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St. Paul Fire & Marine Insurance Co. v. Lefton Iron & Metal Co.

June 16, 1998

ST. PAUL FIRE & MARINE INSURANCE COMPANY AND ST. PAUL MERCURY INSURANCE COMPANY, PLAINTIFFS AND COUNTERDEFENDANTS-APPELLEES,
v.
LEFTON IRON & METAL COMPANY, INC., AND LEFTON LAND & DEVELOPMENT COMPANY, DEFENDANTS AND COUNTERPLAINTIFFS AND THIRD-PARTY PLAINTIFFS-APPELLANTS,
v.
TRANSPORTATION INSURANCE COMPANY, COMMERCIAL UNION INSURANCE COMPANY, CONTINENTAL CASUALTY COMPANY, GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, RANGER INSURANCE COMPANY, AND SAFETY NATIONAL CASUALTY CORPORATION, THIRD-PARTY DEFENDANTS-APPELLEES.



The opinion of the court was delivered by: Justice Goldenhersh

Appeal from the Circuit Court of St. Clair County.

Honorable Richard A. Aguirre, Judge, presiding.

No. 88-MR-143

The instant appeal involves a coverage dispute between defendants/counterplaintiffs/third-party plaintiffs, Lefton Iron & Metal Company, Inc. (Lefton Iron), and Lefton Land Development, Inc. (Lefton Land) (collectively referred to as Lefton), and its primary insurance carrier, plaintiff/counterdefendant, St. Paul Fire & Marine Insurance Company and St. Paul Mercury Insurance Company (collectively referred to as St. Paul), along with third-party defendants, excess insurance carriers, Commercial Union Insurance Company (Commercial), Ranger Insur-ance Company (Ranger), National Union Fire Insurance Company of Pittsburgh, PA (National Union), Continental Casualty Company (Continental), Transportation Insurance Company (Transportation), General Accident Insurance Company of America (General Accident), and Safety National Insurance Company (Safety National). St. Paul filed a declaratory judgment action in the circuit court of St. Clair County, seeking a determination that it had no duty to defend Lefton in litigation based on claims of alleged chemical contamination on and under a 42-acre industrial site owned by Lefton Land. Lefton Iron purchased the site in 1973 and transferred ownership to Lefton Land in 1984. The other insurers were joined by Lefton, which is seeking coverage from the insurers for claims during each insurer's respective policy period of either primary or excess coverage during the years 1973 through 1986. St. Paul filed a motion for summary judgment, in which the other insurers ultimately joined. The trial court granted summary judgment, finding that as a matter of law the insurers had no duty to defendant Lefton because the known-loss doctrine precluded Lefton from insuring its liability for the claims asserted against it. The trial court also ruled as a matter of law that St. Paul and Safety National, the excess insurance carrier over St. Paul, had no duty to defend pursuant to the pollution-exclusion clauses of their policies. On appeal, Lefton contends that (1) the trial court erred in applying the known-loss doctrine to the facts of this case, (2) the trial court erred in finding that no genuine issue of material fact existed as to Lefton's knowledge of the claims for which it seeks coverage at the time it purchased the insurance policies at issue herein, (3) the trial court erred in finding that evidence submitted by Lefton does not create a disputed issue of fact as to Lefton's knowledge as relevant to the known-loss issue, and (4) the chemical contamination alleged in the underlying complaint constituted a "sudden accident involving pollutants" within the written exception to the pollution-exclusion clause, thereby making summary judgment in favor of St. Paul and Safety National inappropriate. We reverse and remand with directions.

I. FACTS

From 1927 through 1969, the site in question was used for wood-treatment operations involving the use of various chemical preservatives, including creosote, creosote solutions, and pentachlorophenol (PCP). On January 18, 1973, Lefton Iron purchased the 42-acre industrial site in question from Moss-American, Inc. (Moss-American), the predecessor in interest of Kerr-McGee Chemical Corpo-ration (Kerr-McGee), neither of which take any part in this action. Moss-American and Kerr-McGee merged in 1974. Lefton Iron conveyed the site to Lefton Land on October 31, 1984, by quitclaim deed. The property was originally purchased by Lefton Iron with the intention of moving its scrap metal operations to that site, but Lefton Iron decided to keep its scrap metal site where it was. It is undisputed that neither Lefton Land nor Lefton Iron ever utilized any hazardous substance at the site. Lefton never conducted any type of business on the site. The purchase in 1973 was on an "as is" basis. Lefton Iron was "aware of the existence of two waste water ponds containing oil and other wood preservatives in solution." Moreover, Lefton Iron expressly agreed to indemnify and to defend and hold harmless Moss-American. [Nonpublishable under Supreme Court Rule 23 omitted.]

