No occurrence equals no coverage, Ill. court rules
The court debated whether an underlying suit based on environmental harms committed by a commercial property owner could be considered an "occurrence" that triggered the duties of defense and indemnity.
An Illinois appellate court has affirmed a lower court ruling that there was no “occurrence” that would trigger the duty to defend or to indemnify under multiple CGL policies issued to a commercial property owner. The case is Continental Cas. Co. v. 401 N. Wabash Venture, LLC, 2023 Ill. App. LEXIS 313 (Ill. App. 2023).
The Underlying Suit
A property owned by 401 North Wabash Venture, LLC, also known as the Trump International Hotel and Tower, is situated next to the Chicago River. The HVAC system for the building withdrew nearly 20 million gallons of water from the river on a daily basis to use for air conditioning, and put the same amount back in the river as a heated effluent, a contaminant that required users to obtain a special permit to dump heated effluent into the river. 401 North Wabash had obtained the appropriate permit and renewed it on multiple occasions prior to litigation. A renewal application had been filed in May 2017, but the permit had not been issued before the August 2017 expiration date. Despite the permit’s expiration, 401 North Wabash continued putting the heated effluent back into the Chicago River after August 2017. In 2018, the State of Illinois sued 401 North Wabash for violations of the Illinois Environmental Protection Act and noncompliance with environmental regulations. The state’s motion for judgment on the pleadings was granted in January 2021.
Insurers Weigh In
Continental Casualty Company, one of the insurers for 401 North Wabash, filed an action for declaratory judgment in June 2021, seeking a declaration that it owed neither the duty to defend nor the duty to indemnify 401 North Wabash in the underlying suit; similar motions were also filed by three other insurers who had issued policies to 401 North Wabash. In May 2022, all of the insurers filed separate motions for judgment on the pleadings in their declaratory judgment suits, alleging there was no occurrence under any of the policies, that the underlying complaint was not seeking recovery for property damage, and that, even assuming there was coverage, it would be precluded by the pollution exclusion present in each policy.
In turn, 401 North Wabash filed a cross-motion for judgment on the pleadings, claiming that the insurers had too narrow a focus. Parts of the underlying complaint had alleged injuries to aquatic wildlife in the river during the intake process of the water, in addition to seeking an award of “other damages” from the court. Therefore, the damages should be covered because the injury to wildlife was not intentional, it was considered “property damage” under the policies, and water intake was not a pollutant.
The lower court granted the insurers’ motions for judgment on the pleadings because it found there had been no “occurrence” under any of the policies, and that the pollution exclusion would preclude coverage even if coverage did apply. 401 North Wabash appealed.
What the Appellate Court Said
According to the appellate judges, the conduct leading to the underlying suit was 401 North Wabash’s failure to comply with the Illinois EPA, not the impact of the intake on local wildlife. Compliance with the Illinois EPA included a requirement for a study of cooling operations on fish, so 401 North Wabash would have been required to conduct a study of the wildlife had they complied with the Illinois EPA.
Even then, if fish and wildlife had been the focus of the underlying suit, there was still no occurrence, because the natural and ordinary consequences of an action are not considered accidents. Since 401 North Wabash had applied for and received dumping permits for the heated effluent, it would have been aware of the environmental consequences. Furthermore, those issues would be present in any cooling system, not just the system on 401 North Wabash’s property.
As the appellate court agreed with the lower court that the allegations of the underlying complaint were not an occurrence under any of the policies, there was no need to discuss the arguments made on the remaining points. Judgment in favor of the insurers was affirmed.
Editor’s Note: In many insurance policies, an occurrence has to be an accident, because insurance is not intended to cover intentional acts or the natural consequences of action or inaction. In this case, the judges found that, even if 401 North Wabash had been correct in stating the underlying suit was focused on wildlife and not regulatory noncompliance, the environmental effects leading to the underlying suit could not be considered accidental. 401 North Wabash had applied for and received a dumping permit in 2012, and that permit had been successfully renewed at least once before the state filed suit, so 401 North Wabash would have been aware of the consequences of dumping heated effluent into the river. The action of dumping heated effluent into the river was an intentional act, and therefore not an accident or an “occurrence” by policy definition.