Illinois Appellate Court Provides Divergent Views on Enforceability of Pollution Exclusions
Two recent decisions from the Appellate Court of Illinois reached divergent results when analyzing the enforceability of pollution exclusions. This advisory describes how the two cases present drastically different approaches and raise significant questions regarding how Illinois courts will address this issue in the future.
In Pekin Insurance Co. v. Pharmasyn, Inc., decided on October 19, 2011, the Second District of the Appellate Court of Illinois enforced a pollution exclusion because it found that the pollutant that caused the “injury to others at or from the premises was the type of accident specifically excluded by the insurance policy.” Conversely, a month earlier in Erie Insurance Exchange v. Imperial Marble Corp., the Third District of that same court held that a policy’s pollution exclusion was “arguably ambiguous” and found a duty to defend.
In Pekin Insurance, Pharmasyn, Inc. appealed an order granting Pekin Insurance Company’s motion for summary judgment based upon a finding that the pollution exclusion in the Pekin policy applied and that Pekin had no duty to defend. Pharmasyn argued that the underlying complaint did not allege “traditional environmental pollution” and that the pollution exclusion should not bar its claims.
The underling plaintiffs claimed they were injured when Pharmasyn negligently allowed “dangerous and toxic substances, including but not limited to, isocyanate chemicals to be released from open containers at the property, creating toxic fumes and seepage of hazardous material into the common areas, the environment, and into the premises occupied by the Plaintiffs.” Although Pharmasyn and Pekin focused the majority of their argument on the applicability of the pollution exclusion under the Koloms “traditional environmental pollution” test, the court found this factor to be a “red herring.”
The court enforced the pollution exclusion and stated that “[u]nlike the cases discussed, this case presents a factual scenario that is not controlled by the question of whether this dispersion of fumes constituted ‘traditional environmental pollution;’ rather, the question in this case is whether the dispersion of pollutant fumes that caused injury to others at or from the premises was the type of accident specifically excluded by the insurance policy purchased by Pharmasyn.”
In Erie Insurance, the Imperial Marble Corporation appealed a trial court’s finding that the pollution exclusion in the Erie Insurance Exchange policy precluded coverage for the odorous emissions dispersed into the atmosphere as a part of the Imperial manufacturing process. Imperial argued that its emissions did not fall within the policy’s pollution exclusion because the emissions were not pollution due to the fact that they were allowed under a permit issued by the Illinois Environmental Protection Agency pursuant to statutory authority established at 415 ILCS5/39.5(3), (9) (2006).
Imperial further argued that the pollution exclusion was inapplicable because the underlying complaint alleged, in part, injury resulting from its normal business operations conducted in accordance with its permit. Erie countered by arguing that the Imperial emissions constituted “traditional environmental pollution” and that coverage was precluded under the terms of the policy’s pollution exclusion.
The Appellate Court cited American States Insurance Co. v. Koloms, 177, Ill. 2d 473, 489 (1997) and, unlike the Pekin Insurance court, determined that the central question was whether the allegations presented in the underlying complaint involved “traditional environmental pollution” so as to implicate the terms of the exclusion. The Appellate Court noted that the underlying complaint alleged that the plaintiffs’ persons and properties were “physically invaded by noxious odors, volatile organic materials and hazardous air pollutants including but not limited to STYRENE and Methyl Methacrylate , air contaminant and other hazardous materials.”
The Appellate Court then compared these allegations to the types of contamination excluded from coverage by the Erie policy’s pollution exclusion, holding that the exclusion was arguably ambiguous as to whether the Imperial emissions constituted “traditional environmental pollution.” However, the court did not reach an ultimate decision on the subject because the issue was raised in the context of a dispute over Erie’s duty to defend. Instead, the Appellate Court simply held that the ambiguity favored Imperial and Erie had a duty to defend.
These two cases present drastically different approaches to the enforceability of a pollution exclusion under Illinois law. This variance in judicial analysis raises significant questions about how courts will review pollution exclusions going forward.