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02/05/96 FOREST PRESERVE DISTRICT DUPAGE COUNTY v.

February 5, 1996

FOREST PRESERVE DISTRICT OF DUPAGE COUNTY, ILLINOIS, A MUNICIPAL CORPORATION, ACTING ON BEHALF OF ITSELF AND THE COUNTY OF DUPAGE, ILLINOIS, ITS CO-INSURED, PLAINTIFF-APPELLEE,
v.
PACIFIC INDEMNITY COMPANY, A CALIFORNIA CORPORATION, DEFENDANT-APPELLANT AND BELLEFONTE INSURANCE COMPANY, A KENTUCKY CORPORATION, BRITISH NATIONAL INSURANCE COMPANY, LIMITED, A FOREIGN CORPORATION, CENTURY INDEMNITY COMPANY, A CONNECTICUT CORPORATION, EXCESS INSURANCE COMPANY LIMITED, A DELAWARE CORPORATION, FEDERAL INSURANCE COMPANY, AN INDIANA CORPORATION, FIREMAN'S FUND INSURANCE COMPANY, A CALIFORNIA CORPORATION, INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, AN ILLINOIS CORPORATION, INTERSTATE FIRE & CASUALTY COMPANY, AN ILLINOIS CORPORATION, MENTOR INSURANCE COMPANY LIMITED, A FOREIGN CORPORATION, NEW ENGLAND REINSURANCE CORPORATION, A CONNECTICUT CORPORATION, NORTH ATLANTIC INSURANCE COMPANY LIMITED, A NEW YORK CORPORATION, PINE TOP INSURANCE COMPANY LIMITED, A FOREIGN CORPORATION, TERRA NOVA INSURANCE COMPANY LIMITED, A FOREIGN CORPORATION, UNDERWRITER'S AT LLOYD'S, LONDON A FOREIGN CORPORATION, AND YASUDA FIRE & MARINE INSURANCE COMPANY (UK) LIMITED, A FOREIGN CORPORATION, DEFENDANTS.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE MARTIN C. ASHMAN, JUDGE PRESIDING.

Presiding Justice Campbell delivered the opinion of the court: Buckley, J., and Braden, J., concur.

The opinion of the court was delivered by: Campbell

PRESIDING JUSTICE CAMPBELL delivered the opinion of the court:

Defendant Pacific Indemnity Company ("Pacific") appeals from an order of the circuit court of Cook County granting summary judgment in favor of plaintiff Forest Preserve District of DuPage County ("District") in a declaratory judgment action. No other defendant is a party to this appeal.

The record on appeal indicates the following facts. The District is a municipal corporation which operated a sanitary landfill at the Roy C. Blackwell Forest Preserve in DuPage County from 1965 to 1973. The landfill was to be open for the deposit of general municipal waste, from which a hill was to be constructed for recreational purposes. The District itself did not deposit any waste in the landfill. In 1973, when the hill was completed, the District closed the landfill, covered the hill with dirt and seeded it with grass.

During the period from 1965 to 1973, Pacific continuously insured the District under annual general comprehensive liability policies. The policies issued before 1967 insured against accidents occurring during the policy period that caused property damage. The policies issued from 1967-73 insured against occurrences causing property damage during the policy period. All of the policies obligated Pacific to defend the District against any suit seeking damages on account of property damage. The policies also contained language excluding claims of damage to property owned, occupied or used by the insured.

In 1976, the District observed erosion of the landfill's cover dirt and apparent seepage of liquids from the interior of the hill to the surface. The District then added dirt to the hill, regraded the hill and constructed a number of containment trenches. In 1979, the District again observed erosion and seepage problems with the hill and again undertook remedial measures.

The District also hired an engineering firm to conduct a study of the landfill. In April 1980, the District received preliminary information from the firm, which eventually completed the study in April 1981. The study suggested that leachate was migrating from the site into the surrounding groundwater. The study also suggested that the firm had not detected any release of hazardous substances that would have brought state and federal environmental laws into play. In 1980, the District retained a second engineering firm, which evaluated the hydrological conditions in the vicinity of the site and concluded that the landfill had not degraded quality of the local groundwater. In 1982, the District began sampling the groundwater for hazardous substances and in fact discovered evidence of contamination. On February 24, 1984, after confirming that hazardous substances had reached the underground aquifer, the District notified the United States Environmental Protection Agency ("USEPA") that hazardous substances had been "released" from the landfill.

On March 30, 1987, the District received correspondence from USEPA. The letter advised the District that USEPA was investigating the circumstances surrounding the landfill and sought information regarding these circumstances from the District. The District provided all of the requested information and offered to fully cooperate with any risk investigation and feasibility study, as well as any necessary remedial action recommended by USEPA.

The District notified Pacific of the March 30, 1987, letter in a letter dated May 27, 1987. The District's letter stated that there was an "alleged occurrence" under one of the policies issued to the District. The letter further stated that

"should a lawsuit arise out of the matters of which you have received notice today, you should appear, defend and indemnify the District ***."

On July 7, 1987, the District and the DuPage County Board ("County") approved an intergovernmental agreement that required the performance of a "remedial investigation and feasibility study" ("RI/FS") of the landfill. The District then informed the USEPA of the intergovernmental agreement. The County retained Donahue & Associates, Inc. ("Donahue"), an environmental engineering firm, to conduct the RI/FS of the site. However, the District later agreed tolimit the agreement due to concerns that the USEPA might not approve Donahue's work because USEPA was not a party to the intergovernmental agreement. Consequently, Donahue was to complete only "Phase 1" of the project, which was limited to investigation of the existing data, identification of data needs and completion of a draft work plan for the site.

In a letter dated November 30, 1987, Pacific notified the District that it would decline coverage of any claim arising out of the matters in the March 30, 1987, letter. Pacific asserted that: (1) the matters in the letter do not describe an "occurrence" under the policies; (2) it was unclear whether any damage took place during the terms of the policies; (3) the disposal of hazardous waste and any resulting harm were expected or intended by the District; (4) the contamination did not constitute "property damage" as defined by the policies; and (5) a claim seeking compliance with the regulatory directives of USEPA does not constitute a claim for damages. The District sent a critical response, dated December 17, 1987, to Pacific. On January 4, 1988, Pacific clarified that its earlier letter applied to policies issued from December 1, 1967, through December 1, 1976. Following another response from the District, Pacific returned to the position declining coverage under all of the policies at issue.

On June 24, 1988, the USEPA published a proposed rule in the Federal Register, proposing to place the landfill on the National priority List, also known as the Superfund list, which is a federally mandated list of waste facilities most in need of federal attention. On August 15, 1988, the District filed a comment in opposition to the proposed rule with the USEPA. On September ...


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