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Kim v. State Farm Fire and Casualty

March 24, 2000

MOON AND SUE KIM D/B/A ORIENTAL CLEANING COMPANY, PLAINTIFFS-APPELLANTS,
V.
STATE FARM FIRE AND CASUALTY COMPANY, AND STATE FARM GENERAL INSURANCE COMPANY, D/B/A STATE FARM INSURANCE COMPANIES, DEFENDANTS-APPELLEES



The opinion of the court was delivered by: Justice O'brien

Appeal from the Circuit Court of Cook County

Honorable Ronald C. Riley, Judge Presiding.

Plaintiff, Oriental Cleaning Company (the cleaning company), sought a declaratory judgment that an insurance policy issued to it by defendant, State Farm Insurance Companies (State Farm), covered losses incurred when one of the cleaning company's dry cleaning machines released a chemical, tetrachloroethane (perc), into the environment. The circuit court granted State Farm's motion for judgment on the pleadings, finding there was no coverage under the policy. The cleaning company appeals.

On appeal, the cleaning company contends : (1) the circuit court erred in finding that the absolute pollution exclusions preclude coverage; and (2) the insurer breached its duty to defend and is estopped from raising the exclusions as defenses to coverage. We affirm.

The cleaning company leases property at 1730 West Fullerton Avenue, where it operates a dry cleaning and laundry store. One of the cleaning company's dry cleaning machines malfunctioned, releasing perc onto the floor and into the soil underneath the property. Later, the cleaning company was sued twice by the managing agent for the property's owner, Centrum Properties, Inc. (Centrum). The first lawsuit alleged the cleaning company had breached its lease by permitting perc to be released; the second lawsuit sought injunctive relief and damages, including the cost of removing the perc.

The cleaning company notified State Farm of the lawsuits and then settled the lawsuits, agreeing to take responsibility for 75% of the remediation costs. State Farm subsequently denied coverage for the settlement.

The cleaning company then filed a declaratory judgment action seeking a declaration that State Farm breached its duty to defend and indemnify. The circuit court granted judgment on the pleadings for State Farm, finding there was no coverage under the policy's pollution exclusions. The cleaning company appeals.

Our review of the circuit court's order granting State Farm's motion for judgment on the pleadings is de novo. Chicago Title & Trust Co. v. Steinitz, 288 Ill. App. 3d 926, 934 (1997). A motion for judgment on the pleadings is akin to a motion for summary judgment limited to the pleadings. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 138 (1999). On review, we examine the pleadings to determine whether any genuine issue of material fact exists and, if not, whether the prevailing party was entitled to judgment as a matter of law. Ehlco, 186 Ill. 2d at 138; Steinitz, 288 Ill. App. 3d at 934. In determining whether judgment on the pleadings for State Farm is proper, we construe the insurance policy at issue. Our construction of the insurance policy is also de novo. American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997).

First, the cleaning company argues for coverage under the policy's "Business Liability" section. Second, the cleaning company argues for coverage under the policy's "Property Damage Legal Liability" section. Third, the cleaning company argues that State Farm breached its duty to defend and is estopped from raising policy defenses. I. The Business Liability Section

The Business Liability section states in relevant part:

"We will pay those sums that the insured becomes legally obligated to pay as damages because of *** property damage ***."

The cleaning company contends that the discharge of the perc into the land beneath its dry cleaning and laundry store constituted covered "property damage." However, the Business Liability coverage grant is subject to the so-called "absolute pollution exclusion." The absolute pollution exclusion states that the insurance does not apply to any:

"a. property damage *** arising out of the actual, alleged or threatened discharge, seepage, migration, dispersal, spill, ...


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