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ILLINOIS MINE SUBSIDENCE INSURANCE FUND v. PEABODY COAL CO.

August 23, 2005.

ILLINOIS MINE SUBSIDENCE INSURANCE FUND, Plaintiff,
v.
PEABODY COAL COMPANY, a Delaware corporation, Defendant.



The opinion of the court was delivered by: RICHARD MILLS, Senior District Judge

OPINION

This case is before the Court on three motions for summary judgment. Plaintiff moves for summary judgment on its claims and on Defendant's first and second affirmative defenses; Defendant moves on all remaining claims.

  At the end of the day, Peabody Coal prevails. I. FACTUAL BACKGROUND

  Plaintiff Illinois Mine Subsidence Insurance Fund ("the Fund") has filed two different motions for summary judgment, one for the entry of summary judgment as to two of Defendant Peabody Coal Company's affirmative defenses. In its other motion, the Plaintiff alleges it is entitled to summary judgment as to its nine remaining claims for damages caused by mine subsidence and on Peabody's other affirmative defense. Peabody seeks the entry of summary judgment on all of the Fund's remaining claims.

  This all concerns nine properties which are listed as counts in the Fund's amended complaint: Count I (Abegglen); Count II (Adcock); Count III (Bartok); Count V (Dempsey); Count VI (G&S Enterprises); Count VII (Ladage); Count IX (O'Fallon Lumber); Count XII (Walter); and Count XIII (White).*fn1 The Fund is seeking damages on these nine counts for reinsurance reimbursements that it made to insurance companies which settled mine subsidence damage claims with their insureds in the cities of O'Fallon and Taylorville, Illinois. As subrogee, the Fund claims that it is entitled to damages from Peabody.

  A. General Background

  The Fund alleges it is generally recognized that St. Clair and Christian Counties, Illinois, are areas where greater than 1% of the land had been undermined by coal operators. O'Fallon is in St. Clair County and Taylorville is in Christian County. Accordingly, mine insurance must be included in policies insuring residential and commercial properties in these counties, unless waived by the property owner. See 215 ILCS 5/805.1. The Fund contends that in the early 1900's, mining was conducted in a "room and pillar" method by which blocks of unmined coal, called pillars, were left to support the roof of the mines and the surface property. Peabody asserts that this method involves the construction of one or more shafts into the earth, and then driving a main entry and submains creating passageways for the movement of coal and personnel. Coal is removed and these mined out areas become the "rooms." Not all of the coal is removed. The design and construction of a mine includes leaving pillars of coal and rock, which serve as the primary and permanent support for the overlying strata. The Fund contends that most modern subsidence problems and damage to surface properties are associated with this older room and pillar method of mining coal. However, Peabody alleges that room and pillar mining has not only been widely used and accepted throughout the twentieth century, but it is also the most common method of underground coal mining even today.

  Peabody also alleges that during the period in which the Fund contends that mining took place in this case, other improvements were required in connection with the construction and operation of an underground coal mine, including mechanical contrivances making up air ventilation, electrical circuitry for providing both lighting and electrical power, and devices for transport of both personnel and coal. In the open passageways and rooms, moreover, some type of secondary support would likely have been used, including timbers, cribbing, rails, bolts, blocking and backfill material. However, the exact type of secondary support which was used is unknown.

  The Mine Subsidence Insurance Act defines "mine subsidence" as "lateral or vertical ground movement caused by a failure initiated at the mine level, of man-made underground mines, including, but not limited to coal mines . . . that directly damages residences or commercial buildings." 215 ILCS 5/802.1(f). It does not include such movement caused by "earthquake, landslide, volcanic eruption, soil conditions, soil erosion, soil freezing and thawing, improperly compacted soil, construction defects, roots of trees and shrubs or collapse of storm and sewer drains and rapid transit tunnels." Id.

  The Fund alleges that mine subsidence sags may originate over places in mines where the coal pillars have disintegrated and collapsed, or where the pillars have settled into the relatively soft underclay that forms the floor of most mines. Sags can develop over mines of any depth. Peabody also contends that mine subsidence generally occurs because of pillar failure. The strength of the pillar may not be sufficient to carry the load. Moreover, Peabody notes that the pillars may deteriorate over the passage of time, because the pillars were not designed of sufficient size. Finally, there may be pillar failure because of unknown geologic conditions.

