## Facts

- Northern Illinois Gas Company (Nicor) sought insurance coverage for environmental investigation and remediation costs at six former manufactured gas plant sites in Illinois.
- The plants operated from the mid-1800s into the early 1900s; tar and other byproducts were stored in underground structures, with later migration into soil and groundwater.
- Nicor cooperated with the Illinois Environmental Protection Agency (IEPA) under a “prenotice” program in which IEPA coordinated cleanup without issuing a formal notice, filing an enforcement action, or entering a settlement or consent decree.
- Nicor incurred substantial cleanup expenses without a lawsuit, administrative order, or other formal imposition of liability.
- Nicor’s historical liability policies generally promised to indemnify sums the insured became “legally obligated to pay as damages because of property damage,” and some policies addressed liability “assumed by contract or agreement.”
- Insurers denied coverage and obtained summary judgment, arguing Nicor’s expenses were voluntary and the contamination did not result from covered “occurrences.”

## Issues

1. Whether cleanup expenses incurred through a voluntary prenotice remediation program, without a lawsuit, administrative order, or binding settlement, made Nicor “legally obligated to pay as damages” (or obligated by a qualifying “contract or agreement”) under the liability policies.
2. Whether the historical contamination at the manufactured gas plant sites constituted covered “occurrences” under the policies.

## Decision

- The appellate court affirmed summary judgment for the insurers.
- The court held Nicor’s prenotice cleanup expenditures were voluntary and did not satisfy the policies’ “legally obligated to pay as damages” requirement.
- The court rejected Nicor’s argument that its arrangements with IEPA amounted to a policy-qualifying “contract or agreement” by which Nicor assumed covered liability.
- The court further held the record did not establish a covered “occurrence,” because the contamination stemmed from long-term waste handling practices and gradual migration rather than a fortuitous accident.
- With no genuine issue of material fact on these coverage requirements, insurers were entitled to judgment as a matter of law.

## Legal Principles

- Under occurrence-based liability policies, an insured generally is not “legally obligated to pay as damages” absent a formal, coercive imposition of liability such as a judgment, binding settlement, or administrative order.
- Voluntary environmental response costs undertaken to cooperate with regulators or to avert enforcement action are not necessarily covered “damages” under standard liability policy language.
- Informal regulatory cooperation arrangements may not constitute a “contract or agreement” sufficient to trigger coverage for liability “assumed by contract.”
- Gradual environmental contamination resulting from routine, longstanding operational practices may fail to qualify as an accidental, fortuitous “occurrence.”

## Conclusion

The court upheld denial of coverage because Nicor’s prenotice cleanup costs were voluntarily incurred without a formal imposition of liability and the contamination record did not show a covered occurrence under the policies.


Northern Ill. Gas Co. v. Home Ins. Co., 334 Ill. App. 3d 38, 777 N.E.2d 417 (Ill. App. Ct. 1st Dist. 2002)