Opinion ID: 795201
Heading Depth: 2
Heading Rank: 2

Heading: The Wausau Policies

Text: 19 Keystone purchased both general liability and excess umbrella policies from Wausau beginning in 1942 and continuing through 1987. The general liability policies cover Keystone from 1942 into the 1980s; the excess umbrella policies cover Keystone from 1969 through 1979. Although each of the general liability and excess umbrella policies is somewhat unique, Wausau used two basic insuring agreements for the general policies and two basic insuring agreements for the excess umbrella policies. 20 Each of Keystone's general liability policies contains a duty-to-defend provision requiring Wausau to defend any suit against the insured seeking damages on account of property damage. Keystone concedes that under these general liability policies, Wausau's obligation to defend is triggered only by the filing of a suit. The term suit, under Illinois law, requires the commencement of some action in a court of law before an insurer's duty to defend is triggered. Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 166 Ill.2d 520, 211 Ill.Dec. 459, 655 N.E.2d 842, 847 (Ill.1995). 21 But, as earlier explained, the fact that Wausau's duty to defend does not arise unless a lawsuit is filed does not mean that Wausau's duty to indemnify depends on the filing of that lawsuit. In fact, the policies here support a conclusion that the duty to indemnify is separate and independent. The pre-1968 general liability policies grant Keystone coverage for property damage so long as the liability is imposed by law and is caused by accident. 3 The 1969-1985 general liability policy language changed slightly, in that liability under these policies are based on an occurrence rather than on an accident. Under the general liability policies, Wausau pledged to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence. The policy further states that Wausau shall have the right and duty to defend any suit against the insured seeking damages on account of bodily injury or property damage and may make such investigation and settlement of any claim or suit but Wausau shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements (emphasis added). 22 To unpack that language a bit, although the general liability policies base Wausau's obligation to defend not illogically on the filing of a suit, the indemnity terms require Wausau to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages. 4 In addition, the indemnity terms also state that Wausau shall not be obligated to pay any claim or judgment once the policy limits are exhausted. The disjunctive reference to claims or judgments is significant; it lends some support to reasoning that a lawsuit is not necessary to trigger the duty to indemnify. If it were, the policies likely would not make a disjunctive reference to claims. 23 Keystone's excess umbrella policies likewise indicate that Wausau's duty to indemnify is separate from and independent of the duty to defend. The 1969-71 excess umbrella policies require Wausau to pay on Keystone's behalf all sums which Keystone becomes obligated to pay by reason of liability imposed . . . by law. The policies define sums as the insured loss. The policies also expressly provide that defense costs for either claims or suits are covered, with expenses to be included within the definition of loss. 5 24 The 1972-79 excess umbrella policies require Wausau to pay all sums in excess of the retained limit which the insured shall become legally obligated to pay . . . as damages because of . . . property damage. Additionally, the policies require Wausau to pay Keystone's defense costs once the primary coverage is exhausted for claims or suits. 6 Both the 1969-71 and the 1972-79 excess umbrella policies refer to claims or suits. Once again, the disjunctive or is significant. Its inclusion suggests that claims are to be distinguished from suits. This language suggests that, under the excess umbrella policies, Wausau's duty to defend, like its duty to indemnify, may be triggered by something less than a lawsuit. 25 The excess umbrella policies here are fundamentally different from policies imposing a duty to defend only in the event of lawsuits. If Wausau is correct that its duty to defend requires a formal suit, then the reference to claims would be mere surplusage, which is problematic. It is well settled that reviewing courts will give meaning to each term in an insurance policy. See CILCO, 290 Ill.Dec. 155, 821 N.E.2d at 214. There is a colorable argument, then, that the excess umbrella policies impose upon Wausau a duty to defend not only in the event of lawsuits but also in the event of claims not taking the form of suits. If, under the excess umbrella policies, a lawsuit is not necessary to trigger Wausau's duty to defend, then—even under a narrow reading of the duty to indemnify—a lawsuit certainly would not be required to trigger the duty to indemnify. 