Scottsdale Indemnity v. Village of Crestwood

Mar 12: In the U.S. Court of Appeals, Seventh Circuit, Case Nos. 11-2385, 11-2556, & 11-2583. Appealed from the United States District Court for the Northern District of Illinois, Eastern Division. The appeal in a diversity suit governed by Illinois law requires the Appeals Court to interpret the pollution exclusion from coverage found in most general liability insurance policies. The most common policy is the "commercial general liability policy" drafted by the Insurance Services Office and purchased by businesses to insure against losses arising out of general business operations. The policies at issue in this case are "public entity general liability policies," which are issued to municipalities to cover analogous risks and contain the same pollution exclusion as the commercial general liability policy.

 

    Two insurers sue for a declaration that they have no duty either to defend a series of tort suits brought against their insureds (the Village of Crestwood, Illinois, and past and present Village officials) or to indemnify the insureds should the plaintiffs in those suits prevail. The district court, holding that the allegations in the tort complaints triggered the pollution exclusion, granted summary judgment for the insurers, precipitating the appeals, which are multiple because there are a number of different declaratory-judgment suits.

 

    In 1985 or 1986 Crestwood's mayor and other Village officials learned from state environmental authorities that one of the wells was contaminated by perc (PCE—perchloroethylene, also known as tetrachloroethylene). Village officials promised the state authorities that the well would be used only in emergencies. But instead, for reasons of economy, the well continued to be used as a source of the daily Village water supply -- without disclosure to the Village's residents. The well remained in use until 2007, and not until 2009 was it sealed.

 

    Hundreds of Crestwood residents, having learned of the contamination of their water supply from a series of articles in the Chicago Tribune, sued the Village and past and present Village officials in an Illinois state court seeking damages for injury to health. In a parallel suit the State of Illinois seeks an injunction requiring the Village to finance "a site inspection to determine the

nature and extent of contamination" and take "all necessary steps to remediate the contamination." All these suits are pending.

 

    In its reasoning the Appeals Court said, "The insureds might as well be arguing that because the Village has never manufactured perc it is responsible for none of the harms that dispersing perc might cause. That would be like a murderer arguing that his victim was killed not by him but by his gun. The Village "caused" the contamination of its water supply (it could have sealed the well a quarter of a century ago, when it discovered the well was contaminated) in a perfectly good sense of the word. . .

 

    Finally, in affirming the district court the Appeals Court indicates, "The insurers conceded at oral argument that the duty to defend would be activated if so enigmatic a complaint were allowed. The complaints actually filed, however, describe in copious detail the conduct giving rise to the tort suits, and in doing so inadvertently but unmistakably acknowledge the applicability of the pollution exclusion."

 

    Access the complete opinion (click here). [#Drink, #CA7]

 

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