Ill. Union Ins. Co. v. Medline Indus., Inc.

2022 IL App (2d) 210175

220 N.E.3d 380

468 Ill.Dec. 72

ILLINOIS UNION INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee,

v.MEDLINE INDUSTRIES, INC. ; Kathleen Koch ; Chandra Sefton; Patty Bennett; Dawn Rex, on Behalf of Her Minor Son, Samuel Dolcimascolo; and Dennis Brebner, Defendants

(Medline Industries, Inc., Defendant and Counterplaintiff-Appellant).

No. 2-21-0175

Appellate Court of Illinois, Second District.

Filed March 4, 2022

Rehearing Denied April 18, 2022

John S. Vishneski III, Stanley C. Nardoni, and Adrienne N. Kitchen, of Reed Smith LLP, of Chicago, Lowndes Christopher Quinlan, of McGuireWoods LLP, of Charlotte, North Carolina, and Sean A. McClelland, of McGuireWoods LLP, of Washington, D.C., for appellant.

James J. Sanders, Matthew J. Dostal, Alexander W. Ross, and Ryan M. Murnighan, of Clyde & Co. US LLP, of Chicago, for appellee.

OPINION

JUSTICE ZENOFF delivered the judgment of the court, with opinion.

¶ 1 Defendant and counterplaintiff, Medline Industries, Inc. (Medline), appeals an order of the circuit court of Lake County, granting judgment on the pleadings in favor of plaintiff and counterdefendant, Illinois Union Insurance Company (Illinois Union). Medline also appeals the dismissal with prejudice of its second amended counterclaim. We affirm.

¶ 2 I. BACKGROUND

¶ 3 A. Introduction

¶ 4 This is an insurance coverage dispute. In 2019, defendants Kathleen Koch; Chandra Sefton; Patty Bennett; Dawn Rex, on behalf of her minor son, Samuel Dolcimascolo; and Dennis Brebner (collectively, the underlying plaintiffs) sued Medline in Cook County for injuries allegedly caused by emissions of ethylene oxide gas (EtO) from Medline's medical instruments sterilization facility in Waukegan (the Waukegan facility). Medline tendered those lawsuits to its insurer, Illinois Union, for defense. Illinois Union declined to defend or indemnify Medline.

¶ 5 On November 1, 2019, Illinois Union filed in the circuit court of Lake County a complaint for declaratory judgment, which it later amended. Illinois Union contended that it did not owe a duty to either defend or indemnify Medline in the underlying lawsuits. Illinois Union joined the underlying plaintiffs as defendants in the declaratory judgment action solely because they had an interest in whether Medline's insurance coverage was available to them. Illinois Union sought no relief against the underlying plaintiffs. The underlying plaintiffs are not parties to this appeal.

¶ 6 B. The Insurance Policy

¶ 7 At the Waukegan facility, Medline sterilizes medical instruments. In this process, Medline emits EtO, which is a carcinogenic and mutagenic gas. Medline purchased a claims-made premises pollution liability insurance policy (the policy) from Illinois Union. The "retroactive date" of the policy was September 29, 2008, which is also when Medline acquired the Waukegan facility. The "retroactive date" in such a policy specifies the date of the earliest occurrence to be covered, regardless of when the claim is made. Medical Protective Co. v. Kim , 507 F.3d 1076, 1082-83 (7th Cir. 2007). This is in contrast to "full retroactive" coverage, which places no limitations on coverage for past occurrences and would cover occurrences predating Medline's acquisition of the facility. See Kim , 507 F.3d at 1082.

¶ 8 In section IA of the policy, Illinois Union agreed to pay claims arising out of a "pollution condition" on, at, under, or migrating from a "covered location." It is undisputed that the Waukegan facility is a covered location.

¶ 9 The policy defined "pollution condition" as

"[t]he discharge, dispersal, release, escape, migration, or seepage of any solid, liquid, gaseous or thermal irritant, contaminant, or pollutant, including soil, silt, sedimentation, smoke, soot, vapors, fumes, acids, alkalis, chemicals, electromagnetic fields (EMFs), hazardous substances, hazardous materials, waste materials, ‘low-level radioactive waste,’ ‘mixed waste,’ and medical, red bag, infectious or pathological wastes, on, in, into, or upon land and structures thereupon, the atmosphere, surface water, or groundwater."

Section IA further provided that coverage applied only to "pollution conditions" that "first commence, in their entirety, on or after the retroactive date *** and prior to the expiration of the ‘policy period.’ " Section IIIA of the policy provided that Illinois Union had the duty to defend Medline against a claim to which "this insurance applies."

