Rogers Cartage Co. v. Travelers Indem. Co.

• Decision Date: 05 April 2018
• Docket Number: NO. 5–16–0098,5–16–0098
• Citation: 2018 IL App (5th) 160098,103 N.E.3d 504
• Parties: ROGERS CARTAGE COMPANY, Pharmacia Corporation, and Solutia, Inc., Plaintiffs–Appellees, v. The TRAVELERS INDEMNITY COMPANY and Travelers Property Casualty Company of America, Defendants–Appellants.
• Court: United States Appellate Court of Illinois

2018 IL App (5th) 160098

103 N.E.3d 504

ROGERS CARTAGE COMPANY, Pharmacia Corporation, and Solutia, Inc., Plaintiffs–Appellees,

v.The TRAVELERS INDEMNITY COMPANY and Travelers Property Casualty Company of America, Defendants–Appellants.

NO. 5–16–0098

Appellate Court of Illinois, Fifth District.

Opinion Filed: April 5, 2018

Donna J. Vobornik, John Grossbart, Steven L. Merouse, and Geoffrey J. Repo, of Dentons US LLP, of Chicago, for appellants.

Bernard J. Ysursa, of Cook, Ysursa, Bartholomew, Brauer & Shevlin, Ltd., of Belleville, Charles R. Hobbs II, of Lathrop & Gage LLP, of Clayton, Missouri, and Joseph G. Nassif, of Nassif Law Firm, of Creve Coeur, Missouri, for appellees.

JUSTICE GOLDENHERSH delivered the judgment of the court, with opinion.

¶ 1 This appeal is a consolidation of two declaratory judgment actions related to insurance coverage for environmental contamination and cleanup at two United States Environmental Protection Agency (EPA) Superfund sites located mainly in the Village of Sauget (Sauget) and the Village of Cahokia (Cahokia). Claims were brought against plaintiffs, Pharmacia Corporation (Pharmacia) and Solutia, Inc. (Solutia) (formerly Monsanto Company), inter alia , in underlying litigation ( United States v. Pharmacia Corp., No. 99–63–GPM, 2010 WL 323508 (S.D. Ill.) ) in federal court in the Southern District of Illinois pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) ( 42 U.S.C. § 9601 et seq. (2000) ). The underlying litigation involves numerous direct claims and claims for contribution arising out of or relating to environmental response costs already expended, being expended, and/or to be expended in the future in connection with the two sites.

¶ 2 Rogers Cartage Company (Rogers), a commercial trucking company, was initially sued as a third-party defendant, but the United States soon added direct claims against Rogers under CERCLA. After the United States failed to prove its case against Rogers, the district court dismissed the claims that private parties, including Pharmacia and Solutia, filed against Rogers. The district court found such claims barred as a result of the trial outcome.

¶ 3 In 2007, there was a major shift in the interpretation of CERCLA when the United States Supreme Court found that a defendant in a toxic cleanup of a Superfund site can file a cross-claim against a fellow defendant. United States v. Atlantic Research Corp. , 551 U.S. 128, 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007). Pharmacia and Solutia then filed a third-party claim against Rogers, essentially arguing that Rogers's handling of toxic materials, disposal of cleanup waste, and deposit of those wastes in pools was the cause of the toxic environmental situations in Sauget and Cahokia.

¶ 4 The instant appeal pertains to plaintiffs' assertion that defendants, The Travelers Indemnity Company and Travelers Property Casualty Company of America (collectively, Travelers), were obligated to defend and indemnify Rogers in the underlying litigation pursuant to certain insurance policies issued by Travelers. Travelers disagreed and filed an action for declaratory judgment in the circuit court of Cook County (No. 10–CH–55238). Ultimately, a settlement in the amount of $7.5 million was reached in the underlying litigation without the consent of Travelers.

After Rogers signed the settlement, plaintiffs filed suit for declaratory judgment in the circuit court of St. Clair County (No. 11–MR–27).

¶ 5 The Cook County and St. Clair County cases proceeded simultaneously. However, the bulk of the Cook County lawsuit was transferred to St. Clair County, where the trial court agreed with plaintiffs and granted partial summary judgments in favor of plaintiffs and against Travelers and granted Rogers's petition for fees, costs, and penalties. Travelers now appeals. The specific issues raised in this appeal are (1) whether Travelers breached the duty to defend, (2) whether the pollution exclusions in the policies apply, (3) whether the settlement in the underlying litigation was reasonable, (4) whether Travelers breached the good faith duty to settle, (5) whether Travelers' conduct was vexatious and unreasonable such that an award of attorney fees was proper, and (6) whether the award of $2,665,384.90 in attorney fees was proper. We affirm.

