BD. OF EDN. OF TOWNSHIP HIGH SCH. DIST. NO. 211 v. INTERNATIONAL INS.

• Decision Date: 22 March 1999
• Docket Number: No. 1-98-0084.,1-98-0084.
• Parties: BOARD OF EDUCATION OF TOWNSHIP HIGH SCHOOL DISTRICT NO. 211, Cook County, Illinois, Plaintiff-Appellant, v. INTERNATIONAL INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

720 N.E.2d 622

308 Ill. App.3d 597

242 Ill.Dec. 1

BOARD OF EDUCATION OF TOWNSHIP HIGH SCHOOL DISTRICT NO. 211, Cook County, Illinois, Plaintiff-Appellant, v. INTERNATIONAL INSURANCE COMPANY, Defendant-Appellee.

No. 1-98-0084.

Appellate Court of Illinois, First District, Sixth Division.

March 22, 1999.

As Modified Upon Denial of Rehearing December 3, 1999.

Hager & Siegel, P.C., Chicago (John H. Hager, Elaine K.B. Siegel, of counsel), for Board of Education of Township High School District No. 211.

Clausen Miller P.C., Chicago (James T. Ferrini, James R. Swinehart, Imelda Terrazino, of counsel), for International Insurance Company.

Anderson, Kill & Olick, Philadelphia, PA (John A. MacDonald, of counsel), for amicus curiae United Policyholders.

MODIFIED OPINION UPON DENIAL OF PETITION FOR REHEARING

Presiding Justice SHEILA M. O'BRIEN delivered the opinion of the court:

Plaintiff, the Board of Education of Township High School District No. 211, filed a declaratory judgment action against defendant, International Insurance Company, seeking a determination of coverage under two property insurance policies for asbestos-related property damage in three of plaintiffs high schools. The trial court granted summary judgment for defendant. Plaintiff filed this timely appeal. We reverse and remand.

Defendant sold plaintiff two property insurance policies that provided coverage from April 1, 1981, to March 31, 1986, for "all risks of physical loss or damage" to the five high schools operated by plaintiff. In 1983, plaintiff hired Arcon Associates, an architectural firm, to inspect the schools for the presence of "friable" asbestos, i.e., asbestos that can be crumbled by hand. Richard Kumnick, an employee of Arcon, discovered friable asbestos in three of the schools. Kumnick opined that the asbestos-containing building materials (ACBMs) were releasing harmful fibers into the air and that ordinary activities such as sweeping and dusting were "reentraining," or making airborne again, previously released fibers.

Kumnick further opined that the Asbestos Abatement Act (105 ILCS 105/1 et seq. (West 1994)) required the removal of the ACBMs. The Asbestos Abatement Act provides for "the identification, containment or removal of those asbestos materials that constitute a significant health hazard * * * to students, school personnel, parents and visitors to such schools * * *." 105 ILCS 105/2 (West 1994).

Plaintiff notified Kumnick that it had decided to remove all ACBMs from its schools. According to Kumnick, plaintiff incurred over $2.6 million in asbestos removal and restoration costs between June 1984 and July 1986. To date, plaintiff has incurred about $18 million in asbestos removal and restoration costs.

Plaintiff made claim upon defendant for coverage under the two property insurance policies. Defendant denied the claim.

Plaintiff filed this declaratory judgement action against defendant, seeking a declaration that the policies cover the damage resulting from the presence of friable asbestos and toxic asbestos fibers in its schools. The trial court granted summary judgment for defendant, finding that the presence of asbestos in the school buildings did not constitute property damage covered by the policies. Plaintiff filed this timely appeal.

Summary judgment is appropriate when, viewed in the light most favorable to the nonmoving party, the pleadings, depositions and admissions on file reveal that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Ragan v. Columbia Mutual Insurance Co., 183 Ill.2d 342, 349, 233 Ill.Dec. 643, 701 N.E.2d 493 (1998). The standard of review in cases involving summary judgment is de novo. Ragan, 183 Ill.2d at 349,

233 Ill.Dec. 643,

701 N.E.2d 493.

In determining whether summary judgment for defendant is proper, the two property insurance policies at issue must be construed. The construction of insurance policies is a matter of law subject to de novo review. American States Insurance Co. v. Koloms, 177 Ill.2d 473, 479-80, 227 Ill.Dec. 149, 687 N.E.2d 72 (1997). The construction of the policies is to give effect to the intent of the parties as expressed in their agreement. American States, 177 Ill.2d at 479, 227 Ill.Dec. 149, 687 N.E.2d 72. If the terms of the policies are unambiguous, they must be given their plain and ordinary meaning. American States, 177 Ill.2d at 479, 227 Ill.Dec. 149, 687 N.E.2d 72. If the terms of the policies are capable of more than one meaning, they are construed strictly against the insurer. American States, 177 Ill.2d at 479, 227 Ill.Dec. 149, 687 N.E.2d 72.

