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03/07/89 United States Fidelity and v. Specialty Coatings Company

March 7, 1989





535 N.E.2d 1071, 180 Ill. App. 3d 378, 129 Ill. Dec. 306 1989.IL.284

Appeal from the Circuit Court of Cook County; the Hon. Thomas J. O'Brien, Judge, presiding.


JUSTICE HARTMAN delivered the opinion of the court. EGAN, P.J., and BILANDIC, J., concur.


Plaintiff, United States Fidelity and Guaranty Company , appeals from circuit court orders denying its motion for judgment on the pleadings against defendants, Specialty Coatings Company (Coatings) and Specialty Chemical Company (Chemical) (sometimes collectively defendants) and granting defendants' motion for partial summary judgment. The issues raised for review include whether: (1) USF&G is collaterally estopped from relitigating the meaning of certain clauses of its insurance policy sold to defendants; (2) the policy's pollution exclusion clause bars coverage for defendants; (3) underlying claims amount to damages under the policy language; (4) a "potentially responsible party" letter triggers USF&G's duty to defend; and (5) a toxic waste dump owned by third parties can be construed as "property used" by defendants under the policy. For reasons which follow, we affirm.

On June 8, 1974, USF&G issued to Coatings and on June 8, 1975, issued to Chemical comprehensive general liability insurance policies, and both defendants became named insureds on a single CGL policy which was renewed continuously through 1987. Coatings produces industrial coatings; Chemical manufactures sealants and adhesives.

Based upon their CGL policy, defendants tendered to USF&G the defense of three separate legal claims lodged against them, for which USF&G denied coverage, declined to defend and filed an action in 1984, amended in 1985, seeking a declaration that it had no such legal obligations. USF&G moved the circuit court to enter a judgment declaring that the terms of the CGL policy did not obligate it to defend or indemnity defendants for the three separate claims, consisting of the following:

(a) An amended complaint filed September 30, 1983, by the Attorney General of Illinois against defendants and 12 other defendants (People v. Cross), alleging, among other things, that between March 1975 and December 1978, defendants delivered, at their Illinois facility in Elk Grove, to the Cross pail and drum recyclers 55-gallon drums and five-gallon pails of industrial wastes; Cross disposed of the wastes by open dumping at its property in Kankakee County where Cross took the wastes; and a pollution hazard was thereby created, in violation of the Illinois Environmental Protection Act (Act) (Ill. Rev. Stat. 1987, ch. 111 1/2, pars. 1012, 1021). The State sought civil penalties and an injunction requiring defendants to: (1) undertake and complete remedial action necessary to eliminate land and water pollution at the site; (2) identify and analyze wastes at the site; (3) refrain from further violations of the act; and (4) post a performance bond.

(b) A PRP letter from the United States Environmental Protection Agency , notifying Coatings that it was a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.A. §§ 9606(a), 9607(a) (1983)) for the costs of cleaning up the Cross site by virtue of its waste disposal agreement with Cross. Liability under CERCLA may be established irrespective of fault, knowledge or intent. Parties such as Coatings are referred to as "generators." (See Buckeye Union Insurance Co. v. Liberty Solvents & Chemicals Co. (1984), 17 Ohio App. 3d 127, 130-31, 477 N.E.2d 1227, 1232.) The USEPA filed no complaint against Coatings in this action, but scheduled a meeting to discuss possible settlement of the matter.

(c) A third-party action against defendants and others (Midco action or Midco complaint), wherein third-party plaintiffs, American Can Co. et al., asserted the USEPA's suit against them for contributing to chemical waste pollution of surface and below-ground water and soil between 1975 and 1979 at two industrial dump sites in Gary, Indiana, designated "Midco I" and "Midco II," among other allegations. USEPA sought injunctive and other equitable relief against third-party plaintiffs and reimbursement of funds spent for investigative, response and cleanup activities at the site. (42 U.S.C.A. §§ 6973, 9604, 9606, 9607 (1983).) Third-party plaintiffs thereafter sought contribution for any judgments entered against them, contending defendants, among 90 others, were liable as past or present generators who contributed to or arranged for the "storage, handling, treatment, transportation or disposal" of hazardous wastes at the Midco sites. Again, under the statute, strict liability is imposed without regard to fault, knowledge or intent.