¶ 10 C. The Coverage Dispute

¶ 11 Illinois Union denied coverage on the basis that the underlying complaints alleged that the Waukegan facility (whether owned by Medline or its predecessors) released EtO since 1994. Thus, Illinois Union interprets the underlying complaints as alleging that the emissions first commenced prior to the retroactive date of the policy. Medline, however, interprets the underlying complaints to allege many discrete emissions that occurred both before and after the retroactive date. Medline interprets "pollution condition," as defined in the policy, to mean that each discrete emission is a new "pollution condition." Therefore, Medline reasons, pollution conditions occurring on or after the retroactive date would be covered because they did not commence in their entirety prior thereto.

¶ 12 Medline filed a second amended answer, affirmative defenses, and a second amended counterclaim to Illinois Union's amended complaint for declaratory judgment. Attached to and incorporated into this second amended counterclaim were copies of complaints filed in 19 lawsuits, alleging that numerous plaintiffs sustained injuries as a result of Medline's EtO emissions. These 19 lawsuits included those filed by the underlying plaintiffs. Medline sought a declaration that Illinois Union owed Medline a defense and indemnification for all of these underlying lawsuits.

¶ 13 D. The Underlying Lawsuits

¶ 14 Eighteen of the lawsuits were filed against Medline in 2019 in the circuit court of Cook County. The nineteenth suit, a class action, was filed in 2020 in federal district court. Each of the complaints made similar allegations.

¶ 15 Pertinent to this appeal, the underlying complaints’ common allegations included the following. "Medline and its predecessors have used, and Medline continues to use, EtO in industrial medical device sterilization since approximately 1994 ***." "Medline's predecessors consistently released over 4000 pounds of EtO between 1996 and 2001, including approximately 17,000 pounds between 1999 and 2001." "While some EtO emissions are from controlled sources, the majority of these emission estimates are ‘fugitive emissions’ that have been escaping, and continue to escape, the facility." "[I]ndividuals [living within a radius of Medline's Waukegan facility] have been inhaling EtO on a routine and continuous basis for decades." "While *** Medline [has] been knowingly and continuously releasing EtO for decades, people living and working in the surrounding community were unaware that [Medline] routinely and continuously exposed them to a dangerous, toxic, carcinogenic, and mutagenic gas." "Now [persons living near the Waukegan facility] are suffering from a variety of cancers, miscarriages, birth defects, and other life-altering health effects from continuous exposure to [EtO]." "Local residents and workers in the area have unknowingly been exposed to carcinogenic ethylene oxide for decades ***." "[A]ccording to self-reported emissions data submitted to the Illinois [Environmental Protection Agency], Medline continued to release large amounts of EtO into the surrounding community for years ***."

¶ 16 The underlying complaints described Medline's sterilization process as follows.

"The EtO sterilization process begins by placing medical equipment in a gas chamber. After air is pumped out of the room, ethylene oxide is introduced and allowed to diffuse into the products for several hours. Once the medical equipment is sterilized, the ethylene oxide is pumped out of the chamber and the remaining EtO is allowed to slowly dissipate."

¶ 17 The above-quoted allegations were contained in introductory, or prefatory, paragraphs of the underlying complaints, preceding counts alleging negligence, willful and wanton conduct, public nuisance, and strict liability. The specific acts or omissions allegedly committed by Medline were: (1) emitting dangerous volumes of EtO into the air from the Waukegan facility, (2) disregarding safe methods to adequately control EtO emissions, (3) failing to warn or advise those who live or work in the community that they were being exposed to EtO, (4) failing to adequately record test results of high levels of EtO, (5) ignoring test results of high levels of EtO, (6) underreporting EtO levels, and (7) subjecting those who live or work near the Waukegan facility to increased cancer risks. The underlying complaints did not allege specific dates or times when the EtO emissions occurred.

¶ 18 E. Illinois Union's Motion for Judgment on the Pleadings

¶ 19 On February 20, 2020, Illinois Union filed a motion for judgment on the pleadings. For coverage to exist, Illinois Union argued, the alleged emissions of EtO " ‘must first commence, in their entirety, on or after the retroactive date’ " of September 29, 2008. Illinois Union contended that, because the underlying complaints alleged that the Waukegan facility had released EtO since 1994, there was no potential for coverage.

¶ 20 On July 8, 2020, the court denied the motion on the ground that there was a genuine issue of fact as to whether the pollution condition existed before the retroactive date. Illinois Union then filed a motion to reconsider, arguing that whether a duty to defend the underlying lawsuits was triggered must be determined solely by comparing the allegations of the underlying complaints with the policy language. On September 30, 2020, the court granted the motion to reconsider, vacated the July 8 order, and granted Illinois Union's motion for judgment on the...