Zurich Insurance Co. v. Carus Corp.

First Division
August 25, 1997

1-96-0885

ZURICH INSURANCE COMPANY, )
)
Plaintiff-Appellee, )
)
v. )
)
CARUS CORPORATION, ) Appeal from the
) Circuit Court
Defendant-Appellant and ) of Cook County.
Counterplaintiff-Appellant, )
------------------------------ ) Honorable
) MARGARET McBRIDE,
(Zurich Insurance Company, ) Judge Presiding.
American Guaranty & Liability )
Company, and Continental )
Insurance Company, )
)
Counterdefendants-Appellees). )

JUSTICE BUCKLEY delivered the opinion of the court:

This case is a declaratory judgment action in which the
parties seek a determination as to whether Zurich Insurance
Company (Zurich), American Guarantee and Liability Insurance
Company (American), and Continental Insurance Company
(Continental) must reimburse Carus Corporation (Carus), under
general liability policies the insurers issued to Carus, for
expenses incurred investigating possible contamination. The
circuit court ruled that the insurers have no duty to defend or
indemnify in the absence of a lawsuit brought against Carus.
Carus now appeals.
Since 1915, Carus has owned and operated a chemical
manufacturing facility in LaSalle, Illinois, through its division
Carus Chemical Company. Carus purchased a series of general
liability policies from Zurich and American covering the period
from 1970 through 1984, and from Continental covering the period
from June 6, 1985, to September 1, 1985. Each policy contained
the following provision:
"The Company will pay on behalf of the
insured all sums which the insured shall
become legally obligated to pay as damages
because of:
Coverage A. bodily injury
Coverage B. property damage
to which this insurance applies, caused by an
occurrence, and the company shall have the
right and duty to defend any suits against
the insured seeking damages ***."
Pursuant to the federal Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) (42 U.S.C.
9601 et seq. (1994)), Carus was placed on a list of waste
disposal sites known as the Comprehensive Environmental Response,
Compensation, and Liability Information System, in August 1990,
because it had operated a chemical facility on the same property
for an extended period of time. CERCLA and its Illinois
counterpart, the Illinois Environmental Protection Act (415 ILCS
5/1 et seq. (West 1994)), impose liability on owners and
operators of facilities that release hazardous substances into
the environment.
In May 1991, the Illinois Environmental Protection Agency
(IEPA), in agreement with the United States Environmental
Protection Agency (USEPA), conducted a preliminary assessment of
the Carus chemical facility (the Carus Chemical action). The
preliminary assessment report recommended that a "Screening Site
Inspection" (SSI) be conducted to determine if there is any
environmental contamination on the site. In November 1991, the
IEPA conducted the SSI. In May 1992, the SSI report was
released, showing the presence of hazardous substances in the
soil and groundwater in and around the facility.
Carus notified its insurers of the SSI results in October
1992. Continental denied coverage; Zurich and American
acknowledged receipt of the claim, but they neither admitted nor
denied coverage.
In December 1992, the final SSI report was released. The
report indicated that contaminants in the soil and groundwater
were sufficient to put Carus on the USEPA's "National Priorities
List" (NPL) of sites targeted for cleanup. In an effort to avoid
being placed on the NPL, Carus petitioned the IEPA to proceed
under its site remediation program (the program). See 415 ILCS
5/58 et seq. (West 1996). This program provides participants
with "expeditious alternatives for the review of site
investigation and remedial activities." 415 ILCS 5/58(4)(West
1996).
After making a payment of $5,000, Carus was accepted into
the program. The program required Carus to conduct a remedial
investigation and feasibility study, consistent with the mandates
of CERCLA, under the supervision of the IEPA. The IEPA then
would use the results of those studies to determine the remedial
action necessary for the site to comply with CERCLA and other
applicable laws.
In October 1993, after acceptance into the program, Carus
received notice that the IEPA was preparing to conduct an SSI on
property formerly owned by the Matthiessen & Hegeler Zinc Company
that is adjacent to the Carus Chemical facility and is now
partially owned by Carus. The SSI occurred in December 1993. In
July 1994, Carus notified Zurich, American, and Continental of
the IEPA's investigation of the Matthiessen & Hegeler property
(the M&H action) as well as the status of the Carus Chemical
action. At that point, all three carriers denied coverage in
both actions.
In November 1994, the IEPA notified Carus that the SSI on
the M&H property had revealed the presence of hazardous
substances. Carus notified its insurers of these results the
following month.
On January 31, 1995, Zurich filed this action in the
chancery division of the circuit court of Cook County seeking a
declaratory judgment that it has no duty to defend or indemnify
Carus in the absence of a lawsuit. Carus filed counterclaims
against Zurich, American, and Continental seeking declaratory
judgments that the insurers are required to defend and indemnify
Carus in the Carus Chemical action and in the M&H action. All
parties filed motions for summary judgment, and on January 31,
1996, the circuit court granted the insurers' motions and denied
Carus' motion. Carus filed its timely notice of appeal on March
1, 1996.
The sole issue in this appeal is whether Zurich, American,
and Continental are required to indemnify Carus for expenses