USF&G's second amended complaint requested the circuit court to enter a judgment declaring that it bore no duty to cover, defend or indemnify defendants for the three claims, because the claims: (1) alleged no "property damage" as defined by the policy; (2) alleged no "occurrence" as defined by the policy; and (3) were barred from coverage by operation of the policy's "pollution" and "property used" exclusions. Defendants' answer to the second amended complaint asserted three "first additional defenses" that USF&G failed to state a cause of action as to each claim submitted by defendants for coverage. USF&G's reply denied each additional defense.

USF&G moved for judgment on the pleadings, to which defendants responded with a motion for partial summary judgment, seeking an adjudication that USF&G had a duty to defend them in the underlying claims. Following a hearing, the circuit court denied USF&G's motion and granted defendants' motion as to count I of the second amended complaint and, in a memorandum opinion, found that the People v. Cross claim alleged sufficient facts to establish both "property damage" and an "occurrence" under the policy. The court also concluded that neither the "pollution" nor "property used" exclusion in the policy precluded coverage for the claim submitted by defendants. The circuit court subsequently granted defendants' motion for partial summary judgment as to counts II and III of the second amended complaint; denied USF&G's motion for judgment on the pleadings; and found no just reason to delay enforcement or appeal from the orders affecting all three counts. (124 Ill. 2d R. 304(a).) This appeal followed. I

As a preliminary matter, defendants contend that previous litigation to which USF&G was a party conclusively decided in defendants' favor the issues of whether the policy's pollution exclusion clause bars coverage for the underlying claims and the underlying claims seek recovery for "property damage" as defined in the policy. USF&G is claimed to be collaterally estopped from relitigating those questions here. Defendants' failure to raise collateral estoppel at the trial level prevents us from now considering this theory. Board of Evacuation of Township High School District No. 211 v. Kusper (1982), 92 Ill. 2d 333, 342-43, 442 N.E.2d 179. II

No disagreement as to material facts presented by this appeal appears; therefore, we need only determine whether, pursuant to the motions for judgment on the pleadings and for partial summary judgment, either party is entitled to prevail as a matter of law. Katz v. American Family Insurance Co. (1987), 163 Ill. App. 3d 549, 551, 516 N.E.2d 795; Baker-Wendell, Inc. v. Edward M. Cohon & Associates, Ltd. (1981), 100 Ill. App. 3d 924, 927, 427 N.E.2d 317.

An insurer's duties to defend and to indemnify are not co-extensive; the duty to defend is broader and arises when the underlying complaint, compared with relevant policy provisions, alleges facts covered or potentially covered by the contract. (Charles H. Eichelkraut & Sons, Inc. v. Bituminous Casualty Corp. (1988), 166 Ill. App. 3d 550, 553, 519 N.E.2d 1180; United States Fidelity & Guaranty Co. v. Continental Casualty Co. (1987), 153 Ill. App. 3d 185, 189, 505 N.E.2d 1072.) Only where the complaint allegations clearly exceed policy coverage may an insurer justifiably refuse to defend. (Charles H. Eichelkraut & Sons, Inc. v. Bituminous Casualty Corp., 166 Ill. App. 3d at 553.) Liability insurance policy ambiguities are to be construed in context with the predominant purpose of the contract, which is to provide coverage to the insured. (Dora Township v. Indiana Insurance Co. (1980), 78 Ill. 2d 376, 378-79, 400 N.E.2d 921; Illinois Central Gulf R.R. v. Continental Casualty Co. (1985), 132 Ill. App. 3d 310, 313, 476 N.E.2d 1266, appeal denied (1985), 108 Ill. 2d 565.) A comprehensive general liability policy is especially susceptible to such a construction because its purchaser presumably believed that it would afford broad coverages. (Dora Township v. Indiana Insurance Co., 78 Ill. 2d at 379.) Interpretation in the insured's favor is particularly appropriate if the ambiguity arises in an exclusion, since the insurer there attempts to limit the insured's coverage. International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co. (1988), 168 Ill. App. 3d 361, 371, 522 N.E.2d 758.

USF&G initially insists that its CGL policy's pollution exclusion bars recovery for damages alleged in the underlying claims. The exclusion states in relevant part:

"This insurance does not apply:

(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion ...

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