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September 16, 1996


Appeal from the Circuit Court of Lake County. Nos. 86--MR--308, 88--CH--93, 88--MR--332 cons. Honorable Emilio B. Santi, Judge, Presiding. This Opinion Substituted on Denial of Rehearing for Withdrawn Opinion of July 26, 1996, Previously The Motion of Cross-Appellant to Correct Petition for Rehearing is Allowed.

Released for Publication October 16, 1996.

The Honorable Justice Thomas delivered the opinion of the court: Bowman and Rathje, JJ., concur.

The opinion of the court was delivered by: Thomas

JUSTICE THOMAS delivered the opinion of the court:

This appeal involves an insurance coverage dispute between the plaintiff, Outboard Marine Corporation (OMC), and four of its excess insurance carriers, the Home Insurance Company (Home), Employer's Surplus Lines Insurance Company (ESLIC), Northbrook Insurance Company (Northbrook), and American Re-Insurance Company (American). Following a two-week bench trial on the issue of the insurers' duty to indemnify OMC, the circuit court of Lake County held that OMC's polychlorinated byphenyl (PCB) contamination of Waukegan Harbor constituted a "continuing occurrence" between 1953 and 1976 triggering coverage under the respective policies. The court entered judgment on behalf of OMC and against the above-mentioned insurers as follows: $3 million against ESLIC; $4.8 million against Home; and $300,000 against American. The trial court granted Northbrook's motion for partial summary judgment based on a noncumulation of the liability clause in its policy. OMC appeals from the trial court's judgment, and all four of the excess insurers cross-appeal.


OMC is a large manufacturer of outboard motors. Since the 1940s, OMC has operated a die-casting facility in Waukegan, Illinois, near Waukegan Harbor. From approximately 1953 through 1976, OMC's die-cast machines at plant No. 2 compressed molten aluminum at great pressure and extremely high temperatures into parts for outboard engines. OMC used a hydraulic fluid, Pydraul, in its die-casting process. Pydraul was manufactured by Monsanto Company (Monsanto) and contained PCBs. This PCB-laden effluent from OMC's facility was routed to a ditch on OMC's property known as the North Ditch and eventually found its way into Waukegan Harbor and Lake Michigan.

Periodically, Pydraul discharged from OMC's die-cast machines when hoses ruptured and leaks occurred. Some Pydraul was recovered through catch basins or absorbent materials on the plant floor. Pydraul was also flushed into trenches around the die-cast machines and routed to oil interceptors. The plant had two oil interceptors, one on the north end of the plant and the other on the south end of the plant. Pydraul that eventually ended up in Waukegan Harbor travelled to outfall 009 and entered the harbor at slip No. 3.

In 1960 OMC modified its wastewater treatment system by installing baffles and two 300 gpm pumps at the south oil interceptor and by installing a bypass system to divert water that had been processed in the south oil interceptor of the south end of the plant away from Waukegan Harbor and into the North Ditch. Around September 1967, OMC began sampling wastewater discharges at outfall 009, which was at or near the harbor. Sampling records from September 1967 through January 1972 did not show the presence of Pydraul in the water flowing to the Waukegan Harbor. However, at that time, OMC was not testing in a manner which was likely to disclose the presence of PCBs.

Early in 1968, OMC hired Betz Laboratories (Betz) to perform an environmental audit of OMC's facilities. OMC implemented Betz's recommendation that uncontaminated cooling water be diverted away from oil interceptors and be discharged directly to the North Ditch. During its audit, Betz noticed two or three peanut-sized globules of material along a four-foot section at the bottom of the outfall line, which it concluded consisted of Pydraul. Betz's work did not quantify any movement of these globules, although slow movement toward Waukegan Harbor was observed. While Betz detected noticeable pollution of the North Ditch, it did not observe any evidence of pollution in Waukegan Harbor, and it did not actually observe the direct discharge of any Pydraul into Waukegan Harbor.

Around October 1969, OMC approved a requisition for the installation of piping to remove the flow of uncontaminated hydraulic oil cooling water from the south oil interceptor and to direct this water from the die-cast machines directly to the south sump basin. In addition, the requisition included the replacement of the existing 300 gpm sump pumps at the south end of the die-cast plant with two 700 gpm sump pumps.

