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Central Illinois Light Co. v. Home Insurance Co.

August 07, 2003

THE HOME INSURANCE COMPANY, DEFENDANT-APPELLEE/CROSS APPELLANT, CERTAIN UNDERWRITERS AT LLOYDS LONDON, INCLUDING BUT NOT LIMITED TO THE THE FOLLOWING SYNDICATES: 3, 6, 7, 10, 12, 15, 16, 17, 21, 23, 25, 27, 30, 33, 35, 36, 38, 42, 46, 49, 53, 55, 56, 57, 59, 60, 64, 65, 68, 69, 75, 76, 79, 83, 84, 86, 88, 90, 108, 109, 110, 112, 122, 129, 130, 132, 133, 134, 138, 142, 144, 151, 160, 163, 164, 165, 169, 174, 175, 179, 188, 194, 198, 204, 208, 210, 211, 212, 213, 214, 215, 216, 217, 219, 220, 221, 223, 227, 231, 232, 235, 235A, 238, 241, 250, 253, 254, 272, 276, 278, 279, 286, 289, 297, 299, 300, 301, 306, 309, 311, 315, 316, 317, 322, 328, 330, 334, 342, 347, 357, 360, 365, 370, 371, 372, 373, 375, 399, 401, 404, 405, 416, 417, 420, 425, 427, 433, 440, 442, 453, 458, 462, 463, 465, 470, 472, 474, 475, 476, 479, 484, 490, 495, 496, 499, 507, 509, 510, 514, 515, 516, 517, 520, 523, 526, 527, 534, 535, 538, 539, 543, 544, 545, 552, 555, 556, 557, 558, 568, 576, 579, 581, 583, 535, 589, 590, 592, 604, 610, 612, 618, 619, 620, 621, 623, 625, 629, 632, 633, 634, 650, 651, 652, 656, 659, 660, 665, 670, 672, 677, 679, 684, 695, 707, 710, 711, 713, 719, 724, 726, 727, 729, 746, 748, 749, 750, 752, 755, 761, 762, 763, 765, 767, 768, 770, 771, 772, 773, 783, 788, 791, 793, 795, 796, 797, 819, 828, 830, 837, 838, 845, 846, 848, 849, 851, 852, 857, 860, 864, 867, 868, 870, 872, 878, 884, 887, 896, 898, 899, 900, 902, 905, 908, 909, 910, 916, 917, 918, 924, 947, 949, 60, 964, 969, 970, 971, 972, 975, 976, 987, 989, 990, 991, 998, 999, INCLUDING DOES 1-1000, CITIZENS OF ILLINOIS WHO ARE OR HAVE BEEN MEMBERS OF THE SYNDICATES LISTED ABOVE; AND CERTAIN LONDON MARKET INSURANCE COMPANIES, INCLUDING BUT NOT LIMITED TO: ACCIDENT & CASUALTY INSURANCE COMPANY, ALBA GENERAL INSURANCE COMPANY, ANGLO-FRENCH INSURANCE COMPANY, ASSICURANZIONI GENERALI, CITY & GENERAL INSURANCE COMPANY, CASUALTY FIRE & AVIATION UNDERWRITERS, LTD., COMPAGNIE EUROPEENE D'ASSOC. INDUSTRIELLE, DOMINION INSURANCE COMPANY LTD., ELVIA INSURANCE COMPANY EXCESS INSURANCE COMPANY LTD., GENERALI, GIBBON, HELVETIA ACCIDENT SWISS INSURANCE COMPANY LTD., HOME AND OVERSEAS INSURANCE COMPANY, INSURANCE CORP. OF IRELAND, LONDON & EDINBURG INSURANCE COMPANY LTD., MINSTER, NATIONAL CASUALTY, NATIONAL CASUALTY DETROIT, NATIONAL CASUALTY AMERICA, PRUDENTIAL INSURANCE COMPANY, RIVER THAMES INSURANCE COMPANY LTD., SOVEREIGN MARINE & GENERAL INSURANCE COMPANY LTD., SPHERE DRAKE INSURANCE PLC, ST. KATHERINE INSURANCE COMPANY PLC, ST. KATHERINE INSURANCE COMPANY LTD., STRONGHOLD, SWISS UNION, TOWER, TUREGUM INSURANCE COMPANY, WILLIS FABER SWISS INSURANCE COMPANY, WINTERTHUS INS. CO., WORLD AUXILIARY INSURANCE CORPORATION LTD., YASUDA FIRE & MARINE INSURANCE COMPANY (UK) LTD., DEFENDANTS-APPELLEES/CROSS APPELLANTS.

Appeal from the Circuit Court of the 10th Judicial Circuit, Peoria County, Illinois, Honerable Rebecca R. Steenrod and David J. Dubicki, Judges, Presiding. No. 97-MR-197

Holdridge and Lytton, J.J., concur.

