholders to
obtain insurance coverage for environmental claims.' This law gives Indiana a

unique and important tool to meet the enormous costs which have been imposed

by the revolution in environmental regulation.

A. The Sea Change in Environmental Regulation

Indiana's industrial history has left a legacy of significant environmental

cleanup needs. Whether it is a corner gas station, a failed recycling facility, a
municipal landfill, or a major factory, the reassessment of the nation's

environmental requirements over the past thirty or more years has required a vast
social investment. Even routine small scale cleanups run into hundreds of

thousands of dollars. A major remediation project at a large factory easily can

* Founding Partner, Plews Shadley Racher & Braun, Indianapolis. B.A., Princeton
University; J.D., Harvard Law School.

** Partner, Plews Shadley Racher & Braun, Indianapolis. B.A., Tufts University; J.D.,
Indiana University School of Law—Bloomington.

1 . 801 N.E.2d 705 (Ind. Ct. App. 2004).



1 056 INDIANA LAW REVIEW [Vol. 37: 1 055

cost tens of millions of dollars.

Regardless of whether change is mandated by the Comprehensive
Environmental Response Compensation and Liabil ity Act of 1 980 ("CERCLA"),^
the "Superfund" statute, the Resource Conservation and Recovery Act
("RCRA"), the hazardous waste regulatory statute, or any ofthe myriad ofother
government remediation statutes, or by common law or statutory remedies,^ all
of this cleanup costs money. In the main, it costs money which no one
anticipated having to spend. The liability for this unprecedented wave of
cleanups is retroactive and strict, and it is imposed for practices which were

perfectly legal when undertaken.
Consider, for example, a typical Superfund cleanup at a landfill. The landfill

was fully licensed and inspected by state and local agencies. It land disposed a
vast array of materials, including many, such as solvents, which, based upon our

present understanding of the impact and operation of the chemicals in the

environment, we no longer land dispose. Under CERCLA present and past
owners and operators of the landfills and generators and transporters of the
wastes to the landfill must pay the cleanup costs."*

Over the last forty years of the twentieth century, our environmental
sensibilities have changed. From Silent Spring to Love Canal, to the Superfund
and RCRA statutes, we witnessed a dramatic shift from subjective qualitative to
"objective," largely quantitative regulation ofthe environment. While nuisance

statutory and case law and anti-pollution statutes^ were enacted prior to this time,

they were focused on acute, tangible instances ofpollution which were detectable

by ordinary sight, smell, or other senses. The notion that such work was the
business of full-time state regulatory agencies, much less a federal agency, is a
novel development of the years since 1970.^

In part, this shift was the result of scientific progress, not only in the
understanding of the environmental effects of compounds, but also in our

capacity to measure the presence ofsubstances in the environment in increasingly

smaller quantities. This allowed objective quantitative analysis without which

2. 42 U.S.C. §9601-9675(2003).

3. E.g., Indiana's relatively new Environmental Legal Action Statute, lND.CODE§ 13-30-9-

2 (2003) (allowing a "person [to] bring an environmental legal action against a person who caused

or contributed to a release of a hazardous substance . . .into the . . . soil or groundwater to recover

reasonable costs of a removal or remedial action involving the hazardous substance").

4. 42 U.S.C. § 9607.

5. See, e.g., IND. CODE § 32-30-6-6 (Indiana's nuisance statute first passed in 1881, which

allows a citizen to bring an action for anything which is "injurious to health, indecent, offensive to

the senses, or an obstruction to the free use ofproperty"). Another example is Indiana's first Stream

Pollution Control Act, iND. CODE § 13-18-3-1, which is intended to prevent any conduct which

would injure "fish life or any beneficial animal or vegetable life."

6. Not surprisingly, this corresponds to the first wide-spread inclusion ofenvironmental law

courses in law school curriculum. One ofthe co-authors ofthis Article took the first environmental

law course taught at Harvard Law School in 1978, offered only via mimeographed materials,

because no acceptable text books on the subject were available.



2004] ENVIRONMENTAL LAW 1057

broad-scale regulation is impossible. Without data reports neither contamination

nor cleanup levels can be confirmed. This new possibility enhanced a heightened
public and political appetite to acquire more environmental protection in
measurable quantities.

Environmental protection, like national defense, is frequently cited as the

classic paradigm of a public good. That is, everyone wants it, but the market

choices of individuals and industry do not necessarily produce an optimum
quantity. This is because an individual can freely enjoy a clean environment if

someone else pays to maintain it. Individuals have little incentive to pay for
marginal environmental improvements, and if no one has such incentives, we all
may end up with less than what we want. Hence, a leading role for government
developed to achieve, in some rough measure, the right amount ofenvironmental
protection, at least the optimum clean environment. This new role with new
objective standards has produced a liability revolution.

But public goods still have costs. Somewhere, someone has to produce the
resources to address the measure of what is clean enough. In the main, we have
selected an individual attribution model, a model which seeks to attach the new
costs to the original sources of what we lately have chosen to call unacceptable
contamination.

This has been an imperfect attribution because it stretches back to attach

present-day costs to conduct that occurred thirty to sixty or more years ago which

typically was perfectly "legal" and not generally understood to be likely to result

in significant damage or liability in the future. In a very real sense, this is both
unfair and inefficient. The decision-makers, the companies, and the shareholders

are only rarely the same entities as those when the choices were made. The
impact of this falls upon not those who "benefited" from what has now resulted
in cleanup costs, but upon those a generation or more removed from those

choices.

For many insurance policyholders, this disproportionate unexpected
imposition of costs is more than a theoretical problem. These costs can ruin a

business, or sap all the value from a property. Fortunately, in Indiana, insurance

purchased to protect against this type of cleanup liability and any other

unexpected liability is available to help. To understand the intellectual
foundation of this law, it is first necessary to grasp the unique nature of liability

insurance policies.

B. The Nature ofthe Insurance Policy

It is common to find statements injudicial opinions, even in Indiana, along
the lines of insurance policies are contracts and are subject to all the ordinary

rules ofcontract interpretation.^ This is not really accurate. Insurance, especially

in its modern pre-printed form, is not best described as a contract.
Insurance is a product—it is risk protection. It is not an individualized

agreement, arrived at by free and open arm's length negotiations over crucial

details such as those which might characterize a "real" contract. The insurance

7. See, e.g., Westfield Cos. v. Knapp, 804 N.E.2d 1270, 1274 (Ind. Ct. App. 2004).



1058 INDIANA LAW REVIEW [Vol. 37:1055

product is printed up in full, or nearly full, and final form. Generally, nothing

more than the quantity purchased and the price paid are even discussed, much
less negotiated. Even major insurers and their major corporate clients often do
not obtain a clear understanding ofwhat coverage is agreed upon (or not agreed
upon) until the point of claim. Very often, the underwriting and claims wings of
an insurer do not see the coverage in the same way. A partner of mine relates a
story of an experienced policy underwriter justifying an ambiguous draft policy
as follows: "We draft them this way so that we can say later that the policy
means whatever we want it to mean." The lawyer present objected that this was
not a sound way to design a policy. The story illustrates, however, how far from
a classic contract insurance policies stray. Insurance companies do not even

retain copies of these "contracts" for any significant length of time. On the
policyholder side, the goal is usually an aggregate sum ofthe "best coverage we
can gef or the "typical" or "usual" or "standard" coverage. There is no real
closure or meeting of the minds.

The way in which insurance policies come into being also reflects their non-
contractual nature. Normally, the person or entity desiring to protect itself from

risk looks for insurance coverages. Usually with the assistance of a licensed

insurance agent or broker, the prospective insured identifies the coverages

desired and sets out to fmd them. Typically, there is an application, which
frequently is filled out by the agent or broker. The application is then sent to one

or more insurance companies (or "carriers"), which underwrite the application
for the policy. During this underwriting process, the insurance company's

underwriters evaluate the potential risk that the application appears to represent,

determine if they will accept the risk, and, if so, with the help of the company's

actuarial department, determine the price (or "premium"). The price (at least for
liability coverage and for most other forms) is formula-driven. That is, the

potential policyholder's amount of sales, total compensation, or number of
employees will determine the premium price, based on a pre-set rate schedule for
a specific category of business (e.g., manufacturers, offices, etc.), rather than on

an individual assessment ofoperations. Ifthe carrier accepts the risk, commonly
the agent or broker is informed and will report back to the applicant that the

agent or broker has "placed" the insurance with an insurance company or
combination of companies for a proposed total premium. If the proposed

policyholder approves ofthe price, the insurance deal is made, and the insurance

company is bound to the risk.
After all of this, someone in the administration department ofthe insurance

company pulls together an appropriate policy for the insured and mails it to the
policyholder. At no point does the policyholder sign a contract. At most, the

policyholder's signature is on the application. The policyholder's form of
acceptance is payment of the premium. Indeed, the only signatures by the

insurance carrier are pre-printed signatures ofthe president and the secretary of

the insurance company. The policy may or may not be counter-signed with an
original signature of the insurance broker or agent. Note that typically no

lawyers have been involved in this process at all to this point.

There is nothing in law or common usage that makes the insurance coverage
effective only upon the execution of a written contract. In many cases, the



2004] ENVIRONMENTAL LAW 1059

insurance policy does not arrive until months or maybe years after the inception
of the insurance coverage and sometimes does not arrive at all. Because of the

way in which insurance is entered into and the fact that the policy may arrive
much later, if ever, a rule has developed in Indiana, which provides that where
there has been a parol acceptance of an insurance risk, "the contract in parol

continues until the policy is delivered, when it is superseded by the policy."^ The
parties have probably never agreed to be bound in parol until the policy arrives

in the mail; the policy just arrives in the mail.

There are other features of insurance policies that make them quite different
from other types of contracts:

1

.

Policy forms are written by the insurance industry. Although they are not

required to be followed, sample policy forms are prepared and filed with state

insurance departments for approval and made available to all insurance
companies through the Insurance Services Office, Inc. ("ISO"), headquartered in
New York City. The ISO consults with a small number of selected insurance
companies to draft these policy forms.

2. The insurance industry decides itself and without consultation with the
market that certain coverages will be eliminated or modified.

3. The McCarran-Ferguson Act^ provides a specific antitrust exemption for
this process on the basis that insurance companies' coverages must be uniform

in order to allow for coherent risk rating evaluations.

4. Extremely rarely is language contained in a policy actually negotiated

between parties. The rare exception to this is called a "manuscripted" policy or
endorsement.

5. As stated above, there is no requirement that the policyholder execute the
policy.

C Another Distinguishing Characteristic—Policy Interpretation Rules
Courts sometimes say they use the same rules of contract interpretation for

insurance policies that they have for other types of contracts.'^ However, while

acknowledging that insurance policies are in certain respects like other contracts,

the courts also have recognized that these policies are forms drafted by the

insurance industry, and the courts have developed numerous specific rules

governing their construction. The Indiana Supreme Court recently affirmed that
such form policies and exclusions are strictly construed against insurers for just

that reason: "This strict construal against the insurer is driven by the fact that the

insurer drafts the policy and foists its terms upon the customer. 'The insurance

companies write the policies: we buy their forms or we do not buy insurance.""

'

One major difference between the interpretation of general contracts and

8. W. Assurance Co. v. McAlpin, 55 N.E. 1 19, 122 (Ind. App. 1899).

9. 15U.S.C.A.§ 1011-1013(2003).

10. E.g., Stockberger v. Meridian Mut. Ins. Co., 395 N.E.2d 1272, 1277 (Ind. App. 1979);

Am. States Ins. Co. v. Aetna Life & Cas. Co., 379 N.E.2d 510, 516 (Ind. App. 1978).
11. Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind. 1996) (quoting Am. Econ. Ins.

Co. V. Liggett, 426N.E.2d 134, 142 (Ind. Ct. App. 1981)).



1060 INDIANA LAW REVIEW [Vol. 37:1055

insurance contracts in Indiana is the absence of an "implied covenant of good
faith" in general contracts in this state side by side with the imposition of an
"implied covenant of good faith" on insurers. The law of general contract
interpretation in Indiana is very traditional. While many states, including our
neighbors, have adopted numerous rules concerning various implied covenants
with respect to general contracts, including covenants of "good faith" and "fair
dealing," the courts of Indiana have consistently and emphatically refused to do
so in the absence of an ambiguous contract.'^

On the other hand, under Indiana law, an insurance company has a "special
relationship" with its insureds that in many respects is fiduciary in nature and
requires the insurer to deal with its policyholders in "good faith."'^ A breach of
the obligation of good faith by the insurer may give rise to a tort action for
compensatory damages or an action for punitive damages.^"* Factors that help
determine whether an insurance company has acted in good faith with respect to
policy interpretation include whether the insurer has taken inconsistent positions

with respect to the same policy language, whether the insurer has a factual basis
for its coverage position, whether the insurer has any legal support for its

position, and the nature and extent of any investigation conducted prior to

arriving at the coverage position.

