St. Paul Fire & Marine Insurance Co. v. Lefton Iron & Metal Co.
Annotate this Case
NO. 5-96-0130
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
_________________________________________________________________
ST. PAUL FIRE & MARINE INSURANCE COMPANY ) Appeal from the
and ST. PAUL MERCURY INSURANCE COMPANY, ) Circuit Court of
) St. Clair County.
Plaintiffs and Counterdefendants- )
Appellees, )
)
v. ) No. 88-MR-143
)
LEFTON IRON & METAL COMPANY, INC., )
and LEFTON LAND & DEVELOPMENT COMPANY, )
)
Defendants and Counterplaintiffs and)
Third-Party Plaintiffs-Appellants, )
)
v. )
)
TRANSPORTATION INSURANCE COMPANY, )
COMMERCIAL UNION INSURANCE COMPANY, )
CONTINENTAL CASUALTY COMPANY, GENERAL )
ACCIDENT INSURANCE COMPANY OF AMERICA, )
NATIONAL UNION FIRE INSURANCE COMPANY OF )
PITTSBURGH, PA, RANGER INSURANCE COMPANY,)
and SAFETY NATIONAL CASUALTY CORPORATION,) Honorable
) Richard A. Aguirre,
Third-Party Defendants-Appellees. ) Judge, presiding.
_________________________________________________________________
JUSTICE GOLDENHERSH delivered the opinion of the court:
The instant appeal involves a coverage dispute between
defendants/counterplaintiffs/third-party plaintiffs, Lefton Iron &
Metal Company, Inc. (Lefton Iron), and Lefton Land Development,
Inc. (Lefton Land) (collectively referred to as Lefton), and its
primary insurance carrier, plaintiff/counterdefendant, St. Paul
Fire & Marine Insurance Company and St. Paul Mercury Insurance
Company (collectively referred to as St. Paul), along with third-
party defendants, excess insurance carriers, Commercial Union
Insurance Company (Commercial), Ranger Insurance Company (Ranger),
National Union Fire Insurance Company of Pittsburgh, PA (National
Union), Continental Casualty Company (Continental), Transportation
Insurance Company (Transportation), General Accident Insurance
Company of America (General Accident), and Safety National
Insurance Company (Safety National). St. Paul filed a declaratory
judgment action in the circuit court of St. Clair County, seeking
a determination that it had no duty to defend Lefton in litigation
based on claims of alleged chemical contamination on and under a
42-acre industrial site owned by Lefton Land. Lefton Iron
purchased the site in 1973 and transferred ownership to Lefton Land
in 1984. The other insurers were joined by Lefton, which is
seeking coverage from the insurers for claims during each insurer's
respective policy period of either primary or excess coverage
during the years 1973 through 1986. St. Paul filed a motion for
summary judgment, in which the other insurers ultimately joined.
The trial court granted summary judgment, finding that as a matter
of law the insurers had no duty to defendant Lefton because the
known-loss doctrine precluded Lefton from insuring its liability
for the claims asserted against it. The trial court also ruled as
a matter of law that St. Paul and Safety National, the excess
insurance carrier over St. Paul, had no duty to defend pursuant to
the pollution-exclusion clauses of their policies. On appeal,
Lefton contends that (1) the trial court erred in applying the
known-loss doctrine to the facts of this case, (2) the trial court
erred in finding that no genuine issue of material fact existed as
to Lefton's knowledge of the claims for which it seeks coverage at
the time it purchased the insurance policies at issue herein, (3)
the trial court erred in finding that evidence submitted by Lefton
does not create a disputed issue of fact as to Lefton's knowledge
as relevant to the known-loss issue, and (4) the chemical
contamination alleged in the underlying complaint constituted a
"sudden accident involving pollutants" within the written exception
to the pollution-exclusion clause, thereby making summary judgment
in favor of St. Paul and Safety National inappropriate. We reverse
and remand with directions.
