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03/30/94 LAPHAM-HICKEY STEEL CORPORATION v.

March 30, 1994

LAPHAM-HICKEY STEEL CORPORATION, PLAINTIFF-APPELLANT,
v.
PROTECTION MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. Honorable John N. Hourihane, Judge Presiding.

Rehearing Denied May 12, 1994. Petition for Leave to Appeal Allowed October 6, 1994.

Greiman, Rizzi, Cerda

The opinion of the court was delivered by: Greiman

JUSTICE GREIMAN delivered the opinion of the court:

In this declaratory judgment action seeking a determination of the right to insurance coverage for environmental damage, plaintiff Lapham-Hickey Steel Corporation appeals the trial court's order which (1) granted summary judgment in favor of defendant Protection Mutual Insurance Company, finding that a provision in the policy requiring the filing of suit within 12 months of discovery was dispositive; and (2) denied partial summary judgment against plaintiff to defendant's duty to defend under the policy.

On appeal plaintiff raises two issues: (1) whether the 12-month suit limitation clause in the insurance policy barred plaintiff's action where no suit was ever filed; and (2) whether defendant's duty to defend arose from the circumstances relating to the contamination found on plaintiff's premises. In the alternative, plaintiff asserts that if no event had occurred to trigger defendant's duty to defend, then the trial court should have refused to decide the suit-limitation issue on the ground that it was not ripe.

We reverse and find that this action is not time barred by the 12-month suit limitation as applied in this case and that defendant's duty to defend was triggered by the threat of formal proceedings to impose liability on plaintiff for costs relating to the contaminated site.

In March 1985 plaintiff purchased a facility in St. Paul, Minnesota (hereinafter referred to as the site) and were not aware of any environmental problems at the site at the time of purchase. In April 1987 plaintiff entered into negotiations to sell the site.

About May 1, 1987, plaintiff received notice from Ecology and Environment, Inc., that it had been retained by the United States Environmental Protection Agency (EPA) to investigate and evaluate the site. About May 5, 1987, plaintiff received a report from Twin City Testing Corporation, an organization which had been retained by the prospective buyers of the site. The report indicated that there were potential environmental problems at the site.

On May 11, 1987, plaintiff gave written notice to defendant's agent (John Kegaly of T.J. Adams and Associates) about the pending EPA investigation and provided a copy of the Twin City Testing report.

In the summer of 1987, plaintiff was informed that the Minnesota Pollution Control Agency (MPCA) would assume primary responsibility for the site. In July 1987 plaintiff retained an environmental consulting firm (Yates & Auberle) to provide advice in connection with the pending investigation of the site conducted jointly by the EPA and the MPCA.

On October 14, 1987, plaintiff obtained, through a Freedom of Information Act request, a copy of the EPA technical report which had been completed the previous month, September 1987.

Also in October 1987, plaintiff received from the MPCA a draft consent decree stating that (1) surface and subsurface soils were contaminated; (2) there was a potential for ground water contamination; and (3) plaintiff was a "responsible person," i.e., liable, under Minnesota statutes.

From December 1987 to January 1989, plaintiff's environmental consultants reviewed the EPA's findings, negotiated an agreement with the MPCA, conducted investigations of the site and issued a report to the MPCA. In December 1987, plaintiff's environmental consultants (Yates & Auberle) completed their review of the EPA report. For the next several months, plaintiff's environmental consultants met with the MPCA to reach an agreement whereby the MPCA would not seek entry of the October 1987 draft consent decree and, in return, plaintiff would conduct an investigation and assessment of the contamination at the site, subject to the approval of the MPCA. These negotiations resulted in a "no action" letter dated June 8, 1988, from the MPCA which also approved a work plan proposed by plaintiff whereby plaintiff, at its expense would conduct a remedial investigation of the contamination at the site. During the summer of 1988, work on this plan commenced. Plaintiff's environmental consultants prepared a report acknowledging the contamination but concluding that the origin of the contamination occurred sometime prior to 1962. This report was issued to the MPCA in January 1989.

From May 1988 to May 1989, plaintiff and defendant were in contact concerning the environmental claims. On May 18, 1988, plaintiff sent a letter to defendant advising defendant on "the status of the investigation." In June 1988 defendant requested further information from plaintiff. In January 1989 defendant arranged a meeting which was held in February 1989 to discuss plaintiff's claims. Defendant denied coverage on May 23, 1989.

On June 20, 1989, defendant agreed to extend the date for filing suit by plaintiff until January 1, 1990, with the following caveat:

"Subject to a reservation of all of its rights as may exist today and provided that suit is not presently barred by time, Protection Mutual Insurance is agreeable to an extension of the date for filing suit under its Policy 7113 to and including January 1, 1990. To the extent suit is barred by contract or other time limitations today, this extension of time is not applicable. Protection Mutual neither intends nor agrees by these extensions of time to revive any right or any action which might already be barred."

By a similar letter dated December 21, 1989, defendant agreed to extend the date for filing suit until March 30, 1990.

On March 14, 1990, plaintiff filed its complaint for declaratory judgment. An amended complaint was later filed on September 7, 1990.

On April 2, 1991, plaintiff filed a motion for partial summary judgment on the issue of defendant's duty to defend plaintiff against the contamination claims brought by environmental agencies.

Subsequently defendant filed a motion for summary judgment asserting that plaintiff's action was time barred because plaintiff failed to institute suit within the 12-month ...


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