26 But although the potential construction of Wausau's duty to defend under the excess umbrella policies provides interpretative support for the conclusion that a lawsuit is also not required to trigger its duty to indemnify, the duty to defend is not directly before us. The claims in this case center on Wausau's duty to indemnify. Because a duty to indemnify separate from and independent of a duty to defend is cognizable under Illinois law and because both Keystone's general liability and excess umbrella policies suggest that Wausau's duty to indemnify is in fact based on different conditions from its duty to defend, the district court erred in granting summary judgment to Wausau on the grounds that a lawsuit was necessary to trigger the duty to indemnify. 27 Yet that does not end our inquiry. Although the duty to indemnify and the duty to defend are separate and independent in Keystone's policies, those policies require that Keystone be legally obligated to pay damages before Wausau's duty to indemnify attaches. Understanding CILCO is therefore critical to understanding the indemnification terms of the Keystone policies. The CILCO policies, like those at issue here, also hinged indemnification on the insured's legal obligation to pay damages. But CILCO specifically held that a statutory obligation standing alone was insufficient to trigger the duty to indemnify. Id. at 224-25. In so holding, the Illinois Supreme Court concluded that [a]t a minimum, the insured must be acting in response to a claim. Id. at 225. That claim, however, need not necessarily be in the form of a demand letter, particularly when the legal obligation being asserted is based on a strict liability statute. Id. Thus, although a lawsuit is not always required to trigger an insurer's duty to indemnify, here (as in CILCO ) the policies require that some claim or articulated demand assert a legal obligation on the part of Keystone to remediate the environmental contamination. 28 The key question with regard to each of the four sites, then, is whether Keystone undertook its cleanup measures gratuitously or in response to a demand or coercive or intimidating suggestion by an enforcement agency. See id. at 225 (concluding that CILCO was operating under a legal obligation when it agreed to participate in a voluntary cleanup program because the IEPA suggested that it could do the necessary cleanup the easy way or the hard way). No lawsuit was filed in connection with the Impex Site, the Chicago Steel & Wire Site or the Ninth Avenue Site. Keystone admits that it discovered contamination at the Impex Site and the Chicago Steel & Wire Site on its own initiative. Keystone also admits that it enrolled these sites in voluntary remediation programs. But the district court did not consider whether coercive suggestions caused Keystone to undertake this remedial action. Although CILCO precludes the argument that mere statutory liability is sufficient to trigger an insured's legal obligation to remediate, this requirement does not eliminate the circumstance of demands or coercive suggestions made by enforcement agencies. 29 Likewise, although there was no formal lawsuit against Keystone relating to the Ninth Avenue Site, the record indicates that Keystone undertook remedial action there only after the U.S. EPA ordered it to investigate and remediate. Since CILCO contemplates the possibility that such pressure may be sufficient to constitute a claim and to impose a sufficiently focused legal obligation on Keystone, the lack of a formal lawsuit does not seem to preclude indemnification under the policies. Id. at 225-26. 30 Finally, Keystone contends that it undertook remedial action at the Peoria Site only in response to pressure from the IEPA, including the 1993 complaint alleging that Keystone failed to meet its obligations under the 1988 consent decree. The district court concluded that the 1993 complaint did not trigger Wausau's duty to defend (and therefore its duty to indemnify) because the complaint alleged only procedural violations on the part of Keystone. But this analysis does not consider whether Keystone acted voluntarily or in response to coercive invocation of its obligation to remediate. In addition, the district court's statement is incorrect insofar as its rests on the belief that a lawsuit is necessary under Illinois law to trigger an insurer's duty to indemnify. 31 Thus, because the district court erroneously concluded that Wausau's duty to indemnify depended on its duty to defend, it never reached the key issue whether Keystone undertook its remedial action voluntarily. The court's incorrect interpretation of Illinois law is enough to justify reversal.