"VOLUNTARY" ENVIRONMENTAL CLEANUP EXPENSES COVERED

Commercial General Liability	Legal Obligation
Pollution Cleanup

Central Illinois Light Company (CILCO) operated manufactured gas plants. Tar was one of the by-products of the manufacturing process and it was stored in containment structures used at the sites. Over the years, tar leaked from the structures and caused soil and groundwater contamination. When CILCO learned of the contaminated sites, it voluntarily entered into a cleanup agreement with the Illinois Environmental Protection Agency (IEPA). CILCO eventually completed all cleanup work and was released from further responsibility under the Illinois Environmental Protection Act. CILCO then filed claims under 72 different insurance policies with a number of insurance companies (Home) covering the periods 1948-1985 for indemnification of the costs it incurred in the cleanup.

Home argued they were not required to indemnify CILCO for environmental cleanup expenses. They argued that the language of the policies required CILCO to have a "legal obligation" to pay before they were required to indemnify, and that this legal obligation had to arise from a legal proceeding, such as a lawsuit. The trial court agreed, reasoning that the insurers were not legally obligated to pay because a "suit" had not been filed against CILCO. CILCO appealed.

The appellate court reversed the trial court's decision. It found that the concept of "legal obligation" or "liability imposed by law," language found in the policies, was broader than the existence of a suit or judgment. It stated that CILCO's cleanup of the sites was not purely voluntary. Even though the IEPA did not adopt an adversarial posture toward CILCO, CILCO was legally obligated under federal and state laws to comply with mandatory environmental regulations. As a result, CILCO was "legally obligated" to remediate the environmental contamination at the sites as provided in the policies.

The trial court's ruling granting summary judgment in favor of the Home on the issue of indemnity was reversed.

During the cleanup process, a property developer filed a lawsuit against CILCO, claiming that tar residue had been found in the soil and groundwater of property adjacent to the cleanup site. The suit was eventually dismissed but CILCO spent approximately $350,000 in defending it. So CILCO sought to also recover these costs under its insurance policies. The trial court noted that the CILCO policy was an excess policy that did not include defense coverage and denied coverage that was affirmed by the appellate court.

Central Illinois Light Company vs. Home Insurance Company et al., No. 3-02-0415-Appellate Court of Illinois, Third District--August 7, 2003--795 North Eastern Reporter 2d 412