2018 IL App (5th) 160098
Ill. App. Ct.2018Background
- Rogers Cartage, a hazardous-materials hauler, was sued in long-running CERCLA litigation over contamination at two Superfund sites in Sauget/Cahokia; initial claims were dismissed but later revived after Atlantic Research.
- Travelers issued multiple historical CGL policies (1960s–1980s); some later policies contained a pollution exclusion applicable only if pollution was “expected or intended.”
- Travelers agreed to defend Rogers under reservation of rights and funded defense work but later sent a December 30, 2010 letter threatening to deny coverage if Rogers settled and filed a declaratory-judgment action seeking no coverage.
- Settlement negotiations produced a district-court–approved settlement for $7.5 million (Rogers paid $50,000), reached without Travelers’ consent; Rogers then sued Travelers for coverage in St. Clair County.
- The trial court granted summary judgment for Rogers: Travelers breached the duty to defend and to settle in good faith, was estopped from asserting coverage defenses (including pollution exclusions), the $7.5M settlement was reasonable and not collusive, and Rogers was awarded $2,665,384.90 in attorney fees plus a $60,000 penalty under 215 ILCS 5/155.
Issues
| Issue | Rogers’ Argument | Travelers’ Argument | Held |
|---|---|---|---|
| Duty to defend | Travelers’ threats and suit coerced Rogers and breached its duty despite reservation | Reservation of rights and funding defense shows no breach | Breach: Travelers’ threatening letter and separate suit amounted to bad-faith interference; estoppel applies |
| Pollution exclusions | Exclusions in later policies don’t apply; Rogers did not expect/intend pollutants to reach environment | Exclusions bar coverage because operational discharges caused contamination | Rejected: estoppel bars defenses; alternatively exclusion inapplicable because Rogers routed waste to containment/POTW and did not expect PCBs to reach environment |
| Reasonableness & collusion of settlement | $7.5M settlement was reasonable given cleanup costs and trial risks; no collusion | Settlement was excessive/collusive and Travelers was prejudiced | Held reasonable and not collusive; district court approval and factual record supported reasonableness |
| Duty to settle / bad faith | Travelers put its interests ahead of Rogers and refused reasonable settlement within limits | Travelers legitimately disputed coverage and settlement value | Held Travelers acted in bad faith by refusing to settle given risk of excess verdict and threats to insured |
| Section 155 fees/penalty | Award appropriate; Travelers’ conduct was vexatious and unreasonable | Bona fide coverage dispute precludes 155; settlement already accounted for fees | Held: 155 award affirmed; Travelers’ conduct outweighed any claimed bona fide dispute and settlement didn’t preclude additional 155 fees |
Key Cases Cited
- United States v. Atlantic Research Corp., 551 U.S. 128 (2007) (permits independent cost-recovery claims under CERCLA §107)
- Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107 (1995) (summary-judgment standard; de novo review)
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999) (insurer must defend under reservation or seek declaratory relief; estoppel for wrongful denial)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (1992) (pollution-exclusion analysis focuses on whether insured expected/intended discharge of the particular toxicant)
- Guillen v. Potomac Ins. Co. of Illinois, 203 Ill. 2d 141 (2003) (test for reasonableness of insured’s settlement affecting insurer; guard against collusion)
- Haddick v. Valor Ins., 198 Ill. 2d 409 (2001) (insurer’s duty to settle arises where there is reasonable probability of liability and verdict in excess of policy limits)