The opinion of the court was delivered by: Justice Slater


The plaintiff, Central Illinois Light Company ("CILCO"), brought this action seeking indemnification under comprehensive liability policies issued between 1948 and 1985 by the defendants, the Home Insurance Company ("Home") and Certain London Market Insurers ("CLMI"), for environmental liabilities at three former manufactured gas plants ("MGPs"). The defendants filed nine motions for summary judgment and partial summary judgment. The trial court granted five of those motions. The plaintiff is appealing the trial court's order granting three of those motions. The defendants have cross-appealed the trial court's denial of three summary judgment motions filed by them. We affirm in part and reverse in part the orders of the trial court.


A. Background

1. The MGP Sites

The environmental liabilities at issue in this case arose at three former MGP sites in Illinois: MacArthur Boulevard in Springfield ("MacArthur"), First and Washington Streets in Springfield ("First and Washington") and Persimmon Street in Peoria ("Persimmon") (collectively, "the MGP sites"). Gas was manufactured at these sites from the 1850s until the 1930s, using both coal carbonization and carbureted water gas processes. One of the main by-products of both gas making processes was tar, which was extracted, stored and sold at each of the MGP sites. Various tar containment structures were used at the sites. Generally, these containment structures were built underground out of masonry, concrete or metal. After natural gas pipelines were developed in the mid-1900s, MGPs began to be dismantled. CILCO dismantled the First and Washington MGP in the late 1920s and the Persimmon and MacArthur MGPs in the early 1950s. During the dismantling process, the covers of the structures were removed and the tar was extracted and sold. However, not all of the tar could be removed. Significant amounts of tar remained in the structures, which were then filled with building debris or other materials. Over time, the underground containment structures leaked tar into the soil. Those leaks were caused by a myriad of reasons, including cracks, breaks, seismic shifts, vibrations from traffic, precipitation, changes in groundwater levels and flooding. The leaking of this tar and other tar-related constituents has caused soil and groundwater contamination. CILCO has spent over $5 million to investigate, remediate and mitigate environmental property damage, including soil and groundwater contamination, at and around these MGP sites. CILCO claims that the property damage occurred at the MGP sites throughout the period of the defendants' policies.

2. Investigation and Clean Up at the MGPs

In 1985, after reviewing a report from the Environmental Protection Agency regarding possible environmental contamination at some MGP sites, CILCO learned that it owned the former MGP sites at issue in this case. In 1985 and 1986, CILCO visually inspected the former MGP sites but did not observe any evidence of contamination. In September 1986, workers found discolored and odorous soil at the MacArthur site. CILCO began a Phase I environmental investigation at the site. A preliminary investigation report was issued in April 1987 and concluded that tar constituents were present in the soil.

Thereafter, the Illinois Environmental Protection Agency (IEPA) held a meeting with the environmental department managers for Illinois utility companies, including CILCO. At that meeting, CILCO learned about the potential environmental contamination at hundreds of former MGPs throughout Illinois.

In 1987, the IEPA entered into an agreement with CILCO whereby CILCO would enroll the MGP sites in the IEPA's Pre-Notice Site Cleanup Program ("Pre-Notice Program") and investigate and remediate, if necessary, the MGP sites one at a time. When CILCO enrolled in the Pre-Notice Program, the work at the MGP sites became subject to specific IEPA guidelines and instructions on how to proceed. The IEPA regularly reviewed, commented upon, and approved the work plans and reports prepared by CILCO. CILCO did not proceed with remediation until the IEPA had approved the work plans. Additionally, the IEPA regularly sent invoices to CILCO for "oversight costs", i.e., the time spent by IEPA employees in overseeing the investigation and remediation work. The Pre-Notice Program was replaced in 1995 by the Site Remediation Program, which also provided for voluntary cleanup of certain types of sites with IEPA oversight. Pursuant to the Pre-Notice Program, CILCO began a Phase II investigation of the MacArthur site between 1988 and 1989. Groundwater contamination at this site was discovered in 1989. CILCO submitted a remedial action work plan to the IEPA in 1990. That plan was approved, and work at the MacArthur site was completed in 1991.

In 1991, CILCO began investigating the Persimmon site. In 1992, the preliminary investigation of the Persimmon site concluded that there was a high probability of contamination at the site. Remedial investigation/feasibility study work and field sampling plans for the Persimmon site were completed and submitted to the IEPA in September 1992. In 1993, CILCO acknowledged that contamination existed at the site. The IEPA approved CILCO's work plan for further site investigation. Cleanup of that site was completed in 1998.

The IEPA sent "No Further Action" letters for the MacArthur and Persimmon sites in 1999 and 2000, respectively. Those letters stated that CILCO was released from further responsibilities under the Illinois Environmental Protection Act. *fn1 415 ILCS 5/1 et seq. (West 2002).

