Illinois Court Holds Pollution Claim Not A Covered Wrongful Entry Offense

In its recent decision in John Sexton Sand & Gravel Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2015 U.S. Dist. LEXIS 166699 (N.D. Ill. Dec. 11, 2015), the United States District Court for the Northern District of Illinois had occasion to consider whether claims for trespass based on odors and gas emanating from a landfill constitutes the personal injury offense of “wrongful entry” for the purpose of triggering coverage under a commercial general liability policy.

National Union insured John Sexton Sand & Gravel, which was named as a defendant in a cost recovery action brought under CERCLA.  The plaintiff in that action – Allied Waste – was the operator of a landfill in Illinois.  While Allied Waste’s lawsuit sought recovery of remediation costs, its complaint nevertheless described underlying three suits brought by nearby residents or businesses against Allied Waste, all of whom alleged that emissions from the landfill constituted a trespass or nuisance.  Notwithstanding these allegations, Allied Waste’s suit against Sexton was limited to two counts: one seeking recovery for response costs under 42 U.S.C. § 9607 of CERCLA and one for Sexton’s alleged breach of an agreement to share in Allied Waste’s response costs.

Sexton agreed that the pollution exclusion in the policies issued by National Union precluded coverage under the policies’ Coverage A part, applicable to bodily injury and property damage.  Sexton maintained, however, that a duty to defend was triggered under the policies’ Coverage B pat, as the underlying suits described in Allied Waste’s complaint, involving the emission of gas and odors into the homes and businesses of the nearby residents, qualified as the personal injury offense of wrongful entry for the purposes of the policies’ Coverage B part.  National Union argued in response that in order to trigger coverage under the policies’ coverage B part, the underlying complaint needed to seek recovery of damages for a “wrongful entry-type offense,” such as trespass or nuisance, but that the underlying complaint did not do so.

In considering coverage for the cause of action for recovery of response costs pursuant to CERCLA, the court acknowledged that Allied Waste’s lawsuit made reference to three underlying trespass lawsuits.  The court nevertheless observed that for coverage to lie, there must be a “nexus” between the trespass and the legal basis for the plaintiff’s entitlement to relief.  The court concluded that no such nexus existed, even if the underlying trespass claims could be considered as “wrongful entry” offenses, because Allied Waste’s lawsuit against Sexton did “not make clear which prior litigation, if any, is related to the response costs it is demanding from Sexton.”  As such, and because “a nexus between the invasion of a private property right and the response costs cannot be inferred from the underlying complaint,” the court agreed that National Union had no duty to defend the cause of action pled for recovery of response costs.

Turning to Allied Waste’s cause of action for breach of contract, the court found that Sexton did, in fact, satisfy its burden of demonstrating the requisite nexus between the trespass and the relief sought, since Allied Waste’s complaint alleged that Sexton had entered into an agreement with Allied Waste, which among other things required Sexton to fund the defense of one of the underlying suits.  The court nevertheless concluded that an exclusion in the policies’ Coverage B part applicable to liability assumed in a contract barred coverage for a breach of contract claim.  Accordingly, the court agreed that National Union had no duty to defend this particular cause of action either.