incurred while participating in the IEPA's site remediation
program.
This case is clearly controlled by the supreme court's
decision in Lapham-Hickey Steel Corp. v. Protection Mutual
Insurance Co., 166 Ill. 2d 520 (1995). In Lapham-Hickey, Lapham-
Hickey Steel Corporation purchased an insurance policy from
Protection Mutual Insurance Company (Protection) that covered
"all risks of physical loss or damage" (166 Ill. 2d at 523) to
certain Lapham-Hickey property and required Protection "to defend
any suit against the Insured alleging liability for such damage."
(166 Ill. 2d at 528.) Two years later, Lapham-Hickey received
notice that the USEPA was planning an investigation of one of the
facilities covered in the policy. (The facility was located in
Minnesota, but Illinois law applied because the policy was issued
and delivered in Illinois.) Several months later, Lapham-Hickey
was notified that the Minnesota Pollution Control Agency (MPCA)
had taken over the investigation. Lapham-Hickey responded by
entering into an agreement whereby it would voluntarily conduct
the investigation itself and the MPCA would issue a "no-action"
letter stating that it had made no determination of whether
Lapham-Hickey was responsible for any contamination to the soil
or groundwater at the facility. Lapham-Hickey's subsequent
investigation of the facility confirmed the existence of
contamination. Lapham-Hickey then filed a declaratory judgment
action against Protection, alleging that Protection had a duty to
reimburse Lapham-Hickey for the costs of the investigation.
Lapham-Hickey, 166 Ill. 2d at 522-28.
The court held that, under the terms of the policy,
Protection had a duty to defend only when a suit was brought
against Lapham-Hickey. Lapham-Hickey, 166 Ill. 2d at 532.
Because the policy did not define the word "suit," it had to
given its ordinary meaning, which is "a proceeding in a court of
law." Lapham-Hickey, 166 Ill. 2d at 531. The court ruled that
neither the initial notice from the USEPA nor the "no-action"
letter issued by the MPCA initiated a suit and, therefore,
Protection had no duty to reimburse Lapham-Hickey for the costs
of its investigation. Lapham-Hickey, 166 Ill. 2d at 533.
The facts in Lapham-Hickey that were critical to the outcome
of that case are present in this case as well. The expenses for
which Carus seeks reimbursement were incurred voluntarily. As in
Lapham-Hickey, each of the policies at issue in this case
provides that "the company shall have the right and duty to
defend any suits against the insured seeking damages." (Emphasis
added.) None of the environmental agencies that took any part in
this matter initiated a "proceeding in a court of law." Lapham-
Hickey, 166 Ill. 2d at 531. Therefore, no "suit" was ever
brought against Carus, and the carriers had no duty to defend
Carus.
Carus maintains that even if there is no duty to defend, the
carriers are under a duty to indemnify that requires them to
reimburse Carus. The purported source of this duty to indemnify
is the policy language that provides that "the Company will pay
all sums which the insured shall become legally obligated to pay
as damages because of *** property damage." However, "where
there is no duty to defend, there will be no duty to indemnify."
Crum & Forster Management Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 398 (1993). As discussed above, the insurers in
this case had no duty to defend because no suit was brought
against Carus. Therefore, the insurers also had no duty to
indemnify. Crum & Foster, 156 Ill. 2d at 398.
Moreover, this action does not seek a declaration as to
whether the insurers are liable for the cost of cleaning up
contaminated property. The issue in this case is whether the
insurers must reimburse Carus for the cost of hiring consultants
and voluntarily conducting its own investigation through the
IEPA's site remediation program. Carus never became "legally
obligated to pay" these costs. No document Carus ever received
in this matter asserted such an obligation, and Carus even admits
that it initiated its involvement in the program voluntarily by
petitioning the IEPA.
Furthermore, the SSI reports on the Carus Chemical and the
M&H sites do not impose liability. They provide conclusions of
tests conducted in the investigation of the sites, but as in
Lapham-Hickey, "these documents by themselves are not complaints
and do not impose liability." Lapham-Hickey, 166 Ill. 2d at 533.
Carus' reliance on Outboard Marine Corp. v. Liberty Mutual
Insurance Co., 154 Ill. 2d 90 (1992), is misplaced. The Outboard
Marine case merely holds that the word "damages," as used in a
general liability policy, "connotes money one must expend to
remedy an injury for which he or she is responsible." Outboard
Marine, 154 Ill. 2d at 116. Any lawsuit seeking to impose
liability for such an injury triggers a duty to defend
"regardless of whether that liability is equitable or legal in
nature." Outboard Marine, 154 Ill. 2d at 117. Therefore, the
court held that actions seeking injunctive relief were "suits
seeking damages," and the insurer had a duty to defend. Outboard
Marine, 154 Ill. 2d at 117.
However, nothing in the Outboard Marine case imposes any
duty on a general liability insurer in the absence of a lawsuit.
The rule coming out of Outboard Marine and Lapham-Hickey is
clear: an insurer's duty to defend and indemnify is triggered by
a suit against the insured, and in the absence of a lawsuit, no
such duty exists. Since no suit was brought against Carus, the
insurers had no duty to defend or indemnify.
For the foregoing reasons, the judgment of the circuit court
of Cook County is affirmed.
Affirmed.
O'BRIEN and GALLAGHER, JJ., concur.