Appeal from the Circuit Court of Cook County Hon. Loretta C. Douglas, Judge Presiding.
The opinion of the court was delivered by: Presiding Justice McBRIDE
Plaintiffs-appellants, Whitman Corporation (Whitman) and Pneumo Abex Corporation (Pneumo Abex) (collectively plaintiffs), appeal from the trial court's dismissal of counts III and IV of plaintiffs' third amended declaratory judgment complaint under section 2-615 of the Illinois Code of Civil Procedure. 735 ILCS 5/2-615 (West 1998). Defendants-appellees are Commercial Union Insurance Company (Commercial Union), Michigan Mutual Insurance Company (Michigan Mutual), *fn1 and United States Fire Insurance Company (U.S. Fire)(collectively the Insurers). In May of 1993, Pneumo Abex sold certain assets to B.F. Goodrich Company (BFG) in the form of facilities at four separate locations pursuant to an asset purchase agreement. The agreement included indemnification provisions, including special provisions pertaining to environmental liabilities, where the parties agreed to indemnify each other for certain environmental remediation expenses at the four site locations. On March 12, 1996, Pneumo Abex filed a complaint against BFG alleging that BFG had violated certain indemnity terms in the agreement. In response, BFG filed a counterclaim alleging that Pneumo Abex had breached the agreement by failing to indemnify it for environmental expenses at the site locations.
In plaintiffs' third amended complaint, plaintiffs alleged that the Insurers had an obligation to defend them against the counterclaim filed by BFG under several policies issued to the plaintiffs by the Insurers. According to plaintiffs, the Insurers' failure to defend amounted to a breach of the policies and resulted in defense costs incurred by plaintiffs in the amount of $1,953,186. The Insurers field a motion to dismiss plaintiffs' third amended complaint for declaratory judgment which was granted by the trial court on October 10, 2000.
The trial court's primary ground for dismissal was that the allegations in the BFG counterclaim arose out of the alleged breach of the asset purchase agreement and did not amount to property damage caused by an "occurrence" as defined in the policies issued by the Insurers. As a result, it found that the allegations in the counterclaim did not fall within or potentially within the policies' coverage for environmental contamination or property damage. The trial court further found that "plaintiffs" failed to precisely allege when the damage, for which BFG sought reimbursement, occurred.
We first review whether the trial court properly granted the Insurers' motion to dismiss on the grounds that the allegations in the BFG counterclaim did not amount to property damage caused by an "occurrence" under the policies and therefore did not fall within or potentially within the policies' coverage. We state the following additional facts.
The Insurers provided primary general liability and umbrella insurance coverage to Cleveland Pneumatic Company through 46 separate policies that were collectively effective from December 1, 1960, to February 1, 1985. The policies contained similar language with regard to coverage. Specifically, the policies stated:
"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of *** property damage *** to which this policy applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the Insured seeking damages on account of such *** property damage."
An "occurrence," as defined in the policies, "means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."
Cleveland Pneumatic was a subsidiary of Pneumo Dynamics Corporation, which was subsequently named Pneumo Corporation. Cleveland Pneumatic owned or leased and operated several facilities at four sites: two of which were located in Cleveland, Ohio; one in Tullahoma, Tennessee; and one in Miami, Florida, respectively. In 1984, Whitman acquired Pneumo Corporation, which remained a wholly owned subsidiary of Whitman until August 28, 1988. Pneumo Abex is a successor to Pneumo Corporation. The record reveals that a stock purchase agreement (SPA) existed as part of the financial relationship between Pneumo Abex and Whitman.
On May 15, 1993, Pneumo Abex sold the Cleveland Pneumatics assets, including the four sites identified above, to BFG pursuant to an asset purchase agreement. The agreement included indemnification provisions, including special provisions pertaining to environmental liabilities, whereby each party agreed to indemnify and hold the other party harmless for certain environmental liabilities. "Environmental Liabilities" were defined in the agreement as:
"Losses or expenses incurred for response and compliance measures undertaken as a result of Environmental Laws and relating to the ownership of the Purchased Assets or operation of the Purchased Business. 'Environmental Laws' are in turn defined as those laws and ordinances pertaining to the environment as in effect on the closing date of the Agreement."
The agreement further required both parties to acknowledge the SPA between Pneumo Abex and Whitman. As part of the asset purchase agreement, BFG received a copy of the SPA and was to comply with the SPA and the asset purchase agreement's indemnification provisions so that Pneumo Abex could in turn be indemnified by Whitman for certain environmental remediation expenditures.
On March 12, 1996, Pneumo Abex filed a complaint against BFG (Pneumo complaint) alleging that BFG violated certain indemnity terms of the asset purchase agreement. In it, Pneumo Abex claimed that BFG sought indemnification for environmental expenses that were outside the scope of the agreement. Specifically, Pneumo Abex alleged that BFG attempted to shift to Pneumo Abex the obligation to pay for a wide array of expenses associated with environmental activities that BFG had chosen to incur voluntarily and that were beyond the scope of "covered losses" enumerated in the indemnification provisions of the agreement.
Further, according to Pneumo Abex, BFG failed to notify it of environmental claims with reasonable promptness and specificity as required under section 13.5 of the asset purchase agreement. In particular, section 13.5 of the agreement, which governed indemnification between the parties for certain environmental liabilities, required that either party, upon becoming aware of any environmental claim, was to notify the other party with reasonable promptness and reasonable specificity.
