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LaSalle Nat'l Trust, N.A. v. Schaffner

Citation: 25 ELR 20374
No. No. 91 C 8247, 818 F. Supp. 1161/(N.D. Ill., 03/24/1993)

The court holds that three insurance companies have a duty to defend the former owners of a contaminated site against the current owner's suit for response costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and against stated pendent state-law claims. The former owners operated a dry cleaning business on the site that allegedly released tetrachloroethylene, perchloroethylene, and other contaminants into the soil and groundwater. The court first holds that it has supplemental jurisdiction over the former owners' third-party claims against the insurers. The claims form part of the same case or controversy as the underlying claim for purposes of supplemental jurisdiction, because the former owners seek indemnity for liability arising from the same facts as the underlying complaint and their duty to defend claim is based on the complaint, an allegation of the facts in the underlying case. Thus, there is more than a loose factual connection between the insurance actions and the underlying complaint. Addressing the "no joinder" clauses in the insurance policies, which purport to bar the former owners from impleading the insurers or joining them in any action to determine the former owners' liability, the court notes that such clauses contravene the purposes of Fed. R. Civ. P. 14(a) and most federal courts ignore them. The court thus denies the insurers' motion to reconsider its prior denial of their motion to dismiss the third-party claims.

Turning to the insurers' duty to defend, the court notes that under Illinois law, the duty to defend is triggered if the allegations in the underlying complaint show that the insured's conduct is potentially within coverage. The court first finds that the policies that contain total pollution exclusions are unambiguous with regard to coverage — there is none. Therefore, those policies do not create a duty to defend. The court next holds that the "sudden and accidental exception" to some of the policies' pollution exclusions applies to the complaint's allegations, whether the releases were "abrupt" or "continuous and repeated," because potentially unintended and unexpected releases are charged. The complaint not only charges intentional and ongoing releases. It also alleges releases, spills, and discharges about which the former owners knew or should have known, and contains two counts encompassing negligent release. Thus, the court holds that the complaint alleges conduct potentially covered by exceptions in the "sudden and accidental" pollution exclusion policies. The court next holds that the complaint alleges an "occurrence" potentially covered by the policies, because to the extent that the complaint alleges that groundwater has been contaminated, there was damage to third-party property during the policy period. Addressing the insurers' argument that there is no potential coverage in this case because the policies unambiguously exclude damage to property that the insured owned, occupied, or alienated, the court holds that the owned and alienated property exclusions are inapplicable to the complaint's allegations of contamination of groundwater, which is not owned. The court next holds that a genuine issue of material fact exists that precludes summary judgment as to the fourth insurer's duty to defend. The parties dispute when the former owners became aware of the contamination such that the fourth insurer should have been notified under the policy, and timely notification is a condition precedent to coverage. The court holds that the fourth insurer's offer to participate in the defense on a pro rate basis does not equate to an acceptance of a defense with a reservation of rights. The court also holds that an alleged conflict of interest between the former owner and the insurers does not eliminate the insurers' duty to defend.

The court holds that there is a potential for coverage under the first three insurers' policies and a corresponding duty to defend by, in this case, reimbursing defense costs. Although, in the main, the complaint charges strict liability under CERCLA and intentional pollution, the two negligence-based counts could create liability covered by the policies, and if even one theory of recovery is within the potential coverage, there is a duty to defend. Finally, the court holds that the former owners' claims that the insurers' breach of their duty to defend estops them from asserting policy defenses and that two of the insurers waived their rights to raise policy defenses by failing to respond to the former owners' tender of defense is not yet ripe, because the underlying complaint is still pending.

Counsel for Plaintiff
Arthur M. Holtzman
Pederson & Houpt
180 N. La Salle St., Ste. 3400, Chicago IL 60601
(312)641-6888

Counsel for Defendants
Daniel P. Albers
Coffield, Ungaretti & Harris
3500 Three First National Plaza
Chicago, IL 60602
(312)979-4400