3. The Vector-Springfield Litigation

In June 1989, CILCO was advised by the developer of property adjacent to the First and Washington site that its property, located at First and Adams, was contaminated. CILCO later received a copy of an investigation report prepared by Hanson Engineers which stated that constituents of tar had been found in soil and groundwater at the First and Adams property. CILCO met with the developer in 1989 and 1990, but CILCO did not agree with the developer's proposals. In 1994, Vector-Springfield, the owners of the First and Adams property, threatened CILCO with a lawsuit, which was ultimately filed. The suit was eventually dismissed on statute of limitations grounds. CILCO expended approximately $350,000 in defending that lawsuit. No judgment was entered against CILCO, and no settlement payment was made to Vector-Springfield.

B. The Insurance Policies

Between 1948 and 1985, CLMI and Home issued a series of occurrence-based comprehensive liability policies which provide coverage for sums that CILCO becomes liable to pay with respect to occurrences of property damage. It is the wording of these policies that is at issue in this case.

1. The Home Policies

We initially note that CILCO did not bring suit against Home with respect to the MacArthur site. Therefore, Home is potentially liable only for the costs associated with the Persimmon site.

Home issued one first-layer excess policy to CILCO and two second-layer excess policies. Home Policy No. HEC 9 30 46 82 ("Home I"), effective May 31, 1968 to September 30, 1968, states that it follows the form of an underlying CLMI excess policy. Home I's coverage was for 10% of a $4,000,000 layer that attached in excess of $1,000,000. The trial court dismissed Home I because the underlying CLMI policy was missing.

Home Policy No. HEC 9 30 46 83 ("Home II"), effective September 30, 1968, to October 31, 1971, follows the form of an underlying CLMI excess policy effective between 1968 and 1971. Home II's coverage was 10% of a $4,000,000 layer that attached in excess of $1,000,000.

Home Policy No. HEC 4 16 58 35 ("Home III") is a first-layer excess indemnity policy, effective October 31, 1971, through September 3, 1974, that sits above a $100,000 self-insured retention. The relevant terms and conditions of Home III are as follows:


I. The Company agrees to indemnify the Named Insured for ultimate net loss in excess of the retained limit hereinafter stated which the Named Insured may sustain by reason of the liability imposed upon the Named Insured by law or assumed by the named Insured under contract or agreement, for damages . . . caused by an occurrence as defined herein.

III. Limit of Liability - Retained Limit The Company's limit of liability shall be only for the ultimate net loss in excess of $100,000.00 as a result of any one occurrence . . and then only up to an amount exceeding $1,000,000.00 for such occurrence . . . There is no limit to the number of occurrences for which claims made be made hrerunder [sic], provided such occurrences begin during the policy period."



(C) "Ultimate Net Loss" means the sum actually paid in cash in the settlement or satisfaction of losses for which the insured in liable, either by adjudication or compromise with the written consent of the company, after making proper deductions of all recoveries, (other than recoveries from underlying insurance purchased by or in [sic] behalf of the insured), and salvages collectible, and shall include all adjustment expenses arising from the settlement of claims, other than salaries of employees and office expenses of the insured, but shall exclude legal expenses. Nothing herein contained shall be construed to mean that the insured shall be required to enforce by legal action any rights of subrogation before the company shall pay any loss for which it may be liable hereunder. Except as provided in Condition G, legal expenses (including attorneys' fees, court costs and interests on any judgment or award) incurred with the consent of the company shall be apportioned in proportion to the respective interests as finally determined.


In the event of an occurrence which may involve liability on the part of the company, the company shall, except in the case of appeal, or as provided in Condition L, contribute to the legal expenses in the proportion that its share of the loss, as finally settled, bears to the total sum payable. Where multiple claims result from the same occurrence, apportionment of such expenses between the insured and the company will be made at the time of settlement of the first claim for which the company is liable under the contract and on each subsequent claim resulting from the same occurrence, reapportionment of legal expenses incurred to that time will be made, to the end that the insured will not be required to advance the entire legal expenses without reimbursement until the final claim is disposed of.

2. The CLMI Policies

In its complaint, CILCO names 72 alleged CLMI excess policies spanning the years 1948 until 1985. CILCO has not produced any policy wording for the pre-1957 policies or for several other post-1957 policies. In the 1957 policies through 1971 policies, CLMI agreed:

"to indemnify [the insured] for any and all sums which the Insured shall by law become liable to pay and shall pay or by final judgment be adjudged to pay, or which by agreement between the Insureds and the Underwriters, or their representatives shall be paid to any person, firm . . . as damages for personal injuries . . . or damage *fn2 to property (excluding damage to property owned by the Insured) by reason of an occurrence resulting from the Insured's . . . ownership, maintenance, operation, use of or liability for properties of all kinds and nature . . ."

For the lower layer policies after 1979, CLMI agreed, subject to all terms, conditions, exclusions and limitations of ...

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