Benoy Motor Sales, Inc. v. Universal Underwriters Insurance

Citations: 679 N.E.2d 414; 287 Ill. App. 3d 942; 223 Ill. Dec. 229Docket: 1-96-0536

Court: Appellate Court of Illinois; April 10, 1997; Illinois; State Appellate Court

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Ten automobile dealerships (plaintiffs) are involved in a legal dispute with Universal Underwriters Insurance Company (defendant) regarding insurance coverage for claims related to environmental pollution. The dealerships sought a declaratory judgment to compel Universal to defend and indemnify them against actions initiated by the Illinois Environmental Protection Agency (IEPA) and the U.S. Environmental Protection Agency (USEPA) concerning a polluted site. The trial court made a partial ruling on the dealerships' motion for summary judgment, determining that the claims from the IEPA and USEPA were separate and distinct, which led to Universal not being liable for defense costs associated with the USEPA claim. Additionally, the court differentiated between the source removal of pollution and groundwater cleanup in its considerations. As a result of these rulings, the appellate court reversed and remanded the case for further proceedings. The dealerships had previously sold used crank case oil to Lenz Oil and held various 'Unicover' insurance policies from Universal, which encompassed multiple types of coverage. The IEPA's lawsuit, initiated in 1985, sought recovery for costs associated with hazardous substance releases at the Lenz Oil facility, identifying the dealerships as potentially responsible parties but not naming them as defendants in the suit.

In fall 1987, the Illinois Environmental Protection Agency (IEPA) notified several Dealerships that they were Potentially Responsible Parties (PRPs) regarding environmental issues. Universal, an insurance provider, subsequently communicated with the Dealerships, reserving its right to deny coverage or condition its defense obligations. By March 24, 1988, the IEPA formally included the Dealerships as defendants in a legal complaint. On March 30, 1988, some Dealerships, while denying liability, entered into a Partial Consent Decree requiring them to reimburse the state for immediate removal costs at the Lenz Oil site, although this decree excluded groundwater-related costs. 

Universal sought declaratory relief in Cook County on April 22, 1988, to clarify its obligations to defend and indemnify the Dealerships, asserting it owed no duties regarding cleanup costs. This action was dismissed in April 1989 without reinstatement. Subsequently, in September 1989, the United States Environmental Protection Agency (USEPA) and IEPA initiated an Administrative Order for a Remedial Investigation and Feasibility Study (RI/FS) for groundwater cleanup at the site. 

The Dealerships filed a complaint for declaratory judgment on June 29, 1990, claiming Universal's policies should cover all cleanup costs. A trial court ruling on October 5, 1995, established that Universal was obligated to defend the Dealerships regarding source removal costs but not for groundwater cleanup, as no liability had yet been established for those costs. The trial court noted that the USEPA's action was a separate proceeding from the IEPA lawsuit, thus negating Universal's duty to defend against the USEPA claim. The Dealerships appealed the decision, with no cross-appeal filed. The court's review of the summary judgment motion is conducted de novo.

Lapham-Hickey's requirement for a lawsuit to activate an insurance company's duty to defend is to be applied retroactively. The court disagrees with the trial court's view of two separate enforcement actions, asserting that there is one continuous action, rendering Lapham-Hickey inapplicable. The three Unicover umbrella policies provide broad coverage for property damage caused by an occurrence, and the trial court correctly determined that Universal must defend and indemnify the Dealerships for certain costs related to the IEPA's lawsuit, a finding unchallenged on appeal and thus becomes law of the case. Universal's duty to defend, triggered by the lawsuit concerning polluted soil and tainted groundwater, remains, despite the consent decree covering only soil and reserving groundwater issues for future action. Universal's prior declaratory judgment complaint seeking to deny its duty referenced the IEPA's complaint but ignored the consent decree, resulting in its dismissal for lack of prosecution. The court finds Universal's breach of duty extends to the USEPA's administrative action, obligating Universal to cover the Dealerships' defense costs for both agencies. The trial court limited Universal's liability to defense costs related to oil shipments during active policy periods, but the court contends that pollution damage is continuous, and the Unicover III policy recognizes this by treating all injuries from continuous exposure as arising from one occurrence.

Property damage is recognized as having occurred continuously over a specified period, making all insurers that were on risk during this period jointly and severally liable up to their policy limits. This principle is supported by case law indicating that continuous exposure to pollutants constitutes an occurrence under third-party liability policies. The case of Zurich Insurance Co. v. Raymark Industries, Inc. is cited, where the court ruled that 'bodily injury' occurs during the time a claimant is exposed to asbestos, necessitating coverage from insurers during that exposure.

The court remands for reassessment of the compensation Universal must pay to dealers following a settlement with the Illinois Environmental Protection Agency (IEPA), emphasizing that coverage cannot be denied for dealers insured by Universal during the pollution event. The trial court had previously ruled that the plaintiffs had not incurred liability for groundwater contamination as of October 5, 1995, referencing Outboard Marine Corporation. However, the dealerships' complaint regarding the duty to indemnify for the USEPA claim was dismissed with leave to reinstate, a decision deemed improper by the reviewing court.

The dealerships' expenses for remedial and feasibility studies at the Lenz site are classified as damages incurred due to a government-ordered cleanup, which should be covered under the policy. The term 'damages' in an environmental context is interpreted broadly to include such payments. Since the final extent of damages may be uncertain, the purpose of a declaratory judgment action is to clarify the parties' legal rights and obligations, which can be determined at this stage.

Consequently, the court reverses the trial court's denial of the plaintiffs' motion for summary judgment and the dismissal of the indemnity action concerning the USEPA claim, remanding both for further proceedings in line with these findings.