784 F. Supp. 2d 988
N.D. Ill.2011Background
- Insurers Scottsdale Indemnity and National Casualty seek a declaratory judgment that they have no duty to defend or indemnify Crestwood and related individuals in multiple underlying lawsuits.
- Crestwood Defendants include the Village, its former and current mayors, and others; Earley Defendants are additional parties in underlying suits.
- Underlying complaints allege decades-long contamination of Village well water with perchloroethylene and related chemicals, causing health harms; Attorney General action also alleges false water-quality reporting.
- Policies: Scottsdale’s 2008-2009 primary policies include a pollution exclusion and a failure-to-supply exclusion; National’s excess/umbrella policies also contain pollution exclusions; pollutants defined broadly.
- Court applies Illinois law to determine duty to defend/indemnify, concluding pollution exclusion applies and bars coverage; counterclaims for breach and vexatious conduct are dismissed; final judgment for Insurers guided by these holdings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the pollution exclusion bar the Insurers' duty to defend? | Insurers—Scottsdale/National—argue pollution exclusion excludes coverage for traditional environmental pollution. | Crestwood argues pollution exclusion is ambiguous and should not apply to water contamination claims. | Yes; pollution exclusion applies to traditional environmental pollution and bars the duty to defend. |
| Are the underlying complaints traditional environmental pollution under Koloms? | Underlying claims are traditional environmental pollution due to widespread water contamination. | Contamination from water supply sale constitutes product-related pollution, not traditional environmental pollution. | Under Koloms, contamination of a public water supply is traditional environmental pollution, triggering exclusion. |
| Is there a remaining duty to indemnify or a basis for vexatiousness under §155? | If no duty to defend, may still be indemnified; Section 155 may apply for vexatious conduct. | With no duty to defend, indemnity is precluded; §155 claim lacks basis given legitimate policy defenses. | Insurers have no duty to defend or indemnify; §155 count is appropriately resolved in favor of Insurers. |
| Did Earley Defendants’ Rule 59(e) challenge alter the ruling? | Earley argues newly presented expert evidence warrants reconsideration. | Evidence is not new and would not affect Koloms-based analysis. | Denied; no manifest error or new evidence changes the ruling. |
Key Cases Cited
- American States Ins. Co. v. Koloms, 177 Ill.2d 473 (Ill. 1997) (pollution exclusion applies to traditional environmental pollution)
- Housing Authority Risk Retention Group, Inc. v. Chicago Housing Authority, 378 F.3d 596 (7th Cir. 2004) (pollution exclusion covers pollution claims regardless of origin; long-tail liability)
- Kim v. State Farm Fire and Casualty Co., 312 Ill. App.3d 770 (Ill. App. 2000) (pollution exclusion bars coverage for traditional environmental pollution)
- Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill.2d 90 (Ill. 1992) (historical discussion of pollution exclusions' scope)
- McFatridge v. National Casualty Co., 604 F.3d 335 (7th Cir. 2010) (duty to defend broader than duty to indemnify; coverage analysis principles)
- Help at Home, Inc. v. Med. Capital, L.L.C., 260 F.3d 748 (7th Cir. 2001) (choice of law and contract interpretation principles for insurance policies)