Despite the occasional nod to the supposed contractual nature ofan insurance

policy, the cases actually show, on the whole, that an insurance policy is very

different from an ordinary contract. For example "[a]n insurance policy should

be so construed as to effectuate indemnification . . . rather than to defeat it."'^

"This is particularly true where a policy provision excludes coverage."^^ An
exclusionary clause must "clearly and unmistakably" bring the excluded

condition within its scope to be effective.'^

Terms in an insurance contract may not be construed in a manner which is
"repugnant to the purposes of the policy as a whole."' ^ Policy terms are

interpreted from the perspective of an ordinary policyholder of average

intelligence.'^ Terms are given a consistent meaning throughout an insurance

1 2. See Rothe v. Revco D.S., Inc., 976 F. Supp. 784, 794-95 (S.D. Ind. 1 997); First Fed. Sav.

Bank v. Key Mkts., Inc., 559 N.E.2d 600, 604 (Ind. 1990).

13. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 518-19 (Ind. 1993).

14. Id.

15. Masonic Accident Ins. Co. v. Jackson, 164 N.E. 628, 631 (Ind. 1929); see also Tate v.

Secura, 587 N.E.2d 665, 668 (Ind. 1992); Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470
(Ind. 1985).

1 6. Travelers Indem. Co. v. Summit Corp. ofAm., 7 1 5 N. E.2d 926, 936 (Ind. Ct. App. 1 999).

17. Masonic, 164 N.E. at 63 1 (coverage "will not be destroyed by language of exception,

unless such exception shall be clear and free from reasonable doubt"); Ashbury v. Ind. Union Mut.

Ins. Co., 441 N.E.2d 232, 242 (Ind. Ct. App. 1982); Huntington Mut. Ins. Co. v. Walker, 392

N.E.2d 1 182, 1 185 (Ind. App. 1979).

18. Prop. Owners Ins. Co. v. Hack, 559 N.E.2d 396, 402 (Ind. Ct. App. 1990) (citing J.B.

Kramer Grocery Co., Inc. v. Glens Falls Ins. Co., 497 F.2d 709, 712 (8th Cir. 1974)).

19. Ashbury, 441 N.E.2d at 237.



2004] ENVIRONMENTAL LAW 1 06

1

poIicy.2°

Ambiguity—^which results in a construction in favor of coverage—can and
will be found according to the following standard: "[A]n insurance policy is

ambiguous if reasonable persons may honestly differ as to the meaning of the
policy language."^' Words that have been accorded different meanings by
different courts are ambiguous as a matter of law.^^ If there is any ambiguity in

a policy term, it must be interpreted in favor of the insured and in favor of

coverage, especially in an exclusion from coverage. The Indiana Supreme Court
mAmerican States Insurance Co. v. Kiger expressly affirmed this point: "Where
there is ambiguity, insurance policies are to be construed strictly against the

insurer. This is particularly true where a policy excludes coverage.
"^^

The policyholder need not prove that its suggested interpretation ofa policy
term is the only reasonable interpretation. M any reasonable construction of a
term supports coverage, that construction governs as a matter of law.^"^ "Where
any reasonable construction can be placed on a policy that will prevent the defeat

of the insured's indemnification for a loss covered by general language, that

construction will be given."^^ To prevail in a denial of coverage, therefore, the
insurer must demonstrate that its construction of insurance policy terms is the

only plausible or reasonable reading of the policy language.

A policyholder's expectations of coverage must be honored. Some
jurisdictions label this approach as the "reasonable expectations doctrine."^^ The
Indiana Supreme Court has specifically endorsed adherence to the policyholder's

reasonable expectations of coverage: "In the instant case, based on the relevant

policy language, Lilly could have reasonably formed an expectation that it was
purchasing insurance coverage for all future liability arising from the

manufacturing and selling of DES."^^ These reasonable expectations are

particularly important where policy language is ambiguous.
^^

20. Taracorp., Inc. v. NL Indus., Inc., 73 F.3d 738, 744 (7th Cir. 1 996); Thompson v. Amoco
Oil Co., 903 F.2d 1118, 1121 (7th Cir. 1990).

21. Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985).
22. See Summit, 715 N.E.2d at 936; Hartford Accident & Indem. Co. v. Dana Corp., 690

N.E.2d 285, 295 (Ind. Ct. App. 1997); Ind. Ins. Co. v. O.K. Transport, Inc., 587 N.E.2d 129, 132

(Ind. Ct. App. 1992); Ind. Dep't of Revenue v. RCA Corp., 310 N.E.2d 96, 99 (Ind. App. 1974),
rev 'don other grounds, 520 N.E.2d 457 (Ind. Ct. App. 1988).

23. 662 N.E.2d 945, 947 (Ind. 1996); see also Governmental Interins. Exch. v. City of

Angola, 8 F. Supp. 2d 1 120, 1 125 (N.D. Ind. 1998); Lilly, 482 N.E.2d at 470-71; Summit, 715

N.E.2d at 936.

24. Lilly, 482 N.E.2d at 41 \; see also Am. Econ. Ins. Co. v. Liggett, 426 N.E.2d 134, 144

(Ind. Ct. App. 1981).

25. Liggett, 426 N.E.2d at 144 (citation omitted).

26. Certain jurisdictions differ substantially from Indiana by explicitly rejecting adherence

to the policyholder's reasonable expectations ofcoverage. Examples ofthesejurisdictions include

Colorado, Florida and Pennsylvania.

27. Lilly, 482 N.E.2d at 470.

28. See Summit, 715 N.E.2d at 936; Great Lakes Chem. Corp. v. Int'l Surplus Lines Ins. Co.,



1062 INDIANA LAW REVIEW [Vol. 37:1055

The common thread among most of the rules in Indiana is that coverage will
be effectuated whenever that is reasonably possible. These rules sensibly arise

from the actual nature of the insurance policy. There is no real meeting of the
minds when a policy is purchased; instead, a risk protection product is acquired.
As in typical modern products liability law, risks arising from
defects—ambiguity—in the product are properly assigned to the manufacturer,
in this case the insurance company. The insurer is in the best position to avoid
the risk through clarification of policy terms, and the risk of loss is most

efficiently and fairly placed there. That is why these special rules of policy
construction have developed and make sense.

D, Indiana 's Courts Respond to Environmental Liability Claims

This law has had significant application as to environmental liability claims,

which have presented an unanticipated loss not clearly addressed by the form
policies. Insurance coverage law is a state-by-state determination. As in so many
areas of the common law, Indiana jurisprudence on insurance coverage for
environmental liability claims has developed through step by step analysis of

specific issues. Numerous trial court decisions^^ preceded and followed these
appellate landmarks.

But the first Indiana Supreme Court decision to address coverage for these

claims was a major one that drew national attention. In American States
Insurance Co. v. Kiger,^^ the Indiana Supreme Court, on direct appeal from the
Hendricks Circuit Court to address an issue of "great public importance," held

that both forms of the pollution exclusion found in comprehensive general

liability ("CGL") policies from 1 970 to the present were ambiguous. Therefore,
these exclusions were construed in favor of coverage.

The early "standard" form (1970-1985) exclusion purports to bar coverage
for any damage caused by discharge of contaminants, pollutants, or chemicals

unless that release was "sudden and accidental." Insurers insisted "sudden"
required a strictly temporal construction, meaning "all at once" and, thus,

excluding gradual contamination, the predominant kind of contamination. The
policyholder contended that "sudden," which was not defined in the policy, at

least as plausibly means "unexpected."

The supreme court traced the history of the exclusion, noting that the
insurance industry claimed its addition was a "mere clarification" that no
coverage was provided for "expected and intended" damage.^' The court noted
that the industry's own construction ofthe language demonstrated the ambiguity

638 N.E.2d 847, 850 (Ind. Ct. App. 1994); Prop. Owners ins. Co. v. Hack, 559 N.E.2d 396, 402

(Ind.Ct.App. 1990).

29. See, e.g.. Riverside Oil, Inc. v. Federated, 1994 U.S. Dist. LEXIS 20394 (CD. 111., Aug.

1 9, 1 994) (discussing pollution and "owned property" exclusions and "personal injury" coverage);

Sam Winer & Co. v. Commercial Union, No. 20D01-9207-CP-247 (Elkhart Super. Ct, Feb. 19,
1994) (discussing what constitutes a "suit" which triggers an insurers' duty to defend).

30. 662 N.E.2d 945, 947 (Ind. 1 996).

31. Mat 948.



2004] ENVIRONMENTAL LAW 1063

ofthe phrase, "ambiguity that requires the Court to construe the insurance policy

in favor of the insured and against the insurer who drafted it."^^ Thus the vast
bulk of claims are covered unless the damage was expected and intended.

The court also assessed the "absolute" exclusion found in policies after 1 985.
This exclusion barred coverage for claims resulting from the discharge of

"pollutants." "Pollutants" was defined as "any solid, liquid, gaseous or thermal
irritant, or contaminant, including smoke, vapor, soot, fumes, acids, alkalis,

chemicals, and waste. Waste includes materials to be recycled, reconditioned or

reclaimed." The court held this definition is so overbroad that it is unenforceable
since it would bar coverage for any claim involving virtually any substance."

The supreme court' s reason i ng rested on the Indiana rules ofinsurance policy
construction detailed above that favor coverage wherever that is reasonably

possible, and which require that any ambiguity be interpreted in favor of the

policyholder and in favor of coverage.^'^

Kiger has had an enormous impact.^^ It has made hundreds of millions of

32. Id.

33. Id.

34. Id at 947.

35. The Indiana legislature also rejected the insurance industry's effort to ensure enforcement

ofthe absolute pollution exclusion in a literal, all-encompassing way. A bill was passed during the
first 1997 legislative session, House Enrolled Act 1 583, which attempted to reverse, prospectively,

Kiger's absolute pollution exclusion ruling and to codify broad application of the insurance

industry's absolute pollution exclusion. The policy language at issue was identical in all important

respects to the policy language in EMl's policies. Governor O'Bannon's veto message

resoundingly rejected the bill:

A strong insurance industry is vital to the economic health of this state. The legislative
and executive branches should encourage stability and clarity in the insurance market.

Nevertheless, 1 am today vetoing House Enrolled Act 1583, which deals with

environmental insurance.

House Enrolled Act 1583 would codify what should be a private contractual matter

between an insurer and its insured. The bill provides that ifan insurance policy contains

certain prescribed language, or "substantially similar" language, then there is no

coverage for losses arising out ofthe discharge or release of"pollutants." I believe that

the definition of "pollutants" in this bill may increase the risk that insurers could deny

coverage for claims having nothing to do with pollution in the ordinary sense of the

word.

This bill could adversely affect large and small Indiana businesses who manufacture or

use products that would be considered pollutants under this bill. A cross section of
these businesses oppose this bill in its current form. No other state has enacted

legislation of this type. The insurance industry can address the problem by drafting a

clear and unambiguous contractual pollution exclusion. I am therefore vetoing House

Enrolled Act 1583.

H.R. Enrolled Act 1583, 109th Gen. Assem., 1997 Sess. (Ind. 1997) (Governor O'Bannon's veto



1064 INDIANA LAW REVIEW [Vol. 37:1055

dollars available to clean up the environment. It means that virtually any CGL
policy applies to pay an environmental liability or property damage claim.
Pollution exclusions at most apply only to limit claims under pre- 1985 policies

where the damage was expected or intended.^^
Shortly after Kiger, the supreme court decided Seymour Manufacturing Co.