In November 1971, OMC approved a requisition for the installation of piping to remove the flow of contaminated die-cooling waters from the floor trench system in the die-cast building, so as to remove this cooling water from the north and south oil interceptors to be discharged directly into the North Ditch.

From 1953 through the end of 1970, the formulation of Pydraul purchased by OMC contained PCBs. OMC was not told or otherwise aware that Pydraul contained PCBs until it was notified by Monsanto of this fact by a letter dated December 29, 1970. Monsanto's letter noted that pollution laws, moral considerations, and the best interests of its customers were leading it to entirely exclude PCBs from its Pydraul products so that "any question of environmental contamination" would be eliminated. Although OMC stopped purchasing PCB-bearing formulations of Pydraul in 1970, it continued to use the PCB-laden Pydraul that it had in stock. Furthermore, residual amounts of PCB-laden Pydraul remained in OMC's die-casting machines until approximately 1976.


In February 1976, the United States Environmental Protection Agency (USEPA) notified OMC that it was in violation of various environmental statutes due to its discharge of PCBs into the Waukegan Harbor and the North Ditch of its property. In March 1978, the USEPA filed an action against OMC in the United States District Court for the Northern District of Illinois to compel remediation of the contaminated areas. Later that same year, the Illinois Environmental Protection Agency (IEPA) filed an action against OMC in the same federal court and based on the same factual allegations as in the USEPA complaint. In 1985, the governmental agencies were granted a voluntary dismissal of their complaints without prejudice. In 1988, the USEPA and the IEPA filed new complaints against OMC in federal court, alleging facts and praying for relief similar to that set forth in their initial complaints.

The present lawsuit originated in August 1986, when OMC filed suit against its primary insurance carriers, Liberty Mutual Insurance Company (Liberty), Commercial Union Insurance Company (Commercial) and Insurance Company of North America (INA), alleging a duty to defend and indemnify OMC in connection with the federal environmental litigation. Thereafter, various excess insurers, including those involved in the instant appeal, either intervened or were added as party defendants.

In April 1989, the district court approved and entered a consent decree which was negotiated and entered into by OMC and the governmental agencies. Pursuant to the consent decree, OMC was required to make payments into a trust fund for the cost associated with the cleanup of Waukegan Harbor. Prior to trial of the instant proceeding, the parties stipulated that OMC incurred $17.5 million in damages to comply with the consent decree and to remediate the harbor.

In the aftermath of the consent decree, the parties in the present proceeding filed numerous motions for summary judgment addressing the insurers' duty to defend and indemnify OMC. The circuit court of Lake County entered partial summary judgment in favor of OMC and against Liberty, finding that Liberty had a duty to defend OMC in the underlying environmental litigation. The circuit court further granted summary judgment in favor of Commercial, INA, International, and Northbrook, finding that "pollution exclusions" contained in their respective policies barred coverage. An interlocutory appeal was taken, and this court affirmed the trial court's rulings. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 212 Ill. App. 3d 231, 156 Ill. Dec. 432, 570 N.E.2d 1154 (1991). The Illinois Supreme Court granted leave to appeal and subsequently affirmed in part, reversed in part, and remanded the cause for further proceedings. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 180 Ill. Dec. 691, 607 N.E.2d 1204 (1992). With the exception of International, the supreme court reversed the grant of summary judgment in favor of the insurers on the pollution exclusion issue and remanded for further proceedings in connection therewith. The court also found that material questions of fact existed with respect to whether OMC possessed knowledge of a probable loss at the time it purchased insurance so as to bar its claim for insurance under the "known loss" doctrine.

Prior to trial on remand, OMC entered into settlement agreements with its primary insurers, Liberty and Commercial, and with a second-layer excess carrier, Interstate Insurance Company (Interstate). Pursuant to its settlements with Liberty and Commercial, OMC received $14 million. There was no allocation of the portion attributable to defense of the underlying environmental claims as opposed to indemnification for those claims. OMC's annual policy limit for the Liberty policy was $250,000 per year, while the limit for the three-year Commercial policy was $250,000 per occurrence.

[The following material is nonpublishable under Supreme Court Rule 23].

