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Household International, Inc. v. Liberty Mutual Insurance Co.

March 02, 2001

HOUSEHOLD INTERNATIONAL, INC. PLAINTIFF-APPELLANT,
v.
LIBERTY MUTUAL INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; ALLSTATE INSURANCE COMPANY, AS SUCCESSOR IN INTEREST TO NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, FORMERLY KNOWN AS NORTHBROOK INSURANCE COMPANY, CENTURY INDEMNITY COMPANY, AS SUCCESSOR IN INTEREST TO INSURANCE COMPANY OF NORTH AMERICA, CENTURY INDEMNITY COMPANY, AS SUCCESSOR IN INTEREST TO CIGNA SPECIALTY INSURANCE COMPANY, FORMERLY KNOWN AS CALIFORNIA UNION INSURANCE COMPANY; AND CONTINENTAL INSURANCE COMPANY, AS SUCCESSOR TO CERTAIN POLICIES OF INSURANCE ISSUED BY HARBOR INSURANCE COMPANY, NOW KNOWN AS GREENWICH INSURANCE COMPANY, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. No. 96-CH-1521 Honorable Lester D. Foreman, Judge Presiding.

The opinion of the court was delivered by: Justice Theis

Not Released For Publication

HOUSEHOLD INTERNATIONAL, INC. PLAINTIFF-APPELLANT,
v.
LIBERTY MUTUAL INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; ALLSTATE INSURANCE COMPANY, AS SUCCESSOR IN INTEREST TO NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, FORMERLY KNOWN AS NORTHBROOK INSURANCE COMPANY, CENTURY INDEMNITY COMPANY, AS SUCCESSOR IN INTEREST TO INSURANCE COMPANY OF NORTH AMERICA, CENTURY INDEMNITY COMPANY, AS SUCCESSOR IN INTEREST TO CIGNA SPECIALTY INSURANCE COMPANY, FORMERLY KNOWN AS CALIFORNIA UNION INSURANCE COMPANY; AND CONTINENTAL INSURANCE COMPANY, AS SUCCESSOR TO CERTAIN POLICIES OF INSURANCE ISSUED BY HARBOR INSURANCE COMPANY, NOW KNOWN AS GREENWICH INSURANCE COMPANY, DEFENDANTS-APPELLEES.

Appeal from the Circuit Court of Cook County. No. 96-CH-1521 Honorable Lester D. Foreman, Judge Presiding.

The opinion of the court was delivered by: Justice Theis

Plaintiff, Household International, Inc. (Household), appeals from the orders of the circuit court granting summary judgment to certain defendant insurance companies and awarding them costs. Household sought declaratory relief and damages for the insurers' refusal to defend and indemnify it in connection with liabilities arising out of third-party environmental claims at several of its industrial sites. The circuit court held that certain defendants had no duty to defend and indemnify Household on the ground that it failed to provide timely notice of the claims as required by the policies. This court acquired jurisdiction to hear the matter pursuant to Supreme Court Rule 304(a). 155 Ill. 2d R. 304(a).

 While the matter was pending on appeal, Household settled with defendant Liberty Mutual Insurance Company (Liberty), the primary insurer. Accordingly, the remaining issues involve only those relating to the excess and umbrella liability insurers. Household contends that the court erred in applying New York law to some of these policies, that a genuine issue of material fact remains regarding the reasonableness of its notice, that defendants' late notice defense is defeated by principles of estoppel and waiver, and that defendants failed to establish that they were prejudiced by any alleged late notice. Additionally, Household asserts that the court abused its discretion in awarding costs to the prevailing defendants pursuant to section 5-109 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/5-109 (West 1998)). For the following reasons, we affirm in part, and reverse in part.

BACKGROUND

The underlying environmental claims at issue involve industrial sites in Newcomerstown, Ohio, and Fitchburg, Massachusetts, from 1965 to 1988. From 1965 to 1981, both facilities were owned and operated by the Simonds Cutting Tools Division of the Wallace-Murray Corporation (Wallace-Murray). Wallace-Murray was a subsidiary of the Dyson-Kissner- Moran Corporation (DKM). In 1981, Wallace-Murray, including the Simonds Cutting Tools Division, was acquired by Household. Household's ownership ended in 1988, when another entity, Simonds Industries, Inc., purchased both the Newcomerstown and Fitchburg facilities. However, Household retained responsibility for the environmental claims at both sites.

