Milwaukee Metro. v. Am. Int'l Spe

• Decision Date: 10 March 2010
• Docket Number: No. 09-1645,No. 09-1715,No. 09-1783.,09-1645,09-1715,09-1783.
• Citation: 598 F.3d 311
• Parties: MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, c/o American International Surplus Lines Agency Inc., Defendant, Third-Party Plaintiff-Appellant, Cross-Appellee, v. Crump Insurance Services of Illinois and Crump Group, Incorporated, Third-Party Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

598 F.3d 311

MILWAUKEE METROPOLITAN SEWERAGE DISTRICT, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, c/o American International Surplus Lines Agency Inc., Defendant, Third-Party Plaintiff-Appellant, Cross-Appellee, v. Crump Insurance Services of Illinois and Crump Group, Incorporated, Third-Party Defendants-Appellants.

No. 09-1645

No. 09-1715

No. 09-1783.

United States Court of Appeals Seventh Circuit.

Argued Oct. 29, 2009.

Decided March 10, 2010.

James C. Reiher (argued), Donald A Allen, Mawicke & Goisman, S.C., Milwaukee, WI, for Plaintiff-Appellee, Cross-Appellant.

Mark W. Rattan (argued), Litchfield Cavo, Brookfield, WI, for Defendant Third-Party Plaintiff-Appellant, CrossAppellee.

Bruce R. Meckler (argued), Meckler Bulger Tilson Marick & Pearson, Chicago, IL, for Third-Party Defendants-Appellants.

Before FLAUM, MANION, and WOOD Circuit Judges.

MANION, Circuit Judge.

When 19 acres of land are offered for sale for $1.00, any purchaser has reason to be wary. The Milwaukee Metropolitan Sewerage District is responsible for flood control and wastewater treatment in the greater Milwaukee area. As part of a flood control project, the District needed to acquire from Milwaukee County a piece of real estate along Lincoln Creek. The nominal asking price was $1.00. In anticipation of possible pollution clean-up costs the project manager recommended obtaining insurance coverage, which the District directed its insurance agency to acquire. After a policy was issued, the District acquired title to the land. Soon thereafter the District encountered significant pollution on the land. But when it submitted a claim to its environmental liability insurer, American International Specialty Lines Insurance Company ("AISLIC"), for costs incurred in removing the pollution, the insurer denied coverage. The District then sued AISLIC in Wisconsin state court seeking damages under several state law claims. Following removal to federal court and a bench trial, the district court concluded that coverage for the pollution was appropriate. The court reformed the District's insurance policy with AISLIC to provide coverage for the pollution removal costs and entered judgment for $226,468.51 in favor of the District. The court also entered judgment in the same amount for AISLIC on its indemnity claim against Crump Insurance Services of Illinois, Inc. ("Crump"). AISLIC and Crump appeal from the district court's judgment, and the District cross-appeals the judgment and the denials of its post-trial mo tions. For the reasons that follow, we reverse the judgment of the district court and remand with instructions to enter judgment for AISLIC on the District's reformation claim and to dismiss AISLIC's indemnity claim against Crump as moot. We also dismiss the District's cross-appeal as moot.

I

The District provides wastewater treatment services to 28 communities in the greater Milwaukee area. It also performs flood control and environmental pollution abatement work. In the late 1990s, the District developed the Lincoln Creek Flood Control Management Plan ("Plan") to reduce flooding along a nine-mile stretch of Lincoln Creek. The Plan was subdivided into ten segments called "reaches." In order to implement the Plan along Reach 3, the District needed to purchase a piece of land ("Parcel") that was owned by Milwaukee County. Up to that point, the County had refused to allow the District to perform soil testing on the Parcel to check for pollution. James Ibach, a design and construction manager for the District, recommended that District policymakers consider procuring environmental liability insurance "to protect the risk that the District might be exposed to in the event that we encountered pollutants on the property during construction." Therefore, before purchasing the Parcel the District set out to procure such insurance.

In late 1998, representatives from the District and its retail insurance broker, Sedgwick of Illinois, Inc., had a meeting during which environmental insurance coverage for "Lincoln Creek" was discussed. In December 1998, Glinda Loving, the District's risk management coordinator, provided Sedgwick with information about the District's desired pollution coverage for "Lincoln Creek, " including excerpts from a Phase I Study. The Phase I Study was a 270-page document entitled, "Draft Preliminary Environmental Site Assessment of Lincoln Creek From Reach 1 Through Reach 6, Lincoln Creek Flood Control Design Phase II, Milwaukee, Wisconsin." Loving believed "Lincoln Creek" referred to the Parcel and mistakenly thought the Phase I Study was limited to the Parcel. In fact, the Phase I Study did not contain any specific description of the Parcel. After receiving the voluminous document, Sedgwick did not determine precisely what "Lincoln Creek" meant, other than a piece of land the Phase I Study supposedly described that the District might buy from the County for $1.00.