I. FACTS
From 1927 through 1969, the site in question was used for
wood-treatment operations involving the use of various chemical
preservatives, including creosote, creosote solutions, and
pentachlorophenol (PCP). On January 18, 1973, Lefton Iron
purchased the 42-acre industrial site in question from Moss-
American, Inc. (Moss-American), the predecessor in interest of
Kerr-McGee Chemical Corporation (Kerr-McGee), neither of which take
any part in this action. Moss-American and Kerr-McGee merged in
1974. Lefton Iron conveyed the site to Lefton Land on October 31,
1984, by quitclaim deed. The property was originally purchased by
Lefton Iron with the intention of moving its scrap metal operations
to that site, but Lefton Iron decided to keep its scrap metal site
where it was. It is undisputed that neither Lefton Land nor Lefton
Iron ever utilized any hazardous substance at the site. Lefton
never conducted any type of business on the site. The purchase in
1973 was on an "as is" basis. Lefton Iron was "aware of the
existence of two waste water ponds containing oil and other wood
preservatives in solution." Moreover, Lefton Iron expressly agreed
to indemnify and to defend and hold harmless Moss-American.
[Nonpublishable under Supreme Court Rule 23 omitted.]
On June 8, 1981, Kerr-McGee, as past owner of the site, filed
a "Notification of Hazardous Waste Site" with the United States
Environmental Protection Agency pursuant to section 103(c) of the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, also known as the Superfund Act (the Act) (42 U.S.C.A.
9603(c) (West 1995)). On June 23, 1983, Ecology and
Environmental, Inc., filed a preliminary assessment of the site on
behalf of the United States Environmental Protection Agency. The
assessment concluded that there were 11,518 cubic yards of
persistent sludge at the site, containing creosote, polynuclear
aromatic hydrocarbons, and soluble phenolic materials. The
assessment warned of several potential hazards but made few
explicit findings as to pollution at the site. On March 7, 1984,
representatives of the Environmental Protection Agency inspected
the site and took samples from two ponds on the property. An
analysis of the samples showed "definite contamination of the two
on-site ponds and a waste pile [with] a high concentration of
organics." The report went on to state, "[T]his site is definitely
a candidate site for the installation of ground water monitoring
wells." Lefton admits to receiving a copy of this report in late
August or early September 1985. The site was placed on the state
remedial action priorities list. On September 26, 1985, Lefton was
notified that the site had been placed on the list and that the
site would be monitored further.
On November 5, 1985, the Attorney General of Illinois sent
Benjamin Lefton a letter regarding the environmental violations at
the site, mainly due to creosote and creosote wastes. The letter
explained that a multicount complaint alleging numerous violations
of the Illinois Environmental Protection Act (Ill. Rev. Stat. 1985,
ch. 111«, par. 1001 et seq. (now 415 ILCS 5/1 et seq. (West 1996))
and nuisance had already been prepared, with the named defendants
being the former owners, Moss-American and Kerr-McGee, along with
the present owner, Lefton, but that such complaint would not be
filed if the responsible parties voluntarily accepted
responsibility and undertook cleanup operations.
[Nonpublishable under Supreme Court Rule 23 omitted.]
Ultimately, on January 7, 1988, the State of Illinois filed a
complaint (No. 88-CH-4) for preliminary and permanent injunctions
against Moss-American, Kerr-McGee, Lefton Iron, and Lefton Land.
On January 21, 1988, Lefton's counsel sent a letter on behalf of
Lefton Iron and Lefton Land to St. Paul, in which the defense of
No. 88-CH-4 was tendered. Lefton's counsel also demanded
reimbursement for defense costs incurred to that date with respect
to enforcement proceedings in conjunction with the complaint filed
with the Board. On February 10, 1988, St. Paul sent a letter to
Lefton's counsel, declining coverage to both Lefton Iron and Lefton
Land and denying a duty to defend. A month later, Kerr-McGee
entered into a consent decree that settled the State's suit against
it. Kerr-McGee agreed to undertake at its expense any and all
remedial work necessary to protect the public health and the
environment. Neither Lefton Iron nor Lefton Land took any part in
the consent decree.
In an attempt to make Lefton Iron and Lefton Land shoulder at
least some, if not all, of the costs of cleaning the site, Kerr-
McGee filed suit on August 29, 1990, against Lefton Iron and Lefton
Land under the Act. See 42 U.S.C.A. 9601 et seq. (West 1995).
Kerr-McGee made three specific claims against Lefton.
[Nonpublishable under Supreme Court Rule 23 omitted.]
These claims were litigated in the United States District
Court for the Southern District of Illinois. The District Court
agreed with Lefton and ruled against Kerr-McGee on all three
counts. However, the Seventh Circuit Court of Appeals reversed on
all counts in favor of Kerr-McGee. Kerr-McGee Chemical Corp. v.
Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994).
Consequently, Lefton is responsible for all cleanup costs relating
to the site.
With regard to the instant case, St. Paul filed a complaint
for declaratory judgment against Lefton on June 20, 1988. Lefton
filed its answer, affirmative defenses, and claims against St. Paul
and the other insurers on January 6, 1992. Lefton's claims sought
a declaration that the insurance companies have duties under their
respective policies to defend Lefton Iron and Lefton Land and to
reimburse them for defense costs incurred in the defense litigation
concerning the site. On January 20, 1994, Lefton filed a motion
for partial summary judgment, seeking a declaration that St. Paul
was obligated to defend Lefton in actions arising out of ownership
of the site. St. Paul filed its countermotion for summary judgment
and a memorandum in support thereof. The memorandum asserted,
inter alia, that the doctrine of collateral estoppel applies to
this case pursuant to the holding in Kerr-McGee Chemical Corp. v.
Lefton Iron & Metal Co, Inc., 14 F.3d 321, 328 (7th Cir. 1994).
[Nonpublishable under Supreme Court Rule 23 omitted.]
Ultimately, the trial court held that no genuine issue of
material fact existed on the issues of known loss and St. Paul's
pollution exclusion.
[Nonpublishable under Supreme Court Rule 23 omitted.]
Lefton filed a motion for reconsideration, arguing that the
trial court misinterpreted the known-loss doctrine and the
application of St. Paul's pollution exclusion. Safety National,
the excess carrier during the St. Paul policy years, joined with
Lefton in these arguments. In the alternative, Lefton requested
that the issue be certified for interlocutory appeal. Thereafter,
the other insurers filed motions for summary judgment based upon
the known-loss doctrine.
[Nonpublishable under Supreme Court Rule 23 omitted.]
On December 7, 1995, the trial court heard arguments on
Lefton's motion to reconsider, the motions for summary judgment,
and the insurers' motions to strike affidavits. The insurers
pointed out that the Environmental Protection Act, which prohibited
open dumping, had been enacted prior to Lefton's acquisition of the
property and that common law nuisance had existed in Illinois for
100 years or more. Accordingly, the insurers argued they were all
entitled to summary judgment under the known-loss doctrine. The
trial court found for the insurers, denied Lefton's motion to
reconsider, and ordered the parties to propose a joint order. That
order was filed on January 19, 1996, and granted summary judgment
in favor of all insurers but denied the motion to strike. Lefton
now appeals.
II. STANDARD TO BE APPLIED
In Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 607 N.E.2d 1204 (1992), our supreme court set forth the
standard of review in cases involving appeals from summary judgment
rulings.
"In appeals from summary judgment rulings, we conduct a de
novo review. (See Schmolke v. Highland Butterfield, Inc.
(1984), 128 Ill. App. 3d 710, 712-13[, 471 N.E.2d 226, 229];
Fuller v. Justice (1983), 117 Ill. App. 3d 933, 938[, 453 N.E.2d 1133, 1136].) Summary judgment is appropriate when
there are no genuine issues of material fact and the moving
party is entitled to judgment as a matter of law. (Purtill v.
Hess (1986), 111 Ill. 2d 229, 240[, 489 N.E.2d 867, 871].)
Where a reasonable person could draw divergent inferences from
undisputed facts, summary judgment should be denied. Pyne v.
Witmer (1989), 129 Ill. 2d 351, 358[, 543 N.E.2d 1304,
1308]." Outboard Marine Corp., 154 Ill. 2d at 102, 607 N.E.2d
at 1209.
With this in mind, we now begin an analysis of the issues
presented.
III. ISSUES
A. KNOWN LOSS
Lefton contends that the trial court erroneously applied the
known-loss doctrine in granting summary judgment in favor of the
insurers. The trial court found that the insurers had no duty to
defend Lefton because the claims for which Lefton sought a defense
were known to Lefton at the time it acquired the property in 1973.
