Employers Ins. of Wausau v. Ehlco Liquidating Trust

• Decision Date: 14 December 1999
• Docket Number: No. 1-95-1337.,1-95-1337.
• Citation: 243 Ill.Dec. 384,309 Ill. App.3d 730,723 N.E.2d 687
• Parties: EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Plaintiff-Appellant, v. EHLCO LIQUIDATING TRUST, Noel H. Goodman, and C.E. Heath Compensation and Liability Insurance Company, Defendant-Appellees.
• Court: United States Appellate Court of Illinois

723 N.E.2d 687

309 Ill. App.3d 730

243 Ill.Dec. 384

EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Plaintiff-Appellant, v. EHLCO LIQUIDATING TRUST, Noel H. Goodman, and C.E. Heath Compensation and Liability Insurance Company, Defendant-Appellees.

No. 1-95-1337.

Appellate Court of Illinois, First District, Second Division.

December 14, 1999.

Baker & McKenzie, Chicago (Michael A. Pollard, of counsel); Lovell White Durrant (Neal J. Moglin, of counsel), Larson King, LLP, St. Paul, MN (David C. Linder, of counsel), for Appellants.

Schopf & Weiss, Chicago; William G. Schopf, Patrick J. Heneghan, Paula E. Litt, Bradley P. Nelson, Benson K. Friedman, for Appellees.

Justice GORDON delivered the supplemental opinion of the court on remand:

The instant appeal is considered on remand from the Illinois Supreme Court in the case of Employers Insurance v. Ehlco Liquidating Trust, 186 Ill.2d 127, 237 Ill. Dec. 82, 708 N.E.2d 1122 (1999). That Court directed this Court to consider issues not previously addressed in Employers Insurance v. Ehlco Liquidating Trust, 292 Ill.App.3d 1036, 227 Ill.Dec. 159, 687 N.E.2d 82 (1997), aff'd in part, rev'd in part, 186 Ill.2d 127, 237 Ill.Dec. 82, 708 N.E.2d 1122 (1999), and the unpublished portion of that decision filed in accordance with Supreme Court Rule 23 (166 Ill.2d R. 23).¹ The parties agree that the only issue remaining for appellate review is whether the counterclaim for declaratory judgment filed by Ehlco Liquidating Trust and its managing trustee, Noel H. Goodman (collectively "Ehlco"), against Employers Insurance of Wausau, A Mutual Company ("Wausau"), was time-barred.

BACKGROUND FACTS

I. Prior Appeals

On February 26, 1993, Wausau instituted a declaratory judgment action against Ehlco, a trust created by order of the Delaware chancery court to resolve the contingent liabilities of Edward Hines Lumber Company ("Hines"), a dissolved Delaware corporation; Goodman, Ehlco's managing trustee; C.H. Heath, the successor to Employers Surplus Hines Insurance Company of Wilmington, Hines's excess carrier; and various other insurance companies. Wausau sought a declaration that it had no defense or indemnity obligations under certain insurance policies in connection with a lawsuit filed against Ehlco relating to a contaminated industrial site in Albany County, Wyoming (the "Wyoming site"). One year later, on March 1, 1994, Ehlco filed a counterclaim, seeking a declaration that Wausau breached its duty to defend and indemnify Ehlco in connection with another lawsuit relating to an industrial site in Mena, Arkansas (the "Mena" site). Wausau moved to dismiss Ehlco's counterclaim, arguing that it was barred by Arkansas' statute of limitations. Ehlco moved for judgment on the pleadings as to both sites, arguing that Wausau breached its duty to defend the two underlying claims. The circuit court denied Wausau's motion to dismiss and granted Ehlco's motions on the pleadings. Wausau appealed pursuant to Supreme Court Rule 304(a) (155 Ill.2d R. 304(a)).

On review of Wausau's appeal, this Court reversed the trial court's grant of judgment on the pleadings to Ehlco. As to the Wyoming site, we held, among other things, that the trial court erred in precluding Wausau from arguing that the insured breached the notice provisions of the insurance policies and remanded that issue to the circuit court for a determination as to whether Ehlco had satisfied the notice conditions of Wausau's policies. Employers Insurance, 292 Ill.App.3d at 1047-54,227 Ill.Dec. 159,687 N.E.2d at 90-94; Employers Insurance, No. 1-95-1337, slip op. at 46 (September 10, 1997) (material unpublished under Supreme Court Rule 23 (166 Ill.2d R. 23)). As to the Mena site, this court held that Wausau had no defense or indemnity obligations because, consistent with the holding in Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill.2d 520, 211 Ill.Dec. 459, 655 N.E.2d 842 (1995), no "suit" had been filed. Employers Insurance, 292 Ill. App.3d at 1040-1046,227 Ill.Dec. 159,687 N.E.2d at 86-89. We further held, academically, that coverage relative to the Mena site could have been precluded if Ehlco provided Wausau with late notice. Employers Insurance, 292 Ill.App.3d at 1047-54,227 Ill.Dec. 159,687 N.E.2d at 90-94; Employers Insurance, No. 1-95-1337, slip op. at 46 (material unpublished under Supreme Court Rule 23). On further appeal, the Illinois Supreme Court reversed this Court's holding as to the Wyoming site, finding that Wausau had breached its duty to defend and was estopped from asserting a late notice defense. Employers Insurance, 186 Ill.2d at 155, 158, 237 Ill.Dec. 82, 708 N.E.2d at 1137, 1138. It also reversed this Court's holding as to the Mena site, finding under its decision in Lapham-Hickey that a suit filed pursuant to a fully-executed consent decree was nonetheless a "suit" sufficient to trigger Wausau's duty to defend. It further held that the parties should be given the opportunity to amend their pleadings in the circuit court to address the issue of whether Wausau had actual notice of the Mena lawsuit (Employers Insurance, 186 Ill.2d at 143-44, 146, 237 Ill.Dec. 82, 708 N.E.2d at 1131, 1132) and remanded to this Court issues raised but not reached in the earlier appeal.