V. Commercial Union Insurance Co?^ Seymour addressed the insurer's duty to
defend its policyholder against environmental claims. CGL policies contain two
promises. The first is to defend the policyholder against any suit; the second is
to indemnify the policyholder for amounts it must pay to resolve a claim. The
policyholder in Seymour was the entity that had run the now-infamous solvent
recycling facility in Seymour, Indiana that became the Seymour Superfund Site.
The insurer presented evidence that the policyholder had

stored multiple barrels of liquid waste at its facility, did not identify or

otherwise label the barrels in order to assure the proper method of

disposal, did not make any attempt to separate wastes from other
incompatible wastes, permitted barrels to rust or otherwise deteriorate,

did not clean up open and obvious spills, did not properly cover many
barrels, and received some types of waste for which it had no treatment
facility.^*

Despite this evidence, which ultimately could have supported an expected or

intended coverage defense, as well as other defenses not connected to this

evidence, the supreme court held that the insurer had a duty to defend its

policyholder against the federal government's environmental claims as a matter

of law.^^ The court entered summaryjudgment on defense costs in favor of the
policyholder. The court centered its decision on the ambiguity identified in
Kiger and the well established principle that "the duty to defend is broader than

the duty to indemnify.'"*^

The court of appeals struck down two additional key insurer defenses in

message). An over-ride vote during the next legislative session did not succeed. A similar bill.
Senate Bill 309, which attempted to codify a similarly broad application ofthe absolute pollution

exclusion, was introduced and defeated in that session. See also Great Lakes Chem. v. Int'l Surplus

Lines Ins. Co., 638 N.E.2d 847 (Ind. Ct. App. 1994), trans, withdrawn. After having argument on

this case the same day as Kiger, the supreme court withdrew its initial grant of transfer and

reinstated a court of appeals decision rejecting application of pollution exclusions to product

liability claims and holding excess insurers liable for defense costs. See id.

36. See also Great Lakes Chem., 638 N.E.2d at 847, trans, withdrawn. After hearing

argument on this case the same day as Kiger, the supreme court withdrew its initial grant oftransfer

and reinstated a court of appeals decision rejecting application of pollution exclusions to product

liability claims and holding excess insurers liable for defense costs.

37. 665N.E.2d891(Ind. 1996).

38. /^. at 893.

39. Id

40. Id at 892.



(C

2004] ENVIRONMENTAL LAW 1065

1997. In Hartford Accident & Indemnity Co. v. Dana Corp.^^ it held that the
suits" insurers must defend under Seymour included all adversarial

administrative proceedings as well as courthouse lawsuits. Insurers had insisted

only courthouse proceedings are included in the term "suit," which was not
defined in their policies.''^ The court also ruled that the "damages" an insurer

must pay under a CGL policy includes amounts paid by policyholders to comply
with a cleanup order."^^ Insurers had argued that "damages" in their insuring

clauses meant only "legal" damages contained in a moneyjudgment. The court
held both terms, "suit" and "damages" were ambiguous.'*'*

Dana I also rejected insurers' claims that "containment costs" were not
damages, because those sums are not spent to "fix" anything.'*^ Containment
measures, to prevent further damage, are often key components of remedial

actions, as they prevent further damage and allow the damaged environment to
recover. The court, recognizing that "damages" should not be construed to
encourage further environmental degradation in order to be covered by insurance,

agreed: "The cost of containment as a remedial action taken to prevent further

release of hazardous substances would be considered damages."*^

The court ofappeals handed down two more major decisions in 1999. In the
first. Travelers Indemnity Co. v. Summit Corp.^'' the court found that "personal

injury" coverage applied to environmental liabilities. "Personal injury" coverage

is not the same thing as "bodily injury" coverage. It is a special coverage part
f'"'

insuring claims for certain specified wrongs, including "wrongful entry" and

"invasion of the right of private occupancy.""** After examining dictionary

definitions and the multitude ofconflicting cases on this point around the country

(a split in authority was important evidence of ambiguity), the court found that

these provisions "must be construed to cover the environmental damages"

included in the wide range of cleanups in that suit."*^

Employers Insurance of Wausau v. Recticel Foam Corp.^^ affirmed an
insurer's duty to defend, but it is mainly noteworthy on procedural grounds. It

affirmed denial ofthe insurer' s^brw/w non conveniens motion and application of

Indiana law to the sole cleanup site in Tennessee. Forum non conveniens is a
doctrine that allows dismissal of litigation in favor ofa more conventional forum.

It is expressed in Indiana Trial Rule 4.4(C) and Indiana common law.^' On the

41. 690N.E.2d 285 (Ind. Ct. App. 1997) ("Dana I").

42. Id. at 294-97.

43. Mat 297-98.
44. Id.

45. Mat 298.
46. Id

47. 715N.E.2d926(Ind. App. 1999).

48. Id

49. Id. at 938. Summit also affirmed the ambiguity ofboth pollution exclusions and of"suit"

and "damages."

50. 716N.E.2d 1015 (Ind. App. 1990).

51. McCracken v. Eli Lilly & Co., 494 N.E.2d 1289 (Ind. Ct. App. 1989).

mil

mm



1066 INDIANA LAW REVIEW [Vol. 37:1055

forum non conveniens issue, Recticel ruled that great weight is given to a
policyholder-plaintiff s choice of forum which is to be disturbed only to avoid

"substantial injustice."" That case recognized the modem reality of litigation
between multi-state parties, that it will necessarily involve movement of
witnesses and evidence across state lines.^^

RecticeVs choice of law holding must be read together with similar

affirmation of the application of Indiana law in Dana I and Summit?^ All three
decisions assess the factors set forth in section 188 (contracts) and section 193

(insurance polices) of the Restatement (Second) of Conflicts of Laws.^^ Some
factors, such as the place of domicile of the parties or where the insurance

policies were countersigned, are entitled to little weight, since they are so various

and insignificant in the acquisition of insurance polices from multiple insurers

from all over the United States. Instead, the courts have placed emphasis on the
significance of the Indiana connection to the cases

—

Dana I(movG cleanup sites
and Dana plants than any other state). Summit (more cleanup sites), and to
Recticel (headquartered in Indiana and one plant here during a major portion of

the coverage period). A substantial Indiana connection supports application of
Indiana law.^^

In Allstate Insurance Co. v. Dana Corp.,^^ the Indiana Supreme Court held
that the "all sums" language which exists in the insuring clauses of most CGL
policies allows a policyholder facing environmental liabilities to select which of

the policies involved in a multi-year occurrence to use to respond to a loss. In the

typical policy's insuring clause the insurer promises to pay "all sums" the

policyholder becomes obligated to pay as damages on account of property

damage or bodily injuries caused by an occurrence. Thus, when multiple
insurance policies are triggered by contamination spanning several years—which
is typical in cases involving gradual environmental contamination—^the insurers
are jointly and severally liable for the loss, subject only to policy limits.^^ This

is an exceptionally important holding. Insurers used to insist they would pay

only for damage the policyholder could prove occurred in their policy period, or
only a "pro rata" share of the entire loss. If the policyholder was unable to find
all possibly applicable policies, or had used up coverage on other claims, or had

an insolvent insurer, or was self-insured, it would be stuck with less than a
complete recovery. Under Dana II, insurers can no longer escape paying their
full policy limits.

The Indiana Supreme Court also adopted an "injury in fact" approach to the

52. 716N.E.2datl021.

53. Id. at 1022-23. The trial court in Dana I reached a similar conclusion.

54. Id. at 1023-25; 5Mmm//, 715 N.E.2d at 930-33; Dfl«fl 7,690 N.E.2d at 291-94.

55. Restatement (Second) of Conflicts of Laws §§ 1 88, 1 93 (1971 ).

56. The Recticel court also instructed how a policyholder must prove defense costs and

deferred application of an estoppel against coverage defenses for breach ofduty to defend in favor

an existing bad faith claim. 716 N.E.2d at 1027-29.

57. 759N.E.2d 1049 (Ind. 2001) ("Dana 11").

58. Id at 1057-58.



2004] ENVIRONMENTAL LAW 1067

"trigger" of policies by environmental contamination; if damage takes place in
the policy period, coverage is triggered. Ifenvironmental damage spars a number
of years, all the policies are available to apply to the loss.^^

Finally, the Dana //court held that the "owned property" exclusion which
exists in most liability policies does not bar coverage for environmental liability

claims.^^ This exclusion was used by insurers to refuse all pay for on-site
cleanups at policyholder plants. The supreme court held the exclusion simply did
not apply to claims for cleanup liability on owned property resulting from
property damage (which is not for the benefit of the policyholder, but is an
imposition of a liability on the policyholder).^'

In 2002 the Indiana Supreme Court spoke once more on the absolute
pollution exclusion. In Freidline v. Shelby Insurance Co. ,^^ the court summarily

affirmed the holdings ofKiger and Seymour that the absolute pollution exclusion
(here applied by an insurer against a carpet fume claim) was overbroad and
unenforceable. The insurer had claimed the exclusion was enforceable because
the definition of"pollutants" included the word "fumes," but the court disagreed.
The Freidline court overturned the lower court's grant ofa bad faith award to the
policyholder for the insurer's continued use ofthe exclusion after Kiger, noting

the relatively recent litigation over the conclusion.^^ The next insurer to rely on
that exclusion may not be so fortunate.

All of this appellate work has been mirrored in the trial courts. A host of
Indiana trial courts have applied these principles to a wide range of claims and

costs. Numerous summary judgments have been issued in policyholder's favor
on the duty to indemnify^"* or the duty to defend^^ their policyholder with respect

59. Id. at 1060.

60. Id at 1056.

61. Id. (applying the reasoning of Patz v. St. Paul Fire & Marine Ins. Co., 15 F.3d 699, 705
(7th Cir. 1994)).

62. 774N.E.2cI37(Ind. 1002).

63. As noted above, insurers in Indiana may be held liable for the tort of bad faith claims

handling under Erie Insurance Co. v. Hickman, 622 N.E.2d 5 1 5, 5 1 8 (Ind. 1993), and the court of

appeals, citing Kiger' s clear precedent on the exclusion, had imposed such an award.

64. See, e.g., Muncie Sanitary Dist. v. Harleysville Ins. Co., No. IP-94-1401-C-D/F (S.D.

Ind. Jan. 7, 1999); Governmental Interinsurance Exch. v. City ofAngola, 8 F. Supp. 2d 1 120(N.D.

Ind. 1 998); CGB Enter., Inc. v. Old Republic Ins. Co., No. 65D0 1-0002-CP-OOO 1 4 (Posey County
Cir. Ct. May 15, 2002); EMI Co. v. Royal Ins. Co. of Am., No. 49D06-981 1-CP-1550 (Marion

County Super. Ct. Aug. 22, 2000), vacated by agreement; Gen. Housewares Corp. v. CNA Ins. Co.,
No. 49D06-9706-CP-920 (Marion County Super. Ct. Jan. 6, 2000); Henschen Oil, Inc. v. Burris

Equip. Co., Inc., No. 20C01-9805-CT-036 (Elkhart County Cir. Ct. June 1 5, 2000); Contractors

United, Inc. v. Commercial Union Ins. Co., No. 49C0I-9406-CP-2003 (Marion County Cir. Ct.

Oct. 27, 1999); Crown Int'l, Inc. v. Great N. Ins. Co., No. 49DI2-9704-CP-522 (Marion County

Super. Ct. March 13, 1998).

65. See, e.g., Muncie Sanitary Dist., No. \P-9i-\40\-C-D/F;City ofAngola,^?. Supp. 2d

1 120; Lear Corp. Auto. Sys., Inc. v. Allianz Underwriters Ins. Co., No. 49D10-9805-CP-0729

(Marion County Super. Ct. Dec. 22, 2002); Heritage EnvtI. Servs., LLC v. Sentry Ins., No.



1068 INDIANA LAW REVIEW [Vol. 37:1055

to environmental claims.

Against this backdrop, the Indiana Court ofAppeals examined five key issues
in PSI Energy, Inc. v. The Home Insurance Co.^^ The PSI action arose from
PSI's claims of substantial cleanup costs at the PSI's former manufactured gas

plant ("MGP") sites.
7. Lost Policies.—Several ofthe insurers argued that because PSI had been

unable to produce complete copies of their policies, PSI could not meet its
burden of proving that coverage existed for its claims.^^ The trial court had
agreed with the insurers. But the court ofappeals reversed, holding that PSI did

not have to produce policy language verbatim, but only the substance of the

policies. The PSI court held that PSI could present the broad range ofsecondary
evidence it had assembled to prove the policies, including its history ofpremium
payments, employee testimony, and expert testimony concerning the likely terms
in such form policies.*^* The court concluded that expert testimony, even where
the expert could not testify with absolute certainty as to the likely terms in the

lost policies, is admissible, when supported by the kind ofother evidence that PSI
had presented.

^^

2. Expected or Intended Damage.—The PSI court held that the concept of
"fortuity," meaning that the damage giving rise to a liability cannot be expected
or intended by the policyholders, is inherent in all CGL policies.^° However, a
policyholder can prove this point based on a subjective, rather than objective,

basis.^' The use of a subjective standard means that mere negligence or even
recklessness on the part of the policyholder will not prove that the resulting

damage was expected or intended and that such intent is based on what the
policyholder actually believed.