Lefton insists that while it was aware of the presence of creosote
at the site when it purchased the site in 1973, it was in no way
aware of the extent of the contamination, specifically, that the
contamination would migrate into the groundwater. Lefton asserts
that rather than strictly construing the evidence against the
moving parties, the trial court relied on adverse inferences and
drew assumptions against Lefton which are not supported by the
evidence. For example, Lefton points to the trial court's order in
this case, which provides that "Lefton contracted to purchase, at
a discount, a polluted and polluting parcel of land." Lefton
argues that there is nothing in the record to indicate that Lefton
purchased this land at a discounted price.
The insurers first reply that the purchase agreement signed by
Lefton in October 1972 shows conclusively that Lefton knew that the
site was polluted with "waste water ponds containing oil and other
wood preservatives in solution" and that Lefton, thus, sustained a
known loss as defined by our supreme court in Outboard Marine Corp.
v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 607 N.E.2d 1204
(1992). St. Paul and Safety National further assert that between
the time Lefton purchased the land and the time their policies were
issued to Lefton, the Illinois Environmental Protection Act (Ill.
Rev. Stat. 1971, ch. 111«, par. 1001 et seq. (now 415 ILCS 5/1 et
seq. (West 1996)) was effective and the Comprehensive Environmental
Response Compensation and Liability Act of 1980 (42 U.S.C.A. 9601
et seq. (West 1995)) was passed and Lefton, therefore, was not only
aware of the existence of Federal and State legislation empowering
the government to impose strict cleanup measures but also was aware
that such cleanups were occurring nearby, as evidenced by a
November 17, 1980, local newspaper article produced by Lefton
concerning a polluted site one-sixth mile away from the site in
question. These two insurers point out that on June 8, 1981,
pursuant to the requirements of the Act, Kerr-McGee filed with the
United States Environmental Protection Agency a "Notice of
Hazardous Waste Site" with respect to the instant site.
Furthermore, in May 1983, a site inspection was conducted on behalf
of the United States Environmental Protection Agency, and on June
23, 1983, an assessment report of the site was filed with the
agency. Likewise, National Union asserts that the trial court
properly granted summary judgment in its favor because Lefton knew
or had reason to know when the policy was issued on November 1,
1985, that there was a substantial probability that loss or
liability would ensue due to creosote contamination on the
property.
The purpose of insurance is to protect against misfortune by
permitting one to whom the law assigns the risk of a particular
loss to shift the burden to an institution better able to assume
and manage that risk through diversification of cross-risk
categories. The presence of risk is the essence of an insurance
contract. Accordingly, where there is no risk of loss, as where a
loss occurred prior to the policy taking effect, insurance ceases
to serve its purpose of risk-spreading. United States Liability
Insurance Co. v. Selman, 70 F.3d 684, 690 (1st Cir. 1995). The
standard to be applied is: "[I]f the insured knows or has reason
to know, when it purchases a CGL [comprehensive general liability
policy], that there is a substantial probability that it will
suffer or has already suffered a loss, the risk ceases to be
contingent and becomes a probable or known loss." Outboard Marine
Corp., 154 Ill. 2d at 103, 607 N.E.2d at 1210.
In Outboard Marine Corp., our supreme court specifically
stated:
"There is no bright-line test to determine whether and at
what point in time the insured knew or had reason to know of
the substantial probability of the loss at issue. The extent
of the insured's knowledge of the loss must be determined on
a case-by-case basis. In a motion for summary judgment, the
court must determine whether any factual questions exist with
respect to the insured's knowledge at the time it bought each
policy." 154 Ill. 2d at 104, 607 N.E.2d at 1210.
In that case, the trial court determined that upon receipt of an
administrative order from the Environmental Protection Agency in
February 1976, the insured had knowledge as a matter of law that it
would suffer a probable loss due to PCB contamination at the sites
in question. Accordingly, any policy issued to the insured after
receipt of this administrative order would not provide coverage for
this PCB contamination. The insurers asserted on appeal that the
PCB contamination constituted a known loss because the insured had
knowledge that it was releasing waste material into the environment
as early as 1959. 154 Ill. 2d at 104, 607 N.E.2d at 1210. The
insured, on the other hand, contended that it was only aware of the
possibility that it may have been discharging pollutants and that
it took steps to remedy any such problem so that a loss or
liability would not arise. Accordingly, the insured was aware only
of a risk of liability prior to August 1976, when the Environmental
Protection Agency sent the insured a letter actually confirming the
pollution. 154 Ill. 2d at 105-06, 607 N.E.2d at 1211. After
careful review, our supreme court determined that the trial court
properly found as a matter of law that the February 19, 1976,
administrative order gave the insured knowledge of a substantial
probability that the claims would be made against it for PCB
contamination, that the trial court was correct to invoke the
known-loss doctrine as to the insurer whose policy did not commence
until March 1976 and was correct to grant summary judgment in favor
of this insurer, but that because disputed factual questions
existed concerning the insured's knowledge at the time it purchased
earlier policies from other insurers, the trial court was correct
to deny the other defendant insurers' motions for summary judgment.
