Insurer May Indemnify, But Not Defend, Hazmat Case

North River Insurance Co. has no duty to defend a policyholder against a federal hazardous waste cleanup order but still may have to reimburse the policyholder for damages in connection with a Connecticut warehouse fire, a federal district court ruled Nov. 22 ( Richards Bldg. Supply I, LLC v. North River Ins. Co. , 2017 BL 419580, N.D. Ill., No. 16-cv-9053, 11/22/17 ).

The U.S. District Court for the Northern District of Illinois granted North River a partial win in its bid to dismiss claims by its policyholder, Richards Building Supply I LLC, that the insurer reneged on its duty to defend and indemnify the company against an Environmental Protection Agency notice of potential environmental liability.

“The Illinois Supreme Court has held that a governmental demand letter like the one at issue here is not a `suit' that triggers an insurer's duty to defend under a standard commercial general liability policy like the one North River issued to Richards,” the court said.

North River has a responsibility under the policy to defend Richards for “suits” that allege bodily injury and property damage, but that duty excludes pollution claims and EPA enforcement letters, the court said.

Even though North River has no duty to defend Richards against the EPA action, however, it still may have a duty to indemnify the company for property damage claims because that duty isn’t tethered to the pollution exclusion or any requirement of a pending suit, the court said.

The policy provides indemnification for damages for which Richards “becomes legally obligated to pay” notwithstanding the EPA demand letter, the court said.

Here, whether North River has a duty to indemnify Richard Building Supply requires more fact finding because “for all the court knows Richards would have liability for the anticipated cleanup even without EPA’s demand—we are talking about future events, so there is no way to say at this point,” the district court said.

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