Opinion ID: 3134619
Heading Depth: 2
Heading Rank: 1

Heading: Duty to Defend as to the Mena Site

Text: Ehlco initially contends that the appellate court erred in holding that Wausau had no duty to defend Ehlco as to the Mena site because no true suit was filed against Ehlco concerning that site. According to Ehlco, the appellate court’s holding directly contradicts the plain language of the insurance policies at issue and this court’s opinion in Lapham-Hickey . Ehlco maintains that Wausau’s duty to defend was triggered when the EPA filed its lawsuit against Ehlco in the federal district court in Arkansas. Our decision in Lapham-Hickey is dispositive of this issue. In that case, the EPA began investigating possible environmental contamination at a Lapham-Hickey facility. The Minnesota Pollution Control Agency (MPCA) took over the investigation. During the investigation, the MPCA sent Lapham-Hickey a proposed consent order, which stated that Lapham-Hickey was a PRP and which required certain remedial actions. Lapham-Hickey declined to sign that consent order. Following negotiations, the MPCA issued Lapham-Hickey a “no-action” letter, and Lapham- Hickey agreed to conduct a voluntary investigation of its facility. No suit was ever filed against Lapham-Hickey. Later, upon discovering contamination at its facility, Lapham-Hickey filed its own declaratory judgment action against its insurer seeking reimbursement of costs expended. The insurance policy at issue provided that the insurer would “defend any suit against the Insured” that alleged liability for certain damages. The question presented to this court was whether, although no “suit” was ever filed against Lapham-Hickey, the insurer’s duty to defend was triggered by the MPCA’s proposed consent order or its other actions. We held that because no suit was filed, the insurer’s duty to defend was never triggered. Lapham-Hickey , 166 Ill. 2d at 529- 33. Lapham-Hickey established a bright-line test for determining when a “suit” exists in this context. “Suit” “refers to a proceeding in a court of law” and requires a complaint. Lapham-Hickey , 166 Ill. 2d at 531-32. Neither a PRP letter, a draft consent order, nor a “no-action” letter constitutes a “suit.” Lapham-Hickey , 166 Ill. 2d at 533. In the present case, the comprehensive general liability insurance policies at issue imposed on Wausau the “duty to defend any suit against the insured.” The question to be resolved, therefore, is whether a “suit” was filed against Ehlco sufficient to trigger Wausau’s duty to defend. Under Lapham-Hickey , it is clear that a “suit” was filed against Ehlco with respect to the Mena site. The EPA filed a suit against Ehlco in the federal district court in Arkansas, pursuant to CERCLA, on March 17, 1988. This suit was instituted by the filing of a complaint. The EPA’s action thus constitutes a “suit” because it was a proceeding in a court of law, and it was instituted with a complaint. Nonetheless, Wausau urges us to adopt the appellate court’s reasoning that the Arkansas complaint was not a true suit because it was “a mere formality” and “but an extension or implementation of the administrative proceeding,” since the parties had executed and contemporaneously filed the proposed consent decree with the Arkansas complaint. Wausau claims that there cannot be a suit where one party’s liability in the suit is a foregone conclusion by reason of a previously executed consent decree. Wausau contends that the “any suit” language in its policies cannot be construed to encompass a complaint filed in a court of law, if that complaint is accompanied by a proposed consent decree. We reject this argument. Lapham-Hickey held that the word “suit” is unambiguous in this context and therefore gave the word its plain and ordinary meaning. Lapham-Hickey , 166 Ill. 2d at 531-32. As discussed above, the Arkansas complaint meets Lapham-Hickey ’s definition of suit. Even assuming, arguendo , that Wausau’s interpretation of “any suit” is reasonable, at best it would create an ambiguity in the policy language. “A policy provision is ambiguous only if it is subject to more than one reasonable interpretation.” Lapham- Hickey , 166 Ill. 2d at 530. Wausau’s interpretation would then compete with the definition of suit, set forth above. Where competing reasonable interpretations of a policy exist, a court is not permitted to choose which interpretation it will follow. Outboard Marine Corp. v. Liberty Mutual Insurance Co. , 154 Ill. 2d 90, 108-09 (1992). Rather, in such circumstances, the court must construe the policy in favor of the insured and against the insurer that drafted the policy. American States Insurance Co. v. Koloms , 177 Ill. 2d 473, 479 (1997); Outboard Marine Corp. , 154 Ill. 2d at 108-09. Since Wausau’s interpretation affords less coverage to Ehlco, we would be required to reject it. Wausau’s argument thus fails in any event. Wausau also asserts that Ehlco waived its argument that the Arkansas complaint was a suit requiring a defense. According to