  In 1979, the Illinois General Assembly created the Illinois Mine Subsidence Insurance Fund as a reinsurer for mine subsidence insurance. See 215 ILCS 5/801.1. Premiums are collected by a property owner's insurer and paid to the Fund under a reinsurance agreement. See 215 ILCS 5/803.1(c); 810.1. The Fund alleges that upon notice by a property owner to its insurer of a possible subsidence claim, the insurer then requests that the Fund assist and determine if there is a valid mine subsidence claim. Geologists assigned by the Fund then conduct a causation investigation to eliminate non-mine subsidence earth movements and to determine if there is a valid mine subsidence claim. See 215 ILCS 5/802.1(f). If the Fund determines that the property is being damaged by active mine subsidence, the insurer is so notified and it must undertake its contractual obligation to adjust the subsidence loss claim with its insured. The Fund will assist the insurer by assigning a damage consultant to assist in determining the actual cash value of the subsidence loss.

  Upon satisfactory adjustment by the insurer of the property owner's claim, a request is made to the Fund for reinsurance reimbursement. This request is accompanied by documentation of the property owner's insurable interest and verification of mine subsidence insurance coverage. The Fund reimburses the insurer pursuant to the reinsurance agreement. Upon payment of the reinsurance subsidence loss to the insurer, the Fund acquires subrogation rights which it exercises in its own right as permitted by law. See 215 ILCS 5/815.1(b).

  The Fund alleges that its personnel then attempt to identify the coal company which undermined the property by plotting the surface location over coal maps of the area. After the coal mine operator has been determined, notice is sent to the company (if it is still in existence) seeking reimbursement of paid reinsurance claims. The coal company may not be legally liable if it has secured waivers from the surface owners who conveyed the mineral and coal rights to a coal company and allowed the extraction of coal without recourse for damage to the surface property. The Fund contends that if no waiver exists, the coal company was obliged to remove the coal without injury to the surface property.

  B. The Fund's Alleged Undisputed Material Facts in Support of its First Motion for Summary Judgment*fn2

  In support of its motion for summary judgment as to nine of its claims, the Fund alleges that in late summer 1999, Stephen K. Danner was assigned by the Fund as a geologist to conduct a causation investigation of five O'Fallon properties whose owners notified their insurance companies of a possible mine subsidence loss. Danner investigated each property claim and concluded that they were being damaged by active mine subsidence. Once mine subsidence damage had been confirmed, the Fund assigned a damage consultant to assist the insurer to determine the actual cash value loss to each insured's property.

  (1) O'Fallon Properties

  Regarding the Abegglen property, the Fund paid State Farm Fire & Casualty $166,900.00 (the maximum amount of coverage) as reinsurance reimbursement and obtained the right of subrogation against Peabody. As for the Adcock property, the Fund paid State Farm $100,300.00 as reinsurance reimbursement and obtained the right of subrogation. This was the maximum amount of coverage under the policy. Regarding the Bartok property, claim consultant B.E. Meredith determined that the actual cash value of the subsidence loss was $42,083.00. Following State Farm's payment to Bartok, the Fund paid State Farm $43,101.00 as reinsurance reimbursement and obtained the right of subrogation. After State Farm paid the Dempseys the maximum policy recovery of $131,300.00 as to their property, the Fund paid that amount to State Farm as reinsurance reimbursement.

  O'Fallon Lumber Company and Harper-Myer, Inc. were insured with Indiana Lumbermen Mutual Insurance Company for mine subsidence damage up to $200,000.00. Following Meredith's determination that the actual cash value of the subsidence loss exceeded that amount, Indiana Lumbermen paid O'Fallon Lumber and Harper-Myer the maximum policy recovery of $200,000.00. The Fund paid Indiana Lumbermen the same amount as reinsurance reimbursement and obtained the right of subrogation.

  The Fund alleges that Danner plotted the five aforementioned O'Fallon properties on an O'Fallon street map using each street address which was superimposed on a Sidwell plat map, and then transposed onto the Net 76 map which was overlaid on Peabody's St. Ellen final mine map of May 21, 1960. Each of the five O'Fallon properties had been undermined as shown on Peabody's final 1960 map. Peabody has admitted that the five O'Fallon properties were undermined by Peabody between 1957 and 1960. Anthony Kazda, Peabody's only witness, testified that these properties were likely undermined by Peabody after 1957. Moreover, Peabody has not made an independent appraisal or post-subsidence market valuation of the O'Fallon properties. Peabody has stipulated that the amounts claimed by the Fund in its amended complaint for the O'Fallon and Taylorville properties are uncontested.

  (2) Taylorville Properties

  The Fund contends that between February 1998 and June 2000, James Mahar of Geotechnical Consultants, Inc. was engaged as a geologist to conduct a causation investigation of the four Taylorville, Illinois properties whose owners notified their insurance companies of a possible mine subsidence loss. Mahar investigated each Taylorville property and concluded that each was being damaged by mine subsidence. Once mine subsidence was confirmed, the Fund assigned a damage consultant to assist the insurance company to determine the actual cash value loss to each insured's property.

