Employers Ins. of Wausau v. Ehlco Liquidating Trust
| Decision Date | 22 January 1999 |
| Docket Number | No. 84684,84684 |
| Citation | 186 Ill.2d 127,237 Ill.Dec. 82,708 N.E.2d 1122 |
| Parties | , 237 Ill.Dec. 82 EMPLOYERS INSURANCE OF WAUSAU, Appellee, v. EHLCO LIQUIDATING TRUST et al., Appellants (C.E. Heath Compensation and Liability Insurance Company, Appellee). |
| Court | Illinois Supreme Court |
Jeffrey E. Margulis, Lovell White Durrant, Edward J. Zulkey, Baker & McKenzie, Chicago, Richard M. Hagstrom, Zelle & Larson LLP, Minneapolis, MN, David C. Linder, King & Counsel, L.L.C., St. Paul, MN, for Employers Insurance of Wausau.
James R. Branit, Bullaro, Carton & Stone, Chicago, for C.E. Heath Compensation & Liability Insurance Co.
Robin R. Lunn, Neal Gerber & Eisenberg, Chicago, for other interested parties.
This appeal involves a dispute over insurance coverage for environmental property damage at industrial sites in Mena, Arkansas, and Albany County, Wyoming. Employers Insurance of Wausau (Wausau) filed this declaratory judgment action in the circuit court of Cook County against Ehlco Liquidating Trust; its trustee, Noel H. Goodman; and C.E. Heath Compensation and Liability Insurance Company (Heath).
Wausau is an insurance company that issued insurance policies to Edward Hines Lumber Company (Hines) and a subsidiary owned by Hines. Hines and its subsidiary operated lumber treatment facilities at the sites in Arkansas and Wyoming. Hines subsequently dissolved. Ehlco Liquidating Trust (Ehlco) is a trust created to resolve Hines' contingent liabilities. Heath was an excess insurer of Hines.
The pleadings disclose the following undisputed facts pertinent to the issues in this appeal. Two underlying lawsuits are involved, one in Arkansas and one in Wyoming. Each underlying suit resulted from the operation of industrial wood-treatment facilities that dispersed hazardous wastes into the environment, thereby causing environmental contamination and property damage.
From January 1, 1968, to October 1, 1971, Wausau insured Hines and its subsidiary pursuant to certain comprehensive general liability insurance policies. These policies provided that Wausau "will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * * property damage * * * to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such * * * property damage." Wausau discontinued insuring Hines in 1971.
The Mena site consists of 57 acres of land on which the Nebraska Bridge Supply and Lumber Company (Nebraska Bridge) constructed a post and pole production plant and, later, a wood-treatment facility. In 1967, Hines acquired all the stock of Nebraska Bridge, making Nebraska Bridge a wholly owned subsidiary of Hines. From 1967 to 1978, Nebraska Bridge, as a Hines subsidiary, continued to operate the wood-treatment facility on the Mena site. Hines sold the Mena site in 1978.
In 1980, the United States Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 U.S.C. § 9601 et seq.). On March 18, 1982, the United States Environmental Protection Agency (EPA) wrote a letter to Hines pursuant to CERCLA. The letter advised Hines that it may be a potentially responsible party (PRP), liable for the costs of investigating and responding to environmental contamination at the Mena site. Earlier, the EPA had verbally informed Hines that it intended to initiate an administrative action against Hines relating to the Mena site. As a result, also on March 18, 1982, but apparently before Hines received the PRP letter, Hines notified Wausau of the EPA's intentions. Hines' letter to Wausau stated:
On March 29, 1982, Wausau responded to Hines' letter. Wausau indicated that its policies did not appear to provide coverage for the potential claim, stating:
On August 2, 1982, and again on March 8, 1983, Hines wrote to Wausau requesting that it reconsider its refusal to defend Hines against the EPA's investigation and proceeding concerning the Mena site. Wausau provided no defense.