[The preceding material is nonpublishable under Supreme Court Rule 23].


In December 1993, ESLIC and Home brought motions for partial summary judgment. In that regard, ESLIC argued that it did not owe OMC under the ESLIC II policy because of the "prior policy" provision contained in that policy. Home argued that it did not owe OMC under its Home I policy and that it owed no more than $2 million under the Home II policy because of a "non cumulation of liability" clause found in both policies. In May 1994, the trial court granted in part and denied in part ESLIC and Home's partial motions for summary judgment. Specifically, the trial court ruled that ESLIC owed no coverage under the ESLIC II policy on account of the "prior policy" clause. The trial court further ruled that if ESLIC owed OMC $3 million under the ESLIC I policy, then Home would not owe OMC anything under the Home I policy. However, the court decided that it would not double credit a $3 million ESLIC payment by also applying it to the Home II policy. Thus, Home was held to face a potential liability limit of $5 million under the Home II policy.

The trial court issued its written memorandum of opinion on April 20, 1995, finding that (1) OMC's contamination of Waukegan Harbor constituted a single continuing occurrence which took place between 1953 and 1976; (2) the PCB contamination was not expected or intended by OMC during the periods of the defendants' policies, nor did OMC know or have reason to know of a probable loss from PCB contamination at the time it purchased the Northbrook policy; and (3) the continuing occurrence triggered coverage under each of the defendants' policies. The court then reviewed the expert testimony and found it highly speculative as to the percentage of damage actually attributable to each of the policy periods. The court concluded that it was impossible to allocate damages for any given year with any degree of certainty and that, under the circumstances, the best method of damage allocation was to apply a pro rata, "time-on-the-risk" approach. Since OMC had no insurance from 1953 through 1958, its recoverable damages in the instant case were reduced by one-fourth of its total stipulated damages, which amounted to a $4.375 million reduction. The court then addressed the task of applying credit against the remaining amount of damages on account of OMC's settlements with its primary insurers. Noting that it is axiomatic that excess coverage cannot ensue until the primary layer of coverage has been exhausted, the court applied a $4.5 million credit for OMC's settlements with Liberty and Commercial and a $225,000 credit for OMC's settlement with Interstate, thus reducing OMC's recoverable damages by an additional $4.775 million to $8.4 million. The court then apportioned the $8.4 million in damages among the defendants based on the time-on-the-risk approach, taking into consideration the court's previous partial summary judgment rulings on ESLIC's "prior insurance" clause and the "non cumulation of liability" clauses in the Home and Northbrook policies. After applying this approach, the trial court found that OMC could receive a total of $8.1 million in damages. Specifically, the court entered judgment against ESLIC for $3 million (ESLIC I $3 million, ESLIC II $0), against Home for $4.8 million, and against American for $300,000. The court entered judgment in favor of Northbrook and against OMC, finding that Northbrook had no coverage responsibility because of an "exhaustion of policy limits by application of a non cumulation provision."




On appeal, OMC first argues that the trial court erred in allocating damages to OMC on a time-on-the-risk basis for the period in which OMC had no insurance from 1953 to 1958. OMC contends that the trial court's approach was at odds with language in the various policies requiring the insurer to indemnify OMC for "all sums" it became obligated to pay on account of property damage arising out of an occurrence. OMC claims that the supreme court's (and appellate court's) pronouncement in Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 112 Ill. Dec. 684, 514 N.E.2d 150 (1987) requires a different result and that other jurisdictions that have considered the issue have rejected a time-on-the-risk apportionment between insurers and policyholders ( Keene Corp. v. Insurance Co. of North America, 215 U.S. App. D.C. 156, 667 F.2d 1034 (D.C. Cir. 1981); J.H. France Refractories Co. v. Allstate Insurance Co., 534 Pa. 29, 626 A.2d 502 (Pa. 1993); Monsanto Co. v. C.E. Heath Compensation & Liability Insurance Co., 652 A.2d 30 (Del. 1994); Sandoz, Inc. v. Employer's Liability Assurance Corp., 554 F. Supp. 257 (D. N.J. 1983); Transport Insurance Co. v. Lee Way Motor Freight, Inc., 487 F. Supp. 1325 (N.D. Tex. 1980)). OMC also argues that making it responsible for a portion of its damages was inappropriate because its liability arose under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 U.S.C. § 9601 et seq. (1988)), which provides that any owner or operator of a site at any point in time is jointly and severally liable for all remediation costs (42 U.S.C. § 9607 (1988)). Since its liability attaches for operation of the facility at any point in the 24-year period and not necessarily for the entire 24-year period, OMC claims that the time-on-the-risk approach cannot be applied. Lastly, it claims that damages cannot be apportioned to it because the USEPA complaint only alleged liability for contamination after 1959.

