Lack of Insurance Coverage under an Absolute Pollution Exclusion
In The Village of Crestwood v. Ironshore Specialty Insurance Company, Village of Crestwood, Illinois, and the town’s former long-standing mayor, Chester Stranczek (together Village or Crestwood), filed this declaratory judgment action seeking a declaration that three excess public entity general liability insurers owed duties to defend or indemnify against at least 25 individual and class action lawsuits, alleging the Village knowingly and routinely mixed cheap, polluted water into the municipal tap water supply in order to cut municipal expenses.
The underlying complaints against the Village assert various theories of liability, such as negligence, fraud, failure to warn, willful and wanton misconduct, and breach of contract. The pleadings typically allege as follows. Crestwood is a Chicago suburb of approximately 11,000 residents and 550 businesses. Stranczek was Crestwood’s mayor between 1970 and 2007, and upon his retirement, he appointed his son, Robert Stranczek, to fill the post. During 1985 or 1986, the Illinois Environmental Protection Agency (IEPA) notified the Village that a groundwater well the Village was using to supply tap water to the Crestwood community was contaminated with a solvent used in the dry cleaning industry, perchloroethylene or PCE, and other chemicals that occur when PCE breaks down over time. Exposure to these chemicals is linked to human health issues such as cancer, liver damage, and neurological impairment. None of these chemicals occurs naturally in the environment. Although the IEPA told the Village it could no longer use the affected well except in emergencies and the Village responded that it would stop distributing water from the well, the Village subsequently began to routinely mix polluted well water with treated Lake Michigan water it purchased from the neighboring community of Alsip and then supply the polluted combination as the community’s tap water. Also, the Village allowed a private firm that was investigating the dry cleaning firm to take samples from the municipal well and was informed in mid 1998, along with the IEPA, that this additional sampling detected contamination. Nevertheless, the Village used the well to provide up to 20% of the community’s tap water in any given month, as a cost-saving measure. The Village continued this practice for at least two decades. The federal Safe Drinking Water Act (42 U.S.C. § 300f et seq. (1976)) required the Village to annually issue water quality reports to its customers, and in the Village’s “consumer confidence reports,” it falsely stated that 100% of the water it was supplying was treated Lake Michigan water.
During the years the Village was engaging in these practices, it was purchasing public entity general liability insurance. According to the Village, the policies provided excess or umbrella coverage and included a duty to defend the Village. Regardless, it is undisputed whether each of the subject policies contains an exclusion for pollution claims. If the claims are excluded from coverage, there are no duties to defend or indemnify.
Absolute pollution exclusions eliminate coverage for injury or damage for a wide variety of claims. The exclusion clause at issue here excludes coverage for “bodily injury or property damage, which would not have occurred in whole or in part, but for the actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” The Ironshore policy defines the term “pollutants” to mean “any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalies, chemicals and waste.”
The issues before the court is whether the policies’ absolute pollution exclusions precluded coverage for the numerous complaints, which alleged the Village knowingly mixed contaminated water into Crestwood’s public water supply.
All the underlying complaints against the Village are based on its contamination of the municipal tap water supply with “pollutants” and, thus, are within the scope of the exclusions. The court finds no indication in the exclusion itself, or in precedent, that the exclusion is limited to clean-up costs imposed by the environmental laws. The exclusion is unqualified and absolute and entirely precludes coverage of bodily injuries or property damage arising out of the discharge, dispersal, release, or escape of pollutants. The underlying complaints allege bodily injuries or property damage arising out of the Village’s discharge, dispersal, or release of pollutants into the community’s tap water. “Initially, the contamination was confined to the groundwater drawn by the well. But by distributing the water to the residents of Crestwood, the Village caused the [toxic chemicals] to migrate throughout the Village and inflict (or so it is alleged) widespread personal injuries, along with contamination of soil or structures that is likely to be costly to eliminate.
The court rejected the Village’s contention that the pollution exclusions do not apply when alleged emissions are within permitted legal standards, even where the insured is an active polluter. The Village is arguing that the contaminant levels were below the maximum amounts permitted by the Safe Drinking Water Act (42 U.S.C. § 300f et seq. (1976)) or other environmental regulations. The Village, however, did not have a permit to distribute any water from the contaminated well. The facts do not support the Village’s contention.
The court held that under absolute pollution exclusions, insurance policies did not provide coverage for claims asserting village knowingly mixed contaminated water into the municipal water supply.
The Village of Crestwood v. Ironshore Specialty Insurance Company, 986 N.E.2d 678 (Ill.App. 1 Dist., 2013)).