3. Trigger.—The PSI court followed Dana II and held that where damage
occurs over a multi-year period, each policy within that period is triggered and

obligated to pay "all sums."^^ This is so even where, as with PSI's earlier

policies, the policy requires that the "occurrence" "commence during the policy
period."^^ The court saw no difference between this language and the language
in Dana //requiring that an "'occurrence' take place during the policy period."^"*
In a few later policies which define "occurrence" as "one happening," a "series

of happenings," or "one event," the court held that PSI must show an event

49F12-0112-CP-004803 (Marion County Super. Ct. Dec. 18, 2002); CGB Enter, No.
65D01-0002-CP-00014; Contractors United, No. 49C01-9406-CP-2003.

66. 801 N.E.2d 705 (Ind. Ct. App. 2000).

67. JddLilM.

68. Mat 717-22.
69. Id

70. /cf. at 722-24.

71. Id at 127-30.

72. Id at 132-33.

73. Id at 133-34.

74. Id



2004] ENVIRONMENTAL LAW 1069

causing damage during the policy period. ^^

4. Notice.—The insurers also argued that some of PSI's claims should be
denied because of alleged "late notice." The insurers argued that PSI should
have provided notice as soon as it became aware of any potential liability. The
PiS7court held that "the duty to notify an insurance company ofpotential liability
is a condition precedent to the company's liability to its insured" and that
"noncompliance with notice of claim provisions, which results in an
unreasonable delay, triggers a presumption of prejudice to the insurer's ability

to prepare an adequate defense."^^ However, the court also found that
environmental liability cases are unique in that they require "lengthy site

investigation and expert opinion" to determine exactly when the covered
occurrence actually took place, unlike the automobile and personal injury cases
upon which the insurers had based their argument.^^ This information, the court
ruled, was "essential to PSI's determination of which insurers were potentially
liable under the numerous policies it had purchased between 1950 and 1985."^*

Thus, the court concluded that there were issues offact concerning the timeliness
of PSI's notice. Moreover, because the insurers had not alleged any specific
prejudice there also was an issue as to whether the insurers were actually
prejudiced by the timing of the notice.

5. Justiciability.—Are the insurance questions ripe for review? The issue
was raised by an excess insurer whose pol icies it claimed incepted well above the
current cost ofthe cleanup. The P57 court held that under Indiana's Declaratory
Judgment Act, PSI had the right to proceed against this excess insurer for a
declaration as to the parties' rights and obligations under even high-level excess

policies because, while current costs had not yet reached the level of those

policies, site investigations were still on-going and the state environmental

agency had not determined what level of cleanup would be required.^^
The fact the policyholders can prove the contents of lost policies by

secondary evidence and expert testimony about likely form provisions is of
critical importance, since many pol icyholders are unable to retrieve policies they
purchased many years ago, and insurers do not retain copies. The clarification
that a subjective standard applies also is very important, and is consistent with

the norm that even unwise or grossly negligent acts are covered.
Insurance funds, obtained through the cases cited above, are literally

reshaping Indiana. Sites can be cleaned up without destroying companies.

Abandoned polluted sites in our cities can be addressed. The risk of
unanticipated social costs are now spread across a much wider body of assets,
which now includes the entities which collected premiums to provide just this
protection.

The full scope of our investment in cleaning the environment remains

75. Id. at 735-36.

76. /J. at 715-16.

77. Mat 716-17.
78. Mat 717.
79. Mat 713-15.



1070 INDIANA LAW REVIEW [Vol. 37:1055

unclear. In the past year, Indiana courts turned attention to the air and to

wetlands. In each case, challenging issues remain unsettled.

II. New Source Review Litigation in Indiana

Clean Air Act ("CAA") enforcement lawsuits continue to hold center stage
in Indiana's environmental law arena. Until recently, two lawsuits brought by
the federal government against Indiana utilities were pending in the U.S. District

Court for the Southern District of Indiana. United States v. Southern Indiana

Gas & Electric Co. {''SIGECO"\^^ which settled by Consent Decree on June 6,
2003, spawned six important decisions on aspects ofthis highly controversial and
hotly litigated federal enforcement initiative. United States v. PSI Energy, Inc.
still pends.^'

A. The Federal Regulatory Framework

SIGECO and PSIare part of a federal initiative aimed at enforcing the New
Source Review ("NSR") and Prevention of Significant Deterioration ("PSD")
provisions of the CAA. The initiative targets principally midwestern coal-
burning utilities. The CAA Amendments of 1970 required the U.S.
Environmental Protection Agency("USEPA") to establish National Ambient Air
Quality Standards ("NAAQS") for listed pollutants that are found in ambient air
as a result of stationary or mobile sources and that "cause or contribute to air

pollution which may reasonably be anticipated to endanger public health or
welfare."*^ So far, USEPA has identified six such pollutants, referred to as
"criteria" pollutants: sulfur dioxide, particulate matter, carbon monoxide, ozone,

nitrogen dioxide, and lead." The 1 977 Amendments to the CAA established the
NSR/PSD program.*"* The program aims to spur achievement ofthe NAAQS in
non-attainment areas and to prevent significant deterioration in attainment

areas. *^ The program applies to new major stationary sources and major
modifications to existing major sources.*^ The NSR/PSD program only applies
to the criteria pollutants.*^

A modification triggers PSD/NSR review if the modified source is a major
source and if the net emission increase is significant.** Modification to a minor

source triggers the program if the modification itself would constitute a major

stationary source.*^ A physical change in or change in the method of operation

80. United States v. S. Ind. Gas & Elec. Co., No. IP99-I692-C-M/F.
81. No. IP99-I693-C-M/S.

82. 42U.S.C. §7408(a)(li)(A)(1998).

83. 40 CF.R. §§50.4-50.12(2003).

84. 42 U.S.C. §§ 7501-7515; 7470-7492.

85. Id

86. Id.

87. Id

88. 40 C.F.R. § 52.21(a)(2) (2003).

89. Id



2004] ENVIRONMENTAL LAW 1071

of a stationary source triggers PSD/NSR review if there is a significant net
increase in emissions.^^ The regulations do not define what constitutes a physical
change or change in the method ofoperation. They do, however, exclude certain
categories of activities that are not a physical or operational change. These

include modifications that constitute "routine maintenance, repair or

replacemenf ("RMRR")"
PSD permits require that Best Available Control Technology ("BACT") be

installed.^^ The analysis that must be performed requires extensive and
frequently expensive testing and analysis. The PSD permit application generally
requires a BACT demonstration that follows USEPA's "top-down" BACT
approach. A demonstration is required if installation of the most effective
available control technology is not feasible for a particular project. Energy,

economic or environmental reasons may be considered. New or modified ^
sources in non-attainment areas require that lowest achievable emissions rate «

("LAER") technology be installed.'^^ A LAER determination generally may not
consider energy, economic or environmental reasons for non-availability. »

Emission offset requirements also are imposed in non-attainment areas. Both I
BACT and LAER determinations are reviewed on a case by case basis. EPA

a

issued "guidance" in 1 998 that articulated EPA's position that the BACT/LAER ,
determination is made as ofthe time ofapplication rather than the time when the J
modifications at issue were performed.

,i

USEPA proposed new NSR rules on July 23, 1996. Numerous drafts and
records of comments followed. USEPA published the new NSR regulations on «
December 31, 2002. The new rules became effective on March 3, 2003. The

I

new rules aim to streamline the NSR program which generally is acknowledged
i

to be unwieldy and overly complex. The new rules only apply to modifications i
at existing sources.

ip

One ofthe most significant aspects of the new rules is their modification of Sn
the options available for calculation of whether a project will result in S

significantly increased emissions. For NSR to apply under the new regulations, J
major sources must undergo a major modification.^"* "[A] project is a major :|
modification for a regulated NSR pollutant if it causes two types of emissions

J

increases—a significant emissions increase . . . and a significant net emissions *
increase . . . ."^^ There are four ways to determine whether a "significant
emissions increase" has occurred for modified units: (1) the actual-to-projected-

actual test, (2) the actual-to-potential test, (3) the Clean Units Test, and (4) the

hybrid test.^^

The new rules allow the owner of a facility to establish an emissions cap,

90. Id.

91. Id. § 52.21(b)(2)(iii)(a).

92. 42 U.S.C. §7475(1977).

93. 42 U.S.C. §7503(1990).

94. 40 C.F.R.§ 52.21 (a)(2)(ii).

95. Id §52.21(a)(iv)(a).

96. See id §§ 52.21(a)(iv)(b)-(0, (b)(41)(ii)(d).



1072 INDIANA LAW REVIEW [Vol. 37:1055

called a Plantwide Applicability Limit ("PAL").^^ Once the PAL is established,
new or modified units within the facility trigger NSR only ifthe facility's actual
emissions exceed the PAL.^^ The new rules establish a clean unit designation for
units that have installed technology that is equivalent to BACT or LAER.^^
Modification to these clean units does not require approval for a period often

years unless a permit condition must be changed. '^° The new rules also exempt
from NSR certain types of pollution control projects that are presumed to be
beneficial to the environment.'^'

USEPA also published a RMRR rule that became effective on December 3 1,
2002,'°^ Under the new rule, a project is RMRR if it meets three criteria: (1) the
replacement component must be identical to or must serve the same purpose of
the replaced component; (2) the fixed capital cost of the new component plus
certain ancillary costs must not exceed twenty percent ofthe current replacement

value ofthe replaced component; and (3) the replaced component must not alter
the basic design parameters of the replaced unit or cause the replaced unit to

exceed any enforceable emission or operational I imitation.
'^^

These new rules have been challenged in court and their effectiveness is
stayed until the challenges are complete. While EPA asserts that the new rules
do not apply to the existing litigations, if they did virtually all of EPA's claims
would have to be withdrawn.

B. The SIGECO Case

Judge McKinney issued six published opinions in SIGECO,^^^ In his July 1 8,
2002 decision, Judge McKinney examined the issue of whether a showing that
there was no actual emission increase after a project is completed exempts the
project from the PSD preconstruction requirement and denied SIGECO' s motion
for summary judgment on this defense. The government argued that it would
encourage a wait and see approach by regulated sources if pre-construction

review could be avoided by construction that does not result in an actual

emissions increase. '^^ Relying on the Environmental Appeals Board's decision

In In re Tennessee ValleyAuthority, ^^^ JudgQ McKinney concluded that Congress
intendedNSR to require a pre-construction rather than a post-construction review

97. 40 CF.R. § 52.166 (1998); 40 C.F.R. § 52.21 (2003).

98. Id.

99. Id.

100. Id

101. Id

102. 40 C.F.R. §51.165(2002).

103. Id

104. United Statesv.S.Ind.Gas&Elec. Co., No. IP99-1692-C-M/F,2002WL1629817(S.D.

Ind.July 18,2002).

105. Idat*2.

106. No. OAA-2000-04-008, 2000 WL 1358648 (E.A.B. Sept. 15, 2000).



2004] ENVIRONMENTAL LAW 1073

107
process.

In a July 26, 2002 decision, Judge McKinney examined SIGECO's claim that
some ofthe government's claims for civil penalties are barred by the applicable
statute of limitations.'^^ The statute is 28 U.S.C.A. § 2462: "Except as otherwise
provided by an Act ofCongress, an action, suit or proceeding for the enforcement

of any civil fme, penalty or forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years from the date when the claim
first accrued

"'*^^ The court entered summaryjudgment in favor of SIGECO
on this issue. Judge McKinney adopted the majority position across the country
by holding that an alleged failure to obtain a CAA pre-construction permit is a
one-time violation that does not continue through time. The court noted that the
government had alleged violations ofthe Clean AirAct's "preconstruction permit

requirements contained in 42 U.S.C. § 7475 rather than a violation of the Act's

operating permit requirements as set forth in 42 U.S.C. § 766L"'^° Judge

McKinney held that a PSD violation "occurs when construction is commenced,
but does not continue on past the date when construction is completed."'"

