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Insurers Owe No Duty To Indemnify Costs of Voluntary Environmental Investigation and Cleanup

01 Jan 2003

In Northern Illinois Gas Co. v. Home Insurance Co., 334 Ill.App.3d 38, 777 N.E.2d 417, 267 Ill.Dec. 614 (1st Dist. 2002), the Court held that insurers owe no duty to indemnify Nicor for costs of investigating and cleanup of certain environmental contamination because the costs were incurred voluntarily. The Court reasoned that Nicor was not legally obligated to pay within the meaning of the insurance policies. The Court distinguished a variety of insurance coverage cases that found coverage, even though there also had been no formal action in those cases, because the cases essentially involved cleanup conducted at the direction of the environmental authorities where formal action was imminent, if no clean up occurred. Rejecting the argument that a finding of no coverage would discourage environmental cleanup, the Court stated that the public policy goals of fostering environmental cleanup should not be a basis for shifting the costs of cleanup from policyholders to insurers. Even more troubling for policyholders, the Court stated that, on the public policy issue, it agreed with the reasoning of an extreme decision by the Supreme Court of California, which held that an insurers™ duty to indemnify under a standard comprehensive general liability policy is limited to money ordered by a court. The Nicor court, however, stopped short of adopting the California decision because it concluded that the instant case involved remediation efforts that were purely voluntary.