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Citizens Elec. Corp. v. Bituminous Fire & Marine Ins. Co.

ELR Citation: 26 ELR 20055
Nos. No. 95-1707, 68 F.3d 1016/(7th Cir., 10/20/1995)

Applying Illinois law, the court holds that insurers of a dissolved corporation that was party to a consent judgment as a defendant in a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) cost recovery action must respond to plaintiffs' garnishment requests, even though the requests were made more than seven years after the dissolution. The dissolved corporation went out of business and was dissolved on April 1, 1986. Under Illinois law, parties desiring to sue the dissolved corporation must file suit within five years of the dissolution. In this action, a class of firms conducting removal of polychlorinated biphenyls at the contaminated site filed a CERCLA cost recovery suit seeking to compel the dissolved corporation and its former shareholders (the original defendants) to contribute to the costs. In a consent decree, the defendants agreed to pay over $440,000 and more than one-fourth the cleanup costs at the site incurred after a certain date. In a side agreement, plaintiff class promised to collect exclusively from the dissolved corporation's insurers. Insurers have refused to pay, and the plaintiff class began garnishment proceedings for money it believes it is owed. The garnishment action was not begun until more than seven years after the corporation was dissolved. The court holds that the garnishment action was commenced within five years of the dissolution. The garnishment action is part of the CERCLA cost recovery action rather than an independent suit, which means that its commencement date—the date it was filed—was before the five-year mark. The court notes that if the fact that the garnishment proceedings were not begun within the five-year time limitation were to bar the proceedings, the effect would be to require that cases be completed within five years, rather than just commenced within that time.

Although the court's disposition of the corporate liability issues largely moots the dispute regarding the liability of the individual shareholders, the court notes that the individual liability issues regarding the individual shareholders might regain significance if the U.S. Supreme Court should reverse on grounds equally applicable to garnishment the Fourth Circuit case on which this court based its holding as to the garnishment proceedings' commencement date. The court makes several observations, raising specific issues that may need to be addressed on remand. First, the court notes that under the consent decree, the individual defendants may be liable for their own acts or liable as distributees. The consent decree addresses this subject only indirectly. The court also notes that the question remains whether the decree establishes the insurers' liability, as opposed to the original defendants' liability. As to this question, the court makes two observations. First, under Illinois law, the insurers' only obligation is to indemnify their clients and, therefore, they may not have any debt to indemnify. And second, it is not clear that the consent judgment binds the insurers, who were not parties to it, because once the plaintiff class agreed to collect exclusively from the insurers, the original defendants had no reason to bargain tenaciously. Finally, the court notes that it is contestable under Illinois law whether an insurer must pay a settlement that absolves the insured of any potential liability, and that these potential defenses remain open on remand.

Counsel for Plaintiff
Thomas B. Weaver
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Sq., St. Louis MO 63102
(314) 621-5070

Counsel for Defendants
Robert R. Anderson
Tressler, Soderstrom, Maloney & Priess
Sears Tower, 233 S. Wacker Dr., 22d Fl., Chicago IL 60606
(312) 627-4083

Before CUDAHY, FLAUM, and EASTERBROOK, Circuit Judges.