The two policies provide, in part, that defendant agrees to indemnify plaintiff for "all risks of physical loss or damage to all real or personal property of every kind and description wherever located occurring during the period of this insurance."

Defendant contends that the presence of friable ACBMs and asbestos fibers in plaintiff's schools does not constitute physical loss or damage to property covered under the property insurance policies at issue. In support, defendant cites a New Mexico Supreme Court case, Leafland Group—II, Montgomery Towers Ltd. Partnership v. Insurance Co., 118 N.M. 281, 881 P.2d 26 (1994). Leafland purchased an apartment complex, Montgomery Towers, in 1983. After purchasing the property, Leafland bought a comprehensive insurance policy from Insurance Company of North America (INA) that provided both property coverage and liability coverage for the subject property. Leafland, 118 N.M. at 282, 881 P.2d at 27. Leafland subsequently discovered that asbestos had been used in the construction of Montgomery Towers and that the presence of the asbestos had diminished the value of the property by $1,750,000. Leafland, 118 N.M. at 282, 881 P.2d at 27. Leafland made a claim under the insurance policy, but INA refused to pay for the property's diminished value. Leafland, 118 N.M. at 282, 881 P.2d at 27.

The New Mexico Supreme Court held that the policy, which insured against "direct loss or damage," did not cover the diminution in value of the apartment complex caused by the presence of asbestos installed during construction. The court stated that there was "no event that happened during the time the policy was in effect that caused direct loss or damage" to the property. Leafland, 118 N.M. at 282, 881 P.2d at 28.

Leafland is factually inapposite to the present case because the all-risk policies at issue here contain no language limiting their coverage to "direct loss or damage" to plaintiffs buildings. Further, unlike Leafland, which sought coverage for the diminution in value of the property that occurred prior to the policy period, plaintiff here seeks coverage for the removal of ACBMs in its buildings that were in a friable condition and emitting toxic fibers during the policy period.

Our supreme court has spoken to this issue in United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991). In Wilkin, school districts and building owners sued Wilkin and others of the "asbestos industry." Wilkin, 144 Ill.2d at 69,161 Ill.Dec. 280,578 N.E.2d 926. The plaintiffs prayed for reimbursement of incurred asbestos abatement costs. Wilkin, 144 Ill.2d at 69,161 Ill.Dec. 280,578 N.E.2d 926. Wilkin sought defense and indemnification from United States Fidelity & Guaranty Co. (USF & G), which had issued a comprehensive general liability policy to Wilkin. Wilkin, 144 Ill.2d at 69-70,161 Ill.Dec. 280,578 N.E.2d 926. Under that policy, USF & G agreed to defend and provide coverage for Wilkin in any action seeking damages on account of "property damage" caused by an "occurrence." Wilkin, 144 Ill.2d at 70,161 Ill. Dec. 280,578 N.E.2d 926. USF & G's policy defined property damage as:

"1) physical injury to or destruction of tangible property, which occurs during the policy period, including the loss of use thereof at any time resulting therefrom." Wilkin, 144 Ill.2d at 75, 161 Ill.Dec. 280, 578 N.E.2d 926.

USF & G then brought an action for declaratory judgment that it had no duty to defend or indemnify Wilkin under that policy. Wilkin, 144 Ill.2d at 70, 161 Ill. Dec. 280, 578 N.E.2d 926. USF & G argued that the underlying complaints did not allege physical damage to tangible property and that the presence of asbestos-containing products resulted only in economic loss in diminished market values of the buildings. Wilkin, 144 Ill.2d at 75, 161 Ill.Dec. 280, 578 N.E.2d 926.

After the trial court granted summary judgment for USF & G and the appellate court reversed (Wilkin, 144 Ill.2d at 72, 161 Ill.Dec. 280, 578 N.E.2d 926), our supreme court held that asbestos fiber contamination constitutes physical injury to tangible property, including buildings and their contents, and further noted that it had so held in an earlier case. Wilkin, 144 Ill.2d at 75, 161 Ill.Dec. 280, 578 N.E.2d 926, citing Board of Education v. A, C & S, Inc., 131 Ill.2d 428, 137 Ill.Dec. 635, 546 N.E.2d 580 (1989). Wilkin quoted from its holding in A, C & S:

"`[I]t would be incongruous to argue there is no damage to other property when a harmful element exists throughout a building or an area of a building which by law must be corrected * * *. The view that asbestos fibers may contaminate a building sufficiently to allege damage to property has been recently adopted in a number of cases. * * *

* * *

* * * The essence of the allegations [of the complaints] is that the buildings have been contaminated by asbestos to the point where corrective action, under the law, must be taken. Thus, the buildings have been damaged'". Wilkin, 144 Ill.2d at 75-76, 161 Ill.Dec. 280, 578 N.E.2d 926, quoting A, C & S, 131 Ill.2d at 446-49, 137 Ill.Dec. 635, 546 N.E.2d 580.

Here, defendant contends Wilkin is distinguishable because Wilkin involved a third-party liability policy providing coverage for damage to the property of...