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Richards Building Supply I, LLC v. The North River Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

November 22, 2017

RICHARD BUILDING SUPPLY I, LLC, Plaintiff,
v.
THE NORTH RIVER INSURANCE CO., Defendant.

          MEMORANDUM OPINION AND ORDER

          MATTHEW F. KENNELLY, UNITED STATES DISTRICT JUDGE.

         In September 2014, a catastrophic fire occurred at a warehouse in Connecticut in which Richards Building Supply I, LLC leased space. The fire started in a part of the warehouse occupied by another company but burned out of control and destroyed the part of the building that Richards occupied. Richards suffered losses relating to its own property stored at the site. And in January 2016, Richards received a "potentially responsible party" (PRP) letter from the U.S. Environmental Protection Agency. The letter stated that the EPA had determined that there had been a release of hazardous substances at the warehouse site and that there was a threat of additional releases and that Richards was "potentially liable" under federal law "for the cleanup of the Site." Dkt. No. 1-5 at 1, 2. The letter stated that unless Richards or some other PRP(s) committed to performing or financing the cleanup, EPA would do it and would seek to recover its costs from Richards and other PRPs. Id. at 2.

         Richards asked its liability insurer, North River Insurance Co., to provide a defense and indemnification in connection with it characterized as the "action" brought by the EPA. In its complaint, Richards alleges that North River "has denied coverage for the fire loss clean up and more particularly the EPA PRP Letter and has failed to defend [Richards] or file a declaratory judgment action [seeking a judgment of non-coverage]." Dkt. 1, ¶ 9. Richards has sued for damages for breach of contract due to North River's failure to reimburse and defend the company, and for a declaratory judgment regarding coverage under the insurance policy. Richards also seeks damages for vexatious conduct.

         North River has moved for partial summary judgment. It seeks a determination, among other things, that "Richards' claims in connection with the PRP letter are barred by the [insurance] policy's pollution exclusion." Def.'s Mem. in Support of Mot. for Partial Summ. J. at 1.

         The insurance policy says that North River will pay sums that Richards "becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies" and that North River "will have the right and duty to defend [Richards] against any 'suit' seeking those damages." Dkt. 1-3, p. 66. The exclusion on which North River relies in its motion says that the insurance does not apply to:

         f. Pollution

         (1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. However, this subparagraph does not apply to:
(i) "Bodily injury" if sustained within a building and caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the building's occupants or their guests;
(ii) "Bodily injury" or "property damages" for which you may be held liable, if you are a contractor . . .;
(iii) "Bodily injury" or "property damages" arising out of heat, smoke or fumes from a "hostile fire";
. . .

         (2) Any loss, cost or expense arising out of any:

(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or ...

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