Illinois Supreme Court Adopts Multiple Occurrence Outcome In Environmental Coverage Action Involving Multiple Mercury Spills

In NICOR, Inc. v. Associated Electric & Gas Ins. Services, Ltd.,  2006 WL 3491670 (Ill.),  a case of first impression under Illinois law, the Illinois Supreme Court addressed the number of occurrences issued in the context of a claim for coverage of environmental liabilities, holding that multiple mercury spill contamination claims against NICOR each constituted a separate occurrence under the excess policies at issue.

At issue in NICOR were 195 separate contamination claims arising from mercury spills which took place when NICOR employees or contractors were removing old mercury-containing gas regulators from customers' homes.  The policies at issue were excess/umbrella (“excess”) policies which defined "occurrence" to mean an "accident, including continuous or repeated exposure to conditions."  These policies also contained a deemer clause which provided that all personal injury or property damage "arising out of continuous or repeated exposure to substantially the same general conditions . . . shall be considered one occurrence."  Coverage under the excess policies each attached in excess of an underlying self-insured retention (“SIR”) of at least $100,000. 

The excess insurer asserted that each of the spills in question constituted a separate occurrence, and that because NICOR’s liability for any one spill did not exceed the underlying self-insured retention, it had no coverage obligation to NICOR with respect to NICOR’s mercury contamination liabilities.  By contrast, NICOR asserted that the multiple spills collectively constituted a single occurrence under the policies, because the spills all resulted from the same general conditions--a system wide removal by NICOR of mercury containing regulators from residential structures.  The trial court agreed with NICOR, and after allocating NICOR’s liabilities on a pro-rata basis, entered judgment against the excess insurer in the amount of $10,800,000.  The Illinois Appellate Court, First District, reversed the trial court’s judgment, holding that each of the mercury spills in question constituted a separate occurrence.

The Illinois Supreme Court affirmed the appellate court’s ruling.  In reaching its decision, the Illinois Supreme Court applied the "cause" test, under which the number of occurrences is determined by evaluating the number of causes of the underlying liability.  The NICOR court determined that the spills had no common cause, reasoning that mercury escaped from the regulators under a variety of circumstances, that there was no temporal or geographical pattern to the spills, and that there was no one technician or single group of technicians implicated in the spills.  The NICOR court further reasoned that the spills could not be interpreted as stemming from a single accident, finding that the spills were sporadic and not part of an uninterrupted process.  More specifically, mercury spills occurred in only a small fraction of the homes in which regulators were removed.  The NICOR court also found that the spills did not arise from any inherent defect in the regulators or in the manner in which they were installed, and that the injuries also did not derive from any corporate-wide policy or procedure regarding the method for removing the regulators.

The Illinois Supreme Court also rejected NICOR's public policy argument that a multiple occurrence outcome would unfairly deprive it of the benefit of its bargain.  The Court reasoned that the occurrence definition and incorporated deemer clause were neutral in operation, and that there were instances where a multiple occurrence outcome could benefit the policyholder (i.e, in situations where there was a collectively large loss and modest policy limits).  In reaching its ruling, the Illinois Supreme Court stated that the underlying appellate court's "reasoning was sound."  The appellate court had relied heavily on Mason v. Home Ins. Co., 177 Ill. App. 3d 454 (Ill. Ct. App. 1988), which held in a food poisoning case that each separate injury was a separate occurrence because each asserted loss was the result of a separate and intervening act or each act increased the insured's exposure to liability.

The NICOR court did distinguish the mercury spills at issue from situations where the insured's liability arose from the placement of an allegedly defective product into the stream of commerce.  Focusing in particular on United States Gypsum Co. v. Admiral Ins. Co., 268 Ill. App. 3d 598 (1994), the NICOR court reasoned that there was a critical distinction between the predicate for liability in U.S. Gypsum and the mercury contamination injuries in NICOR or the food poisoning injuries in Mason.  The liability at issue in NICOR and Mason derived from sale or other acts relating to the end user or customer.  By contrast, the policyholder in U.S. Gypsum manufactured and distributed the asbestos containing building materials, but did not sell them to the end users or install them in the end user's structures.  The NICOR court further noted, in dicta, that the appellate court’s analysis in U.S. Gypsum suggested that if liability had been predicated on installation of asbestos that each installation would have been a separate occurrence.  The NICOR court declined to adopt an alternative number of occurrences approach advocated in certain amicus briefs, under which the immediate event giving rise to the injury would be deemed the cause of the occurrence.

NICOR is the first time the Illinois Supreme Court has directly addressed the number of occurrences issue in any context.  Although the NICOR ruling was issued in the context of underlying environmental claims, it also provides insurers, policyholders and their counsel with a road map for evaluating number of occurrences issues in non-environmental contexts as well, including especially product liability claims.  The Illinois Supreme Court identified the following factors as relevant considerations in evaluating a number of occurrences issue or dispute:

NICOR's application of these factors suggests that most environmental coverage disputes involving more than one site, spill or incident will be treated by Illinois courts as involving multiple occurrences.  Indeed, the NICOR rationale indicates that even in a single site coverage claim, the insured's liability could potentially be deemed to constitute multiple occurrences, particularly where the historical contamination arose from different and multiple sources and/or manufacturing operations.  Of course, each environmental claim situation should be independently examined in the context of the above-listed factors, as there will still be some situations where the NICOR factors could support a single occurrence outcome even where multiple spills or contamination incidents are involved.

Conversely, the NICOR court’s efforts in distinguishing the underlying causes of environmental contamination from the underlying causes of injuries from a defective product suggest that multiple claims from an allegedly defective product will likely be deemed to have arisen from a single occurrence.  However, NICOR’s rationale should not be  interpreted as supporting a single occurrence outcome in every product liability coverage context.  Application of the NICOR factors could potentially support a multiple occurrence outcome in certain product liability coverage disputes, such as those involving multiple products manufactured by different corporate divisions, or in situations where the nature of the defect changed as the product manufacturing process was modified over time.  As with environmental claims, each product liability situation should be independently examined in the context of the NICOR factors before a number of occurrences determination is made.