154 Ill. 2d at 106, 607 N.E.2d at 1211.
The instant case is similar to Outboard Marine Corp. in that
there are numerous contentions by various insurers as to what point
in time Lefton knew or had reason to know of the substantial
probability of the loss which occurred. The trial court apparently
believed that Lefton knew at the time it purchased the property
that creosote and creosote waste polluted the property and
underlying groundwater to the extent that millions of dollars worth
of cleanup would be necessary in the coming years. We find nothing
in the record to support this finding as a matter of law. Lefton
Iron was in the scrap metal business, and there is little to
support the theory that it knew the hazards of creosote and
creosote waste when it purchased the property. Had Lefton Iron
known the implications of such, it certainly would have not
indemnified Kerr-McGee nor would it have transferred ownership to
Lefton Land in 1984. Moreover, as previously stated, the Act upon
which liability is predicated was not even passed by Congress until
1980. It is much broader than the Illinois Environmental
Protection Act or nuisance law. For example, the Act is a strict
liability statute and makes Lefton liable even though Lefton did
not cause the pollution; it is retroactive, creating liability for
pre-enactment conduct which was perfectly lawful at the time it was
performed; and it creates joint and several liability, making any
party, no matter how small its contribution to the problem,
potentially liable for the entire cleanup cost. See Roger A.
Stetter, Response Strategies for Potentially Responsible Parties at
Hazardous Waste Sites, 37 La. B.J. 71, 72 (1989).
After reviewing the numerous documents, reports, and
assessments that are made part of this record, we find that upon
receipt of the November 5, 1985, letter from the Attorney General's
office, Lefton had knowledge as a matter of law that it would
suffer a probable loss due to contamination at the site it
purchased from Kerr-McGee in 1973. That letter refers to a recent
investigation conducted at the site. This is the first time the
results of the investigation are made clear to Lefton.
[Nonpublishable under Supreme Court Rule 23 omitted.]
The letter goes on to state that a multicount complaint
alleging numerous violations of the Illinois Environmental
Protection Act and nuisance had already been prepared and would be
filed unless the responsible parties, including Lefton, voluntarily
accepted responsibility. However, we believe that numerous factual
questions exist concerning Lefton's knowledge of pollution on the
site before its receipt of this letter. The indemnification
provision cannot be construed to create a presumption that Lefton
Iron knew or had reason to know of a substantial probability that
loss or liability would ensue. Because all policies in issue were
purchased prior to the receipt of the above-referenced letter, we
cannot summarily dismiss any of the insurers based on the known-
loss doctrine, and we find that the trial court erred in doing so.
B. POLLUTION EXCLUSION
Lefton next asserts that the trial court erred in entering
summary judgment for St. Paul and Safety National on the basis of
pollution-exclusion clauses because the chemical contamination
alleged in the underlying complaints constitutes a "sudden accident
involving pollution" within the exception to the pollution-
exclusion clause of St. Paul's and Safety National's policies.
Lefton argues that the supreme court's decision in Outboard Marine
Corp. gives guidance and supports Lefton's assertions that the term
sudden is ambiguous and that it can mean either something happening
unexpectedly, without notice or warning, or something happening
abruptly, rapidly, or swiftly. When a term in an insurance
contract is ambiguous, it should be construed in favor of the
insured, as it was in Outboard Marine Corp. Lefton and Safety
National respond that the exclusionary language found in the
instant contract is distinctive from the language found in Outboard
Marine Corp. and that the term sudden within this context only has
one meaning, namely, a temporal meaning. The insurers insist that
the policy is unambiguous and that the trial court did not err in
this regard. The St. Paul policy states, in pertinent part:
"Exclusions - Claims We Won't Cover
* * *
Pollution. We won't cover injury or damage caused by the
discharge, dispersal, release or escape of pollutants such as:
smoke, vapor, soot or fumes;
acids, alkalis, toxic chemicals, liquids or gases; or
waste material or other irritants or contaminants.
