The pollution exclusion bars coverage, even though the insured is not the original polluter.

Scottsdale Indemnity Co. and National Casualty Co. v. Village of Crestwood, Nos. 11-2385, 11-2556, 11-2583

Type of Case: Insurance Coverage

Practice Area(s): Insurance Insurance Coverage

Lawyer(s): Bradley M. Jones Anthony J. Alt

Office(s): Minneapolis

Date: Mar 5 2012

The Seventh Circuit held that Scottsdale Indemnity Co. and National Casualty Co. have no duty to defend or indemnify the Village of Crestwood, Illinois, regarding claims that it supplied its residents with polluted water for more than twenty years, even though the Village was not the original polluter of the water. The decision is important in delineating the scope of the pollution exclusion, a contentious issue with significant implications for insurers and insureds. Some jurisdictions apply the broad, plain language of the pollution exclusion; others narrow the exclusion so that it has effect only in those situations involving “traditional environmental pollution.” The Seventh Circuit held that even in a jurisdiction such as Illinois, which requires the narrower “traditional environmental pollution” interpretation, the exclusion is not so narrow as to bar coverage only for the original polluter or to claims where environmental clean-up costs could have been or were incurred.

The insurance-coverage dispute arose out of allegations that the Village delivered tap water contaminated with perchloroethylene, vinyl chloride, and dicloroethylene to Village water consumers. Hundreds of the Village’s current and former residents sued the Village in over two dozen lawsuits, alleging they were exposed to contaminated drinking water from 1986-2007. The claimants allege that the contaminated water caused cancer, other serious illnesses, and death.

Scottsdale Indemnity Co. and National Casualty Co. insured the Village under twenty-two liability policies with more than $50 million in coverage limits. They declined to defend and denied coverage based on the pollution exclusion in the policies.
At issue was the scope of the absolute pollution exclusion. Under American States Insurance Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997), courts applying Illinois law do not look solely to the exclusion’s plain language. Rather, Koloms instructs that the exclusion applies only to injuries arising out of “traditional environmental pollution.”

Judge Posner, writing for the Seventh Circuit, rejected the Village’s argument that the pollution exclusion should not apply because it was not the original polluter: “The defendants point out that they didn’t originate the contamination. That is irrelevant. The exclusion is of liability for harms resulting from the ‘dispersal,’ ‘migration,’ or ‘release’ of contaminants, not their creations or just their first distribution.” Though not the original polluter, the Village distributed the chemicals from the water well and “caused” the contamination of its water supply. Further, the court concluded that the exclusion’s wording makes clear that the pollution exclusion is not limited merely to situations where environmental clean-up costs were or could be incurred.

The Seventh Circuit also rejected the Village’s argument that the exclusion should not apply when the insured’s “core business activity” involves distributing the contaminated product. Separating high-risk from low-risk insureds would not be feasible. Moreover, the court rejected the Village’s argument that the lawsuit was not about pollution at all because the Village’s water supply was allegedly below the maximum contaminant level allowed by environmental regulations. The court concluded that contaminant levels are unimportant: “All that counts is that the suits are premised on a claim that the perc caused injuries for which the plaintiffs are seeking damages, and that claim triggers the pollution exclusion.”

The rationale for the decision is based on extensive consideration of the intersection of the economics underlying the exclusion, the nature and pricing of insurance, and the exclusion’s history and wording. Judges Richard A. Posner, Diane P. Wood and David F. Hamilton sat on the panel for the Seventh Circuit.

In this action, Bradley M. Jones and Anthony J. Alt represented Scottsdale Indemnity Company.

To read the opinion, click here.

Back to Experience

Disclaimer

ATTORNEY ADVERTISING.

Some of the content on this website is considered Attorney Advertising under the applicable rules of certain states. Results depend on a number of factors unique to each matter. Prior results do not guarantee a similar outcome.

LEGAL NOTICE AND DISCLAIMER.

This website is provided by Meagher & Geer, P.L.L.P. for information purposes only but may contain information constituting attorney advertising in certain jurisdictions, selected case-related results and/or award information. Results in prior matters do not guarantee results that may be achieved in future matters. Results depend upon a variety of factors unique to each matter. By accessing the Meagher & Geer P.L.L.P. website, you are requesting information. The information you are requesting is not legal advice, advertising or solicitation. Transmission and receipt of the materials on the website do not constitute legal advice, establish an attorney-client relationship, or create any duty of Meagher & Geer, P.L.L.P. to any reader. Unsolicited information sent to Meagher & Geer, P.L.L.P. by persons who are not clients of the firm is not subject to any duty of confidentiality on the part of the firm. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. To the extent that the professional responsibility rules of any jurisdiction require us to designate a principal office or an attorney responsible for this website, Meagher & Geer, P.L.L.P. designates its office in Minneapolis, Minnesota (USA) and its managing partner, William M. Hart.

PRIVACY POLICY.

When you visit www.meagher.com, we do not collect any personally identifiable information about you unless you specifically provide it to use. Any personally identifiable information that you submit to us will be used solely for the purpose of responding to inquiries or requests made by you. Your visit to www.meagher.com is tracked through a standard web traffic statistics program, which keeps records of traffic on this site, as well as numerical counts of visitors by domain, URL, search engine, keywords used and other standard web measurements. To improve your experience on our site, we may use ‘cookies’. Cookies are an industry standard and most major websites use them. A cookie is a small text file that our site may place on your computer as a tool to remember your preferences. You may refuse the use of cookies by selecting the appropriate settings on your browser, however, please note that if you do this you may not be able to use the full functionality of this website. By using the Meagher & Geer, P.L.L.P. website, you consent to our use of your information as described in this Privacy Statement. We reserve the right to change our Privacy Statement at any time without advance notice. Please review the Privacy Policy each time you use the Service.

Contacting Meagher & Geer or one of its attorneys by email does not establish an attorney-client relationship or any other kind of relationship between you and Meagher & Geer.

Do not provide any information you regard as confidential until a formal attorney-client relationship has been established. Any information you provide before establishing an attorney-client relationship will not be regarded as privileged or confidential. Do you wish to proceed?

Contacting Meagher & Geer or one of its attorneys by email does not establish an attorney-client relationship or any other kind of relationship between you and Meagher & Geer.

Do not provide any information you regard as confidential until a formal attorney-client relationship has been established. Any information you provide before establishing an attorney-client relationship will not be regarded as privileged or confidential. Do you wish to proceed?

Contacting Meagher & Geer or one of its attorneys by email does not establish an attorney-client relationship or any other kind of relationship between you and Meagher & Geer.

Do not provide any information you regard as confidential until a formal attorney-client relationship has been established. Any information you provide before establishing an attorney-client relationship will not be regarded as privileged or confidential. Do you wish to proceed?

Meagher & Geer

Meagher & Geer