Pneumo Abex claimed that, in 1994, it began receiving communications from BFG vaguely describing various environmental conditions discovered at the Miami, Tullahoma, and Cleveland facilities. Beyond these vague communications, Pneumo Abex alleged that BFG failed to provide reasonable advance notice or an opportunity to monitor and/or consult on all proposed actions and failed to provide reasonable specificity of its claims in violation of the agreement. Specifically, Pneumo Abex alleged that BFG: (1) failed to provide it with proposed work plans, draft reports, consultant correspondence, or work schedules so that field and sampling activities could be monitored by Pneumo Abex; (2) failed to advise or consult with Pneumo Abex concerning the anticipated selection of possible consultants; (3) withheld consultant's invoices and other invoices related to the claimed activities, risk assessment reports, data, and results of other remediation studies; and (4) supplied Pneumo Abex with information that was inconsistent and outdated.
The Pneumo complaint alleged that BFG sent Pneumo Abex letters on August 25, 1994, and October 27, 1994. The August 25, 1994, letter concerned a situation at the Miami facility regarding environmental permits but stated that the letter was "preliminary to any formal notification" for indemnification under the agreement. The October 27, 1994, letter contained a summary of the results of BFG's environmental reviews at the Cleveland and Tullahoma facilities for which BFG sought costs to be shared under the agreement. However, Pneumo Abex alleged that the letter failed to explain the basis for BFG's belief that these remedial procedures were indemnifiable claims under the agreement.
The Pneumo complaint further alleged that Pneumo Abex requested in writing that BFG provide information relating to matters on which BFG sought indemnity. It informed BFG that, under the agreement, BFG could not pursue indemnification claims where advance notice had not been provided to Pneumo Abex. The Pneumo complaint claimed that, in response, BFG failed to provide Pneumo Abex with the required information, and furnished only limited information, all of which was provided months after the activities had been completed. According to Pneumo Abex, BFG's deliberate violation of the agreement prejudiced Pneumo Abex by, among other things, "precluding Pneumo Abex from monitoring BFG's activities and/or from consulting with respect to actions taken." In a letter dated February 1, 1995, Pneumo Abex reiterated its concerns that BFG had disregarded the indemnification procedures outlined in the agreement and specifically requested that BFG specify any indemnification claims under the agreement. Four months later, BFG responded with a letter notifying Pneumo Abex of an alleged obligation to indemnify BFG for all investigative work performed to date and for all identified contamination, regardless of the cause or source or legal obligation. Pneumo Abex responded with two letters communicating that it could not acknowledge or disclaim any indemnification obligations without being supplied with the information contemplated by the agreement. On November 3, 1995, BFG responded stating that it had supplied sufficient information necessary to satisfy the terms of the agreement. In response to another letter from Pneumo Abex requiring more information, BFG sent a letter demanding payment in the amount of $130,349.65.
Also in the Pneumo complaint, Pneumo Abex claimed that BFG's actions threatened its ability to seek indemnification from Whitman under the SPA. Section 13.5(f) of the agreement provided, in pertinent part: "Buyer and Seller at all times shall use their reasonable best efforts to comply with the procedures of the SPA and to reasonably cooperate with each other in obtaining the benefit of any Whitman obligations under the SPA."
On the above grounds, the Pneumo complaint sought five forms of relief: (1) a declaration that the agreement between Pneumo Abex and BFG was a valid and existing contract, that Pneumo Abex had performed all of its existing obligations under the agreement, that an actual dispute existed as to whether BFG had failed to fulfill its obligations under the indemnification provisions under the agreement, and that as a result of BFG's breach, it had no obligations under the agreement to indemnify BFG for any money it sought in connection with environmental liability; (2) a declaration that an actual dispute existed as to whether Pneumo Abex had an obligation to indemnify BFG until BFG fulfilled its obligations under the agreement and a determination whether such environmental liabilities were covered by the agreement; (3) a declaration that BFG materially breached the asset purchase agreement; (4) a declaration of repudiation of the asset purchase agreement; and (5) a declaration that BFG breached the covenant of good faith and fair dealing by failing to notify Pneumo Abex with reasonable promptness and reasonable specificity of indemnification claims under the agreement.
On April 1, 1996, BFG filed a counterclaim against Pneumo Abex. The parties agree that the allegations of the counterclaim are the sole grounds upon which the duty to defend could arise in this case. BFG's counterclaim stated that Pneumo Abex agreed to indemnify and hold BFG harmless under section 13.5(b) of the asset purchase agreement. It also alleged that, under section 13.5(e) of the agreement, the parties would each bear 50% of the environmental liabilities until the total amount of those liabilities reached $14 million. BFG further claimed that, based upon environmental investigations conducted at all four sites, contamination had occurred which exceeded human health and environmental protection standards. It stated that these conditions were attributable to events that occurred prior to BFG's current "stewardship" of the facilities. BFG argued that its expenditures all constituted environmental liabilities for which Pneumo Abex had agreed to indemnify it under section 13.5 of the asset purchase agreement. The counterclaim further alleged that BFG had complied with all conditions of section 13.5 and that it had properly and timely notified Pneumo Abex of the environmental conditions at the four sites and of BFG's costs incurred in connection with remediating those conditions.
For its relief in the counterclaim, BFG sought a declaration that the agreement constituted a valid and existing contract between it and Pneumo Abex and also that BFG and Pneumo Abex had an actual dispute over whether Pneumo Abex had an obligation under the agreement to indemnify BFG for costs "it [had] incurred to date, [and expected] to incur in the future, in connection with Environmental Liabilities, in accordance with the indemnity provisions of the Agreement." BFG also sought a declaration that BFG had fulfilled its obligations under the agreement, that Pneumo Abex had failed to fulfill its obligations under the indemnification provisions of the agreement, and that Pneumo Abex's failure to fulfill its obligations under the agreement constituted a material breach of contract with regard to environmental liabilities incurred by BFG. BFG also sought a declaration that Pneumo Abex's action constituted a wrongful repudiation of its obligations under the agreement with regard to environmental liabilities incurred by BFG. Finally, BFG sought a declaration that Pneumo Abex ...