On March 24, 2011, in Scottsdale Indemnity Co. v. Village of Crestwood, No. 1:09-cv-04472, 2011 WL 1113253, the U.S. District Court for the Northern District of Illinois ruled that pollution exclusions bar coverage for claims against a municipality that had supplied contaminated water to its residents. Such claims arise from “traditional environmental pollution,” held the court. That the municipality itself did not contaminate the wells from which it pumped the water did not defeat the pollution exclusions.

The Village of Crestwood, Illinois, is a defendant in more than two dozen underlying lawsuits. The lawsuits allege that from 1986 to 2007, Crestwood supplied residents with contaminated water. From 1998 to 2009, Crestwood had purchased twenty-two, one-year Public Entity Policies from primary and excess insurers Scottsdale and National Casualty Company.

The insurers brought a declaratory judgment action against Crestwood, other insureds, and the claimants, arguing that the policies’ pollution exclusions precluded them from having a duty to defend or indemnify Crestwood and other insureds. The court agreed.

Under Illinois precedent, pollution exclusions bar coverage for claims involving “traditional environmental pollution.” The court concluded that “the instant case falls cleanly within the definition” of “traditional environmental pollution.” “Put simply, contamination of a water supply, the common genesis of all the underlying complaints, is commonly understood as environmental pollution.”

Moreover, the court concluded that the pollution exclusions bar coverage regardless of who the original polluter was: “Without the Village’s actions, the pollution would have stayed only in the well and presumably not hurt anyone. . . . [I]t makes little sense to limit the pollution exclusion—long tail, widespread environmental liability—to only those instances where the insured is the original polluter.”

Meagher & Geer attorneys Bradley Jones, Tony Kriesel, and Anthony Alt represented Scottsdale Indemnity Company and National Casualty Company.

To read the court’s opinion, click here.