On December 7, 1998, Barbara Piller of Sedgwick contacted Tim Turner at Crump, ¹ a wholesale insurance broker, to place environmental coverage for the District on the Parcel. Sedgwick provided Crump with a complete copy of the Phase I Study. Sedgwick also asked Crump whether that would be sufficient information for an underwriter to determine whether to provide coverage for the property. On February 25, 1999, the District authorized Sedgwick to bind coverage for five properties: two treatment plants, a garage maintenance facility, a fill-monitoring facility, and "Lincoln Creek."² All of the properties except Lincoln Creek were identified by an address; Lincoln Creek was identified only by name. Sedgwick forwarded the District's order to bind coverage to Crump, which then faxed the order to the insurer, AISLIC. The next day (February 26), AISLIC faxed Crump a confirmation that it had bound coverage. Crump immediately passed that information along to Sedgwick and indicated that Lincoln Creek was a covered property. Crump also told Sedgwick that AISLIC needed a completed application from the District because the prior quote from November 1997 had expired. On March 1, AISLIC faxed Crump a binder specifying the insured properties; Lincoln Creek was not one of them. The next day, Crump noticed that Lincoln Creek was not listed as an insured property on the binder and informed AISLIC that Lincoln Creek would be on the application that the District was submitting. Crump then added Lincoln Creek to the list of insured properties, placed the altered binder on its letterhead, and faxed it to Sedgwick. In the altered binder, Crump indicated that coverage was subject to the receipt and satisfactory review of an application with site addresses for the insured properties by March 5.³ A few minutes later, Crump faxed the altered binder to AISLIC. Later that day (still March 2), AISLIC responded to Crump's fax, objecting to Crump's inclusion of Lincoln Creek on the binder and unequivocally stating that it was not an insured property.

On March 5, Sedgwick forwarded the District's completed application to Crump. Four properties were listed in the application, each accompanied by an address and an operations description. A fifth property, "Lincoln Creek, " was described only by name; no address or operations descrip-tion was provided. The only information about "Lincoln Creek" on the application was the name of Glinda Loving as a contact person and a general reference to the Phase I Study. On March 8, a few days after Crump sent AISLIC the District's application, AISLIC informed Crump that it was unwilling to include Lincoln Creek on the Policy as an insured property because underwriting guidelines required an insured property be owned by, leased by, or in the operational control of an insured. The next day, AISLIC sent Crump a letter setting forth the properties that would be included on the Policy. In addition to the four facility properties listed on the original binder, a fifth property at 4830 N. 32nd Street in Milwaukee was listed. AISLIC indicated that it believed the District had a location at that address and would add it to the Policy if the District still had control over it.⁴ AISLIC also stated that coverage for Lincoln Creek would have to be provided by a separate CPL (contractor's pollution liability) project policy inasmuch as the District was engaged in a multi-year project involving various activities along the entire creek. AISLIC asked Crump to advise it on how to proceed regarding the Lincoln Creek project. On March 12, Tim Turner at Crump sent Joe Spina at Sedgwick a fax indicating that AISLIC was "having difficulty adding the entire 'Lincoln Creek'" to the policy and could only add "the portion that the insured owns, and/or operates." The fax also asked Sedgwick to provide "an address for [the District's] property on the creek" and reiterated that "the insured must own or operate the property in order to schedule it." Turner re-sent the same fax to Sedgwick on March 29. This time he pencilled in Piller as an additional recipient and wrote, "Urgent!" on the front of the memo. Sedgwick did not notify the District of any of the information from the faxes. Neither the District nor Sedgwick ever responded to either fax.

On March 16, AISLIC issued a policy for the District that named the four original properties and the 4830 N. 32nd Street location as insured properties. Lincoln Creek was not scheduled as an insured property. Crump sent the policy to Sedgwick on March 22, asking Sedgwick to review it carefully to verify it met Sedgwick's specifications and to advise Crump of any corrections or changes. Five months later in September 1999, Sedgwick forwarded the policy to the District. Glinda Loving reviewed the policy and noticed that it listed the 32nd Street location instead of Lincoln Creek. She contacted Piller at Sedgwick to inquire about the discrepancy. Piller told Loving that the 32nd Street address referred to...