On various dates between 2008 and 2011, the Illinois Environmental Protection Agency ("IEPA") had inspected Scharf's storage facility, noting evidence of salt spillage into the river, salt pile runoff, and salt stockpiled and uncovered. The IEPA also collected water samples from areas on or surrounding Scharf's property during that same period, with results indicating elevated levels of chloride concentrations or cyanide. The state's 2012 complaint further alleged that Scharf had not obtained the necessary permits for construction and industrial activities between 2008 and 2011.

In March 2018, the Illinois attorney general notified Scharf and Compass Minerals America, Inc., of its intent to amend the 2012 complaint to include Morton Salt, Inc., and Compass Minerals. Morton Salt sent a letter to Scharf on April 23, 2018 demanding defense and indemnification.

On May 21, 2018, Scharf sent Morton Salt's demand letter to Scharf's commercial general liability insurance carrier, Rockhill Insurance Company.

Rockhill then asked the U.S. District Court for the Central District of Illinois to declare that it had no duty to defend or indemnify Scharf for the state's 2012 action, contending that Scharf had not complied with its policies' notice provisions.

For its part, Scharf did not deny that the state had filed its complaint in 2012 and that Scharf had tendered to Rockhill on May 21, 2018. Instead, Scharf claimed that it had provided timely notice to Rockhill by sending Morton Salt's demand letter within 30 days of receiving it. Scharf argued that this was "not a continuation of an ongoing suit against Rockhill" but that it was a "new suit" that was "being threatened against the defendant by Morton Salt because of the impending action of the Attorney General of Illinois."

Rockhill moved for judgment on the pleadings.

The District Court's Decision

The district court granted Rockhill's motion.

In its decision, the district court explained that the notice conditions in the Rockhill insurance policies require that Scharf provide notice to Rockhill "as soon as practicable." Here, the district court observed, Scharf notified Rockhill of the state's complaint some six years after it had been filed and only after Morton Salt had demanded defense and indemnification.

In the district court's opinion, this was "far from what might be considered 'as soon as practicable' or 'within a reasonable time' to provide timely notice to Rockhill."

The district court also pointed out that Scharf had not provided any reason for waiting six years to notify Rockhill of the state's complaint. According to the district court, Scharf was "knowledgeable enough to obtain commercial liability coverage and Scharf had counsel from whom it could have sought advisement on whether that coverage applied or whether Rockhill should be notified." The district court said that although it was not clear whether Scharf had consulted its counsel on applicable insurance coverage, it was clear that Scharf had not provided "even a cursory notice of the pending state action to Rockhill" either when the Rockhill policies were issued or any time before the Morton Salt demand letter in 2018.

The district court acknowledged that even a lengthy delay in providing notice was not an "absolute bar to coverage," provided the insured's reason for the delay was justifiable under the circumstances. Noting that Scharf had not provided any reason for waiting six years to notify Rockhill of the state's complaint, the district court concluded that Scharf had breached the notice conditions in the Rockhill policies and that Rockhill had no duty to defend or indemnify Scharf in the state's action.

The case is Rockhill Ins. Co. v. Carri Scharf Materials Co., No. 18-cv-1380-JES-JEH (C.D. Ill. Dec. 5, 2019). Attorneys involved include: For Rockhill Insurance Company, Plaintiff: Kathleen M Hart, Matthew J Devereux, TRESSLER LLP, Chicago, IL. For Carri Scharf Materials Company, an Illinois corporation, Defendant: Cornelius E McKnight, Nathan P Karlsgodt, MCKNIGHT & KITZINGER LLC, Chicago, IL.