Source: http://www.lexology.com, March 15, 2013
By: David Erickson and Mark Anstoetter
The Illinois Court of Appeals has held that an insured’s alleged sale of tainted drinking water fell within an absolute pollution exclusion in each of eight insurance contracts. Crestwood v. Ironshore Specialty Ins. Co., Nos. 1-12-0112 & 1-12-0227, (Ill. App. Ct. 2/22/13). The Village of Crestwood, its current and past mayors, and others (collectively, the Village) sought a declaration that three excess public entity general liability insurers owed duties to defend or indemnify against a number of lawsuits. The Village had been sued in at least 25 individual and class actions alleging that, after discovering that the groundwater it had used to supply its customers contained perchloroethylene, the Village had mixed the tainted well water with treated water purchased from another municipality and distributed the resulting mixture to Village water customers. None of the plaintiffs alleged that the Village contributed to the well water’s contamination.
The insurance policies all contained a so-called “absolute pollution exclusion.” Although precise language differs, the court stated that the clauses were substantially similar to one from a policy in effect from 1992–1993. That policy expressly excludes coverage for “’bodily injury or property damage’ which would not have occurred in whole or part but for the actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.”
The Village asserted that the exclusion should apply only to “traditional environmental pollution” claims, such as claims for spilled chemical remediation. The court, however, found “no indication in the exclusion itself or in precedent that the exclusion is limited to clean-up costs imposed by environmental laws such as CERCLA [Comprehensive Environmental Response, Compensation, and Liability Act].” Moreover, the court held that “the Village’s knowing contamination of the Crestwood water supply with chemical-laden groundwater and subsequent distribution of that contaminated combination to the community is a textbook example of ‘traditional environmental pollution.’” Finding no duty on the part of the insurance carriers to defend or indemnify, the court therefore upheld summary judgment against the Village.