But this exclusion won't apply to sudden accidents involving
pollutants." (Emphasis omitted.)
On the other hand, the pollution-exclusion clause construed by our
supreme court in Outboard Marine Corp. provided, in pertinent part:
"`This insurance does not apply *** to bodily injury or
property damage arising out of the discharge, dispersal,
release or escape of smoke, vapors, soot, fumes, acids,
alkalis, toxic chemicals, liquids or gases, waste materials or
other irritants, contaminants or pollutants into or upon land,
the atmosphere or any watercourse or body of water; but this
exclusion does not apply if such discharge, dispersal, release
or escape is sudden and accidental." (Emphasis added.) 154 Ill. 2d at 118, 607 N.E.2d at 1217.
While these two exclusionary clauses are not identical, they are
certainly similar.
The Outboard Marine Corp. court explained that the term sudden
has two definitions:
"Numerous dictionaries define `sudden' as happening
unexpectedly, without notice or warning, or unforeseen. These
same dictionaries also define `sudden' as abrupt, rapid, or
swift. (See, e.g., Webster's Third New International
Dictionary 2284 (1986); American Heritage Dictionary of the
English Language 1286 (10th ed. 1981); Black's Law Dictionary
1432 (6th ed. 1990).) Courts throughout the country are
divided on the meaning of `sudden' within the instant context.
(Compare, e.g., United States Fidelity & Guaranty Co. v. Star
Fire Coals, Inc. (6th Cir. 1988), 856 F.2d 31, 34 (`sudden' is
unambiguous and is construed to mean `abrupt'); Lumbermens
Mutual Casualty Co. v. Belleville Industries, Inc. (1990), 407
Mass. 675, 680-81, 555 N.E.2d 568, 572 (same); Upjohn Co. v.
New Hampshire Insurance Co. (1991), 438 Mich. 197, 207, 476 N.W.2d 392, 397 (same); Waste Management of Carolinas, Inc. v.
Peerless Insurance Co. (1986), 315 N.C. 688, 693, 340 S.E.2d 374, 381-83, with Hecla Mining Co. v. New Hampshire Insurance
Co. (Colo. 1991), 811 P.2d 1083, 1091-92 (`sudden' is
ambiguous and construed to mean unintended or unexpected);
Claussen v. Aetna Casualty & Surety Co. (1989), 259 Ga. 333,
335, 380 S.E.2d 686, 688 (same); Broadwell Realty Services,
Inc. v. Fidelity & Casualty Co. (1987), 218 N.J. Super. 516,
531-35, 528 A.2d 76, 83-86 (same); United Pacific Insurance
Co. v. Van's Westlake Union, Inc. (1983), 34 Wash. App. 708,
714-15, 664 P.2d 1262, 1265 (same).)" Outboard Marine Corp.,
154 Ill. 2d at 120-21, 607 N.E.2d at 1218.
We believe that these two definitions, when applied to the instant
language, are both reasonable interpretations of the term "sudden"
in the context in which it appears. Here, sudden could mean either
an unexpected accident or an abrupt accident.
Moreover, we agree with Lefton that the many disputes that
have arisen over this issue and their treatment by the courts
reflect an inherent ambiguity caused by the use of the word sudden.
Accordingly, we find the term sudden used in this context to be
ambiguous. In Illinois, ambiguities are to be resolved in favor of
the insured, especially those appearing in exclusionary clauses.
Outboard Marine Corp., 154 Ill. 2d at 121, 607 N.E.2d at 1218. The
Outboard Marine Corp. court addressed this issue at length, and we
need not repeat its reasoning here. We find that the trial court
erred in its construction of the term sudden in ruling in favor of
St. Paul and Safety National on their motions for summary judgment
on their duty to defend Lefton based on the pollution-exclusion
provisions.
C. COLLATERAL ESTOPPEL
Finally, we consider the insurers' contention that Lefton is
collaterally estopped from seeking relief from the trial court's
order due to the opinion issued by the Seventh Circuit Court of
Appeals in Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994). The insurers argue that the issue of
whether Lefton was aware of pollution at the site or whether Lefton
knew that it would likely be subject to legal liability for the
pollution are issues which were fully adjudicated before the
Seventh Circuit. Lefton replies, first, that the insurers have
procedurally waived this issue by failing to raise it before the
trial court and, second, assuming, arguendo, that the issue is not
procedurally waived, it is factually not available because the
issue decided by the Seventh Circuit is not identical to the one
presented here.