Wausau, Ehlco waived this argument in the circuit court when it requested judgment on the pleadings based on the PRP letter. The record does not support Wausau’s waiver argument. The record reveals that the circuit court was presented with argument on the issue of whether the Arkansas complaint was a suit within the meaning of the policies’ language. Ehlco presented a memorandum of law in support of its pleadings in which Ehlco maintained that Wausau’s duty to defend had been triggered. Wausau argued that no triggering event had occurred because there was no suit within the meaning of its policies. Ehlco responded: “Wausau’s claim that the underlying environmental matters were not suits  is plainly wrong. Those matters involved actions filed in federal courts  and a  [PRP] letter from the [EPA].” In support of this assertion, Ehlco directed the circuit court to the copies of the complaints filed in both the Wyoming and Arkansas actions. Given that Ehlco argued to the circuit court that the Arkansas complaint was a suit requiring a defense, this claim was preserved. That Ehlco also argued in the circuit court that Wausau’s duty to defend was triggered by the PRP letter is of no consequence with regard to waiver. Therefore, Wausau’s waiver argument is without merit. In accordance with the above holdings, we reverse the appellate court’s determination that Wausau owed no duty to defend with respect to the Mena site because no sufficient suit was filed. Wausau, however, asserts other arguments concerning its duty to defend Ehlco with respect to the Mena site. We address these arguments below.
Wausau claims that it owed no duty to defend the 1988 Arkansas complaint concerning the Mena site because Ehlco failed to tender its defense of that suit to Wausau. Relying on Institute of London Underwriters v. Hartford Fire Insurance Co. , 234 Ill. App. 3d 70 (1992), Wausau insists that an insured must tender its defense to an insurer in order to trigger the insurer’s duty to defend. A tender pursuant to Institute of London Underwriters required the insured to notify the insurer that a suit, which potentially falls within the policy coverage, was filed and that the insured desires the insurer’s assistance in defending the suit. Wausau contends that Ehlco failed to tender its defense to Wausau and, as a result, Wausau’s duty to defend was never triggered. This court recently rejected the tender requirement set forth in Institute of London Underwriters . In Cincinnati Cos. v. West American Insurance Co. , 183 Ill. 2d 317 (1998), we held that the lack of a tender by the insured does not relieve the insurer of its duty to defend if the insurer had “actual notice” of the underlying suit. “[A]ctual notice” means that the insurer knows both “that a cause of action has been filed and that the complaint falls within or potentially within the scope of the coverage of one of its policies.” Cincinnati Cos. , 183 Ill. 2d at 329-30. The pleadings here do not disclose whether Ehlco tendered its defense of the underlying Arkansas suit to Wausau. We therefore consider whether Wausau had actual notice of the suit. The pleadings, however, are also silent on the factual issue of whether Wausau had actual notice that the Arkansas suit had been filed. Because the pleadings fail to demonstrate that Wausau had actual notice of the Arkansas suit, which would trigger Wausau’s duty to defend that suit, we must affirm the appellate court’s reversal of the circuit court’s grant of Ehlco’s motion for judgment on the pleadings with regard to the Mena site. The pleadings before us do not entitle Ehlco to judgment as a matter of law. We note, however, that in the circuit court Ehlco prevailed in its motion for judgment on the pleadings with regard to the Mena site because the court was persuaded that Wausau’s duty to defend had been triggered by events that preceded the filing of the 1988 Arkansas suit, particularly the EPA’s 1982 PRP letter. This result is not surprising given that, when the circuit court ruled upon the pleadings in 1994, notice of a PRP letter had been held sufficient to trigger the duty to defend. See United States Fidelity & Guaranty Co. v. Specialty Coatings Co. , 180 Ill. App. 3d 378 (1989), overruled , Lapham-Hickey , 166 Ill. 2d 520. Consequently, there was no need in the circuit court for Ehlco to raise arguments pertaining to tender or actual notice of the Arkansas complaint, and the parties did not design their pleadings to address such issues. Under these circumstances, we hold that the parties should be given the opportunity to amend their pleadings to address the actual notice issue in the circuit court. Despite this omission in the pleadings, Ehlco attempts to preserve its judgment on the pleadings as to the Mena site by pursuing another argument. In addressing Wausau’s tender contention, Ehlco asserts that, under the facts of this case, Wausau should be equitably estopped from requiring any further notice from Ehlco because Wausau had already flatly denied coverage to Ehlco