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Scottsdale Indemnity Co., et al. v. Village of Crestwood

March 24, 2011

SCOTTSDALE INDEMNITY CO., ET AL. PLAINTIFF,
v.
VILLAGE OF CRESTWOOD, ET AL. DEFENDANT.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Scottsdale Indemnity Company ("Scottsdale") and National Casualty Company ("National") (together, "the Insurers") sued the Village of Crestwood, Illinois ("the Village") its former mayor Chester Stranczek, its current mayor Robert Stranczek, and its former water operator Frank Scaccia (together with the Village, "the Crestwood Defendants"), a number of individual defendants allegedly harmed by the Crestwood Defendants' conduct (collectively, "the Earley Defendants") and the Attorney General of the State of Illinois ("the Attorney General") seeking a declaration that, under various insurance policies, the Insurers owe no defense or indemnity to the Crestwood Defendants in over two dozen underlying lawsuits. Except Saccia, the Crestwood Defendants brought a counterclaim against the Insurers, alleging that they are in entitled to a defense and indemnity, and that the Insurers breached the policies at issue. The Crestwood Defendants also seek their attorneys' fees and damages under Section 155 of the Illinois Insurance Code.

This coverage dispute arises out of allegations that the Crestwood Defendants delivered contaminated tap water to Village residents. Specifically, the underlying complaints allege that in or around 1986, the State of Illinois informed the Village that one of the tap water wells it owned was contaminated with perchloroethylene ("PCE"), which breaks down into the chemicals vinyl choride and dichloroethylene ("DCE"). Some of the underlying complaints allege that the contamination came from a dry cleaner near the well. The underlying complaints further allege that the contamination in the water caused, and will continue to cause, death, cancer and other serious illnesses.

The Insurers and Crestwood Defendants filed cross motions for summary judgment on the issue of whether the Insurers have a duty to defend the Crestwood Defendants in the underlying suits. Specifically, the Insurers assert they have no duty to defend under various policy exclusions, including the "pollution exclusion." The Insurers also seek summary judgment on the counterclaims, arguing that if they have no duty to defend the Crestwood Defendants, they have no duty to indemnify, either, and they did not act "unreasonably or vexatiously" as a matter of law. The Crestwood Defendants contend that none of the exclusions apply and that the suits fall squarely within the policies at issue. The parties do not have material fact disputes. For the reasons detailed below, the Court grants the Insurers' motion for summary judgment, dismisses the Crestwood Defendants' counterclaim, and enters final judgment for the Insurers.

I. FACTS

A. The Underlying Complaints and Attorney General Action

The underlying claimants have filed a series of over two dozen lawsuits in the Circuit Court of Cook County, Illinois against one or more of the Crestwood Defendants, among other parties. (See Docs. 1, 61, 93, 120, 183, and 212, Exs. A-G, I, FF-BBB; Pl. 56.1 Resp. ¶¶ 13-49, Def. 56.1 Resp. ¶¶ 11-50.) Some of the suits are brought on behalf of large classes of people, including all residents of the Village and everyone exposed to the allegedly contaminated water, while others are individual suits for damages. Though the underlying complaints differ slightly in the claims brought and, in some instances, proposed class definitions, they uniformly allege a version of the following facts material to the Court's coverage determination. First, they allege that the State of Illinois told the Village in 1985 or 1986 that the well was contaminated, and the Village promised the state regulators that the Village would buy water from Lake Michigan, using the well only for emergency purposes. According to the complaints, however, the Village continued to use the contaminated water in a cost-cutting move, until federal regulators shut the well down for good in 2007. Finally, some of the complaints allege that a dry cleaning business contaminated the well with PCE, DCE, and vinyl chloride. The underlying complaints seek tort damages for health problems and even deaths caused by exposure to the contaminated water, and some also bring contract claims seeking a refund of the money paid for the water. Several of the complaints cite an April 2009 article in the Chicago Tribunereporting many of the common facts alleged in the underlying complaints. See Michael Hawthorne, Crestwood Officials Cut Corners and Supplied Residents With Tainted Water for 2 Decades, Chicago Tribune, April 19, 2009, at C1.

In addition, the Attorney General filed an enforcement action on behalf of the People of Illinois (Doc. 1, Ex. H) against the Crestwood Defendants in the Circuit Court of Cook County, making detailed allegations concerning the contaminated well and the Crestwood Defendants' knowledge of that contamination. Those allegations track the allegations made in the private suits. The Attorney General brings claims for filing false water quality reports with the State, for issuing false water quality reports to Village residents, for failing to test the well, for failing to supply safe water, and for other problems associated with the Village's tap water system. (Id.)

B. Relevant Terms of the Insurance Policies at Issue

1. Scottsdale's Primary Policies

Scottsdale issued to the Village a series of 11 single-year primary "Public Entity" policies between October 1, 1998 and October 1, 2009. (Def. 56.1 Resp. ¶ 51.) There is no dispute that the Village, the Stranczeks and Saccia are insureds under the policies. (Pl. Memo. at 5.) The 2008-2009 policy has the following coverage and exclusion:

We will pay on behalf of the insured all sums which the insured becomes legally obligated to pay as damages because of 'bodily injury,' 'property damage,' 'personal injury,' 'advertising' or 'employee benefits injury' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for bodily injury,' 'property damage,' 'personal injury,' 'advertising' or 'employee benefits injury' to which this insurance does not apply.

This Coverage Form does not apply to: . . .

Failure to Supply 'Bodily injury' or 'property damage' arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam. (Def. 56.1 Resp. ¶ 52.)*fn1 All 11 Scottsdale policies issued to the Village have the following "pollution exclusion":

This policy does not apply to:

1. Pollution

(a) 'Bodily injury,' 'property damage,' or 'personal injury' arising out of or 'wrongful act(s)' which result in the actual, alleged or threatened discharge, dispersal, seepage, ...


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