Velsicol Chemical LLC v. Westchester Fire Insurance Company
1:15-cv-02534
N.D. Ill.Sep 7, 2017Background
- Velsicol Chemical, LLC held an excess liability policy (International Insurance Co., later reinsured by Westchester) effective 1/1/1983–1/1/1986; Westchester assumed International’s rights and obligations under a 1993 reinsurance agreement.
- The Policy is excess and triggers only after underlying primary policies are exhausted; the Policy contains a standard notice clause ("upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable") and a qualified pollution exclusion (but with a "sudden and accidental" exception and a Products Hazard exception).
- Velsicol has been involved in multiple environmental claims at sites including Arlington Blending, Chattanooga Plant, Cypress Creek/Memphis Plant, Marshall, Mathis Shaver’s Farm, and Mathis Marble Top; many of these matters involve historical releases, regulatory orders, remediation, and litigation dating from the 1980s–2000s.
- Disputes include (1) whether Velsicol provided timely notice to Westchester under the Policy’s excess-policy notice standard, (2) whether the pollution exclusion bars coverage or whether exceptions (Products Hazard, permitted discharges, or "sudden and accidental" releases) apply, and (3) whether all relevant primary policies were exhausted so the excess policy is triggered.
- At summary judgment, Westchester moved to dismiss remaining counts for untimely notice, pollution-exclusion application, and failure to prove primary exhaustion; the court found genuine disputes of material fact on notice timing, applicability of the pollution exclusion and its exceptions, and primary exhaustion, and therefore denied summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Notice timeliness for Shenkel, Arlington Blending, Chattanooga, Cypress Creek | Velsicol contends it gave notice when occurrences were reasonably likely to implicate excess coverage (and/or when primary exhaustion made excess likely); evidence creates a factual dispute as to when a reasonably prudent person would have thought excess implicated | Westchester asserts notice was untimely as a matter of law for those matters | Denied MSJ — factual dispute exists about when notice was reasonably required under excess-policy standard |
| Pollution exclusion — Products Hazard exception (Arlington Blending) | Velsicol says Products Hazard applies because it supplied products to an independent formulator and the occurrences happened off its premises | Westchester argues Products Hazard doesn't apply (relying on out-of-state authority saying unfinished supplies may not qualify) | Denied MSJ on this point — under Illinois law Products Hazard can cover injuries after relinquishment; ambiguity favors insured |
| Pollution exclusion — permitted discharges (Chattanooga, Cypress Creek) | Velsicol argues permitted discharges create ambiguity whether the exclusion applies (citing cases finding ambiguity where emissions were permitted) | Westchester says routine permitted operations still fall within exclusion | Denied MSJ — factual disputes about permit scope and whether discharges were covered; ambiguity resolved for insured at summary judgment stage |
| Pollution exclusion — "sudden and accidental" exception | Velsicol points to testimony describing process upsets, fires, ruptures and non-routine accidental releases that could be "sudden and accidental" | Westchester contends pollution arose from gradual, routine operations and is excluded | Denied MSJ — witness testimony and factual record create genuine dispute whether releases were sudden/accidental |
| Primary-policy exhaustion | Velsicol offers evidence (adjuster reports, consultant allocations, internal memoranda) that underlying primary limits were exhausted | Westchester contends Velsicol has not proved exhaustion of all triggered primary policies | Denied MSJ — factual disputes exist about whether all triggered primary policies were exhausted and when |
Key Cases Cited
- Allied Prop. & Cas. Ins. Co. v. Metro N. Condo. Ass’n, 850 F.3d 844 (7th Cir. 2017) (distinguishes duty to defend from duty to indemnify under Illinois law)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Ill. 1992) (defines "sudden" as unexpected/unintended in pollution-exclusion context)
- Am. States Ins. Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997) (explains pollution exclusion’s purpose to preclude gradual or repeated discharges)
- Zurich Ins. Co. v. Walsh Const. Co. of Ill., 816 N.E.2d 801 (Ill. App. Ct. 2004) (articulates when excess-policy notice is required—when it is reasonably likely the excess will be implicated)
- Tribune Co. v. Allstate Ins. Co., 715 N.E.2d 263 (Ill. App. Ct. 1999) (examines excess-policy notice based on likelihood excess will be involved)
- Country Mut. Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338 (Ill. 2006) (policy notice provisions interpreted as valid prerequisites; "as soon as practicable" means within a reasonable time)
- W. Am. Ins. Co. v. Yorkville Nat. Bank, 939 N.E.2d 288 (Ill. 2010) (factors for assessing reasonableness of notice)
- John Crane, Inc. v. Admiral Ins. Co., 991 N.E.2d 474 (Ill. App. Ct. 2013) (requires proof that all triggered primary policies are exhausted before excess coverage responds)