Meanwhile, the EPA commenced a lengthy environmental investigation of the Mena site, which concluded in late 1986. The EPA then issued its record of decision, which set forth its findings of fact and its final decision concerning remediation of environmental contamination at the Mena site.
On March 17, 1988, pursuant to CERCLA, the EPA filed a suit against Hines and another company in the United States District Hines, the EPA, and the other company executed a consent decree concerning the Mena site. Therein, Hines agreed to finance and perform certain environmental response actions. Hines also agreed to reimburse the EPA for certain funds expended. The federal district court signed and entered this consent decree on May 16, 1988.
[237 Ill.Dec. 87] Court for the Western District of Arkansas. United States v. Edward Hines Lumber Co. & Mid-South Wood Products of Mena, Inc., No. 88-2049 (W.D. Ark. Ft. Smith Div.). The complaint alleged that the Mena site was contaminated with several known and suspected carcinogens, including arsenic; that the pollutants were migrating from the site; and that the releases and threatened releases may present an "imminent and substantial" endangerment to human health or the environment. The complaint sought an injunction requiring the defendants to implement remedial action and reimburse the EPA for sums expended, and declaring the defendants liable for all future costs incurred for environmental investigations, clean-up, and response and enforcement actions. The pleadings are silent as to whether Wausau had notice of the filing of this complaint.
In the 1930s, Nebraska Bridge operated a wood-treatment facility in Albany County, Wyoming, on property owned by Union Pacific Railroad Company (Union Pacific). In 1934, Nebraska Bridge agreed to indemnify Union Pacific for property damage caused by its operations. As noted, Hines acquired Nebraska Bridge in 1967. From 1967 until 1972, Hines continued to operate the facility at the Wyoming site under the Nebraska Bridge name.
In 1981, the State of Wyoming filed suit against Union Pacific for damages caused by environmental contamination at the Wyoming site. In December of 1991, Union Pacific sued Ehlco, as the liquidating trust of Hines, under the 1934 indemnification agreement it had with Nebraska Bridge, in the federal district court of Wyoming. Union Pacific R.R. Co. v. J.H. Baxter & Co.; Ehlco Liquidating Trust, No. 91-CV-0247-B (D.Wyo.). Ehlco sent notice of this suit to Wausau in January 1992 and requested a prompt response regarding defense.
Wausau acknowledged receipt of Ehlco's letter on February 27, 1992, and stated that it was searching for its policies. Ehlco continued to supply information and update Wausau on the status of the underlying suit and continued to assert that Wausau owed Ehlco a defense and coverage. Wausau apparently did nothing other than request information from Ehlco. In June of 1992, Ehlco informed Wausau of a $1.3 million settlement offer by Union Pacific. In response, Wausau offered to pay 9% of the settlement and 9% of the defense costs incurred. Ehlco rejected Wausau's offer. Ehlco settled the lawsuit for $1.3 million and, as a result, the district court dismissed the suit with prejudice on November 5, 1992.
On February 26, 1993, after both underlying suits were concluded, Wausau filed a complaint in the circuit court of Cook County seeking a declaratory judgment that it owed no duty to defend or indemnify Ehlco for environmental property damage at the Wyoming site. Ehlco answered and moved for judgment on the pleadings, seeking a declaration that Wausau owed defense and indemnity coverage for the Wyoming site.
Ehlco also filed a counterclaim against Wausau seeking a declaration that Wausau owed defense and indemnity coverage for the environmental damage at the Mena site. Wausau then amended its complaint and sought a declaration of its obligations concerning the Mena site, in addition to the Wyoming site. Wausau also moved to dismiss Ehlco's counterclaim as barred, asserting that Ehlco breached a notice condition in the insurance policies. Ehlco later moved for judgment on the pleadings with regard to the Mena site.
On November 7, 1994, the circuit court entered an order denying Wausau's motion to dismiss Ehlco's counterclaim regarding the Mena site. The circuit court found that Wausau was estopped from asserting Hines' purported late notice as a defense...
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