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09/10/97 EMPLOYERS INSURANCE WAUSAU v. EHLCO

September 10, 1997

EMPLOYERS INSURANCE OF WAUSAU, A MUTUAL COMPANY, PLAINTIFF-APPELLANT,
v.
EHLCO LIQUIDATING TRUST, NOEL H. GOODMAN, AND C.H. HEATH COMPENSATION AND LIABILITY INSURANCE COMPANY, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Aaron Jaffe, Judge Presiding.

As Corrected September 22, 1997. Rehearing Denied November 26, 1997. Released for Publication December 5, 1997.

The Honorable Justice Gordon delivered the opinion of the court Cousins, P.j. and Leavitt, J., concur.

The opinion of the court was delivered by: Gordon

The Honorable Justice GORDON delivered the opinion of the court:

This insurance coverage dispute involves two underlying proceedings against Ehlco Liquidating Trust (Ehlco) and affiliated entities for environmental property damages allegedly caused by those parties at two industrial sites, one located in Wyoming and the other in Mena, Arkansas. Apparently, Ehlco Liquidating Trust is a trust created by order of the Delaware Chancery Court to resolve the contingent liabilities of Edward Hines Lumber Company (Hines), a dissolved Delaware corporation. The instant appeal arises from a declaratory judgment action filed by plaintiff Employers Insurance of Wausau, A Mutual Company (Wausau) against Ehlco; Ehlco's trustee, Noel H. Goodman; and C.H. Heath Compensation and Liability Insurance Company (Heath), which is identified as the successor to Employers Surplus Lines Insurance Company, Hines' excess liability carrier. Wausau's original declaratory complaint also named 15 other insurance carriers in addition to Heath as defendants, who with the exception of Heath were each dismissed from this action prior to the entry of the orders from which this appeal was taken. In its first-amended complaint filed in this action, Wausau sought a declaration that it owed no duty to defend or indemnify Ehlco in an underlying suit concerning environmental property damage at an Ehlco-affiliated industrial site in Wyoming. Ehlco filed its answer and a motion for judgment on the pleadings pursuant to section 2-615(e) of the Illinois Code of Civil Procedure (735 ILCS 5/2-615(e) (West 1994)), seeking defense and indemnification coverage with respect to the underlying Wyoming action. While that motion was pending, Ehlco moved for leave to file a counterclaim for declaratory judgment against Wausau and Heath seeking defense and indemnification coverage with respect to underlying administrative proceedings and a subsequent consent decree action initiated by the United States Environmental Protection Agency (USEPA) concerning environmental property damage at an Ehlco-affiliated site in Mena, Arkansas. The underlying proceedings in Mena, Arkansas concerned allegations of environmental property damage similar to that which allegedly occurred at the Wyoming site. On February 28, 1994, the court granted Ehlco leave to file its Mena counterclaim.

Contemporaneously on that date, Wausau obtained leave of court to file its second-amended complaint (in lieu of filing an answer to Ehlco's Mena counterclaim), in which it reiterated its allegations regarding the Wyoming site and additionally sought declaratory relief with respect to the Mena site. Thereafter, Wausau moved to dismiss Ehlco's Mena counterclaim pursuant to sections 2-615(e) and 2-619(a)(5) of the Code of Civil Procedure (735 ILCS 5/2-615(e), 2-619(a)(5) (West 1994) on statute of limitations grounds and on the grounds that Hines' notice to Wausau regarding the Mena contamination had been untimely. Ehlco then filed a cross-motion for judgment on the pleadings with respect to the Mena counterclaim. Prior to any ruling on these motions, Wausau filed a motion seeking leave of court to file its third-amended complaint. The trial court granted Wausau leave to file its third-amended complaint without prejudice to Ehlco's right to oppose the legal and factual sufficiency thereof and without waiver of any defenses to it. That order also provided that Ehlco's pending motions for judgment on the pleadings as to both sites would stand as to the third-amended complaint, and that Ehlco's answer, affirmative defenses and counterclaim would stand to the extent that Wausau's third-amended complaint repeated the allegations and claims of its second-amended complaint. In its third-amended complaint, Wausau repeated the allegations in its previous complaint and added several new counts seeking a determination of noncoverage under the subject policies. In response, Ehlco filed a motion to strike all of the new counts of the third-amended complaint, arguing that the new claims were unsupported by sufficient factual allegations. In addition, Ehlco sought to strike Wausau's jury demand.

