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Sunflower Redevelopment, LLC v. Illinois Union Insurance Co.

United States District Court, W.D. Missouri, Western Division

May 2, 2017




         This case arises out of an insurance dispute. After insurer Defendant Illinois Union Insurance Co. (“ILU”) refused to indemnify Plaintiff Sunflower Redevelopment, LLC (“Sunflower”), Sunflower sued for declaratory judgment and breach of contract.

         At the parties' request, the Court agreed to separate the litigation of this case into two phases (Doc. 29). Phase I, which is the basis for the pending motions, pertains to the issue of whether pollution conditions within certain Solid Waste Management Units (“SWMU”) and Areas of Concern (“AOC”) are excluded from coverage under a Premise Pollution Liability (“PPL”) insurance policy. The parties agree the insurance policies at issue are unambiguous (Doc. 51).

         Now before the Court are the parties' cross-motions for partial summary judgment on the Phase I issue (Docs. 55[1] & 57). For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Plaintiff's motion (Doc. 57), and GRANTS IN PART and DENIES IN PART Defendant's motion (Doc. 55).

         Undisputed Material Facts [2]

         At the heart of this dispute is the former Sunflower Army Ammunition Plant (“Plant”), consisting of approximately 9, 035 acres in Johnson County, Kansas. The Army manufactured power and propellant munitions, and nitric and sulfuric acids at the Plant. During its operation, spills and releases of propellant, heavy metals, nitrate compounds, and other pollutants contaminated various parts of the Plant property. Due to these activities, numerous areas of the property were determined to be heavily polluted.

         In 1998, the Army determined it no longer needed the Plant. Sunflower sought to purchase the property with a vision to clean up the pollutants and develop the land.

         Prior to the sale, on July 29, 2005, the Kansas Department of Health and Environment (“KDHE”) issued a Consent Order obligating Sunflower to remediate all pollution conditions at the Plant before Sunflower could develop the property. The Consent Order also required Sunflower to purchase PPL and Remediation Cost Containment (“RCC”) insurance.

         On August 3, 2005, Sunflower entered into an agreement with the Army to purchase the Plant. The conveyance was made subject to the pollution conditions. On the same day, Sunflower entered into a Remediation Services Agreement (“RSA”) with the United States, which obligated Sunflower to purchase environmental insurance, secure the worksite, and perform certain remediation work. In exchange, the Army would pay Sunflower for the outlined remediation work. The Army and Sunflower codified the specific remediation work covered by the RSA into the “Remediation Plan.” The work described in the Remediation Plan is organized by SWMUs and AOCs, which represent defined geographical areas of the Plant property.

         ILU issued Sunflower PPL insurance providing coverage for unknown, and certain known, pre-existing pollution conditions at the Plant. Relevant to this dispute, Endorsement 001 of the PPL policy excludes coverage for “‘remediation costs' . . . with respect to those ‘pollution conditions' . . . related to the implementation and management of the ‘remediation plan' identified within [the] Remediation Plan Schedule endorsement of the [RCC policy].” PPL policy at 15 (Doc. 58-5).

         ILU also issued Sunflower an RCC policy, which “affords coverage for costs in excess of a remediation plan incurred during the policy period.” RCC policy at 2 (Doc. 58-6). Under the RCC policy, Sunflower is entitled to “‘excess remediation costs' [that] arise out of ‘Pollution Conditions' identified in the ‘remediation plan' or are first discovered during the implementation of the ‘remediation plan.'” RCC policy at 5.

         On December 19, 2008, during the period of coverage, KDHE ordered Sunflower to investigate and remediate contaminated soils at the Plant (Doc. 58-7). These pollution conditions exist both inside and outside of existing SWMUs and AOCs. Also, these pollution conditions are not specifically listed in the RSA or the Remediation Plan. KDHE told Sunflower it was liable for remediation costs associated with these pollution conditions at the Plant.

         On February 13, 2009, Sunflower submitted a claim to ILU under the RCC policy, but ILU did not immediately cover the claim. Instead, on April 9, 2009, ILU pointed Sunflower to the RCC policy terms that require Sunflower to submit a revised remediation plan to ILU for approval before Sunflower could file a claim under the RCC policy. See RCC policy at 10. Sunflower interpreted this response as a coverage denial and then submitted a claim under the PPL policy. On May 21, 2010, ILU denied coverage under the PPL policy because “the work involved [is] related to the SWMUs or AOCs included within the scope of the RCC Policy.” (Doc. 58 ¶ 53).

         The specific pollution conditions at issue here are those referenced in the December letter from KDHE that are within the existing SWMUs and AOCs and that are not excluded from coverage by the enumerated list of SWMUs and AOCs in Endorsement 018 of the PPL policy (“New Pollution Conditions”). The parties do not dispute the New Pollution Conditions fall within the scope of the insuring agreement of the PPL policy, in that they are pollution conditions at the Plant as defined in the policy. The only issue in Phase I of this litigation is to determine whether a policy endorsement excludes the New Pollution Conditions from coverage. For the reasons outlined below, the Court finds an exclusion to coverage does not apply.

         Summary ...

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