  Regarding the Ladage property, claim consultant John A. Ronk determined the actual cash value of the subsidence loss at $40,822.57. Following Central Mutual Insurance Company's payment of $40,572.57 to the Ladages, the Fund paid Central Mutual the same amount as reinsurance reimbursement and obtained the right of subrogation. As for the Walter property, Meredith determined the actual cash value for the subsidence loss at $42,341.00. Following Illinois Farmer Insurance Company's payment to the Walters of $41,841.00, the Fund paid Illinois Farmer $38,365.34 and $3,476.00 as reinsurance reimbursement and obtained the right of subrogation. Ronk determined the actual value of the subsidence loss as to the White property at $18,478.57. After Cincinnati Insurance Company paid White $16,301.61 as full satisfaction of her claim, the Fund paid Cincinnati $1,574.79 and $14,726.82 as reinsurance reimbursement and obtained the right of subrogation. As for the G&S Enterprises property, Meredith determined that the actual cash value of the subsidence loss was $426,562.00. G&S Enterprises was insured with West American Insurance Company, a member of Ohio Casualty Insurance Group, for mine subsidence damage up to $350,000.00. Following West American's and Ohio Casualty's payment of $350,000.00 to Dan and Millie Garren (d/b/a G&S Enterprises), the Fund paid Ohio Casualty $350,000.00 as reinsurance reimbursement and obtained the right of subrogation.

  The Fund alleges that Peabody has made no independent cause and origin subsidence investigation for the White, Walter and Ladage properties. Peabody has no knowledge that these properties were undermined by a third party. Moreover, Peabody has not made an independent appraisal or post-subsidence market valuation of the Taylorville properties, including the G&S properties. Peabody has stipulated that the amounts claimed by the Fund in its amended complaint for these Taylorville properties are uncontested.

  The Fund alleges that its geologist, Allen Costello, has replotted the White, Walter and Ladage properties over Peabody Mine No. 58 and determined that each of the properties was undermined by Peabody.*fn3 These properties are located in Sections 21 and 22, Township 13 North, Range 2 West of the 3rd Principal Meridian. The Fund contends that on a Nat McFadden certified 1925 Springfield District Coal Mining Company Mine No. 58 map, there was no indication of coal mining in either Section 21 or 22. However, a Nat McFadden certified 1938 Peabody Mine Map No. 58 shows that the White, Walter and Ladage properties located in Sections 21 and 22 had been undermined. The Fund asserts that records of the State of Illinois Coal Reports identified the coal operator of Mine No. 58 as Peabody from 1924 to 1952.*fn4 Moreover, Peabody has presented no information that third parties had undermined the White, Walter and Ladage properties. The Fund alleges that G&S property located at 2101 West Spresser, Taylorville, Illinois is located in the southeast 1/4 of the northeast 1/4 of Section 32, Township 13 North, Range 2 West of the 3rd Principal Meridian. G&S was plotted on a November 14, 1914 Christian County Coal Company Mine No. 1 Map. This map disclosed that five rooms had been mined in Section 32. The G&S property is located some 250 feet from these five rooms and was not shown to be undermined on this 1914 map. Moreover, a 1916 surveyed map of Springfield District Coal Mining Company showed that there was no undermining of the G&S property. A 1925 map certified by Nat McFadden showed the property as having been specifically undermined. The Fund contends that the mining of the five rooms in the vicinity of the G&S property, some 250 feet north thereof, would not have caused the subsidence damage to G&S in June 2002 as determined by geologist Mahar and reported in his causation report. According to Mahar's report, the direction of the tilt vectors and the pattern of damage in the builders are in the opposite direction and away from the mining in the five rooms north of G&S Property. The Fund asserts that the records of the State of Illinois Coal Report for 1917-1925 indicate that Springfield District Coal Mining Company Mine No. 8 and Mine No. 58 were operational from 1917-1924. Thereafter, Peabody operated No. 58 from 1924 to 1952.*fn5

  (3) Peabody's Corporate History

  The Fund alleges that on April 12, 1915, James W. Murray acquired the coal rights from Christian County Coal Company to Coal Mine No. 1 located in Christian County, Illinois. Murray conveyed the same acquired coal and mineral rights from Christian County Coal Company to Joseph Solari on the same day of the conveyance to him.*fn6 Springfield District Coal Mining Company was incorporated as an Illinois corporation in November 1915 with corporate offices at 332 S. Michigan Avenue, Chicago, Illinois. Springfield District Coal Mining remained at that address, the same location as Peabody's corporate offices, until it dissolved in 1929. The Fund alleges ...


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