A state appeals panel says an insurer must pay to help the city of Sycamore replace derelict water mains, which had contaminated the city's water supply.
Sycamore residents Jennifer Campbell and Jeremy Pennington filed a putative class action complaint against the city alleging the city’s failure to maintain its water mains had harmed Sycamore’s residents by providing them with unsafe drinking water and damaging equipment that used water in their homes.
Sycamore then filed a claim, demanding its insurers, LM Insurance Corporation and Liberty Insurance Corporation, help cover their defense and indemnify the city against the case.
Liberty denied coverage and filed an action for declaratory judgment, asserting the policies it had issued to Sycamore didn’t provide coverage.
DeKalb County Circuit Judge Bradley Waller agreed with the insurers, and granted Liberty judgment on the pleadings. Sycamore appealed from that order. A three-justice panel from the Illinois Second District Appellate Court reversed the DeKalb County judge's ruling, and remanded for additional proceedings.
The appellate opinion was authored by Justice Mary Schostok on June 8. Justices Ann Jorgensen and Christopher Kennedy concurred in the judgment.
On appeal, Sycamore argued the trial court erred in interpreting the insurance contract between Liberty and Sycamore and determining that Liberty did not owe a duty to cover the city.
Sycamore contended the pollution and lead exclusions in Liberty’s policies don’t negate Liberty’s duty to defend it in the underlying lawsuit. Sycamore argued the pollution exclusion applies only to “traditional environmental pollution,” which it insisted is not what the underlying complaint alleged.
The panel said the dispositive question is whether the iron, lead, and bacteria that Sycamore allegedly distributed to its residents constituted “traditional environmental pollution” or “pollution harms as traditionally understood.” The panel held it didn’t.
Liberty alleged Sycamore didn’t repair for decades century-old water mains that sat in highly corrosive soils that ate away at the iron water mains, “leading them to disintegrate and crumble underground.” The disintegrating water mains then led to iron, bacteria, and lead being distributed to the Sycamore community. There was no release, discharge or escape of a pollutant into the ground that caused the groundwater to become contaminated. Rather, the complaint alleged the water did not become contaminated until it was already in Sycamore’s water pipes. Although the complaint alleged residents were harmed by pollutants, this is not equivalent to asserting they were harmed by “traditional environmental pollution,” the panel said.
The panel further noted Liberty pointed to no cases in which degrading water mains that cause lead, iron, and bacteria to be distributed to the community constitute “traditional environmental pollution.”
The panel also addressed the trial court’s determination that the lead exclusion in the policies was a basis on which to award Liberty judgment on the pleadings.
The underlying complaint alleged Sycamore had allowed its cast iron mains to deteriorate, which allowed large amounts of iron particulate to enter the city’s water supply, which then entered people’s homes, staining tubs, dishes, and other personal items, while also negatively impacting the taste and appearance of the water. The complaint also asserted the iron interfered with treatments the city adds to the water to protect residents.
Without this protection, lead from solder, joints, service lines, and plumbing have contaminated water throughout Sycamore’s system, leading to high lead levels in homes. The complaint further alleged the iron interacted with the chlorine treatments, allowing bacteria to flourish. The “waterborne bacteria [then] seriously threatens the health of the residents, allowing harmful—and possibly even fatal—diseases.”
The allegations don’t suggest all the plaintiffs’ problems arose from exposure to lead, the panel found. If any one thing was the cause of all the problems they suffered, the allegations suggest the cause was iron, as that in turn caused the problems with the lead and the bacteria. As the underlying complaint does not indicate all of the problems arose from exposure to lead, the lead pollution exclusion is not a basis on which to determine Liberty did not owe Sycamore a duty to defend or indemnify.
Liberty also asked the panel to affirm on the alternate basis there was never an occurrence in this case. Liberty pointed out the insurance contract provided coverage only if there were an “occurrence.” The policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Illinois courts have defined “accident” as an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned, sudden or unexpected event of an inflictive or unfortunate character.
In arguing that Sycamore’s actions constituted a “nonoccurrence” that never triggered Liberty’s duty to defend or indemnify, Liberty pointed to the principle that the “natural and ordinary consequences of an act do not constitute an accident.” Liberty asserted the natural and ordinary consequences of Sycamore’s decision to defer maintenance on its water mains for decades is that those mains would deteriorate and cause problems for its residents. Liberty insisted it owed no duty to defend or indemnify Sycamore.
LM Insurance Corporation and Liberty Insurance Corporation were represented by Matthew O. Sitzer, Matthew C. Wolfe, Kathleen M. Ryan and Tara D. Kennedy, of Shook, Hardy & Bacon, of Chicago.
The city of Sycamore weas represented by attorneys Angela R. Elbert, Paul Walker-Bright and Benjamin Boris, of Neal, Gerber & Eisenberg, of Chicago.