A split appeals court has ruled an insurance company doesn't have to pay an engineering firm's $18 million settlement with Crestwood residents, who alleged the firm hid that the public water supply was tainted. The judge said coverage is not warranted because the engineering firm was alleged to have acted intentionally, not negligently.
Without the insurance carrier in the picture, it could be difficult for the residents to secure the settlement money.
The Sept. 14 decision was penned by Justice Michael Hyman, with concurrence from Justice John Griffin, of the llinois First District Appellate Court in Chicago. The ruling favored General Casualty Company, of Sun Prairie, Wis., in its action against Burke Engineering Corporation, of Orland Park. Justice Carl Walker dissented, saying even if Burke's actions were only negligent, General Casualty should still potentially be on the hook.
In 2009, residents of the suburban village of Crestwood started suing the village for allegedly concealing for years, from the public and state inspectors, that village drinking water was contaminated with carcinogens. During the time in question, Burke was the village's water engineer. As litigation progressed, plaintiffs said they learned Burke allegedly helped village officials keep the information secret, by fashioning false reports for state regulators.
The suits were consolidated and eventually settled for $18 million, but General Casualty went to court to get a ruling it did not have to cover the settlement. The insurer argued it was not responsible, per its policy with Burke, for intentional acts that caused harm.
Plaintiffs countered General Casualty was obliged to pay, because plaintiffs alleged Burke was negligent in breaching its duty to inform the public about the bad water, and negligence was covered by Burke's policy.
Cook County Judge Neil Cohen sided with General Casualty, saying he "looks at the actual factual allegations, not the label." In Cohen's view, Burke was alleged to have committed intentional acts, regardless that plaintiffs outlined their allegations under a negligence count.
Plaintiffs appealed, but Justice Hyman agreed with Cohen.
"The factual allegations that Burke failed to disclose the contamination and conspired with the Village to hide that fact set forth only intentional conduct," Hyman said.
Hyman pointed out plaintiffs alleged Burke sent a letter telling Crestwood officials its “water system suffered from substantial leaks” and “of the large cost associated with repairing such leaks and recommended that a possible course of action would be to conceal the presence of these leaks from the EPA and other regulatory.”
In addition, Hyman said the negligence count claims Burke "intentionally concealed the fact that it was using well water contaminated with hazardous chemicals to supply tap water to the Plaintiffs."
In dissent, Justice Walker pointed out "no court has determined the accuracy of any of the allegations," leading Walker to pose a question.
"Could a court hold Burke liable even if the citizens of Crestwood failed to prove that Burke expected or intended its actions to cause bodily injury or property damage? To the question correctly stated, this court should answer: 'Yes,the court could hold Burke liable,'" Walker said.
Walker continued: "Even if Burke acted only negligently, without expecting or intending its actions to injure anyone, a court could hold Burke liable for breaching its fiduciary duty to disclose information concerning the water."
General Casualty has been represented by the Chicago firm of Clyde & Co. US.
Burke Engineering has been represented by The Deratany Firm, of Chicago.
In 2013, two former Crestwood water department officials were sentenced to probation for lying about the water to environmental regulators.