Joslyn Mfg. Co. v. Liberty Mut. Ins. Co.

Decision Date16 August 1996
Docket NumberCase No. 95 C 3717.
Citation939 F. Supp. 603
PartiesJOSLYN MANUFACTURING COMPANY, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Stephen D. Davis, William H. Jones, Canel, Davis & King, Chicago, IL, for Joslyn Manufacturing Company.

Lee Glickenhaus, Richard W. Furcolo, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Boston, MA, Geoffrey Alden Bryce, Terrence Edward Kiwala, Rooks, Pitts & Poust, Chicago, IL, Jennifer P. Sacon, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for Liberty Mutual Insurance Company.

MEMORANDUM OPINION AND ORDER

BUCKLO, District Judge.

On January 11, 1996, plaintiff, Joslyn Manufacturing Company ("Joslyn"), filed its amended complaint against defendant, Liberty Mutual Insurance Company ("Liberty"). Liberty has provided comprehensive general liability coverage to Joslyn since 1945. Counts IV and V of the complaint arise out of a site in Bossier City, Louisiana (the "Louisiana Site" or "Site") where Joslyn owned and operated a wood treatment plant from 1950 until 1969. In count IV, Joslyn seeks an award of damages for its past costs as well as a declaration that Liberty is to defend and indemnify it in the future in connection with a United States Environmental Protection Agency ("EPA") Claim1 addressing the Louisiana Site. In count V, Joslyn requests a declaration that Liberty is obligated to indemnify it against claims made in Henry L. Johnson, et al. v. Lincoln Creosote Co., Inc., et al., Number 70481, 26th Judicial District Court, Bossier Parish, Louisiana (the "Johnson Lawsuit"), which alleges injury from the Louisiana Site. Joslyn has filed a motion for partial summary judgment on counts IV and V, and Liberty has filed a cross motion for summary judgment on these counts.

I. Background

The following facts are undisputed. Under the pertinent insurance policies, Joslyn was to give Liberty "immediate" notice of a "claim." The policies also required Joslyn to notify Liberty "as soon as practicable" of an "occurrence:"

In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

The policies defined "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured."2 The "Conditions" section of the policies further provided: "ACTION AGAINST COMPANY No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy...."

On August 2, 1986, the Louisiana Department of Environmental Quality ("DEQ") ordered Joslyn (and other entities) to investigate and clean up contamination on the Louisiana Site (the "DEQ Order"). In 1990, Joslyn brought suit against Liberty in the United States District Court for the Western District of Louisiana seeking a declaration that Liberty was obligated to defend and indemnify Joslyn against the DEQ action. Liberty defended this lawsuit by arguing inter alia that Joslyn was not entitled to coverage because it "expected or intended" its operations at the Louisiana Site to cause damage to the environment. Following a trial, a jury decided that Joslyn did not expect or intend to contaminate the environment. In a post-trial motion, Liberty argued that in spite of the jury's verdict it had no coverage obligations because Joslyn failed to timely notify it of the DEQ's claim. In Joslyn Manufacturing Company v. Liberty Mutual Insurance Company, 836 F.Supp. 1273, 1277 (W.D.La.1993) ("Joslyn I"), the district court agreed, finding that Joslyn knew of a claim by the DEQ when it received the DEQ Order but waited until May 19, 1987, over nine months, before notifying Liberty of the claim. The court held that Joslyn's notice to Liberty was not "immediate," as required by the insurance contracts, and therefore, Liberty owed no insurance coverage to Joslyn for the DEQ claim. Id. at 1277. The Fifth Circuit affirmed the district court's ruling. Joslyn Manufacturing Company v. Liberty Mutual Insurance Company, 30 F.3d 630, 635 (5th Cir.1994) ("Joslyn II"), cert. denied, ___ U.S. ___, 115 S.Ct. 935, 130 L.Ed.2d 881 (1995).

In March, 1987, neighbors of the Louisiana Site filed the Johnson Lawsuit against Joslyn and others in which they alleged that they suffered personal injuries and property damage as a result of chemicals emanating from the Site. Joslyn notified Liberty of this suit on April 10, 1987. Liberty responded by letter, dated February 26, 1992, that it would defend Joslyn but reserved its right to contest its obligation to indemnify Joslyn. The Johnson Lawsuit has been certified as a class action and is still pending.

