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The Village of Crestwood, An Illinois Municipal Corporation and v. Ironshore Specialty Insurance Company

February 22, 2013


Appeal from the Circuit Court of Cook County 09 CH 49583 Honorable Mary L. Mikva, Judge Presiding

The opinion of the court was delivered by: Presiding Justice McBRIDE

PRESIDING JUSTICE McBRIDE delivered the judgment of the court, with opinion. Justices EPSTEIN and PALMER concurred in the judgment and opinion.


¶ 1 Plaintiffs Village of Crestwood, Illinois, and the town's former long-standing mayor, Chester Stranczek (together Village or Crestwood), filed this declaratory judgment action seeking a declaration that three excess public entity general liability insurers owed duties to defend or indemnify against at least 25 individual and class action lawsuits alleging the Village knowingly and routinely mixed cheap, polluted water into the municipal tap water supply in order to cut municipal expenses. The defendant insurers were Westport Insurance Corporation, as successor-in-interest to Coregis Insurance Company (Westport), United National Insurance Company (United National), and Ironshore Specialty Insurance Company, formerly known as TIG Specialty Insurance Company (Ironshore). The circuit court held that the underlying claims fell within absolute pollution exclusion clauses in each of the eight insurance contracts at issue and that this entitled the defendant insurers to summary judgment. The Village appeals, contending the pollution exclusions should have been limited to claims alleging "traditional environmental pollution," pollution originated by the Village, or pollution exceeding maximum permitted contaminant levels for drinking water; or should not have been applied to claims arising from the Village's "central business activity" of providing municipal tap water.

¶ 2 The Village's practices became the subject of a nine-count civil pleading the Illinois Attorney General filed on June 9, 2009. The Attorney General sought injunctive relief, civil penalties, and costs against the Village, Crestwood's current and former mayors, and Frank Scaccia, who was the certified operator of Crestwood's water supply between 1998 and 2008, due to their failure to comply with laws and regulations enacted for public health and safety such as those requiring accurate reports to regulators and consumers and periodic testing for chemical contaminants. Also, as discussed further below, two of the Village's liability insurers, Scottsdale Indemnity Company and National Casualty Company, filed a coverage action in federal court alleging that pollution exclusions in their contracts precluded coverage for the Village. Scottsdale Indemnity Co. v. Village of Crestwood, 784 F. Supp. 2d 988 (N.D. Ill. 2011). Meanwhile, the Village was proceeding in the current state court action against liability insurers Westport, United National, and Ironshore. It appears the federal coverage action and state coverage action proceeded simultaneously without any party seeking stay or removal and consolidation of the actions. Thus, while the federal district court's decision was being reviewed in the Seventh Circuit Court of Appeals, the circuit court of Cook County was entering judgment against the Village, and the Village was initiating the current appeal around the same time the Seventh Circuit Court of Appeals rendered its decision against the Village. Scottsdale Indemnity Co. v. Village of Crestwood, 673 F.3d 715 (7th Cir. 2012).

¶ 3 In a motion taken with the case, the three insurers here argue the federal appellate decision triggers the doctrine of collateral estoppel and warrants dismissal of this state court appeal. According to the doctrine of collateral estoppel, a prior adjudication precludes litigation of an issue where (1) the issue decided in the prior case is identical to the one in the pending suit, (2) there was a final judgment on the merits, and (3) the party against whom estoppel is asserted was either a party or in privity with a party in the prior lawsuit. Kessinger v. Grefco, Inc., 173 Ill. 2d 447, 672 N.E.2d 1149 (1996). Even when the threshold elements of the doctrine are met, however, collateral estoppel will not be applied to preclude a party from presenting a defense or claim unless it is clear that no unfairness results to the party being estopped. Kessinger, 173 Ill. 2d at 468, 672 N.E.2d at 1158. Here, where the insurers have proceeded in state court without any apparent attempt to stay or remove the action to federal court, we conclude that it would be manifestly unfair to hold that the federal decision precludes further argument in the state courts. Accordingly, we deny the insurers' joint motion to dismiss this appeal on grounds of collateral estoppel.

