The opinion of the court was delivered by: Justice McNULTY
Appeal from the Circuit Court of Cook County Honorable Arthur Dunne, Judge Presiding
Three parties filed separate lawsuits against Sentinel Communications Company, a subsidiary of Tribune Company. After Tribune and Sentinel sent notice of the lawsuits to their primary and excess general liability insurers, the insurers denied responsibility for defense of the suits or indemnification of Tribune and Sentinel. Tribune and Sentinel then sued all of their general liability insurers, seeking a judgment declaring the responsibilities of the insurers to the plaintiffs under the insurance policies. The trial court granted two primary insurers summary judgment on all claims against them, finding that their contracts imposed no duty to defend or indemnify plaintiffs in any of the three suits filed against them. The court granted all insurers summary judgment on all claims related to one of the three suits, due to late notice. Plaintiffs filed a timely appeal. This court has jurisdiction pursuant to Supreme Court Rule 304(a). 155 Ill. 2d R. 304(a).
On July 10, 1992, Robert Hester sued Sentinel for allegedly contaminating the soil of Hester's property with petroleum products. The Florida Department of Environmental Regulation (FDER) sent Sentinel a warning letter on July 24, 1992, advising Sentinel of FDER's investigation into the source of trichloroethene (TCE) found in groundwater near Sentinel's property. FDER later filed a suit against Sentinel related to TCE contamination.
On September 23, 1992, plaintiffs sent notice of the warning letter and the lawsuit Hester filed to their primary general liability insurers for the years 1975 through 1985. From 1975 until early 1980, Zurich Insurance Company provided primary coverage.
During 1980 Tribune began a program by which it purchased at a very low price general liability insurance policies in which the primary insurer's limits of liability matched the deductible. The Tribune's risk manager explained that under such a "fronting" or "matching deductible" policy, the insurer's affiliate provided claims handling services, but the policy holder effectively insured itself up to the primary policy's limits. With these policies the insured could set some of the terms and conditions for the excess insurance, and the insured could obtain necessary certificates of insurance in a cost-effective manner.
From 1980 through 1982, Tribune purchased as its primary coverage matching deductible policies from Insurance Company of North America (INA); from 1983 through 1985 American Insurance Company provided the matching deductible primary insurance.
Tribune purchased excess or umbrella insurance from at least 13 different insurers for various years between 1975 and 1985. When plaintiffs notified their primary insurers of the Hester suit and the FDER warning letter, they also sent notice to all excess general liability insurers.
Cheney Street, Inc., filed suit against Sentinel on November 30, 1992, alleging that Sentinel's activities caused TCE contamination of the soil and groundwater of Cheney Street's property. Plaintiffs sent notice of the suit to all their primary and excess general liability insurers on December 8, 1992.
Zurich sent plaintiffs a letter requesting more information so that Zurich could determine whether it had a duty to defend the lawsuits. Zurich reserved the right to dispute coverage pending the outcome of the investigation. All other insurers denied coverage. On February 17, 1994, plaintiffs filed this suit for a judgment declaring the insurers had a duty to indemnify them for any judgment in favor of Hester, Cheney Street or FDER. Plaintiffs also sought specific performance of the duty to defend.
The insurers filed a flurry of motions for summary judgment, most insurers joining motions other insurers filed. All insurers moved to dismiss the complaint for coverage related to the Hester suit on grounds of late notice. They supported the motion with documents showing that Sentinel employees knew of its potential liability for years before providing notice to the insurers.
In their response plaintiffs argued that the court should find Zurich estopped from raising late notice as a defense to coverage because Zurich did not take over defense of the lawsuits and it did not file an action for a judgment declaring that it had no duty to defend. Zurich alleged that plaintiffs failed to answer the request for information that would have allowed Zurich to determine whether it had a duty to defend. The court did not decide whether Zurich breached its duty to defend because it found that the alleged breach would not estop it from raising late notice as a defense to coverage.
Plaintiffs admitted that by May 1990 Sentinel knew that Exxon, which owned neighboring property, had retained an environmental consultant, and after that consultant conducted tests, Exxon blamed Sentinel for petroleum contamination. On June 5, 1990, Sentinel contacted an attorney regarding the allegations of petroleum contamination, and Sentinel later retained an environmental consultant. Sentinel's consultant also found petroleum contamination, but it reported Exxon as the most likely source of the oil. The consultant acknowledged the possibility of contamination due to release of petroleum from a source on Sentinel's property, for which Sentinel would be liable.
According to plaintiffs, in October 1990 Hester sent them a letter in which he "demanded *** $10 million" for his property. Hester said an environmental consultant found "leaked fuel has migrated" from Sentinel's tanks to his property. The resulting contamination hindered Hester's efforts to sell his property and caused banks to refuse to refinance his mortgage.
Sentinel responded that its environmental consultant found no evidence of leakage and did not support the Conclusion that Sentinel contaminated Hester's property. Sentinel concluded: "[W]e would consider institution of a lawsuit at this time against *** Sentinel *** to be premature and without merit."
In April 1991 Hester's attorney sent plaintiffs a draft of a complaint in which Hester sought damages from both Sentinel and Exxon for the petroleum contamination. Plaintiffs provided notice to none of their insurers, continuing to rely on their environmental consultant's report. The consultants still had not determined the source of the contamination, although they believed Sentinel was not a likely source. Even when Hester filed the long-threatened suit, in July 1992, plaintiffs did not immediately notify their insurers. They did not send notice until September 23, 1992.
In August 1996 plaintiffs settled Hester's suit, obtaining dismissal of the action and a covenant not to sue for any other possible contamination of Hester's property, in exchange for payment of $320,000.
After reviewing the extensive documents and arguments, the trial court held that plaintiffs had a duty to notify all their insurers of the potential lawsuit at least by April 1991, when they received the draft complaint from Hester's attorney. They breached that duty by failing to notify the insurers until September 1992. The court granted all insurers summary judgment on all claims related to Hester's lawsuit.
The trial court also granted INA and American summary judgment on grounds that the matching deductible policies imposed no duty to defend or indemnify plaintiffs. The court found no reason to delay enforcement or appeal from the orders for summary judgment.
On appeal from summary judgment for INA, plaintiffs argue that the fronting policy is ambiguous and therefore the court should construe it to require INA to pay for defense of lawsuits against plaintiffs. Plaintiffs concede that INA has no duty to indemnify them for their ...