In another July 26, 2002 decision. Judge McKinney considered whether the
Indiana Department of Environmental Management's ("IDEM") determination
that a particular project did not trigger PSD permit requirements affected the
federal government's ability to allege that the project did trigger PSD.''^

SIGECO had approached IDEM regarding the project and had made a formal
written request for a determination that the project was exempt pursuant to the

RMRR exception. Shortly after the project was completed, IDEM formally
determined that the project did not trigger PSD; a determination that has not been

withdrawn. Judge McKinney determined, however, that IDEM's determination
did not bind the federal government."^ The court reasoned that the plain
language of Section 7413 indicates that the federal government's claim against

SIGECO was not precluded by IDEM's determination.""* The court noted,
however, that "equitable considerations may play an important part in the
consideration of any remedy.""^

In an October 24, 2002 decision, Judge McKinney examined the issue of
whether the government's claims were barred by the Congressional Review of
Agency Rule Making Act ("CRA")' '^ by establishing a new agency rule without
submitting a report to Congress about the rule."^ SIGECO designated testimony

107. Mat*3.

108. SIGECO, 2002 WL 1760725 (S.D. Ind. .July 26, 2002).
109. 28 U.S.C.A. § 2462 (West 2004).

1 10. SIGECO, 2002 WL 1760725, at *5.
111. Id.

1 12. SIGECO, 2002 WL 1760699 (S.D. Ind. July 26, 2002).
113. /^. at*6.

114. Id. at*4.

115. Id

1 16. 5 U.S.C. § 801 (West 2004).

117. SIGECO, 2002 WL 31427523 (S.D. Ind. Oct. 24, 2002).



1074 INDIANA LAW REVIEW [Vol. 37:1055

by former government officials and consultants to support its position that the
USEPA in its late 1990's "enforcement initiative" that culminated in these NSR
lawsuits had changed its policy regarding application of the NSR rules, in
particular the RMRRexception, to utility sources."^ Initially, the court disagreed
with two other federal district court decisions by finding that thejudicial review
provisions of the CRA or the CAA did not bar SIGECO's motion for summary
judgment on this issue. The court proceeded, however, to exclude the expert
testimony that SIGECO had presented."^ The court relied, instead on the
language of the statute and rules and on the Seventh Circuit's decision in

Wisconsin Electric Power Co. v. Reilly ("^EPCO")and USEPA guidance prior
to WEPCO}^^ In WEPCO the Seventh Circuit applied a fact-intensive test to
determine whether the RMRR exception applied to each project at issue. The
decision was preceded by an EPA memorandum by Don Clay (the "Clay
Memorandum") that detailed USEPA's approach. Judge McKinney ruled, based
on these considerations and the evidence presented, that USEPA's actions did not
constitute a new rule subject to review under the CRA.'^'

In a February 13, 2003 decision, Judge McKinney examined the issues of
whether the USEPA's interpretation ofthe RMRR exception was reasonable and
whether SIGECO had fair notice ofthis interpretation.'^^ USEPA argued that the
frequency factor in its analysis of whether a project is subject to the RMRR
should be determined by looking at the history of the unit at issue. '^^ SIGECO
argued for an industry-wide analysis regarding the frequency of the particular

type of project at issue. The court held that the EPA's interpretation was
reasonable and would receive deference.'^"* Judge McKinney also held that the
RMRR exemption was sufficiently ambiguous to require fair notice to the
regulated public of how the regulation would be interpreted.'^^ The court held
that the regulation itself was ambiguous, but that the 1988 memorandum by
USEPA official Don Clay regarding projects that were later adjudicated in the
WEPCO case, followed by the Seventh Circuit's WEPCO decision, gave the
utility industry notice of USEPA's position on application of the RMRR
exception. The court examined whether IDEM's 1 998 determination that one of
the projects at issue did not trigger PSD constituted contrary notice. Judge
McKinney concluded that SIGECO could not rely on the 1998 determination as
notice because it was issued after construction of the project at issue was
completed.

'^^

In a February 18, 2003 decision. Judge McKinney held that certain of

118. /^. at*l.

119. Id. at*7.

120. 893 F.2d 901 (7th Cir. 1990).

121. 5/G£CO, 2002 WL 31427523, at S.
122. SIGECO, 245 F. Supp. 2d 994 (S.D. Ind. 2003).

123. Id. at 1008.

124. Id at 1010.

125. Id at 1011.

126. Mat 1023.



2004] ENVIRONMENTAL LAW 1075

SlGECO's related defenses had become moot due to the court's various rulings
in the case/^^ On SlGECO's equitable defense of laches, the court held that
SIGECO was not prejudiced by any delay on the part of the government. '^^ On
SlGECO's claim of waiver, the court held that SIGECO had not demonstrated
that the government had intended to relinquish its right to pursue its CAA
claimsJ^^ The court also granted summary judgment to the government
regarding SlGECO's remaining defenses that pertain to the alleged new
regulatory interpretation by USEPA, including violation of the Administrative
Procedures Act, ultra vires administrative action, retroactive rulemaking,

violation of the Federal Register Act, substantive due process, and arbitrary and

capricious administrative action. '^° The court again noted, however, that
evidence such as IDEM's determination that SlGECO's 1997 project did not
trigger PSD would bear on any penalty imposed on SIGECO.'^'

In an April 11, 2003 decision, Judge McKinney ruled that a census
commissioned by several utilities, including SIGECO, and governmental entities
was not admissible as an objective study ofmaintenance practices throughout the
utility industry. '^^ The court reasoned that the census was not reliable because
the census takers and respondents knew that the questionnaire was circulated for
purposes of developing a defense in SIGECO and related cases, and because the
census sought information about activities that might have taken place up to sixty

years ago.'"

On June 6, 2003, the U.S. Department of Justice ("DOJ") announced its
settlement with SIGECO. The settlement required SIGECO to install technology
to reduce particulate matter emissions and continuous operation of a control

device to remove nitrogen oxide emissions. By 2006, SIGECO will upgrade its
oldest unit by repowering it with natural gas, installing state of the art emission

controls, or permanently retiring the unit. These measures are expected to cost

approximately $30 million. SIGECO will pay a civil penalty of $600,000 and
will spend at least $2.5 million to install and operate technology to reduce

emissions of sulfuric acid from SlGECO's Culley plant in Newburgh, Indiana.
'^"^

C Other Recent U.S. District Court Decisions on NSR/PSD Enforcement
United States v. Duke Energy Corp.^^^ and United States v. Ohio Edison

127. 2003 WL 446280, at *2 (S.D. Ind. Feb. 18, 2003).
128. Id. at H.

129. Id

130. Idat*5.

131. /^. at*5-6.

132. United States v. U.S. Ind. Gas & Elec. Co., 258 F. Supp. 2d 884 (S.D. Ind. 2003).
133. Id at S95.

1 34. Southern Indiana Gas and Electric Company (SIGECO) F.B. Culley Plant Clean Air Act

Settlement (June 6, 2003), at http://www.epa.gov/compliance/resources/cases/civil/caa/sigecofb.

html.

135. 278 F. Supp. 2d 619 (M.D.N.C. 2003).



1076 INDIANA LAW REVIEW [Vol. 37:1055

C(9.'^^ contain rulings that both complement and conflict with the SIGECO
rulings. Contrary to SIGECO, Duke Energy holds that the test for determining
whether a modification was routine maintenance, repair, or replacement was
whether the modification was routine in the industry rather than at a particular
generating unit.'^^ Duke Energy also holds, contrary to SIGECO, that a utility's
failure to obtain a pre-construction permit before making the modification was
a continuing violation for statute of limitations purposes.'^* Ohio Edison held
that the plain language of the CAA, read together with the routine maintenance
exemption, put the industry on notice that the exemption would be narrowly
construed by government. '^^ Judge McKinney reached a different conclusion on
the character of the regulation, but the same result in SIGECO.

The diversity of district court rulings, on top of the tremendous complexity
of the underlying facts, makes it difficult to predict how appellate courts will
resolve the governing issues. This is particularly true given government

ambivalence in the form of new regulations that remove many ofthe projects at
issue from the reach of the NSR/PSD program. The uncertainty imposed on
utilities and other industries by these divergent rulings underscores the appeal of

fair and consistent forward-looking regulation by clearly worded statutes and
rules rather than retroactive litigation that in many cases involves projects
completed decades ago, in some cases by entirely different entities than the
present target ofNSR/PSD enforcement.

A decision from the Western District of New York highlights the
implications of such ownership changes. In New York v. Niagara Mohawk
Power Corp.,^^^ the court granted the defendants' motion to dismiss because
those defendants neither owned nor operated the facilities at issue at the time the
modifications that allegedly violated PSD took place. The court examined the
pre-construction requirements of the federal PSD program and determined that
"[p] reconstruction obligations are imposed only upon the person who actually
seeks to construct or modify a facility within the meaning of the Act."^"^' The
court stated that:

It is simply counterintuitive to construe the Clean Air Act in such way
as to impose liability for failure to follow the Act's pre-construction

requirements on a person for whom compliance would have been
impossible. The State cites no cases standing for this proposition, and
this Court has been unable to find any.'"*^

The court concluded that even if the facilities were unlawfully modified, third-
party after-the-fact purchasers were not liable for the pre-construction violations.

1 36. 276 F. Supp. 2d, 829 (S.D. Ohio 2003).

137. DM/teEwergy, 278F. Supp. 2dat638.

138. Id. dX 652.

1 39. Ohio Edison, 276 F. Supp. 2d at 888.

140. 263 F. Supp. 2d 650 ( W.D.N.Y. 2003).

141. Mat 668-69.
142. Mat 669.



2004] ENVIRONMENTAL LAW 1077

D. The Eleventh Circuit 's TVA Decision

The Eleventh Circuit Court of Appeals recently evaluated and set aside an
administrative decision critical to the DOJ's NSR enforcement initiative against
utilities.''*^ As part of its NSR enforcement initiative against utilities, USEPA
issued an administrative compliance order ("ACO") to the Tennessee Valley
Authority ("TVA") requiring the TVA to undertake costly and burdensome
compliance initiatives. USEPA delegated the task of evaluating TVA's legal
challenge oftheACO to USEPA's Environmental Appeals Board ("EAB"). The
EAB issued an order (the "EAB order") concluding that the projects undertaken
by the TVA had violated NSR, as USEPA had alleged.''*'

In federal court, the TVA challenged the EAB order as unlawful and the m
product of arbitrary and capricious decision-making pursuant to the federal m
Administrative Procedure Act ("APA").''^ The Eleventh Circuit held that it ""

lacked jurisdiction to review the EAB Order because the ACO was not a "final" iiiw
agency action."*^ The court determined that USEPA "must prove the existence |£
of a CAA violation in district court; until then, TVA is free to ignore the ACO
without risking the imposition of penalties for noncompliance with its terms."'"*^

Central to the Eleventh Circuit's ruling was its conclusion that the statutory

scheme that resulted in issuance of the ACO is "unconstitutional to the extent
that severe civil and criminal penalties can be imposed for non-compliance with '"'

the terms of an ACO."''^
,,p

The Eleventh Circuit first discussed USEPA's enforcement options when it *,,
found that a regulated party had engaged in unlawful activity. The USEPA can:

JJ;

( 1 ) request that the Attorney General commence a criminal prosecution under 42 ill
U.S.C. § 7413(a)(3); (2) file suit in federal court and seek injunction relief and ,,pp
civil penalties under 42 U.S.C. § 7413(a)(1)(C) or (a)(3)(C); (3) after a final U
adjudication consistent with the APA and 40 C.F.R. § 22, assess civil penalties SS
pursuant to 42 U.S.C. § 7413(d); or (4) issue an ACO directing the regulated J!
party to comply with various requirements pursuant to 42 U.S.C. § p
7413(a)(1)(A), (a)(2)(A), (a)(3)(B) or (a)(4).''^ Under 42 U.S.C. § ;;S
7413(a)(l)(4), an ACO must meet three conditions: (1) it must be based upon ^^4
"any information available to the Administrator"; (2) it must be issued within

thirty days after the issuance ofa Notice ofViolation; and (3) the regulated party

must be given an "opportunity to confer" with the USEPA. '^° The court noted
that "[t]he problem with ACOs stems from their injunction-like status coupled
with the fact that they are issued without an adjudication or meaningful judicial

143. Tenn. Valley Auth. v. Whitman, 336 F.3d 1236 (lith Cir. 2003)

144. Id. at 1239.

145. Id.

146. Id

147. Id at 1239-40.

148. /^. at 1239.