¶ 4 In an additional motion taken with the case, the Village asks us to strike the insurers' appellate brief. The Village contends it was improper for the insurers to file the motion to dismiss the appeal on collateral estoppel grounds and then file a responsive brief to the appeal. The Village contends that by filing a motion to dismiss, the insurers chose their course of action. The Village's argument is not well-founded. It is not based on any rule of appellate practice. It is based on two federal opinions that are inapposite. In Ramos v. Ashcroft, 371 F.3d 948, 949 (7th Cir. 2004), on the date it was supposed to be filing a response brief, the respondent filed a motion to transfer in which it asked to be granted more time to file a brief if the court decided to deny the motion for transfer. The court recognized the tactic to be a self-granted extension, chastised the party, and stated that if the overdue brief was not filed in short order, the matter would proceed on the petitioner's brief alone. Ramos, 371 F.3d at 950. When the same dilatory tactic was used in United States v. Lloyd, 398 F.3d 978 (7th Cir. 2005), the court reiterated its position: " 'If events justify a last-minute motion concerning jurisdiction, venue, sanctions, or any other subject, then that motion may accompany the brief; a motion is not a substitute for a brief.' " (Emphasis in original.) Lloyd, 398 F.3d at 981 (quoting Ramos, 371 F.3d at 950). The insurers here were not dilatory. The insurers filed their joint motion to dismiss and then timely filed their response brief. Furthermore, although the practice of filing both a motion to dismiss and a brief on the merits is not a common practice, it is a well-established one that is even suggested by the authority the Village relies upon. Lloyd, 398 F.3d at 981 (indicating a motion to dismiss may accompany a response brief). See also Wilson v. Evanston Hospital, 257 Ill. App. 3d 837, 838, 629 N.E.2d 589, 590 (1994) (in which the defendants' motion to dismiss was taken with the case and addressed prior to the substantive issues); Perry v. Murtagh, 278 Ill. App. 3d 230, 232, 662 N.E.2d 587, 589 (1996) (indicating the defendant's motion to dismiss on procedural grounds was denied prior to consideration of the plaintiff's appeal). The Village's motion is denied.

¶ 5 The underlying complaints against the Village assert various theories of liability, such as negligence, fraud, failure to warn, wilful and wanton misconduct, and breach of contract. The pleadings typically allege as follows. Crestwood is a Chicago suburb of approximately 11,000 residents and 550 businesses. Stranczek was Crestwood's mayor between 1970 and 2007, and upon his retirement, he appointed one of his sons, Robert Stranczek, to fill the post. During the senior Stranczek's tenure in 1985 or 1986, the Illinois Environmental Protection Agency (IEPA) notified the Village that a groundwater well the Village was using to supply tap water to the Crestwood community was contaminated with a solvent used in the dry cleaning industry, perchloroethylene or PCE, and other chemicals that occur when PCE breaks down over time. Exposure to these chemicals is linked to human health issues such as cancer, liver damage, and neurological impairment. None of these chemicals occurs naturally in the environment. Some plaintiffs have specified that the likely source of the toxins was a dry cleaning business located within several hundred feet of the well. Although the IEPA told the Village it could no longer use the affected well except in emergencies and the Village responded that it would stop distributing water from the well, the Village subsequently began to routinely mix polluted well water with treated Lake Michigan water it purchased from the neighboring community of Alsip and then supply the polluted combination as the community's tap water. Also, the Village allowed a private firm that was investigating the dry cleaning firm to take samples from the municipal well and was informed in mid 1998, along with the IEPA, that this additional sampling detected contamination. Nevertheless, the Village used the well to provide up to 20% of the community's tap water in any given month, as a cost-saving measure. The Village continued this secret practice for at least two decades. Because the well was reportedly not in use, the Village also avoided the expenses of periodically testing it for contaminants. The federal Safe Drinking Water Act (42 U.S.C. § 300f et seq. (1976)) required the Village to annually issue water quality reports to its customers, and in the Village's "consumer confidence reports," it falsely stated that 100% of the water it was supplying was treated Lake Michigan water. The Village ended its practice of mixing and distributing the contaminated well water and falsely reporting to the contrary only after an anonymous tip led federal regulators to shut down the well in 2007. IEPA sampling in October 2007 revealed vinyl chloride levels at 5.41 parts per billion, which one of the tort plaintiffs characterized as "more than twice the legal limit for drinking water." Another plaintiff alleged the IEPA threshold for vinyl chloride or PCE in tap water was actually "zero or none." Although they diverged on the specific figures, the various plaintiffs were united in their allegations that "government authorities had found [Crestwood's tap water] to be contaminated with unacceptable levels of dangerous chemicals," the demonstrated level of toxins exceeded "the legal limit[s] for drinking water," the tap water "was unsafe for ordinary use and consumption," or, simply, the tap water contained "unwanted and unhealthy levels of dangerous toxins." The plaintiffs alleged they were estate representatives or resided or worked in Crestwood themselves for some or all of the years the Village engaged in the dangerous practices and that the exposure to chemical contamination caused and will continue to cause death, cancer and other illness and other injuries.