The purpose of collateral estoppel, also known as issue
preclusion, is to prevent repetitive litigation of the same factual
issue. Collateral estoppel applies when a party participates in
two separate and consecutive cases arising out of different causes
of action and some controlling factor or question material to the
determination of both cases has been adjudicated against the party
in the former suit by a court of competent jurisdiction. Stathis
v. First Arlington National Bank, 226 Ill. App. 3d 47, 53, 589 N.E.2d 625, 630 (1992). Utilization of collateral estoppel
requires that (1) the issues be identical, (2) there be a final
judgment on the merits, and (3) the party against whom an estoppel
is asserted is a party or in privity with a party to the prior
adjudication. Illinois State Chamber of Commerce v. Pollution
Control Board, 78 Ill. 2d 1, 7, 398 N.E.2d 9, 12 (1979). The party
asserting the preclusion bears the heavy burden of showing with
clarity and certainty that the identical issue was decided in the
prior case. S. & S. Automotive v. Checker Taxi Co., 166 Ill. App.
3d 6, 8, 520 N.E.2d 929, 931 (1988); Benton v. Smith, 157 Ill. App.
3d 847, 853, 510 N.E.2d 952, 956 (1987).
First, we disagree with Lefton that the issue of collateral
estoppel is not procedurally before us because the insurers failed
to raise it at the trial level. Assuming, arguendo, that the three
requirements of collateral estoppel previously set forth were
present here, we would find the present action barred in order to
promote judicial economy. Second, we find that the legal issue
presented here is not identical to the issue decided in Kerr-McGee
Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir.
1994). In that case, the Seventh Circuit found as follows:
"Lefton knew of the pollution at the site when it purchased
the property; its inspection of the site revealed signs of
pollution; soil samples indicated the presence of creosote;
and most importantly, in the contract of sale Lefton expressly
acknowledged the presence of wood preservatives (of which
creosote is one) on the property ***." Kerr-McGee Chemical
Corp., 14 F.3d at 328.
The Seventh Circuit found the indemnification provision to be of
primary significance. For purposes of this appeal, however, we do
not believe that because Lefton expressly acknowledged the presence
of wood preservatives on the property and expressly agreed to
assume all costs of claims pertaining to pollution from Kerr-McGee,
it can be said that Lefton knew the extent of the pollution at the
site or that they would have to pay for the removal of pollution
pursuant to the passage of the Act in 1980. Even the Seventh
Circuit acknowledged in Kerr-McGee Chemical Corp. that "Lefton
might not have foreseen that these chemicals would one day need to
be removed at a substantial price." 14 F.3d at 328. The Seventh
Circuit applied contract principles and found that since Lefton
contractually agreed to indemnify Kerr-McGee against any and all
claims, the question of fault was irrelevant, as was the lack of
foreseeability of the extent of the pollution. 14 F.3d at 328. We
cannot equate knowledge of the existence of an undetermined amount
of wood preservatives on the site with knowledge of a substantial
probability that claims or liability would be attached to Lefton
via a Federal statute which took effect in 1980. See 42 U.S.C.A.
9601 et seq. (West 1995). It is well settled that two causes of
action are not necessarily the same just because they arise out of
the same set of facts. Benton v. Smith, 157 Ill. App. 3d 847, 855,
510 N.E.2d 952, 957. We find that collateral estoppel does not bar
the present action.
SUMMARY
For the foregoing reasons, we reverse and remand to the
circuit court of St. Clair County to resolve the factual issues
surrounding the level of Lefton's knowledge at relevant times and
to determine whether known-loss principles apply to any carriers.
The relevant question on remand, as provided for by our supreme
court in Outboard Marine Corp., is when Lefton knew or had reason
to know that a probable loss or liability would occur due to the
creosote contamination alleged in the underlying complaints.
Outboard Marine Corp., 154 Ill. 2d at 107, 607 N.E.2d at 1212.
Reversed and remanded with directions.
CHAPMAN and KUEHN, JJ., concur.
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