149. Mat 1241.
150. Id

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1078 INDIANA LAW REVIEW [Vol. 37:1055

review."^^'

The court then reviewed the USEPA's case against the TVA. The court
noted that between 1982 and 1996, TVA implemented projects involving
replacement ofvarious boiler components at its coal-fired plants. '^^ In 1999, the
USEPA concluded that the projects did not constitute "routine maintenance"
activities, and hence the projects triggered NSR requirements.'^^ On November
3, 1999 the USEPA issued its first ACO to the TVA.'^^ The ACO required the
TVA to identify modifications undertaken without NSR permits, to apply for the
permits, and to enter into a compliance agreement with the USEPA. '^^

Negotiations took place that led to six amendments to the ACO.'^^ TVA held to
its position that its projects did not trigger NSR. The USEPA then attempted to
adjudicate the issue of whether TVA had violated the CAA by asking the EAB
to reconsider the sixth ACO.'^^ The EAB "crafted a reconsideration procedure
which, to say the least, lacked the virtues of most agency adjudication."'^* The
ALJ was instructed by the EAB not to make findings of fact and conclusions of
law.'^^ The EAB acted both as adjudicator and as USEPA's delegatee.'^° The
TVA was not entitled to full discovery.'*^' Testimony at the hearing was limited
at USEPA's request. The proceeding was rushed, limiting the time for TVA to
prepare its defense. USEPA and the EAB "manufactured the procedures they
employed on the fly, entirely ignoring the concept of the rule of law.'"^^
Ultimately, the EAB affirmed most of the sixth amended ACO.'^^

The next part of TVA v. Whitman reviewed the "finality doctrine." Citing
FTC V. Standard Oil of California,^^^ the court identified five factors for
determining finality:

(1) whether the agency action constitutes the agency's definitive

position; (2) whether the action has the status of law or affects the legal

rights and obligations of the parties; (3) whether the action will have an

immediate impact on the daily operations of the regulated party;(4)

whether pure questions of law are involved; and (5) whether pre-

151. Id.

152. Id. at 1244.

153. Id

154. Id

155. Id

156. Id

157. Id at 1245.

158. Id

159. Id at 1246.

160. Id

161. Id

162. Id

163. Id

164. 449 U.S. 232, 239-43 (1980)



2004] ENVIRONMENTAL LAW 1079

enforcement review will be efficient.
'^^

The court noted that Congress may not have intended ACOs to have the status
of law.'*^^ The court noted that 42 U.S.C. § 7603 gives the USEPA emergency
powers when a pollution source presents an imminent and substantial
endangerment to public health, welfare, or the environment.'^^ An order issued
pursuant to this provision attains an injunction-like status only for an extremely

short time period. '^^ An order issued pursuant to section 74 1 3, on the other hand,
provides that the defendant must have an "opportunity to confer" with the

USEPA. '^^ The Eleventh Circuit concluded that Congress intended orders issued
under section 741 3 to be "complaint-like devices used to avoid litigation. "'^*^ The
court further noted that judicial review of such orders is not available because

ACOs are issued without a record.'^'
Based on this analysis, the Eleventh Circuit concluded that an ACO that has

the status of law violates the Due Process Clause of the Fifth Amendment.'^^
Under the CAA, the findings in an ACO can be based on "any information
available." If ignored, an ACO leads automatically to the imposition of severe
civil penalties and possibly imprisonment. On appeal, the reviewing court could
only review whether the ACO had been validly issued, i.e., whether the issuance
of the ACO was based on "any information."'^^ There would be no judicial
review of whether the conduct underlying issuance of the ACO actually took
place and whether the alleged conduct was a CAA violation.'^"* The Eleventh
Circuit stated that the constitutional problem cannot be cured by USEPA'

s

submission to a voluntary adjudication prior to issuance of an ACO.'^^ This

would "delegate judicial power to a non-Article III tribunal."'^^ Hence, the

Eleventh Circuit stated that "[t]he Clean Air Act is unconstitutional to the extent

that mere noncompliance with the terms of an ACO can be the sole basis for the
imposition of severe civil and criminal penalties."'^^ Because USEPA's ACOs
lacked the force of law, they did not constitute a final agency action subject to

judicial review under the APA.'^^

The Whitman decision did far more than dismiss the TVA's challenge to a
series of ACOs alleging violations of NSR/PSD requirements. The Eleventh

165. Whitman, 336 F. 3d a{\24S.

166. Id.

167. Id at 1249.

168. Id

169. 42 U.S.C. § 7413(a)(4) (West 2004)

170. Whitman, 336 F. 3d at 1250.

171. /^. at 1251.

172. Id at 1258.

173. Id

174. Id

175. Id at 1259.

176. Id

177. Id at 1260.

178. Id



1080 INDIANA LAW REVIEW [Vol. 37:1055

Circuit's jurisdictional ruling had the effect of invalidating a pro-government

decision frequently cited by government against utilities in NSR litigation.
Several courts, including the Southern District of Indiana in SIGECO, had
applied the now-invalidated EAB decision against utilities in NSR disputes.
State and federal environmental agencies must evaluate the constitutionality of
their enforcement mechanisms and approaches in light ofthe Whitman decision.
The Eleventh Circuit's rejection ofUSEPA's willingness to make up procedures
as it went along, to the detriment of a regulated entity, should guide federal and
state agencies' efforts to identify and prosecute alleged PSD/NSR violations.

E. PSD/NSR Enforcement by IDEM

IDEM also has initiated enforcement actions that addressed alleged
PSD/NSR violations. States may include PSD programs in their State
Implementation Plans ("SIP").'^^ Ifa state does not have an EPA-approved PSD
program as part of its SIP, then it is delegated the authority to implement and

enforce the federal program contained in 40 C.F.R. § 52.21. IDEM has been
delegated the authority to implement the federal PSD program since September
30, 1980.'^° On March 3, 2003, the EPA published a conditional approval of
Indiana's revised SIP which included Indiana's PSD program contained in title
326, rule 1.1 of the Indiana Administrative Code, making the SIP revision

effective as of April 3, 2003.'*'

IDEM's NSR enforcements have been challenged. One challenge resulted
in a trial court decision that invalidated IDEM's demand that a northern Indiana
foundry apply for and obtain PSD permits for projects implemented in the mid-
1980's by a prior owner.'*^ IDEM's Order, dated February 17, 2003 ("2003
Order"), purported to require a foundry owned by Dalton Corporation ("Dalton")
to seek pre-construction permits under the CAA's PSD rules for projects
implemented in 1984-1985 by a prior owner of the foundry. IDEM's objective
was to force Dalton to install emission control equipment that would meet the
CAA's BACT standards. The 1 984-1 985 projects were implemented by the prior
owner to make the foundry more economically viable and safer to operate. The
projects included replacement of portions ofthe cupola charge handling system,

the raising ofthe cupola shell stack height, and replacement oftwo molding lines

by a single new molding line.
Dalton petitioned for administrative review but filed a declaratoryjudgment

action in the Marion County Superior Court. IDEM sought to dismiss the court
proceeding on the grounds that the dispute must first be adjudicated before the

OEA under the "exhaustion of administrative remedies" doctrine. Dalton
resisted, citing a recent Indiana Supreme Court decision, Indiana Department of

179. 40 C.F.R. §51.166.

180. See 68 FR 1970 (January 15, 2003) for a history of IDEM's PSD program.

181. IND. Admin. Code tit. 326, r. 1.1 (2003).

1 82. Dalton Corp. v. Ind. Dep't ofEnvtl. Mgmt., No. 49D06-0307-PL-00 1 204 (Marion Super.

Ct. Nov. 20, 2003).



2004] ENVIRONMENTAL LAW 1081

Environmental Management v. Twin Eagle LLC,^^^ which held that exhaustion
ofadministrative remedies was not required because the issues raised were issues

oflaw. '^'* The Marion County Superior Court rejected IDEM's exhaustion claim
and held it could rule on the legality and enforceability of IDEM's February 17,
2003 order.'''

In granting Dalton's motion for summary judgment, the Marion Superior
Court cited six reasons why the 2003 order could not be enforced. First, the
projects at issue, and the specific issue of whether the projects triggered PSD
requirements, had been raised in a prior lawsuit that involved IDEM and the
former owner that implemented the projects in 1 984-1985. '^^ In May 1986 a
citizen group gave notice to IDEM of its intent to file a lawsuit against the prior
owner and IDEM pursuant to the citizen suit provisions ofthe CAA. The citizen
suit was filed in 1987 and resolved and dismissed with prejudice in March 1990
without action on the PSD issue. However, the determination of whether PSD
requirements applied to the 1984-1985 projects was at issue, and in the three
years the matter was pending could have been determined in that litigation. The

|g

Marion County Superior Court held that the claim preclusion branch of the m
doctrine of resjudicata barred the 2003 order as a matter of law.'^^ *i

The Marion County Superior Court also held that IDEM's order was barred
by Indiana's statute of limitations for environmental enforcement actions.

''*

Indiana statutes require that IDEM seek enforcement of environmental statutes
and regulations within three years ofthe time that IDEM discovers a violation.''^
IDEM argued that its 2003 order was a "permitting" rather than an
"enforcement" action, and thus was not subject to the three year limitation and

also that Dalton's failure to obtain a PSD permit was a "continuing" violation.
The Marion Superior Court rejected both of these arguments. It held that the

substance of the action rather than IDEM's label determined the applicable
statute of limitations.*^" Citing 5'/G£C(9,'^' the court also held that the violation

ofa PSD construction permit requirement does not continue past the completion
date of construction.

The court's third reason that the February 17, 2003 order could not be
enforced was that it was not directed to the entity that actually implemented the

projects at issue. '^^ The Marion County Superior Court cited the New York
District Court decision, discussed above, that also concluded, based on statutory

interpretation, that third party after-the-fact purchasers are not liable for alleged

183. 798 N.E.2d 839 (Ind. 2003).

184. Mat 844.
185. Dalton Corp., slip. op. at 6.

186. /c/. at 2-3.

187. Id.

188. Mat 8.
189. Ind. CODE § 13-14-6-2(2003).

190. Dalton Corp., slip op. at 10.

191. Id. (citing 5/G£C(9, 2002 WL 1760699 (S.D. Ind. July 26, 2002)).
192. Mat 11.

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1082 INDIANA LAW REVIEW [Vol. 37:1055

pre-construction violations under the CAA.'^^

The equitable doctrines of laches and estoppel also were held to bar the 2003
order. Laches applies when there is inexcusable delay in asserting a right, an
implied waiver from knowing acquiescence in existing conditions and prejudice
due to the delay.

'^"^
Estoppel requires a representation or concealment ofmaterial

facts, made by a party with knowledge ofthe facts to a party ignorant ofthe facts,
and detrimental reliance by the receiving party. '^^ The Marion County Court
held that the elements of both doctrines were met based on the undisputed

facts.
'"'

The final reason why the 2003 Order could not be enforced is that the Order
sought to force Dalton to perform an impossible task.'^^ Dalton submitted expert

testimony that detailed the unreliability of existing data and the impossibility of

determining or even reliably estimating base emissions or the net emission

changeneededtodetermine whether or not the 1984-1985 projects triggered PSD
requirements.'^^ IDEM did not submit counter-evidence on this point. Citing an
Indiana decision excusing compliance with a regulatory requirement made
impossible by the death of the claimant, Pedigo v. Miller^^^^ the court held that

Dalton was excused from compliance with the February 17, 2003 order on
impossibility grounds.^°°

F. Future Indiana NSR/PSD Litigation

Further heated debate and litigation over alleged PSD/NSR violations are a
certainty at both the federal and state levels. Numerous cases pend at both
appellate and state levels. Many fundamental issues remain unresolved. One
such issue is whether the five-year limitations period that applies to federal

PSD/NSR claims applies when the federal government seeks equitable relief as
opposed to civil penalties. The majority position imposes the five-year

limitations period to claims for civil penalties. The "continuing violation" theory
does not rejuvenate the federal government's claims regarding projects that took

place outside of the limitations period. However, equitable relief, in particular

the imposition of modern BACT on old projects, has the potential to impose
tremendous costs on defendant facilities. The federal government will argue that
statutory limitations periods do not apply to the equitable claims. However,

USEPA's and IDEM's stance that they may impose modern BACT on projects
completed long ago is punitive or compensatory rather than equitable in nature.

The fundamental policy reasons for barring stale claims, including the inevitable

1 93. Id. (citing New York v. Niagara Mohawk, 263 F. Supp. 2d 650 (W.D.N.Y. 2003)).
194. Bd. ofZoning Appeals V. Beta Tau Housing Corp., N.E.2d 780, 782 (Ind.Ct.App. 1986).

195. Advisory Bd. ofZoning Appeals for the City ofHammond v. Found, for Comprehensive

Mental Health Inc., 497 N.E.2d 1089, 1092 (Ind. Ct. App. 1986).