II. Facts Relevant to Statute of Limitations Contention

Since the only issue before us involves Ehlco's counterclaim which was directed at the Mena site, we will recite only those facts relevant to that site. Briefly, as explained in the prior appeals (Employers Insurance, 186 Ill.2d 127, 237 Ill.Dec. 82, 708 N.E.2d 1122; Employers Insurance, 292 Ill.App.3d 1036, 227 Ill.Dec. 159, 687 N.E.2d 82), Hines and its subsidiary operated lumber treatment facilities at the Mena site from 1967 until 1978 when it was purchased by Mid-South Wood Products of Mena, Arkansas, Inc. On March 18, 1982, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq. (West 1991), the United States Environmental Protection Agency (EPA) sent Hines a letter notifying it that it could be a "potentially responsible party" liable for costs incurred by the EPA in investigating and responding to environmental contamination at the Mena site. This letter was sent to Hines at its principal place of business in Chicago, Illinois. On that same date, but before receiving the EPA letter, Hines notified Wausau in writing that it had been verbally informed by the EPA that it intended to assert liability against Hines. Wausau wrote Hines in Illinois on March 29, 1982, appearing to deny coverage, contending that the property damage occurred after its policies expired. It also contended that the property damage was excluded because it did not result from sudden and accidental contamination or pollution.

On August 2, 1982 and on March 8, 1983, Hines's legal counsel wrote to Wausau, "formally" requesting that it defend Hines against the EPA's "investigation and proceeding." Wausau responded on March 22, 1983, referring Hines to its prior correspondence outlining coverage. In that response, Wausau also requested "a copy of the [EPA] action or correspondence you have, copies of any complaints or summons." On August 3, 1987, Hines's counsel informed Wausau that Hines was near "final agreement" with the EPA relating to the Mena site. Wausau responded on August 26, 1987, recounting its prior reservation of rights and requesting further information. The submissions of the parties do not show that either Hines or its counsel responded to Wausau's March 22, 1983 or August 26, 1987 requests for information.

On May 16, 1987, the EPA, Hines, and Mid-South Wood Products of Mena, Arkansas, Inc., the entity that purchased the Mena site from Hines in 1978, executed a consent decree settlement agreement. It appears from the record that Wausau received a copy of this agreement on December 14, 1987 from a source other than Hines. On March 17, 1988, the EPA filed a federal court action in Arkansas under CERCLA and contemporaneously filed with that lawsuit a proposed fully-executed consent decree. The federal court action concluded on May 16, 1988 when the federal court entered judgment on the proposed consent decree as executed by the parties, granting certain relief to the EPA.

In its counterclaim against Hines's insurance carriers, filed on March 1, 1994, Ehlco sought, as to Wausau, a declaration that Wausau was required to defend Hines and pay its costs of defense with respect to the EPA administrative action, a declaration that Wausau breached its duty to defend and was estopped from raising policy defenses with respect to its duties to defend and indemnify, an award of costs incurred, and an award of other relief deemed appropriate. As stated earlier, the trial court made various rulings and granted Ehlco judgment on the pleadings. Included among those rulings was the trial court's denial of Wausau's motion to dismiss Ehlco's counterclaim on the basis that it was barred by the five-year Arkansas statute of limitations. The trial court ruled that the Illinois ten-year statute of limitations for actions on written contracts applied and that Ehlco's counterclaim was not time barred. 735 ILCS 5/13-206 (West 1994).

On appeal, Wausau contends that the trial court's ruling in this regard was incorrect. It argues that the Illinois "borrowing statute" (735 ILCS 5/13-210 (West 1994)) mandates the application of Arkansas' five-year statute of limitations. It alternatively argues that Ehlco's action was barred even under Illinois law because section 13-205 of the Code of Civil Procedure (the Code) (735 ILCS 5/13-205 (West 1994)), providing a five-year time period, rather than section 13-206 (735 ILCS 5/13-206 (West 1994)), providing a ten-year period, applied.

DISCUSSION

For purposes of a motion to dismiss, all well-pleaded facts in the pleadings as well as reasonable inferences to be drawn from those facts are taken...