Scottsdale Indemnity Co. v. Village of Crestwood
673 F.3d 715
7th Cir.2012Background
- Crestwood is a small Illinois municipality that provided water from Lake Michigan and owned wells; one well became contaminated with perc (PCE) in the mid-1980s and was used despite contamination disclosure.
- Contamination stemmed from perc leakage from a nearby dry-cleaning operation into groundwater tapped by Crestwood’s well.
- Village officials promised to limit use of the contaminated well to emergencies, but it remained in use until 2007 and was sealed in 2009.
- Hundreds of residents sued Crestwood and past/present officials in state court for health damages; Illinois sought an injunction funding site inspection and remediation.
- Insurance policies (primary Scottsdale and excess National) contain broad pollution exclusions for discharges, dispersal, and cleanup costs; those exclusions are the basis for a declaratory-judgment action in federal court.
- This is a diversity case under Illinois law challenging whether the pollution exclusion applies to claims arising from transport and dispersal of a contaminant through public water supply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the pollution exclusion bars coverage for claims from disseminated contaminants | Crestwood argues exclusion should not apply to ordinary pollution harms | Insurers contend exclusion covers dispersal and cleanup costs | Yes, exclusion applies to dispersal harms in this context |
| Whether core-business-activity or creation of pollution matters for exclusion | No special exception for core activity; exclusion broad | Policy would be undermined if core activity excluded from exclusion | Core-business activity exception rejected; exclusion remains applicable |
| Whether cleanup-cost exclusion is necessary or duplicative | Seeks to limit exclusion to cleanup costs | Separate cleanup-cost exclusion supports broad pollution exclusion | Pollution exclusion covers both dispersal and cleanup costs; not limited to cleanup only |
| Whether the complaint sufficiently alleged pollution-based harms | Complaints framed as health injuries from perc; pollution excluded | Complaint should trigger defense due to potential environmental harms | Plausible pollution-based claims; duty to defend not compulsory if allegations show pollution exclusion applies |
Key Cases Cited
- Pipefitters Welfare Educational Fund v. Westchester Fire Ins. Co., 976 F.2d 1037 (7th Cir.1992) (limits pollution exclusion to traditional environmental pollution harms)
- American States Ins. Co. v. Koloms, 177 Ill.2d 473 (Ill. 1997) (pollution exclusion tied to traditional environmental pollution harms; not for leaks like furnaces)
- Doerr v. Mobil Oil Corp., 774 So.2d 119 (La.2000) (injury scenarios outside pure pollution are not within exclusion)
- Koloms (cited within opinion), - (-) (see above—progenitor case for broad exclusion rationale)