¶ 6 In addition to suing the Village for knowingly mixing and distributing contaminated well water with purchased lake water and misrepresenting the source of what flowed from Crestwood's taps, some of the plaintiffs added claims against the dry cleaning business, its owners and employees, and the property owners. The Village focuses its appellate arguments on allegations lodged against these latter defendants, such as the counts brought by plaintiff Earley and plaintiff Jackowiak indicating that the dry cleaning business or its agents negligently allowed chemicals to seep into the groundwater, failed to tell employees how to use hazardous dry cleaning chemicals without endangering the community, and then failed to notify the community of or remediate the contamination that was known to have occurred.

¶ 7 During the years the Village was engaging in these practices, it was also purchasing public entity general liability insurance. According to the defendant insurers here, their policies provide excess coverage to the Village for various years beginning as early as October 1, 1989, and as late as October 1, 1993, and require the Village to exhaust the limits of underlying policies and/or self-insured retentions. According to the Village, the policies provide excess or umbrella coverage and include "step-down provisions providing for a duty to defend the Village as if the policies are primary." Regardless, it is undisputed that each of the subject policies contains an exclusion for pollution claims, that if the claims are excluded from coverage there are no duties to defend or indemnify, and that the circuit court's ruling on appeal was limited to the meaning of the exclusion clauses.

¶ 8 Unless a statute or rule of law or public policy mandates or prohibits certain terms or provisions, insurers may include in their policies whatever terms they deem appropriate and may choose to cover some risks while excluding others. See, e.g., Rich v. Principal Life Insurance Co., 226 Ill. 2d 359, 875 N.E.2d 1082 (2007) (determining it was not against public policy for a disability insurance policy to limit benefits by excluding injury and sickness and treatment or surgery for those conditions). Absolute pollution exclusions eliminate coverage for injury or damage for a wide variety of claims. The specific theory under which the insured is being sued is irrelevant; if injury or damage arose out of the discharge of a pollutant, the exclusion is applied as written. Allan D. Windt, 3 Insurance Claims and Disputes § 11:11 (5th ed. 2007); see, e.g., Economy Preferred Insurance Co. v. Grandadam, 275 Ill. App. 3d 866, 871, 656 N.E.2d 787, 790 (1995) (rejecting argument that exclusion did not apply because the underlying complaint alleged negligence and negligence was covered).

¶ 9 The exclusion clauses at issue here differ slightly from each other but not in any material way. The policy issued by defendant Ironshore for the October 1, 1992-93 period expressly excludes coverage for " 'bodily injury or property damage' which would not have occurred in whole or part but for the actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time." The Ironshore policy defines the term "pollutants" to mean "any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste."

¶ 10 This exclusion is known as an "absolute" pollution exclusion, because insurance policies are no longer being written to provide an exception for releases of pollutants that are sudden and accidental. Grandadam, 275 Ill. App. 3d at 869, 656 N.E.2d at 789. From the perspective of the insurance industry, courts were straining to find that events were "sudden and accidental" and, therefore, covered, and the industry was coping with enormous expense and exposure from an " ' "explosion" of environmental litigation.' " Grandadam, 275 Ill. App. 3d at 870, 656 N.E.2d at 789 (quoting Vantage Development Corp. v. American Environment Technologies Corp., 598 A.2d 948, 952-53 (N.J. Super. Ct. Law Div. 1991).

¶ 11 The defendant insurance companies moved for summary judgment on the basis of their absolute pollution exclusions. After full briefing and oral argument, the circuit court judge ...

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