1 96. Dalton Corp., slip op. at 1 2- 1 3.

197. /J. at 14.

198. Id.

199. 369 N.E.2d 1100 (Ind. App. 1977).

200. Dalton Corp., slip op. at 14.



2004] ENVIRONMENTAL LAW 1083

loss of evidence needed to prove or disprove the claim, and in environmental

cases the regulated public's substantial need for stability and predictability in the

way government interprets and applies environmental laws, apply equally to
NSR/PSD claims that seek equitable relief as opposed to civil penalties. The
impact of USEPA's new regulations on pending NSR/PSD claims remains
uncertain and likely will be explored by the litigants in pending and new
NSR/PSD cases.

in. Other Developments in Indiana Environmental Law

A. Development Activities in Isolated Wetlands

A tempest of controversy regarding regulation of development activities in
isolated wetlands followed the United States Supreme Court's decision in 5'o//(i
Waste Agency ofNorthern Cook County v. U.S. Army Corps, ofEngineers. -m
Moreover, Indiana developers are part of the fray.^°^ Twin Eagle reversed and

remanded the trial court's entry of summaryjudgment in favor of a developer as p
to whether or not the Indiana Department of Environmental Management «
("IDEM") has statutory authority to regulate isolated wetlands. *\,

Wetlands are regulated by the federal Clean Water Act ("CWA") which C
prohibits "the discharge of any pollutant" into "waters of the United States"

*

without a permit.^^^ Such permits are issued under the National Pollutant /d

Discharge Elimination System ("NPDES"). Section 404 of the CWA provides
for issuance of permits for dredge and fill activities in wetlands under a program

("Section 404 Program") administered by the U.S. Army Corps of Engineers. IP
Although Indiana administers its own NPDES program, it has not sought i
permission to issue wetlands permits under the section 404 Program.

SWANCC held that "waters are ' waters ofthe United States' for purposes of
fills

the CWA only if they are either navigable or tributaries of or wetlands adjacent m
to navigable waters. "^^'^ Isolated wetlands fall outside ofthis definition. Because If
SWANCC removed isolated wetlands from the reach ofthe section 404 Program, i|
IDEM attempted to fill the regulatory gap by "stating its intention, until new [1b|
rules were approved, to regulate" isolated wetlands "through an 'interim f

regulatory process' whereby it would apply its state NPDES permitting process
to applications for permits for dredged and fill material. "^^^ This process was
announced by press release, with no promulgation of a rule and with no

articulation ofany standards under which a permit would be issued. Twin Eagle
sought and obtained a declaratory judgment to prevent IDEM from enforcing
state environmental laws against a proposed project calling for fill activities in

20L 531 U.S. 159 (2001) ("SWANCC).

202. See Ind. Dep't of Evtl. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839 (Ind. 2003).

203. 33U.S.C. § 1342(2003).

204. Twin Eagle, 798 N.E.2d at 842 {cMmg SWANCC, 531 U.S. at 171, 174).
205. Id.



1084 INDIANA LAW REVIEW [Vol. 37:1055

certain isolated wetlands on Twin Eagle's land.^°^
The Indiana Supreme Court first evaluated IDEM's argument that Twin

Eagle's claims could not be adjudicated in court because IDEM must first resolve
whether the particular twenty-one acres of isolated wetlands involved are subject

to regulation and because the developer had not exhausted its administrative

remedies.^°^ This issue is of crucial significance to members of the regulated
community. If they must submit to unlawful regulatory commands in order to
apply for or obtain permits, then go through an application process and an

administrative appeal only to then obtain a court determination that the entire

exercise was unlawful, it will substantially compromise a citizen's ability to
resist unlawful government demands.

The court first affirmed that the Declaratory Judgments Act is to be given a
liberal construction, and may address an issue only when the "ripening seeds of
a controversy" are present.^^^ It recognized the utility ofprompt adjudication of

a challenge to the validity of a regulatory process that, if it is found to be illegal,

can and should be avoided altogether.^^^
The court also affirmed the exception to the exhaustion of administrative

remedies for purely legal issues."'^ The capacity to make such a challenge is a
crucial check on a government's over-zealous expansion of its power. Purely

legal questions also do not require application ofagency expertise or a developed

administrative record and actually can save time and money both for citizens and
agencies.^'

'

The supreme court held, however, that IDEM has statutory authority to
regulate isolated wetlands pursuant to laws enacted prior to the enactment ofthe

federal CWA in 1 972.^'^ The court did not accept the developer's argument that
IDEM's statutory authority to adopt rules necessary to implement the CWA^'^
was a "jurisdictional confinement of the waters to be regulated to those subject

to the CWA."^'"* The court cited various statutes that give IDEM general
authority to protect the environment and to prevent pollution.^'^ None of these
authorize the state to require an NPDES permit for an isolated non-federal
wetland, but the court held that general authority was sufficient to support
IDEM's actions.

The next question addressed was whether the isolated ponds at issue fit
Indiana's statutory definition of "waters." The definition excluded "private

ponds" from regulation. The supreme court agreed with Twin Eagle's argument

206. Id.

207. Id. at 844.

208. Id at 843.

209. Id at 844.

210. Id

211. Id

212. Id at 845.

213. IND. CODE § 13-18-3-2(a) (2003).

214. Twin Eagle, 798 N.E.2d at 846.

215. Id (citing iND. Code §§ 13-18-4-3, 13-18-3-1, 13-18-4-4)

I



2004] ENVIRONMENTAL LAW 1085

that "private ponds" are bodies ofwater wholly on the property ofone owner not
connected with any public water.^'^ The court held that the "private pond" and
"wetland" determinations present fact issues that require administrative

determination.^'^ The court also noted that the term "wetlands" has no statutory
definition, only a general regulatory definition under title 327, rule 6.1-2-62 of

the Indiana Administrative Code, and that wetlands can "by their very nature
vary in the amount ofwater they contain at a given time, and their boundaries can
change depending on the season and the weather."^'^

The court said this "somewhat unsatisfactorily legal framework" provided
Twin Eagle with two options: apply for a permit and challenge any adverse
determination, or if it "is sufficiently confident," do the project and fight any

enforcement activity.^'^ The court implicitly acknowledged the ambiguity ofthe
statutory definition without any rules that would clearly inform a citizen if it
needed a permit, but stated it saw "no alternative" since a recent statute
prohibited IDEM from making new wetland rules before a legislative study
commission reported.^^^

Finally, the Indiana Supreme Court accepted IDEM's position that it can
regulate isolated wetlands pursuant to an "interim process" rather than

regulations promulgated pursuant to the Administrative Orders and Procedures

Act ("AOPA").^^' The court concluded no rulemaking was needed because S
IDEM already had a rule requiring an NPDES permit for "[a]ny discharge of s
pollutants into waters of the state. "^^^ The court ignored (1) that an NPDES
permit is not a creation of state law; it is a federal permit issued as to the Federal «»

Clean Water Act waters, and (2) that IDEM had announced it was intending to m
promulgate new rules for isolated wetlands. If IDEM did not actually need to #
promulgate a new rule to regulate isolated wetlands, why did it announce this ffi
prospect or call its own authority "interim?" The only way the court could leave
IDEM with a capacity to save wetlands which IDEM claims were at risk was to
find IDEM already had a sufficient rule in place.

Twin Eagle retains viability for its procedural holdings, but the legislature

has sapped its substantive sway. The legislature overruled Governor O'Bannon's
veto and enacted a new structure to clarify what isolated wetlands are subject to
IDEM permit requirements.^^^ Wetlands are classified according to size,
location, and ecological value, and only the most significant are required to seek

IDEM permits. Private ponds (the vast majority of Twin Eagle's wetlands)
remain exempt from regulation.

216. Mat 846-47.
217. Mat 847.
218. Id.

219. Id

220. Id

221. IND. Code § 4-22-2 (2003).

222. Twin Eagle, 79SN.E.2deitS4S.

223. H.E.A. 1798, 1 13th Gen. Assem., 1st Reg. Sess. (Ind. 2004).

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1086 INDIANA LAW REVIEW [Vol. 37:1055

B. Standing in Administrative Proceedings

Under the AOPA, a person who is "aggrieved or adversely affected" by an
agency's action may seek administrative review.^^"* The Indiana Court ofAppeals
reviewed and clarified this standard, in an environmental context, in Hufftnan v.

IDEMP^ The Indiana Supreme Court granted transfer, vacating the court of
appeal's decision on November 19, 2003. The case involved a property owner's
petition for administrative review of IDEM's decision to renew a National
Pollutant Discharge Elimination System ("NPDES") issued pursuant to the CWA
to Eli Lilly & Co. ("Lilly").

The property owner alleged she was "aggrieved or adversely affected"
because she is a citizen of Indiana whose family owned an interest in property
located contiguous to Lilly's facility.^^^ Lilly moved to dismiss the property
owner's petition under the judicial doctrine of standing, which requires a

showing ofdirect injury. The OEA's dismissal ofthe petition on this ground was
affirmed by the trial court.

The court of appeals had reversed these rulings. It held that the judicial
doctrine of standing was not the proper formulation of the AOPA's "aggrieved
or adversely affected" standard.^^^ The court held that to meet the standard a

person must show "a substantial grievance, a denial ofsome personal, pecuniary
or property right or the imposition ... of a burden or obligation."^^* The court
based this ruling on legislative intent as manifested by the "clear, unambiguous

language of the AOPA.""^ The court rejected, however, the property owner's
additional claim that she qualified for administrative review as an "aggrieved or

adversely affected" person merely by her status as a citizen of Indiana.^^°

The court went on to evaluate whether there was substantial evidence to
support the OEA's decision to deny the property owner's standing to seek
administrative review. The court's reversal turned on a procedural point. Lilly

filed its motion to dismiss the property owner's petition based on Indiana Trial

Rule 12(B)(1). The OEA considered materials outside of the property owner's
petition, converting the motion to dismiss into a motion for summary judgment
to be adjudicated pursuant to Indiana Trial Rule 56. Lilly's evidence in support

of dismissal consisted of unsworn statements in its motion to dismiss. Lilly

claimed, for example, that the property in which the property owner claimed an

interest was located upstream from the point where Lilly's facility discharged

water pursuant to the NPDES permit."' The court of appeals held that such
unsworn statements did not constitute substantial evidence sufficient to support

224. Huffman v. Ind. Dep't of Envtl. Mgmt., 788 N.E.2d 505, 507 (Ind. Ct. App. 2003).

225. Id.

226. Id.

227. Id at 508 (quoting Bagnall v. Town ofBeverly Shores, 726N.E.2d 782, 786 (Ind. 2000);

Black's Law Dictionary 43 (6th ed. 199
1 )).

228. Id

229. Id

230. Id

231. Id at 509.



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2004] ENVIRONMENTAL LAW 1087

dismissal of the property owner's petition under AOPA.^^^ Although vacated,

Huffman demonstrates the breadth of the "aggrieved or adversely affected"
standard in Indiana administrative law and further emphasizes the importance of

adherence to the Indiana Trial Rules in administrative proceedings.

C. Admissibility ofExpert Testimony in Environmental Cases

Environmental cases, including toxic tort cases, frequently turn on highly

technical issues that invite battles of the experts and challenges to expert

opinions on reliability/admissibility grounds. Recent Indiana appellate decisions
confirm that these battles rage on.

The dispute in Armstrong v. Cerestar USA, Inc}^^ involved a truck driver's
fall from the top of a tanker truck allegedly caused by his exposure to hydrogen
sulfide fumes during a sludge removal operation. The plaintiffs expert opined
that the plaintiff was exposed to a hazardous concentration of hydrogen sulfide
gas while pumping the sludge into his tanker, that as a result of the exposure the
plaintiff became disoriented and/or lost his balance and fell, and that under the
Occupational Safety and Health Administration ("OSHA") guidelines, the sludge
material being removed met the definition of hazardous material.^^"* The trial
court found the opinions to be unreliable and inadmissible pursuant to Indiana

Evidence Rule 702.^^^ The Indiana Court of Appeals identified relevant factors
in the reliability/admissibility determination: ifj

While there is no absolute test for determining when testimony is aj„
reliable, some factors are: 1 ) whether the theory or technique can be or ^
has been empirically tested; 2) whether the theory or technique has been 1
subjected to peer review and/or publication; 3) whether there is a known l|j
or potential rate of error, as well as the existence and maintenance of

ip,

standards controlling the theory or technique's operation; 4) whether the iip»

theory or technique is generally accepted within the relevant scientific S
community.^^^ S

The court reviewed the expert's qualifications which included sixteen years with
OSHA and his status as a Certified Safety Professional and Certified OSHA
Instructor for General Industry and Construction."^ The expert admitted: (l)he
did not conduct any of his own tests at the plant at issue; (2) he did not attempt
to calculate the level of hydrogen sulfide to which the plaintiff might have been

exposed; (3) no one could conduct such a test with any degree ofconfidence; (4)
environmental conditions about which no data was available could have affected
the level ofhydrogen sulfide in the air at the time ofthe plaintiffs fall; (5) he did

not know how tall the plaintiffwas or what he had weighed at the time ofthe fall;

232. Id. at 511.

233. 775 N.E.2d 360 (Ind. Ct. App. 2002).