On June 8, 1981, Kerr-McGee, as past owner of the site, filed a "Notification of Hazardous Waste Site" with the United States Environmental Protection Agency pursuant to section 103(c) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as the Superfund Act (the Act) (42 U.S.C.A. §9603(c) (West 1995)). On June 23, 1983, Ecology and Environmental, Inc., filed a preliminary assessment of the site on behalf of the United States Environmental Protection Agency. The assessment concluded that there were 11,518 cubic yards of persistent sludge at the site, containing creosote, polynuclear aromatic hydrocarbons, and soluble phenolic materials. The assessment warned of several potential hazards but made few explicit findings as to pollution at the site. On March 7, 1984, representatives of the Environmental Protection Agency inspected the site and took samples from two ponds on the property. An analysis of the samples showed "definite contamination of the two on-site ponds and a waste pile [with] a high concentration of organics." The report went on to state, "[T]his site is definitely a candidate site for the installation of ground water monitoring wells." Lefton admits to receiving a copy of this report in late August or early September 1985. The site was placed on the state remedial action priorities list. On September 26, 1985, Lefton was notified that the site had been placed on the list and that the site would be monitored further.

On November 5, 1985, the Attorney General of Illinois sent Benjamin Lefton a letter regarding the environmental violations at the site, mainly due to creosote and creosote wastes. The letter explained that a multicount complaint alleging numerous violations of the Illinois Environmental Protection Act (Ill. Rev. Stat. 1985, ch. 111½, par. 1001 et seq. (now 415 ILCS 5/1 et seq. (West 1996)) and nuisance had already been prepared, with the named defendants being the former owners, Moss-American and Kerr-McGee, along with the present owner, Lefton, but that such complaint would not be filed if the responsible parties voluntarily accepted responsibility and undertook cleanup operations.

[Nonpublishable under Supreme Court Rule 23 omitted.]

Ultimately, on January 7, 1988, the State of Illinois filed a complaint (No. 88-CH-4) for preliminary and permanent injunctions against Moss-American, Kerr-McGee, Lefton Iron, and Lefton Land. On January 21, 1988, Lefton's counsel sent a letter on behalf of Lefton Iron and Lefton Land to St. Paul, in which the defense of No. 88-CH-4 was tendered. Lefton's counsel also demanded reimbursement for defense costs incurred to that date with respect to enforcement proceedings in conjunction with the complaint filed with the Board. On February 10, 1988, St. Paul sent a letter to Lefton's counsel, declining coverage to both Lefton Iron and Lefton Land and denying a duty to defend. A month later, Kerr-McGee entered into a consent decree that settled the State's suit against it. Kerr-McGee agreed to undertake at its expense any and all remedial work necessary to protect the public health and the environment. Neither Lefton Iron nor Lefton Land took any part in the consent decree.

In an attempt to make Lefton Iron and Lefton Land shoulder at least some, if not all, of the costs of cleaning the site, Kerr-McGee filed suit on August 29, 1990, against Lefton Iron and Lefton Land under the Act. See 42 U.S.C.A. §9601 et seq. (West 1995). Kerr-McGee made three specific claims against Lefton.

[Nonpublishable under Supreme Court Rule 23 omitted.]

These claims were litigated in the United States District Court for the Southern District of Illinois. The District Court agreed with Lefton and ruled against Kerr-McGee on all three counts. However, the Seventh Circuit Court of Appeals reversed on all counts in favor of Kerr-McGee. Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994). Consequently, Lefton is responsible for all cleanup costs relating to the site.

With regard to the instant case, St. Paul filed a complaint for declaratory judgment against Lefton on June 20, 1988. Lefton filed its answer, affirmative defenses, and claims against St. Paul and the other insurers on January 6, 1992. Lefton's claims sought a declaration that the insurance companies have duties under their respective policies to defend Lefton Iron and Lefton Land and to reimburse them for defense costs incurred in the defense litigation concerning the site. On January 20, 1994, Lefton filed a motion for partial summary judgment, seeking a declaration that St. Paul was obligated to defend Lefton in actions arising out of ownership of the site. St. Paul filed its countermotion for summary judgment and a memorandum in support thereof. The memorandum asserted, inter alia, that the doctrine of collateral estoppel applies to this case pursuant to the holding in Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co, Inc., 14 F.3d 321, 328 (7th Cir. 1994).

[Nonpublishable under Supreme Court Rule 23 omitted.]

Ultimately, the trial court held that no genuine issue of material fact existed on the issues of known loss and ...


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