¶ 6 BACKGROUND

¶ 7 Rogers's business includes hauling toxic and hazardous materials. After delivery of such materials, the interior and exterior of its tank trailers are cleaned at trucking terminals. During the 1950s through the 1970s, Rogers operated terminals in Cahokia and Sauget. Rogers first used the Cahokia Terminal, where it used containment ponds for the hazardous materials, but moved to Sauget in 1970, where it utilized the sewer system to transport truck washing waste to the local publicly owned treatment works (POTW). The underlying litigation pertained to two CERCLA Superfund sites, Sauget Area 1 and Sauget Area 2, both named and identified by the EPA.

¶ 8 Area 1 includes three closed landfills (Sites G, H, and I), two former surface impoundments (Site L), one formerly flooded borrow pit that is now filled (Site M), one filled borrow pit (Site N), Dead Creek, and Borrow Pit Lake Area, located within the corporate limits of Sauget and extending into Cahokia and extending west of Illinois Route 3, as well as all other areas immediately adjacent or contiguous thereto. Area 2 includes four closed landfills (Sites P, Q, R, and S) and sludge dewatering ponds (Site O), as well as the contamination in soils, sediment, surface water, leachate, and groundwater located or released therein. Area 2 sites are located within Sauget and extend into Cahokia and East St. Louis. To the extent the contamination has spread from Area 1 to Area 2, any contamination from the Area 1 site is included in the definition of Area 2.

¶ 9 Rogers was first sued in the underlying litigation in the United States District Court for the Southern District of Illinois (district court) as a third-party defendant ( United States v. Pharmacia Corp., No. 99–63–GPM, 2010 WL 323508 (S.D. Ill.) ). The United States later added direct claims against Rogers. The claims alleged Rogers operated truck terminals and truck washing facilities from which hazardous substances were released into the environment. The underlying litigation involved numerous parties and millions of dollars.

¶ 10 Beginning in 1960 and over the course of the next several years, Travelers issued policies of insurance to Rogers which required that, in the event of litigation against Rogers and/or if Rogers became legally obligated to pay damages because of bodily injury or property damage as defined in the policies, Travelers would defend and indemnify Rogers. When Rogers was sued in the underlying litigation, it asked Travelers to defend and to indemnify it pursuant to the policies Rogers purchased from Travelers. In a letter dated June 30, 2000, Travelers (1) agreed to "contribute to the payment of reasonable and necessary fees for defense-related work performed by counsel of Rogers' choice," subject to a reservation of rights, and (2) identified 20 policies pursuant to which it agreed to fulfill its duty to defend.

¶ 11 Attorney Rob Schultz was Rogers's defense counsel of choice throughout the underlying litigation. An opportunity to settle the underlying litigation for $3.54 million arose before the United States was to try its first claims against Rogers and Paul Sauget (Mr. Sauget) (now deceased) in the district court in 2003. At that time, Travelers sent Rogers a letter in which it advised Rogers that Rogers "act in a manner that will best protect its interests with respect to any settlement opportunity." Travelers went on to advise that it would "not consider any resolution which may be reached by Rogers Cartage to be in violation of any policy conditions prohibiting voluntary payment or assumption of obligation." Rogers did not settle, but proceeded to trial.

¶ 12 Mr. Sauget settled during trial. His settlement took the form of a consent decree with the United States. Mr. Sauget's liability was fixed at $9.2 million, of which he paid $60,000 and agreed to pursue insurance for the remainder.

¶ 13 Because the United States failed to comply with disclosure rules, the district court barred several witnesses from testifying, and the United States was unable to meet its burden of proof. In 2004, the district court dismissed the section 113 CERCLA claims that private parties, including Pharmacia and Solutia, filed against Rogers on the basis that such claims were contribution claims barred as a matter of law due to the trial outcome. While the underlying litigation remained open, there were no longer any claims against Rogers.

¶ 14 In 2009, Pharmacia, Solutia, and others (referred to collectively hereinafter as claimants) sought leave to file direct cost recovery claims against Rogers in the underlying litigation for cleanup of Area 1 pursuant to the new interpretation of CERCLA following the Supreme Court's decision in Atlantic Research Corp. , 551 U.S. 128, 127 S.Ct. 2331, 168 L.Ed.2d 28. On January 20, 2010, the district court granted leave to claimants to file section 107 CERCLA claims over Rogers's objection. The district court later determined the claims against Pharmacia and Solutia could proceed.

¶ 15 Rogers tendered the claims to Travelers. In a letter dated May 28, 2010, Travelers once again agreed to contribute to the payment of reasonable and necessary fees for Rogers's defense in the underlying litigation, but reserved its right to contest coverage. Travelers specifically stated that the defense could be conducted by counsel of Rogers's choice "in any manner deemed appropriate to protect the interests of Rogers." Travelers agreed to fulfill its duty to defend Rogers under the 20 policies previously identified.

¶ 16 Travelers later confirmed it issued two additional policies covering the period 1965–67. The...