On November 7, 1994, the trial court granted both of Ehlco's motions for judgment on the pleadings, finding that there was coverage in favor of Ehlco as to both sites. In its order, the trial court held that Wausau had a duty to defend Ehlco in both underlying actions, and that Ehlco had breached that duty. The trial court therefore held that Ehlco was estopped from raising any policy defenses to coverage and from arguing that Ehlco had failed to satisfy conditions precedent to coverage such as timely notice. The trial court also granted Ehlco's motion to strike the new counts and allegations of Wausau's third-amended complaint, apparently on the grounds that the new allegations therein were conclusory and unsupported by allegations of fact, and because in any event, Wausau was estopped from asserting any of the policy defenses in those new counts because of its breach of its duty to defend. In sustaining that motion, the court also said that "the court agrees with all of Ehlco's arguments presented in this motion," which Wausau now construes to be a determination that the court struck its jury demand as well. After the denial of various post-trial motions to reconsider filed by Wausau (addressed more fully below in our discussion of our jurisdiction to hear this appeal), Wausau appealed.

I. THE UNDERLYING ACTIONS

As noted above, this case involves two underlying proceedings, one in Wyoming and one in Mena, Arkansas. The Wyoming action was initiated against Ehlco by the Union Pacific Railroad Company (Union Pacific), and the Arkansas proceedings were initiated against Hines by the USEPA. Each underlying proceeding involved allegations of contamination and property damage caused by Ehlco-affiliated entities which operated industrial wood-treatment facilities in Wyoming and in Arkansas and which allegedly dispersed hazardous wastes into the environment. *fn1

[Nonpublishable material under Supreme Court Rule 23 omitted.]

The question concerning Wausau's duty to defend with respect to the USEPA's proceedings against Hines relating to the Mena site requires a more complex analysis. Wausau would urge that it had no duty to defend in those proceedings since they did not constitute a "suit" as defined by the subject policies and under Illinois law. We agree. Our supreme court's decision in Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill. 2d 520, 655 N.E.2d 842, 211 Ill. Dec. 459 (1995) is directly in point. In Lapham-Hickey, the relevant coverage provisions required the insurer to defend "suits" against the insured. In that case, the insured received a letter from the USEPA stating that it was potentially responsible for the costs of an environmental cleanup, and also received a draft consent order and a "no action" letter informing the insured that it probably would not be held responsible for the costs of any cleanup. None of those written documents led to the filing of any suit against the insured. The Lapham-Hickey court reasoned that since the subject policy employed the term "suit" in discussing the carrier's duty to defend, no such duty would be invoked absent the filing of a suit against the insured in "actual court proceedings." 166 Ill. 2d at 532, 655 N.E.2d at 847. On that basis, the Lapham-Hickey court held that no duty to defend was triggered since a "suit" exists in an environmental coverage context only when there has been a proceeding against the insured filed in a court of law. The Lapham-Hickey court stated that its holding was consistent with the manner in which courts determine whether a duty to defend exists, i.e., by comparing the allegations of the underlying complaint to the relevant policy provisions to see if coverage is even potentially alleged by the pleadings. Without the filing of a suit in a judicial proceeding, there would be no such complaint, and therefore, no duty to defend would arise.

In the instant case, as in Lapham-Hickey, the Wausau policies state that Wausau

"shall have the right and duty to defend any suit against the insured seeking damages *** [for] property damage, even if the allegations of the suit are groundless, false or fraudulent *** ."

As in Lapham-Hickey, here, because no suit was filed with respect to the underlying USEPA proceedings concerning the Mena site prior to 1988, Wausau's duty to defend was not triggered prior to that time. See also Fruit of the Loom, Inc. v. Travelers Indemnity Co., 284 Ill. App. 3d 485, 672 N.E.2d 278, 219 Ill. Dec. 770 (1996) (no duty to defend because no suit was filed in that no judicial proceeding was commenced); Forest Preserve ...


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