Liberty Mutual Insurance Co. units must defend and indemnify an Illinois city accused of allowing its water system to deteriorate and harm residents because its coverage pollution exemption does not apply, an Illinois state appeals court ruled Thursday, overturning a lower court ruling.
Jennifer Campbell and Jeremy Pennington, residents of the town of Sycamore, Illinois, filed a putative class action lawsuit against the town, alleging that its failure to maintain its centuries-old water mains had harmed its residents by providing them with unsafe drinking water and damaging the equipment that used water in their home, according to the ruling from the Illinois State Court of Appeals in Elgin in LM Insurance Corp. and Liberty Insurance Corp. v. City of Sycamore and Jennifer Campbell and Jeremy Pennington.
Liberty Mutual entities issued two commercial general liability policies and two umbrella policies to Sycamore for the period December 1, 2018 through December 1, 2020, which provided bodily injury coverage for property protection and defense, but excluded pollution.
Mrs. Campbell and Mr. Pennington filed a putative class action lawsuit in October 2020 alleging damage caused by the city’s “negligent” deferred maintenance to avoid replacing its century-old water mains.
Liberty Mutual denied coverage on the basis that its policy’s pollution exclusion applied, and filed suit in state court seeking a declaration that it was not obligated to defend or indemnify the city.
The trial court found in favor of the insurers and was overruled by a three-judge court panel.
Based on legal authority, “we believe the dispositive issue is whether the iron, lead and bacteria that Sycamore allegedly distributed to its residents constituted “traditional environmental pollution” or “pollution harm as traditionally understood,” the ruling said.
The panel concluded that it did not. Unlike “traditional”’ environmental pollution cases, “there was no discharge, discharge or release of a contaminant into the ground that caused the groundwater to become contaminated.
“Rather, the complaint alleged that the water did not become contaminated until it was already in Sycamore’s water lines,” the ruling said.
“Although the complaint clearly alleged that the plaintiffs had been harmed by pollution, this is not equivalent to alleging that they were harmed by ‘traditional environmental pollution,'” the lower court reversed and remanded the case for further proceedings.
Attorneys in the case did not respond to requests for comment.