Between 1965 and 1988, Household and its predecessors purchased comprehensive general liability insurance policies from a variety of insurers for liabilities related to both the Newcomerstown and Fitchburg sites. The Home Insurance Company (Home) issued first-level excess coverage for the period 1967 to 1976 for liabilities in excess of $500,000 (policy Nos. HEC9556452, HEC9792118, and HEC4429253). The Highlands Insurance Company (Highlands) issued first-level excess coverage for the period 1976 to 1981 for liabilities in excess of $1 million (policy Nos. XS719899, XS205151, XS205929, XS206301, and XS206366), and issued high-level excess coverage for the period 1979 to 1981 for liabilities in excess of $16 million (policy Nos. SR20721 and SR21016). Allstate Insurance Company, as successor in interest to Northbrook Excess and Surplus Insurance Company, formerly known as Northbrook Insurance Company (Northbrook), issued high-level excess coverage for the period 1977 to 1981. These policies attached at various amounts including $5.5 million (policy No. 63002719), $16 million (policy No. 63007530), and $51 million (policy Nos. 63005718 and 63006289). Century Indemnity Company (Century), as successor in interest to Insurance Company of North America (INA), issued high level excess coverage for the period 1969 to 1975, for liabilities in excess of $5.5 million (policy No. XCP-3827) and $15.5 million (policy No. XCP- 3822). All of these policies were issued to Wallace-Murray as the named insured or to DKM, its parent corporation. Additionally, Century, as successor in interest to Cigna Specialty Insurance Company, formerly known as California Union Insurance Company (California Union), issued high-level excess coverage for the period 1980 to 1983 for liabilities in excess of $6 million (policy No. ZCX 00 4185) and $11 million (policy Nos. ZCX 00 6097 and ZCX 00 6414). Those policies were issued to Household as the named insured.

Although the notice provisions in the policies vary somewhat, they are essentially consistent for purposes of our review. The policies require the insured to give notice "as soon as practicable" in the event of an "occurrence" for which the insured may be held liable and which is " likely to involve" the policy. The Home, Northbrook and INA policies also contain a "savings clause" which provides:

" '[f]ailure to give notice of any occurrence which at the time of its happening did not appear to involve this policy but which, at a later date, would appear to give rise to claims hereunder, shall not prejudice such claim.' "

In addition to notice of an occurrence, the Highlands policies also require "immediate" notice of "claims" and "suits."

Newcomerstown site

Household and its predecessors manufactured steel files and other industrial tools at the Newcomerstown site. Historically, liquid effluents generated in connection with the manufacturing process were dumped into a ditch running from the plant directly into the nearby Tuscarawas River. In 1964 and 1967 two lagoons were constructed at the site to receive the effluent stream to prevent discharge directly into the adjoining river, and they were used as settling ponds to remove solid wastes. A series of ditches carried the wastewater from the plant into the lagoons.

The record establishes that in June 1982, the Ohio Environmental Protection Agency (OEPA) advised Household that its waste treatment and disposal practices in connection with the two on-site lagoons were in violation of federal and state hazardous waste regulations and required Household to inspect the lagoons for the presence of contaminants. The matter was referred to in-house counsel, who recognized that if the water or sediment or surrounding soil contained high levels of lead and/or trichloroethylene (TCE), the cost to remediate could be several hundred thousand dollars. As a result, outside counsel was retained to represent Household, and an environmental consulting firm was hired to test the lagoons for lead. While additionally aware of the possibility of cyanide, it did not mention this fact to OEPA "for fear [OEPA] would require [Household] to test for the possible presence of many, many compounds."

By November 1983, OEPA evaluated the testing and agreed that Household was in "apparent compliance" with Ohio hazardous waste regulations, "[a]ssuming that no hazardous waste enters the impoundments in the future." However, in 1986, OEPA required more comprehensive testing of the lagoons and other related areas of the site for compliance with the Clean Water Act (33 U.S.C. § 1251 et seq. (1986)). Household retained another environmental consulting firm to perform a wastewater characterization study. OEPA concluded, based on its review of the study, that the wastewater discharges from the manufacturing operations contained hazardous levels of lead and selenium and continued to be discharged into the lagoons. This testing contradicted the earlier information provided by Household in 1983 indicating that hazardous wastes were no longer being discharged.

In April 1987, Household received notification from the United States Environmental Protection Agency (USEPA) that it would be required to submit a closure plan to address the remediation of the lagoons. Household agreed to submit a closure plan and groundwater monitoring plan to assess whether there had been any release of contaminants to the groundwater and to what extent any migration had occurred. In July 1987, OEPA also required a written closure plan for the lagoons and advised Household that its facility was being classified as a "high priority violator" and that the case would be referred to OEPA's central office for "enforcement action." By July 1987, both federal and state environmental agencies were requiring Household to remediate the lagoons. Test results confirmed lead, cyanide, TCE, and Trichloroethane (TCA) were present in the sediment and water in the lagoons. Household's consultants estimated the cost to close the lagoons at $1.6 million. In December 1987, OEPA sent Household an administrative consent decree addressing violations at the site, including failure to adequately evaluate wastes produced by the facility. No agreement was entered into at that time.

In 1988, Household entered into negotiations with a third party to sell the Newcomerstown facility. An environmental consulting firm was hired to evaluate potential environmental liabilities at the site. The report confirmed that the groundwater was contaminated with TCA ,TCE and cyanide and identified other problems including an abandoned landfill that would also have to be remediated. The remediation cost for these problems was estimated to be between $4.4 million and $14.6 million. ...


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