on other grounds in 1982 and continuing through 1983. The pleadings show that Ehlco first advised Wausau of the EPA’s intention to assert CERCLA liability against it on March 18, 1982. Ehlco wrote that although it had “received no formal notice,” it had been informed by the EPA of its intentions to assert CERCLA liability against it with regard to the Mena site. The letter stated: “We therefore hereby give you notice of such claims.” On March 29, 1982, Wausau responded by letter that its policies did not appear to provide coverage for the potential claim. Wausau stated that there was no coverage for property damage occurring after the policies expired in 1971, and that one of the policies contained a pollution exclusion clause. Ehlco maintains that this March 29, 1982, letter from Wausau constituted a flat denial of coverage on grounds other than notice. The pleadings further disclose that, on August 2, 1982, and again on March 8, 1983, Ehlco wrote to Wausau and requested it to reconsider its refusal to defend Ehlco against the EPA’s investigation and proceeding concerning the Mena site. Wausau apparently did nothing in response. Ehlco asserts that Wausau’s repeated failures to retract its earlier denial of coverage left Ehlco with no doubt that Wausau would not treat the Mena site as covered. Ehlco insists that, given Wausau’s actions in 1982 and 1983, Ehlco was not required to give Wausau any further notice regarding the subsequent lawsuit, which was filed by the EPA on March 17, 1988. Rather, Ehlco’s position is that Wausau should be equitably estopped from asserting further notice requirements of Ehlco. We decline Ehlco’s invitation to equitably estop Wausau based on the pleadings before us. As with the actual notice issue discussed above, the parties did not design their circuit court pleadings to address this theory of the case. Consequently, the parties should be given the opportunity to raise and rebut this argument in the circuit court in the first instance.
In summary, we hold that the 1988 Arkansas suit was a suit within the meaning of Lapham-Hickey . We therefore reverse the appellate court’s determination that Wausau owed no duty to defend with respect to the Mena site because no sufficient suit was filed. We nonetheless affirm the appellate court’s reversal of the circuit court’s grant of Ehlco’s motion for judgment on the pleadings with regard to the Mena site, but for a different reason. Ehlco is not entitled to judgment on the pleadings as to the Mena site because the pleadings fail to demonstrate that Wausau’s duty to defend the Arkansas suit was properly triggered by actual notice of that suit. As explained above, the parties should be given the opportunity to amend their pleadings to address the actual notice and equitable estoppel issues in the circuit court. Wausau argues that, if this court holds that Wausau had a duty to defend with respect to the Mena site, then we must remand this matter to the appellate court for consideration of issues which Wausau raised but the appellate court did not reach as to that site. Wausau offers no description of the issues that remain to be addressed by the appellate court. Rather, Wausau cites to a footnote in the appellate court decision, which states: “In addition, on appeal Wausau contends that the trial court erred in entering judgment on the pleadings with respect to the Mena site without first permitting Wausau to file an answer to Ehlco’s Mena counterclaim; erred in denying Wausau’s motion to dismiss Ehlco’s Mena counterclaim on statute of limitations grounds; and erred in denying Wausau the opportunity to conduct discovery regarding its duty to defend in the underlying Mena proceedings. However, based upon our disposition of the coverage issue with respect to the underlying Mena proceedings , we need not address these contentions in our decision.” Slip op. at 15 n.4 (material unpublished under Supreme Court Rule 23 (166 Ill. 2d R. 23)). These issues have not been raised or briefed in this court. Nonetheless, where errors were raised but not ruled upon in the appellate court, it is appropriate for this court to remand the cause to the appellate court for resolution of the issues that remain. People v. Lowery , 178 Ill. 2d 462, 473 (1997); Suwalski v. Suwalski , 40 Ill. 2d 492, 501 (1968). Therefore, pursuant to Wausau’s request, we remand this cause first to the appellate court for consideration of any issues that were raised, but which the appellate court did not reach as a result of its Mena rulings. On remand, the appellate court should be cognizant of the rulings in this opinion and proceed accordingly. The appellate court need resolve only those issues that it deems appropriate for resolution, in light of our holdings here. After resolving these issues, the appellate court should remand this cause to the circuit court for further proceedings consistent with this opinion, unless the appellate court’s resolution of the issues before it makes such further proceedings improper or unnecessary.