No Coverage for Town That Used Tainted Water

     CHICAGO (CN) – An insurance company can use the “pollution exclusion” to disclaim a Chicago suburb that circulated water from a contaminated well, the 7th Circuit ruled.
     The village of Crestwood is an 11,000-resident suburb of Chicago. Around 1985, the mayor and other village officials learned that one of the wells used to supply residents with water had been contaminated by perchloroethylene dry-cleaning solvent. Perc or PCE, as it is commonly known, is a carcinogenic that is more difficult to clean than oil spills.
     Despite knowing that a local dry cleaner had leaked the perc into the groundwater, Crestwood officials continued to use the well as a daily water source until 2007. It was finally sealed in 2009.
     When Crestwood residents learned of the contamination from a Chicago Tribune article, hundreds filed suit. Illinois is also suing to have Crestwood finance a site inspection and cleanup efforts.
     Crestwood’s liability insurance company, Scottsdale Indemnity Co., sought a declaration that it did not have to defend the tort suits or indemnify the village if it lost. The company cited the “pollution exception” in its policy, which precludes covering personal injury suits, property damage and clean-up costs caused by the “discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”
     Finding that perc clearly qualified as a pollutant under the exclusion, and constituted “traditional environmental pollution” as defined by the Illinois Supreme Court, U.S. District Judge Virginia Kendall granted summary judgment in favor of Scottsdale.
     Though the 7th Circuit affirmed Monday, it noted that the history of the pollution exception and its use within the insurance industry requires a thorough analysis.
     “The problem with stopping there and affirming the District Court in one sentence is that a literal reading of the pollution exclusion would exclude coverage for acts remote from the ordinary understanding of pollution harms and unrelated to the concerns that gave rise to the exclusion,” Judge Richard Posner wrote for the court.
     The 15-page opinion distinguished between the types of activities that would fall under the exception and those that would not.
     “Suppose a tanker truck filled with perc crashes into a bridge abutment, spilling its liquid cargo, and another vehicle skids on the wet surface of the highway into the abutment, injuring the driver,” Posner wrote. “Perc is both a contaminant and a cause of the bodily injuries in this example. But it would be absurd to argue – and the insurers do not argue – that a claim arising from such an accident would be within the pollution exclusion.”
     The development of the pollution exclusion, which developed into its current form after passage of the 1980 Comprehensive Environmental Response, Compensation, and Liability Act, is intended to prevent insurance premiums from skyrocketing to cover the hard-to-predict and expensive-to-cover effects of environmental litigation.
     “If the insurers can’t determine how likely a would-be buyer of insurance is to pollute, coverage would force enterprises that have a slight risk of liability for causing pollution damage to subsidize the premiums of high-risk potential polluters,” Posner wrote.
     The three-judge panel also rejected Crestwood’s contention that liability should be limited to cases where it actually caused the contamination, comparing the argument to “a murderer arguing that his victim was killed not by him but by his gun.”
     “The village ’caused’ the contamination of its water supply (it could have sealed the well a quarter of a century ago, when it discovered the well was contaminated) in a perfectly good sense of the word,” Posner wrote.
     “The contamination had an infinity of authors, not only the Village and its officials but also the inventor of perc, the founder of Crestwood, and maybe Jean Baptiste du Sable, who built a farm at the mouth of the Chicago River in the 1780s and is thought to be the first permanent non-native settler of the Chicago area,” he added. “None of the other authors could be thought to have caused the contamination and resulting injury in a sense of ’cause’ that is relevant to legal liability.”
     Crestwood will now have to provide its own defense in the cases and pay damages directly if it loses.

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