The Illinois Appellate Court recently held that the term aEURoesuitaEUR? in a commercial general liability policy does not include a pre-suit mediation between the insured and others over the allocation of costs incurred to remediate environmental contamination. As a result, the court ruled that the insurers had no obligation to reimburse the insured for its legal fees incurred in the mediation.
The insured operated a manufacturing facility on a property that was eventually declared a Superfund site by the U.S. EPA. To avoid litigation over the costs associated with remediating one portion of the site, the insured agreed to participate in private mediation. Subsequently, the U.S. filed a lawsuit against other parties that were allegedly responsible for different types of environmental contamination on a different section of the Superfund site. Those parties, in turn, filed a third-party complaint against the insured.
The insured sought coverage under its CGL policies for both the mediation and the lawsuit. While the insurers agreed to defend the insured for the lawsuit, they refused to reimburse the insured for its defense costs incurred for the mediation, principally on the ground that the mediation did not qualify as a aEURoesuitaEUR? for which the CGL policies provide a defense. The insured filed a declaratory judgment action against the insurers, in which it alleged that a defense was owed for the mediation, since the mediation was a continuation of the lawsuit. The trial court granted summary judgment to the insurers on this issue, and the appellate court affirmed.
In affirming the trial courtaEUR(TM)s decision, the Illinois Appellate Court first noted that it is settled that the term aEURoesuitaEUR? in the insuring agreement of a liability policy requires commencement of some action in a court of law. The court further observed that the policies at issue explicitly distinguished between the terms aEURoesuitaEUR? and aEURoeclaim.aEUR? Since the court found that the policies only provide a defense for aEURoesuits,aEUR? and since the mediation did not qualify as a aEURoesuitaEUR? under the policies, the court ruled that the mediation proceedings did not fall within the scope of the policiesaEUR(TM) insuring agreement.
The court of appeals also acknowledged that, while an administrative action is not a aEURoesuitaEUR? for liability insurance purposes, a duty to defend can still extend to the action if it arises out of the same occurrence, giving rise to an earlier aEURoesuitaEUR? to which the CGL policy applies. The court, however, rejected the insuredaEUR(TM)s argument that the mediation was a continuation of the separate lawsuit, since the lawsuit strictly alleged liability for cleanup of a different portion of the site.
court of appeals decision is significant because it leaves open the possibility
that an insurer may be required to defend a proceeding that does not meet the
policy definition of aEURoesuit,aEUR? if the proceeding is sufficiently related to a
aEURoesuitaEUR? to which the policy applies.
 Illinois Tool Works, Inc. v. Ace Specialty Ins. Co., 2019 IL App (1st) 181945, *1 (Ill. Ct. App. Aug. 23, 2019)