With the exception of the American policy, which requires the insurer to indemnify the insured for "ultimate net loss" occurring in the policy period, and the Home policy, which limits the all sums language by specifically stating that it is "subject to the limitations, terms and conditions hereafter mentioned," the other comprehensive general liability (CGL) policies at issue provide: "The insurer agrees to indemnify the insured for all sums which the insured shall be obligated to pay *** on account of *** property damage arising out of any one occurrence." "Occurrence" is defined in various ways in the respective policies as "one happening or series of happenings arising out of or resulting from one event taking place during the term of this policy"; it is also defined as "an accident or a happening or event of a continuous or repeated exposure to conditions which unexpectedly or unintentionally results in *** property damage[;] *** all such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence."

In addition to the theory that coverage under a policy is triggered when the pollutant is discovered, courts have identified and implemented at least four types of "triggers" in deciding (in the context of a claim involving multiple policies) which insurance policy, if any, provides coverage for a specific claim:

"If coverage is triggered at the time that personal injury or property damage becomes known to the victim or property owner, the approach is identified as the 'manifestation theory.' [Citation.] If coverage is triggered when real personal injury or actual property damage first occurs, the approach is called the 'injury in fact theory.' [Citation.] If coverage is triggered when the first exposure to injury-causing conditions occurs, then the court is said to have chosen the 'exposure theory.' [Citation.] Finally, if coverage is triggered in a manner such that insurance policies in effect during different time periods all impose a duty to indemnify, then the approach is labelled a 'continuous' or 'multiple' trigger theory." (Emphasis in original.) Dow Chemical Co. v. Associated Indemnity Corp., 724 F. Supp. 474, 478 (E.D. Mich. 1989).

In Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 112 Ill. Dec. 684, 514 N.E.2d 150 (1987), the Illinois Supreme Court addressed trigger of coverage in the context of cases involving bodily injury from asbestos exposure. There, the court applied a theory of "triple triggers"--it held that the policies were triggered at the initial exposure, when the disease manifested itself, and at any interim time when the claimant manifested some sickness. The court further noted that, between the time exposure to asbestos ceases and the time an asbestos-related disease becomes diagnosable, there is no continuous injury. The court noted that "sickness" may take place in the period before clinical manifestation of the disease and whether and when a claimant suffered sickness must be determined on a case-by-case basis. Zurich did not involve a claim for property damage or coverage for excess insurance.

In United States Gypsum Co. v. Admiral Insurance Co., 268 Ill. App. 3d 598, 205 Ill. Dec. 619, 643 N.E.2d 1226 (1994), the court addressed the issue of the appropriate trigger coverage for asbestos property damage claims involving primary and excess insurance. The Gypsum court recognized that "bodily injury" and "property damage" are two distinct concepts which may require different characterizations of their respective coverage triggers. In adopting a continuous-trigger theory, the court found support from the Zurich decision and noted:

"Conceptually, the injury-in-fact trigger and the continuous trigger are on the same continuum and are complimentary, rather than mutually exclusive. Accordingly, courts have stated that 'where injury-in-fact occurs continuously over a period covered by different insurers or policies, and actual apportionment of the injury is difficult or impossible to determine, the continuous injury trigger may be employed to equitably apportion liability among insurers.'" Gypsum, 268 Ill. App. 3d at 644.

We find the Gypsum court's rationale persuasive in applying the continuous trigger theory and further find that the trial court correctly applied it to the facts of the instant case by finding that all of the policies were triggered and that the contamination of Waukegan Harbor amounted to a single continuing occurrence.

We must now address the questions of whether any of OMC's damages should be apportioned to it and how damages should be apportioned among the various insurers. This ...

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