234. Id. at 366.

235. Id at 368 (citing Daubert v. Merrell Dow Pharm., 509 U.S. 579, 593-95 (1993)).
236. Id at 366.

237. Id at 367.

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1088 INDIANA LAW REVIEW [Vol. 37:1055

(6) he did not know the tanker make and model and had not examined the tanker;
(7) he had never been involved in a similar case; and (8) that he had not read the

plaintiffs deposition.^^^ Based on these admissions, the fact that the expert was
not a licensed physician with training, knowledge and experience to make the
proximate cause determination that the plaintiff became light-headed due to
exposure to hydrogen sulfide gas and the expert's failure to exclude other

possible causes of the plaintiffs fall, the court of appeals affirmed the trial

court's ruling granting the defendant's motion to strike the expert's testimony.^^^

The dispute in Outlaw v. Erbrich Products Co}^^ arose from injuries
allegedly caused by workplace exposure to a toilet bowl cleaner. The case
prompted two trips to the court of appeals, which remanded both times followed
by a third trip to the court of appeals. Three experts sparred over whether the

claimant's injury resulted from chemical exposure in the workplace as opposed

to the claimant's many years of smoking cigarettes. The court of appeals
ultimately affirmed the Indiana Worker's Compensation Board's ("Board")

conclusion that the claimant was not entitled to benefits because her severe
respiratory problems did not appear to be caused by the exposure to chemicals

involved in the claimant's job of producing toilet bowl cleaner.^"*' The pitfalls
encountered by the claimant's experts are instructive.

The claimant worked on assembly lines producing and bottling products
ranging from mustard and vinegar to bleach and toilet bowl cleaner.^"*^ The
claimant mostly worked on the line that produced toilet bowl cleaner.^"*^ She

began medical treatment for severe respiratory problems in 1991 and eventually

quit her job.^"*"* She saw one Dr. Schaphorst who referred her to Dr. Garcia.^"*^
Dr. Garcia examined the claimant and issued a report that linked the claimant's

respiratory problems to toilet bowl cleaner that the claimant had indicated

contained ammonia, hydrochloric acid, acetic acid, formaldehyde, and fabric

softener. In Dr. Garcia's report, the claimant indicated that she had smoked one

to two cigarettes per day for almost twenty years but had quit smoking in 1992.

Dr. Garcia attributed the claimant's health problems to a combination ofcigarette

smoking and chemical exposure at work. He assigned her a partial impairment
rating of forty percent.^"*^

A third doctor, Dr. Waddell, entered the picture in 1994. Dr. Waddell
reviewed the claimant's medical records. He noted that, although the claimant
claimed to have quit smoking before her respiratory problems ensued, her tests

(on December 17, 1992 and February 25, 1993) showed levels of

238. Id.

239. Id. at 368.

240. 777 N.E.2d 14 (Ind. Ct. App. 2002).

241. /f/. at31.

242. IddXM.

243. Id

244. Id

245. Id at 17-18.

246. Id



2004] ENVIRONMENTAL LAW 1089

carboxyhemoglobin consistent with the consumption of two to three packs of
cigarettes per day.^"^^ Dr. Waddell challenged the claimant's assertion, reflected

in Dr. Garcia's report, that the toilet bowl cleaner contained ammonia and
formaldehyde. Apparently these two substances, as a matter of general
chemistry, would have neutralized each other. When the dispute turned to
whether exposure to hydrochloric acid fumes caused the claimant's lower

respiratory distress, Dr. Waddell noted that the claimant did not have the upper

respiratory injuries consistent with exposure to hydrochloric acid fumes. Dr.

Waddell noted further that the concentration of hydrochloric acid in the toilet
bowl cleaner was characterized by such low vapor pressure that a spill would not
lead to vaporization of the acid.^'*^ Dr. Duane Houser, an asthma expert, then
joined the dispute in 1998. While generally supporting Dr. Garcia's opinions.

Dr. Houser acknowledged that there was no clear connection between exposure m
to the constituents ofthe toilet bowl cleaner and the claimant's injuries.^''^ At the m
Board's hearing on this matter, a fellow employee testified that there were

'*

frequent spills ofthe toilet bowl cleaner and that the claimant had quit smoking m
in 1988.''°

The Board issued two sets of findings that stated there was not a sufficient
connection between any workplace chemical exposure and the claimant's

injuries. The court of appeals, in reviewing the Board's findings, noted that a
causation analysis based primarily on a temporal connection between exposure

and alleged effect is insufficient:

[A]n expert's opinion is insufficient to establish causation when it is
based only upon a temporal relationship between an event and a

subsequent medical condition. In particular, when an expert witness
testifies in a chemical exposure case that the exposure has caused a

particular condition because the plaintiff was exposed and later
experienced symptoms, without having analyzed the level, concentration S
or duration ofthe exposure to the chemicals in questions, and without

sufficiently accounting for the possibility of alternative causes, the

expert's opinion is insufficient to establish causation because it is based

primarily on the existence of a temporal relationship between the

exposure and the condition and amounts to subjective belief and

unsupported speculation.'^'

The court ofappeals concluded, under the standard applicable to judicial review
of Worker's Compensation Board determinations, that "the pertinent evidence

in the record does not convince us that the evidence leads inescapably to the

conclusion opposite to that reached by the Board such that reasonable persons

247. Id.

248. /^. at 18-19.

249. Id. at 19-20.

250. Id at 20.

25 1

.

Id. at 29 (citations omitted).

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1090 INDIANA LAW REVIEW [Vol. 37:1055

would be compelled to reach the contrary conclusion."^^^

In PSI Energy, Inc. v. The Home Insurance Co.^^^ also discussed earlier in
Part I, the Indiana Court of Appeals ruled that expert testimony by the

policyholder on causes and timing of contamination was admissible. The
policyholder presented expert testimony and reports of an environmental

consultant, Thomas Helfrich. Mr. Helfrich opined that leaks oftar and tar-related
constituents from subsurface containment structures resulted from the masonry

and concrete materials used to construct the structures, the age ofthe structures

(mostly built in the late 1800s), and "the cumulative effect of disruptive events

that caused the separation of mortar joints and new and wider cracks to develop
continuously in these structures, including during the years 1950 to 1985."^^^^ Mr.

Helfrich relied on his training and experience as an engineer and his areas of

specialization which include "the performance of engineered structures in soils

and the investigation and remediation of subsurface contamination."^^^ He also
relied on evidence of conditions at the sites in issue and his knowledge of

hydraulic pressure inside a fully saturated structure.^^^ The expert had personally
inspected some of the subsurface containment structures at each site and
observed cracks in structure walls.^^'^ He also relied on his observations at over
1 50 manufactured gas plant sites not at issue in the case.^^^ While admitting that

it was not possible to verify his cumulative effects theory through specific
observations, measurements, or calculations, he opined that the "cumulative

effect of small disruptive events is the only logical explanation for this

subsequent separation of mortar joints and cracking and breaking of the

structures.
"^^^

The insurers, who were seeking to avoid coverage, moved to strike Mr.
Helfrich 's "cumulative effects" theory because it could not be empirically tested,

it had not been peer-reviewed or even written down, it contained no standard or

other bases for applying the theory, and because the theory was not shown to be
accepted or even heard of within the relevant scientific community.^^° The
policyholder's response was that the issues involved do not involve complex

scientific principles and that its expert had, based on his educational training and

expertise and his review of relevant data, "developed a reasoned opinion of the

general causes for these subsurface escapes" of contaminants."^^' The court of
appeals quoted McGrew v. State,^^^ a case involving forensic analysis of hair

252. Mat 31.
253. 801 N.E.2d 705 (Ind. Ct. App. 2004).

254. Id. at 739.

255. Id

256. Id

257. Id

258. Id at 740.

259. Id

260. Id

261. Id

262. 682N.E.2d 1289, 1291 (Ind. 1997).



2004] ENVIRONMENTAL LAW 1091

specimens, for the proposition that some types of scientific analysis were "more
a matter ofthe observations of persons with specialized knowledge than a matter
ofscientific principles governed by Indiana Evidence Rule 702(b)."^" The court
ofappeals agreed with the policyholder that its expert's theory is "reliably based

on his observations and application of his specialized knowledge to those
observations."^^"* The court noted that the expert's theory would be subject to
cross-examination at trial.

^^^

The underlying reasoning ofArmstrong, Outlaw, and PSI'is consistent. The
more closely linked health effects are to the type, amount, and duration of
exposure, the better. Matters of observation based on an expert's background

and training need not be empirical ly tested or peer-reviewed. Expl icit evaluation

of different possible causes for an effect enhance the reliability of an opinion.

Although further debate about the reliability of scientific evidence that litigants

seek to introduce to prove or disprove the validity ofchemical exposure and other m
types of environmental claims is a certainty, the utility of common sense and
careful advocacy in these scientific matters is clear.

m

am

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C The Scope ofPublic Nuisance Claims—Gary v. Smith & Wesson
In City of Gary v. Smith & Wesson,^^^ a decision with both national

significance and intriguing potential application to environmental matters, the

supreme court allowed Gary to sue gun manufacturers under the public nuisance

statute and for negligence.

City ofGary is a suit in which Gary seeks damages from gun manufacturers,
distributors, and dealers for damages and injunctive relief for conducting their

business in a way which unreasonably interfered with public rights in the City of
Gary. The nuisance claim arises under both section 82 IB of the Restatement
(Second) of Torts and section 32-30-6-6 ofthe Indiana Code. The statute reads: ap
"Whatever is: (1) injurious to health; (2) indecent; (3) offensive to the senses; Jl
or (4) an obstruction to the free use ofproperty; so as essentially to interfere with IJJ

the comfortable enjoyment of life or property, is a nuisance, and the subject of P
an action."'^' %

Applying the common law rule of reasonableness, the court concluded that a4
an actionable nuisance is "an activity that generates injury or inconvenience to

others that is both sufficiently grave and sufficiently foreseeable that it renders

it unreasonable to proceed at least without compensation to those that are

harmed.'""'

The City claimed the gun manufacturers, distributors and dealers know that
the foreseeable laxness of dealers and their employees and the ingenuity of

criminals will result in guns finding their way to illegal uses. The defendants

263. PSI, 801 N.E.2d at 741 (internal quotations omitted).

264. Id

265. Id

266. 801 N.E.2d 1222 (Ind. 2003).

267. Ind. Code §32-30-6-6 (2003).

268. City ofGary, 801 N.E.2d at 1231.



1092 INDIANA LAW REVIEW [Vol. 37:1055

asserted that a public nuisance must involve violation ofa statute, the use of land,
or an independent tort. The court rejected these supposed prerequisites, as well
as the claim that state gun law regulation pre-empted local litigation.^^^ While
noting the challenges the City faced in proving specific damages, the court

declined to hold that damages from illegal gun sales are too remote to be
actionable.^^^ The court also reversed the court of appeals' dismissal of the
City's negligence claim, holding that all persons in the chain ofdistribution have

a duty not to facilitate illegal gun ownership.^^'

The decision has important implications for environmental litigation and
regulation. Nuisance and negligence theories have added vitality. Municipal

entities may use the nuisance statute and the common law to compel cleanups
even for activities that once were completely legal and from persons which do
not own the land but are in some way responsible for its condition. This in turn
may facilitate pursuit of former owners' insurers.

Conclusion

P57and its predecessors have given Indiana an important boost in addressing
the vast costs of cleaning an industrial environment. That law is a consistent

application of principles arising from the unique nature of liability insurance.

The frontiers of environmental obligation continue to expand and contract.
Clean air litigation, in particular, shows how difficult it is to develop consistent,
equitable standards for the cleanliness of our environment in cases over statutes

and regulations which are unclear.

269. /J. at 1231-41.

270. /c/. at 1240-41.

271. /^. at 1241-47.