In January, 1994, the EPA proposed that the Site be included on the National Priorities List. Joslyn notified Liberty of the EPA's action on January 20, 1994. On April 26, 1994, Joslyn demanded defense and indemnity with respect to the EPA Claim. In a letter, dated May 26, 1994, Liberty declined to defend or indemnify Joslyn and "reserved all rights under applicable law and policies issued to Joslyn Corporation.".3 In September, 1994, the EPA notified Joslyn that it may be a potentially responsible party with respect to the release of hazardous substances at the Louisiana Site. Joslyn subsequently negotiated a consent decree with the EPA pursuant to which it will remove contaminated soil from the residential area adjacent to the wood treatment plant and reimburse the EPA $71,000.

In its motion for partial summary judgment, Joslyn requests a ruling barring Liberty from relitigating whether Joslyn expected or intended its operations at the Louisiana Site to contaminate the environment. Liberty's cross-motion asks for summary judgment on Joslyn's claims in counts IV and V on the ground that Joslyn failed to comply with the notice provisions in the insurance policies. Liberty also requests rulings precluding Joslyn from relitigating the issues of what law governs the policies and whether Liberty owes Joslyn coverage under pre-1962 policies. For the reasons discussed below, Joslyn's request in its motion is granted, and Liberty's motion is denied.

II. The Notice Requirements

Liberty argues that it is entitled to summary judgment on counts IV and V of Joslyn's complaint on the basis that Joslyn did not comply with the insurance policies' notice provisions. In Joslyn II, 30 F.3d at 635, the Fifth Circuit held: "A claim was made, at the latest, when Joslyn received the August 2, 1986 DEQ Order. Timely notice was then due Liberty." Consequently, Liberty contends that as of August 2, 1986, Joslyn knew of an "occurrence" and was therefore required to notify Liberty "as soon as practicable." Liberty further contends that the fact that Joslyn waited until May, 1987 to give Liberty notice of the DEQ Order indicates that Joslyn did not notify Liberty as soon as practicable; and therefore, Liberty is not obligated to provide the coverage Joslyn seeks in counts IV and V.

Under Louisiana law,4

where prompt notice of a covered occurrence is a "condition precedent" to recovery under an insurance policy, and the insured fails to give such notice, the claim is no longer covered by the policy, regardless of whether the insurer can demonstrate prejudice.

Joslyn II, 30 F.3d at 633. Joslyn was obligated to give timely notice of an occurrence to Liberty as an express condition precedent to coverage.5

Generally, an insured is expected to give notice when it knows or should have known of an occurrence that is likely to give rise to a claim under its insurance policies. See, e.g., Ogden Corporation v. Travelers Indemnity Company, 924 F.2d 39, 43 (2d Cir. 1991); In re Texas Eastern Transmission Corporation PCB Contamination Insurance Coverage Litigation, 870 F.Supp. 1293, 1357 (E.D.Pa.1992), aff'd on other grounds, 15 F.3d 1249 (3rd Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 291, 130 L.Ed.2d 206 (1994).6 Joslyn does not contest that the August 2, 1986 DEQ Order constitutes a claim. It also does not contest that once it received the DEQ Order, it knew that there was contamination on the Louisiana Site. Thus on August 2, 1986, Joslyn knew of an occurrence from which at least one claim had arisen. At that point, therefore, Joslyn had the obligation to notify Liberty of an occurrence.

Joslyn attempts to shield itself from the notice provision by arguing that the EPA Claim and the Johnson Lawsuit arise out of incidents of off-site contamination, which constitute a separate occurrence from the on-site contamination that resulted in the DEQ Order.7 It contends that in August, 1986, it was unaware of off-site contamination. Although giving rise to separate claims, both the on-site and off-site damage stem from the same occurrence, i.e., the environmental contamination from Joslyn's operations at the Louisiana Site. As of August 2, 1986, therefore, Joslyn knew of an occurrence that produced the DEQ Order, the EPA Claim, and the Johnson Lawsuit of which it was obligated to notify Liberty.

Furthermore, when Joslyn received the DEQ Order in August, 1986, it had reason to know that the on-site contamination could give rise to a claim for off-site contamination. The DEQ Order incorporated by reference a report, dated October 15, 1985, prepared by the DEQ's contractor, C-K Associates (the "C-K Report"):

Based on the information presented in the C-K Report, the DEQ is of the opinion that the hazardous substances discharge or disposal at the Site may present an imminent and substantial endangerment to the health
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